commercial audit manual office of the … audit manual.pdf · 2017-03-03 · andhra pradesh,...
TRANSCRIPT
COMMERCIAL AUDIT MANUAL
OFFICE OF THE ACCOUNTANT GENERAL (C& RA)
ANDHRA PRADESH, HYDERABAD
(For Official use only)
i
INDEX
Para No. Pg No.
CHAPTER 1
GENERAL
1.1-1.34 1-21
CHAPTER 2 AUDIT PROCEDURES
2.1-2.76 23-112
CHAPTER 3 PROCEDURES FOR
FINALISATION AND
ISSUE
OF COMMENTS UNDER
SECTION 619(4) OF THE
COMPANIES ACT 1956
3.1-3.73 116-212
CHAPTER 4 APGENCO, APTRANSCO,
DISCOMS AND APERC
4.1-4.112 214-306
CHAPTER 5 ANDHRA PRADESH
STATE ROAD
TRANSPORT
CORPORATION
5.1-5.57 307-344
CHAPTER 6 ANDHRA PRADESH
STATE FINANCIAL
CORPORATION
6.1-6.13 346-355
CHAPTER 7 ANDHRA PRADESH
STATE WAREHOUSING
CORPORATION
7.1-7.8 356-361
CHAPTER 8 DEPARTMENTAL
UNDERTAKINGS
8.1-8.29 362-380
ANNEXURES
ANNEXURE I Title Sheet of the IR 381
ANNEXURE II Proforma on the performance of
Auditors of Government Companies
and Corporations
383
ANNEXURE III Statement indicating distribution of
work among the headquarters and
field
386
ii
Reference to
CHAPTER 1 Paragraph Page(s)
Organisation and functions 1.1 1
Organisation 1.2 1
Audit of Annual Accounts 1.3 2
Introduction CAW (H) Sections 1.4 3
Organisational Chart of CAW 1.5 4
Sanctioned strength of Commercial Audit Wing 1.6 5
Procedure for Forecast and Staff proposals 1.7 5
Distribution of work in Headquarters Section 1.8 6
Functions of Commercial Audit Headquarters Section 1.9 6
Dissemination of Information 1.10 8
Responsibility for keeping the Commercial Audit Manual
up to date
1.11 8
Undertaking of new audits 1.12 9
Coordination with other Wings of the Office 1.13 9
Tour programmes 1.14 9
Traveling Allowance 1.15 9
Report work 1.16 10
Committee on Public Undertakings work 1.17 10
Resident Audit Organisation of AP Electricity Companies &
AP ERC
1.18 10
Resident Audit Organisation of A.P.S.R.T.C 1.19 12
Selection-of documents for audit 1.20 13
Review of Audit 1.21 14
Local Audit 1.22 14
Composition of the field parties 1.23 14
Selection of staff to be deputed for inspection work 1.24 15
Quantum of Audit 1.25 15
Percentage of supervision 1.26 15
Movement of the field parties 1.27 16
Deviation from tour programmes and extension of time for
local audit
1.28 16
Audit of accounts of offices of the State Government
situated outside the State
1.29 17
General 1.30 17
Time schedule for work in Commercial Audit Headquarters
Section
1.31 18
Pursuance and settlement of outstanding audit Objections 1.32 18
Maintenance of objection books in respect of Autonomous
bodies set up under specific Acts of Parliament/State
Legislature
1.33
20
Calculation of Audit Fees 1.34 21
CHAPTER-2
AUDIT PROCEDURE - GENERAL
Types of Audit
2.1 23
Audit of Accounts 2.2 23
iii
Audit U/s 619(4) of the Companies Act, 1956
Audit Checks 2.3 26
Watch on receipt of accounts 2.4 27
Phasing of audit 2.5 28
Returns to be sent 2.6 29
Watching of Receipt of Supplementary Reports 2.7 29
Section 619 B Companies 2.8 29
Comments of the Comptroller and Auditor General of India
under Section 619(4) of the Companies Act, 1956
2.9 30
Materiality 2.10 31
Preparation of profit and loss account during the period of
Construction
2.11 32
Material issued for works by the Construction Companies 2.12 32
Valuation of Closing stock 2.13 33
Booking of sales against F.O.R. destination contracts 2.14 34
Travelling Allowance 2.15 34
Audit fees 2.16 34
Entertainment expenditure 2.17 34
Encashment of leave 2.18 35
Gratuity 2.19 35
Accounting treatment of Government grants 2.20 35
Accounting treatment for excise duties 2.21 36
Treatment of Packing Materials 2.22 37
Reimbursement of expenses to the Directors 2.23 37
Advertisement 2.24 38
Rent 2.25 38
Prior period adjustment account 2.26 38
Inter Unit transfers 2.27 38
Commission 2.28 39
Hire Purchase transactions 2.29 39
Items of Balance Sheet 2.30 39
High Court decision on the provisions of Section 295 of
Companies Act
2.31 53
Miscellaneous expenditure and losses 2.32 54
General 2.33 54
Disclosure of income from Investments 2.34 54
Computation of aggregate amount of Rs.3000* 2.35 55
Change in system of accounting from mercantile to cash
system
2.36 55
Review of accounts of Government Companies 2.37 56
Format and Guidelines for compilation of Review of
Accounts
2.38 57
Working capital 2.39 58
Inspection Reports 2.40 61
Method/procedure of drafting the Report 2.41 63
General assessment of the state of accounts 2.42 66
Test Audit Note 2.43 67
iv
General 2.44 68
Revision of Title Sheet of Inspection Report 2.45 68
Certificate to be recorded on the report 2.46 69
Discussion of the Report 2.47 70
Documents to accompany the report 2.48 70
Functions of Inspecting Audit Officers/Senior Audit
Officers/Senior Audit Officer
2.49 72
Review of the system of Audit Committees 2.50 76
Procedure for preparation of Draft Paras 2.51 77
Procedure for pursuance of Draft Paragraphs in respect of
Companies under Section 619-B of the Companies Act
1956
2.52
78
Compilation of Reviews/Comprehensive Appraisals 2.53 79
Principles for selection 2.54 79
Preliminary Scrutiny 2.55 80
Performance Audit 2.56 80
Characteristics of good report 2.57 82
Adherence to style guide 2.58 82
Forwarding of the draft report 2.59 83
Response of the entity 2.60 84
Second journey of the report to SAI headquarters 2.61 84
Final report 2.62 84
Information Sources 2.63 85
Audit Findings 2.64 86
Presentation of results 2.65 91
Procedure for obtaining the approval of Headquarters Office 2.66 93
Size of the Audit Report to be printed 2.67 94
Committee On Public Undertakings 2.68 96
Accountant General to assist the Committee 2.69 97
Reports Section (Commercial Audit Wing) 2.70 97
Time Schedule for finalisation of material for Reports 2.71 99
Due dates for submission of material to Headquarters Office 2.72 99
Selection of topics/reviews for inclusion in the Audit Report
(Commercial) and finalisation of report
2.73 100
Criteria for selection of reviews 2.74 103
Separate audit reports on the accounts of statutory
corporations for which the C&AG of India is the sole
auditor
2.75 110
Uniformity in use of capital and small letters in the official
publications
2.76 112
CHAPTER-3
Procedure for finalisation and issue of comments under
Section 619(4) of the Companies Act, 1956
3.1 116
General 3.2 120
Procedure to be adopted where the annual accounts of a
Company were adopted in the Annual General Meeting
without the comments of the C&AG of India under Section
3.3 121
v
619(4) of the Companies Act, 1956.
Where the report of the Statutory Auditors is in negative 3.4 121
Appointment of Auditors 3.5 121
Printing of Management's replies in the Annual Report
against C.A.G's comments under Section 619(4) of the
Companies Act 1956
3.6 124
Study of accounting policies, etc. 3.7 124
Qualifications of Statutory Auditors 3.8 125
A gist of opinions (as expressed by the Expert Advisory
Committee of the Institute of Chartered Accountants of
India) on some accounting aspects are given
3.9 125
General principles of Audit of Transactions 3.10 130
Scrutiny of Memorandum and Articles of Association of
Government Companies
3.11 131
Internal control system in auditee organizations 3.12 131
Capital restructuring in public enterprises - guidelines 3.13 134
Distribution of work in inspection 3.14 134
First Audit of an Institution 3.15 135
Intelligent exercise of checks 3.16 135
Calling of files and records for checking 3.17 136
Certificate of cash balance 3.18 136
Procedure for simplification of initial accounts etc. 3.19 137
Special investigation and independent enquiry by Audit 3.20 137
Report of defalcations, frauds etc. 3.21 138
Raising and pursuance of observations 3.22 139
Prompt settlement of Audit observations 3.23 139
Procedure for auditing cash transactions 3.24 140
Works expenditure 3.25 147
Log books 3.26 150
Capital structure - Equity and Loans, total investments. 3.27 152
Remuneration for consultancy services 3.28 154
Stores 3.29 154
Disposal of unserviceable, obsolete and surplus stores, spare
parts, vehicles, tools, empties, scrap, by-products, etc.
3.30 156
Investments made by the Government Statutory
Corporations, Government Companies, Autonomous bodies
3.31 158
General 3.32 160
Interview with the Head of the Office inspected
Periodicity of audit: Under Section 619(3)(b) of the
Companies Act, 1956: Government Companies
3.33 162
Section 619 B Companies 3.34 162
Phasing of audits 3.35 162
List of government companies 3.36 162
Government Companies 3.37 180
Annual General Meeting and Accounts 3.38 182
Applicability of Section 619 of the Companies Act in
respect of the accounts for the period up to the final
3.39 182
vi
dissolution of a Company
Internal audit 3.40 183
Statutory audit 3.41 183
Organisational set-up 3.42 186
Review of Budgets 3.43 187
Borrowings 3.44 187
Debt-equity ratio 3.45 187
Cash Management 3.46 188
General 3.47 189
Computerised accounts 3.48 189
Supplementary report of the Statutory Auditors under
Section 619 (3) (a) of the Companies Act, 1956.
3.49
190
Audit of Cost accounts/records 3.50 191
Pricing 3.51 193
Recovery or Absorption of Overheads 3.52 194
Financial and service organisations 3.53 195
Service 3.54 198
Hire Purchase Scheme 3.55 198
Marketing Assistance Scheme 3.56 198
Raw Material Servicing Centre 3.57 199
Infrastructure Facilities 3.58 199
Coal Mines 3.59 201
Production Performance 3.60 201
Major equipment and plant and machinery 3.61 206
Manpower analysis 3.62 206
Sales performance and marketing 3.63 206
Price Fixation 3.64 207
Accounting Systems 3.65 207
Management Information System 3.66 208
Accidents 3.67 208
Hospitals 3.68 208
Sand stowing operations 3.69 209
Protective works 3.70 209
Sugar Industry 3.71 209
Irrigation 3.72 211
Trading 3.73 212
CHAPTER-4
Introductory 4.0 214
Constitutional provisions pertaining to Electricity 4.1 214
Central Legislation dealing with Electricity 4.2 214
Restructuring of APSEB 4.3 - 4.7 214-219
Constitution of Resident Audit office 4.8 219
Scope of extent of Audit 4.9 - 4.11 220-224
Delegation of Financial Powers 4.12 224
Results of Inspection and Local Audit 4.13 224
Compilation of Inspection Report 4.14 224
Instructions regarding writing and compiling the Inspection 4.15 - 4.16 225-226
vii
reports
Audit Of Receipts 4.17 - 4.68 226-250
Audit of Expenditure 4.69 - 4.90 251-281
Audit of Power Generating Stations 4.91 - 4.101 281-290
Annual Accounts 4.102 - 4.103 290-293
Miscellaneous 4.104 - 4.112 294-306
CHAPTER-5
Introduction 5.1 307
Scope of Audit 5.2 308
Resident Audit Section 5.3 308
Local Audit 5.4 309
Inspection Reports 5.5 309
Some Important Instructions/Guidelines for Audit 5.6 309
Head office wings/units 5.7 310
Budget, Budgetary Control and Financial Planning Fund of
the Corporation
5.8
311
Budget Estimates 5.9 311
Form of Budget (Rule 12 of the APSRTC Rules, 1958) 5.10 311
Financial Planning 5.11 313
Capital Contributions 5.12 313
investment of Surplus Funds 5.13 313
Borrowings 5.14 313
General Review in Audit 5.15 313
Remittances of Daily Earnings and Transfer of Surplus
Funds
5.16 315
Opening of Current Account of a New Depot 5.17 315
Internal Audit Wing 5.18 316
General Guidelines for Audit 5.19 316
Chief Traffic Manager (Commercial) 5.20 316
Chief traffic manager (operations) 5.21 317
Chief Traffic Manager (marketing) 5.22 318
Rotation of Vehicles 5.23 319
Vehicles Plying On Inter-State Route Permits 5.24 319
Guidelines For Audit 5.25 320
Payment through D.D. 5.26 320
Mechanical Engineering Department 5.27 320
Works Manager (Body Building Unit) 5.28 321
Works Manager (Printing And Stationery) 5.29 322
Controller of Stores - (BBU) 5.30 322
Chief Mechanical Engineer (Operation) 5.31 322
Personnel Department 5.32 323
Chief Controller of Stores 5.33 324
Chief Engineer(It & Ms) 5.34 325
Civil Engineering Department 5.35 326
Board Secretariat 5.36 327
Director-Vigilance and Security (V & S) 5.37 328
Land Acquisition Officer 5.38 328
viii
Chief Law Officer 5.39 329
Provident Fund Trust 5.40 329
APSRTC EDLIF Scheme 5.41 330
Zonal Office 5.42 331
Regional Office 5.43 331
Zonal/Regional Stores 5.44 332
Zonal/Regional Workshops 5.45 333
Tyre Retreading Shop 5.46 333
Regional/Zonal Staff Training College 5.47 334
Hospitals/Dispensaries 5.48 334
Civil Engineering Division (at each Zonal Level) 5.49 334
Depot 5.50 335
Way bills (MTD-5) 5.51 336
Maintenance and Stores Wing 5.52 338
Accounts and Personnel Wing 5.53 339
Payment of compounding fees/M.V. fines 5.54 340
Operation of Services on Special Hire 5.55 340
Cash books 5.56 340
Annual Accounts 5.57 344
CHAPTER-6
Andhra Pradesh State Financial Corporation 6.1 346
Objectives of the Corporation 6.2 346
Share Capital 6.3 346
Power to give instructions to the Corporation 6.4 347
Furnishing of returns 6.5 347
Appointment of Auditor 6.6 347
Issue of directions to the auditors 6.7 347
Audit by the Comptroller and Auditor General of India 6.8 347
Form of communication of Audit Report 6.9 348
Internal Audit 6.10 348
Provision for Wealth Tax 6.11 350
General 6.12 351
Revision of Accounts 6.13 355
CHAPTER-7
Andhra Pradesh State Warehousing corporation 7.1 356
Share capital 7.2 356
Borrowing powers 7.3 357
Accounts and audit 7.4 357
Form of communication of audit report 7.5 358
Audit of accounts of state warehousing corporation 7.6 359
General 7.7 359
Head office 7.8 361
CHAPTER-8
Nature and importance 8.1 362
Procedure for receipts and payments 8.2 363
Accounts 8.3 363
ix
Audit Arrangement 8.4 364
General Audit Principles 8.5 364
Establishment Bills 8.6 366
Travelling Allowance bills 8.7 367
Contingencies 8.8 367
General Cash Book 8.9 367
Cheques 8.10 368
Imprest or Permanent Advance Accounts 8.11 369
Stock and Store Books 8.12 369
Advance Ledger 8.13 369
Register of Movable and Immovable Properties 8.14 370
Register of Loans 8.15 370
Security Register 8.16 370
Service Books and Leave Accounts 8.17 370
Government Press 8.18 370
Scope of Audit 8.19 370
Process of Audit 8.20 371
Forms control and Despatch Section 8.21 374
Printing at Private Presses 8.22 374
Andhra Pradesh Government Text Book Press 8.23 374
Translations and Printing Department 8.24 375
Process of Audit 8.25 376
Proforma Accounts 8.26 377
Special points to be Seen 8.27 378
Comments on Proforma Accounts 8.28 378
Revision of accounts by the Organisation in the light of
Audit Comments
8.29
380
1
Office of the Accountant Genera1(C&RA), AP, Hyderabad
Commercial Audit Wing
CHAPTER 1
1.1 Organisation and functions
General
The Outside Audit Department viz; Commercial Audit Wing of Office of the
Accountant General (Commercial & Receipt Audit), AP, Hyderabad has been
constituted mainly to conduct Local Audit and Resident Audit Inspection of
Government Commercial Enterprises, Statutory Corporations / Boards formed
under separate Acts of Legislature and Supplementary Audit of Government
Enterprises under section 619 (4) of the Companies Act and to review and
comment upon the published annual accounts of concerns in which Government
hold investments.
1.2 Organisation
There are three distinct branches in Commercial Audit wing in the Office of the
AG (C&RA), AP Hyderabad. They are (a) Commercial Audit Wing (Hqrs) (b)
Electricity Companies & ERC Resident Audit and (c) APSRTC Resident Audit.
(a) Commercial Audit Wing (Hqtrs): This branch is responsible for
administration and co-ordination of audit of Government Companies including
those falling under section 619(B) of the Companies Act, 1956, the Departmental
Undertakings of Government of Andhra Pradesh including joint projects under
Government of Andhra Pradesh and Government of Karnataka and Statutory
Corporations established under separate Acts of Parliament. The Wing finalises
comments u/s 619(4) of the Companies Act, 1956 and Certificates are issued. A
part from the above, it also looks after the Administration, audit programming
and co-ordination work of Commercial Audit aspects and Audit Committee
Meetings. The Report of the Comptroller and Auditor General of India
(Comml.) is prepared by this wing and this wing also renders all assistance
needed to the Committee on Public Undertakings.
(b) Electricity Companies & ERC Resident Audit: This branch is responsible
for review of Board minutes and proceedings, finalization of forecast of
programs of local audit parties, approval, issue and pursuance of Inspection
Reports, conducting of audit of Annual Accounts of Transmission Corporation of
AP Limited and AP Power Generation Corporation Ltd, DISCOMS, AP Power
Finance Corporation and APERC, and issue of factual notes and identification of
Potential Draft Paragraphs for issue of draft paras for inclusion in Audit Report
(Commercial). (Refer Chapter for more details).
2
(c) APSRTC Resident Audit: This branch is responsible for review of Board
Minutes and proceedings, finalisation of forecast of programs of local audit
parties, approval, issue and pursuance of Inspection Reports and conducting, of
audit of Annual Accounts of the units of Andhra Pradesh State Road Transport
Corporation, which is a Statutory Corporation. (Refer Chapter for more details).
1.3 Audit of Annual Accounts
a) Corporations
(i) APSRTC
On receipt of intimation from the Management that the accounts i,e., trial
balance/ Account current at unit level are kept ready, the same shall be audited
annually at respective units and draft comments are communicated along with
audited trial balance/account current to the respective units and Head Office. The
audit of consolidated accounts (unadopted) shall be taken up after the audit of
accounts of unit offices are over and the approved report shall be issued
Corporation/State Government.
(ii) APSFC & APSWHC
On receipt of annual accounts duly approved by the Board and audited by the
statutory auditors appointed by the State Government, audit shall be conducted
every year and comments thereof issued to the Corporation.
b) Government Companies
Two sets of Statutory Auditors' report and adopted accounts of each Government
Company for each year are received from the statutory auditors in the
Commercial Audit Hqrs. Section. Immediately on receipt, audit of the annual
accounts shall be arranged, Processing of draft provisional comments/review of
accounts received from the field party, replies to the Statutory Auditors and
Management on provisional comments shall be done on priority, obtain the
approval of comments from the Headquarters office and communicate the same
to the Management before the date of Annual General Meeting/ adjourned
Annual General Meeting.
c) Departmental undertakings
Proforma Accounts received from the respective Departmental Undertakings,
shall be audited and the final comments thereof shall be communicated to the
Head of the Department.
3
1.4 Introduction CAW (H) Sections
Commercial Audit Wing of the AG(C&RA) AP is under the charge of a Senior
Deputy Accountant General/Deputy Accountant General. The functions of
various sections in Headquarters of the wing are as follows.
(a) Headquarters
There are four sections in Main office viz (1) Headquarters Sections (ii)
Companies–I section (iii) Companies–II section and (iv) Departmental
Undertakings under the charge of Sr. Audit Officers (Hqrs). The Headquarters
section deals with drawal of audit programmes of all the fieds parties, transfer
and posting of staff, proforma accounts of Departmental Undertaking, vetting of
draft inspection reports, pursuance of draft comments, all administrative matters
etc. It coordinates the affairs of the Commercial Wing as a whole.
(b) Reports
There are three sections in Main office viz., (i) Reports (ii) Draft Paras cell and
(iii) COPU section under the charge of Sr. Audit Officers (Reports).
The Reports Sections deals with the Reports of the CAG of India containing the
audit observations relating to Government Companies/Corporations. This
activity of the section includes selection of Companies/topics for detailed
Review for the Audit Report, vetting the draft Inspection Report/draft
reviews/draft reviews/draft paras received from the field parties, sending draft
reviews /drafts paras to Hqrs, attending to their marginal remarks, obtaining the
final approval of Hqrs for the Reports, getting the Report printed, obtaining
counter signature of CAG and issue to the Government.
The Sections also deals with the work relating to the meetings of Committeee on
Public Undertakings (COPU) and Audit Committees, and portion of Civil Audit
Report work dealing with the departmental undertakings.
(c) Resident Audit Sections
In addition to the above two sections located in Main Office, one resident audit
wing each for Electricity Companies and another for APSRTC were created to be
under the direct charge of Sr.DAG/DAG for coordinating the audit of the
respective organizations.
(d) Field Parties
Apart from the above, there are 20 field parties each headed by an
Assistant Audit Officers/Section Officers, conducting the audit of various
4
organizations and supervised by Inspecting Audit Officers/Sr. Audit
Officers.
1.5 Organisational Chart of CAW
COMMERCIAL AUDIT WING
Sr.AO (HQrs) 4 Sections
Sr.AO(Reports, Copu & DPs)
Field Supervising Officer Field
parties 20
R.A.O., I & II ECs & ERC RA
(Reports & DP Cell)
R.A.O APSRTC RA (Reports & DP Cell)
5
1.6 Sanctioned strength of Commercial Audit Wing
The sanctioned strength of the Wing as on 1st July 1991 consisted of the
following staff:
Office SrAO
/AOS
AAOs
/SOs
Sr.Ars/A
rs
Steno/Typ
ist
Clerk
s
Gr.’D
’
CAW Hqrs 2 6 14 2 2 2
Elec.Co RA 1 4 22 4 2
APSRTC, RA 1 3 12 1 2
Field-Com and
Corporations
31 36 23
Electricity
Companies
25 26
APSRTC 13 20
TOTAL 35 87 117 2 7 6
1.7 Procedure for forecast and Staff proposals
Every year during December the Commercial Audit Headquarters section and the
two Resident Audit Sections shall address all the existing Government
Companies, Statutory Corporations (APSRTC, APSFC, APSWHC)
Departmental undertakings APERC, Director of Industries and all TAD Sections
to furnish the list of units in existence as on that date, in order to ascertain
whether any new units have come into existence and/or any existing units were
closed along with the dates of formation/closure. This shall form the basis for
preparation of forecast for the next year. The party days required for each new
unit shall be assessed on the basis of detailed data collected. In regard to existing
units, the party days shall be calculated keeping in view the experience gained,
diversification of activities and increase in the existing workload. The forecast
shall also include the probable internal and external arrears. The forecast shall be
submitted to the Accountant General, through the Sr. Deputy Accountant
General (CAW) for approval by the respective Sections on or before 2nd
February.
The approved forecast forms the basis for staff proposals which are to be
forwarded by the respective Resident Audit Sections to the Commercial Audit
Headquarters section. The staff proposals shall contain the detailed supporting
data in justification for seeking additional posts of each category. The
circumstances, leading to accumulation of internal/external arrears and reasons
for unutilised man days, if any, shall also be dealt with in detail. The proposals
are to be made keeping in view the instructions issued by the Headquarters
Office from time to time. The Commercial Audit Headquarters Section shall
send the consolidated staff proposals of the wing to CASS-Co-ordination Section
for their scrutiny by July, after obtaining the approval of the Senior Deputy
6
Accountant General (CAW). After it is cleared by the CASS-Coordination
Section, the same shall be forwarded to the Administration Section duly
obtaining the approval of the Accountant General.
1.8 Distribution of work in Headquarters Section
Full particulars regarding duties allotted to each individual Auditor in
Headquarters Section shall remain on record in the Duty Register, which shall be
kept in the custody of the Asst. Audit Officer/Section Officer (Headquarters).
Whenever there is a change in the incumbency of a post, the detailed duties shall
be communicated to the incoming incumbent and his initials obtained in the Duty
Register, in token thereof.
Besides the Duty Register, a separate staff position register shall be maintained
in Headquarters Section, which serves as a continuous record of the duration of
services of the Gazetted Officers as well as other staff posted to Commercial
Audit Wing . Particulars regarding date of proceeding on leave, return from the
leave (other than casual leave), reversion from field inspection duty to
Headquarters, date of relief in previous section, date of reporting to Headquarters
Section, transit days etc., shall also be noted in the remarks column of this
Register. Whenever there is a change in the incumbency, the date of relief of the
outgoing incumbent and the date of joining of the incoming incumbent shall
invariably be noted in the " remarks" column.
1.9 Functions of Commercial Audit Headquarters Section
Commercial Audit Headquarters (CAW) Section is responsible for the following
items of work:
Supplying of records relating to local audit as well as previous years Inspection
Reports to the field parties. Besides sending the old inspection reports of the
offices under the current local audit in a station, the Headquarters’ section should
send reports of other offices in that station, though not covered by audit
programme, to the Inspecting Audit Officer for an on the spot settlement.
Editing the draft Inspection Reports received from the Inspecting Audit
Officers/Senior Audit Officers including the general verification of the facts and
figures given in the draft Inspection Report with reference to the A.Es and replies
thereof for submission to the Sr. Audit Officer (Headquarters, CAW)/Deputy
Accountant General. (CAW)/ Sr. Deputy Accountant General (CAW) for
necessary vetting and onward issue to the respective Managements.
Important Financial irregularities, losses, the value of which is more than
10,00.000/- shall be processed- as Draft Paragraphs. A separate register of such
Potential Draft Paragraphs shall be maintained.
7
maintenance of Register of Audit
scrutiny of replies to outstanding Inspection Reports and their settlement
maintenance of Register of serious financial irregularities
scrutiny of sanctions accorded by the Government for guarantees given by them
with reference to para 479 of the MSO(Tech)
issue of Sectional Office orders wherever necessary and supply of copies of
Codes and Manuals and all important office orders and circulars to the field audit
parties.
preparation of Monthly Reports of Arrears relating to Commercial Audit Wing
Preparation of:
(a) Staff position statement to be sent to Administration Section on the first of every
month,
(b) Acquittance Roll (separately for Headquarters and field parties) due to Bills
Section on the 20th of every month,
(c) Events statements (consolidated statement of Headquarters and field parties) due
to Bills Section on the 17th of every month
(d) Submission of all other returns and statements required by Administration
Section
Transmission of old records not required for- current work, to old records
section.
Issue of internal posting orders in respect of staff attached to Commercial Audit
Wing.
Processing and forwarding of applications connected with the Administration
Section, like applications for reversion from field inspection, applications for
appointments outside, etc., in respect of both gazetted and non-gazetted officers.
The following items are also attended by the RAP-APSRTS
Scrutiny of Corporation resolutions, Minutes of the meetings of the various
committees of the Corporations and Agenda papers, circulars, provisions of the
Act and rules made there under.
Finalisation of Separate Audit Report on the annual accounts of the Corporation.
8
Review of operational statistics
Scrutiny of establishment matters
Check of incorporation of units accounts by Main Accounts Section
Check of Journal entries passed by Main –Accounts Section and Budget and
Finance Sections of CAO's Office
Tracing of cash journal vouchers pertaining to Pay Master's Office
Check of allocation of vouchers (allocation of expenditure between capital and
revenue)
Audit of establishment, T.A. and contingent bills of C.A.O’s establishment,
Members and Officers of the Corporation at Headquarters.
Important financial irregularities, losses the value of which is more than
Rs.10,00,000/- shall be processed as draft paras. A separate register of all such
potential draft paras should be maintained.
1.10 Dissemination of Information
All the circular instructions received from various authorities from time to time
shall be compiled by Headquarters Section and circulated to all field parties for
their guidance in discharging their duties while conducting audit. Compendium
of comments on various Corporations/Government Companies/Departmental
undertakings, important and peculiar objections noticed in audit and study notes
of professional institutions on various subject matters and articles on topics of
interest and relevant to audit aspects shall also be got compiled and circulated
amongst field staff.
1.11 Responsibility for keeping the Commercial Audit Manual up to date
The Officer, in charge of Commercial Audit Headquarters Section, shall be
responsible for keeping this Manual up to date. He shall put up draft corrections
as soon as any Rules, orders or other communications affecting the contents in
this Manual come to notice, and supply correction slips thereto to the field staff
and Supervising Officers. The general unit is responsible for proper maintenance
of stock (guard) file of office orders/circulars issued from time to time which
shall be serially numbered. The Section Officers/Assistant Audit Officers of
field parties whenever they touch Headquarters shall, after the scrutiny of the
stock file of the Headquarters Section, record their dated signature in a register
maintained for the purpose in token of the scrutiny of the file. The register shall
be submitted to the Branch Officer once a month along with the stock file of
9
office orders/circulars (00 No.OAD.I/XII/38-Misc./70-71/22 Dt.23.11.1970 File
38-Misc./70-72 OAD Civil Headquarters).
The field, Inspection parties shall also scrutinise at each inspection, the relevant
portion of the Manual with a view to examine whether any amendment is
required in any respect and make suggestions accordingly.
1.12 Undertaking of new Audits
Every new audit undertaken under para 13(2) of the Indian Audit and Accounts
Order (now under Section 16 and 17 of C&AG's: (DPC) Act, 1971 or the
discontinuance of such an audit shall be reported to CAG for his information. In
making such a report, the effect of the addition or discontinuance on the strength
of the establishment of the audit office shall also be mentioned (Lr. No. 156-
Admn.I/30. 38 dt,4, 3.1938).
1.13 Coordination with other Wings of the Office
The Commercial Audit Headquarters Section shall have close and cordial
coordination with Administration Section/Bills Section/CTM Section etc., in
regard to staff Matters, scrutiny of T.A.Bills, forwarding tour advance
applications, salaries of field staff, periodical returns and instructions received
from the Headquarters Office, etc.
1.14 Tour programmes
Quarterly tour programmes of all field inspection parties and Inspecting Audit
Officers/Senior Audit Officers of the entire wing shall be drawn by Commercial
Audit Headquarters Section based on the approved forecasts and keeping in view
the timely receipt of annual accounts. Further the tour programmes should reflect
the effective deployment of available manpower to achieve objectives of
certification of annual accounts and propriety audit of various organisations. The
tour programmes so drawn shall be approved by the Sr. Dy.Accountant General
(CAW) and communicated to the concerned in time. Notice of information to
the offices to be visited shall also be sent well in advance.
1.15 Traveling Allowances
The Commercial Audit Headquarters Section shall receive the tour- advance
applications from the fie1d staff and officers every month. After scrutiny with
reference to the approved tour programmes and pendency in submission of
detailed T.A. bills, etc., the same shall be forwarded to Bills Section for
necessary action at their end. The field staff and officers shall submit their
detailed T.A. bills to Commercial Audit Headquarters Section before 5th of the
succeeding month positively.
10
The following procedure shall be adopted before forwarding the same to Bills
Section:
i) Diarise the detailed T.A bills received from the field parties and officers
indicating the name of the official, month and amount of the bill, etc.,
ii) Intimate the Bills Section the fact of receipt of detailed T.A. bills indicating
the name of the official, month and amount of the bills soon after their receipt
in Headquarters Section.
iii) Verify the correctness of the detailed T.A. bills with reference to approved tour
programme and deviations, if-any.
iv) Verify the leave spells.
v) Local journey by scooter, stay in lodges at places other than the place of duty for
want of accommodation facilities, etc., and record the endorsement and
certificates suitably and forward the bills to bills section for necessary action.
1.16 Report Work
The Report Section of the Commercial Wing is entrusted with the work of
preparation of material for the Report of the C&AG of India (Comml.). It shall
initiate steps for sending the proposals for selection of topics by the Headquarters
Office every year. The material for Reviews and Draft Paragraphs received from
Resident Audit Sections and Commercial Audit Headquarters section shall be
processed till the same are approved by the Headquarters office.
The responsibility for getting the report printed and presented to the both Houses
of State Legislature devolves on this Section.
1.17 Committee on Public Undertaking work
On receipt of intimation of sittings of the Committee on Public Undertakings and
the subjects to be taken up for discussion from the State Legislature Secretariat,
the Sr.DAG/DAG(CAW), the AG and the Headquarters Office shall be informed
of the same. On the dates of sitting of the Committee on Public Undertakings,
the SO/AAO, AO(COPU), the Sr.DAG/DAG(CAW) and/or AG shall be present
at the Meeting with all the relevant files and assist the Committee in their
deliberations.
1.18 Resident Audit Organisation of AP Electricity Companies & AP
ERC
The main duties of the resident audit branch are:
11
To despatch the previous outstanding Inspection Reports to the field parties, edit
the Draft Inspection Reports received from the Inspection parties including the
general verification of the facts and figures given in the Inspection Reports, with
reference to audit enquiries and the replies thereof.
To issue the Inspection Reports after the approval of Sr. DAG/DAG (CAW)
where the Inspections are supervised by the IAOs, and after the approval of the
RAO where the audits were not supervised by the lAOs. The IRs are to be
pursued until they are finally settled.
Important financial irregularities, losses, the value of which is more than
Rs.10,00,000 should be processed as draft paras.
A separate register of such potential draft paras shall be maintained.
To maintain a register showing the commencement and completion of audit, the
date of receipt of the IR in the Resident Audit Branch, Date of approval of the
appropriate authority and date of issue of the IR.
To supply to the Inspection parties copies of all important orders and
classifications received, if any, which are useful for inspection purposes.
To scrutinise the various proceedings, Board minutes, agenda notes and
resolutions passed at the periodical meetings of the AP Electricity Companies &
APERC and calling for the relevant files, etc., where ever considered necessary.
To calculate the audit fees recoverable from Andhra Pradesh Electricity
Regulatory Commission (APERC) based on the instructions issued by the Office
of the Comptroller and Auditor General of India regarding the formula for
calculation as well as charges, if any, in the average cost of a particular category
of post. The average cost of each post and the miscellaneous charges to be taken
into account are communicated by the Administration every year. The amount so
calculated is checked by I.T.A Section after which the approval of Sr.DAG/DAG
(CAW) and the Accountant General shall be obtained and recovered from
APERC.
To maintain 'Register of Points’ specifically noticed and requiring verification
during local audits and send the same for verification to local audit parties.
To scrutinize the high value purchase orders approved by the Board of Directors
(or by the subcommittee of the Board constituted for the purpose) of
APTRANSCO/APGENCO.
To finalise the comments of the Comptroller and Auditor General of India under
section 619(4) of the Companies Act 1956 on the Annual accounts of
APTRANSCO, APGENCO, APEPDCL, APSPDCL, APNPDCL, APCPDCL
12
and AP Power Finance Corporation Limited and to issue the same to the
management of the respective Companies with the approval of the competent
authority.
To finalise the Separate Audit Report on the Annual accounts of APERC and
forward the same along with the Audit Certificate to the Company and the State
Government and APERC after obtaining the approval of the Comptroller and
Auditor General of India in respect of APERC.
1.19 Resident Audit Organisation of A.P.S.R.T.C
The audit of the accounts of the following units situated at GM.'s office of
A.P.S.R.T.C. is being conducted by Resident Audit Party consisting of two
Section Officers/Assistant Audit Officers under the supervision of Resident
Audit Officer and the report is being issued every half year.
a) G. M.’s Office
b) Chief Industrial Engineer
c) Chief Accounts Officer
d) Chief Civil Engineer (East and West)
e) Land Acquisition Officer
f) Printing Press
g) Headquarters Depot
h) G.P.F. Trust
i) Chief Mechanical Engineer
j) Chief Controller of Stores
k) Controller of Stores - Including purchases, receipts
l) Controller of Stores - issues and disposal of stores and their accounts
m) Central Workshops
n) Tyre/Retreading Shop
o) Body Building Unit
p) Labour Welfare Officer
q) Internal Audit Wing
r) Deputy Chief Accounts Officer, P.F.Trust.
s) Deputy Chief Accounts Officer, Inspection
13
t) Deputy Chief Accounts Officer, Budget and Finance
Other audits, e.g., Regional offices, Depots, Workshops and Tyre Retreading
shops, etc., situated elsewhere are conducted by the field parties.
The Draft Inspection Reports submitted by the audit parties are edited, got
approved by the Senior Deputy Accountant General (CAW)/Deputy Accountant
General(CAW) where supervision was provided and issued to the Corporation.
The paras in the Inspection Reports are pursued until they are finally settled.
Any of the paras in the Draft Inspection Reports are of such monetary
significance and the irregularity is of such magnitude, a factual note is issued by
the Resident Audit Branch after obtaining the approval of the Senior Deputy
Accountant General (CAW) /DAG (CAW).
The Resident Audit Branch, under the provisions of Road Transport
Corporations Act, 1950 and A.P.S.R.T.C. Rules, 1958, calculates the audit fee
recoverable from the Corporation in respect of each financial year. The amount
so calculated is checked by C.I. T.A. Section after which the approval of
Sr.Dy.Accountant General (CAW)/DAG (CAW) and the Accountant General
shall be obtained and recovered from the Corporation.
Further, the Resident Audit Officer conducts post audit of the vouchers relating
to Headquarters Office of the Corporation in respect of Establishment,
Contingent vouchers etc., according to the percentages prescribed by the CAG.
The month in respect of which the vouchers are subjected to post audit is
selected by the Resident Audit Officer and received by the Section Officer and
post-reviewed by the Resident Audit Officer. Objections, if any, are raised,
replies obtained and finally settled.
1.20 Selection of documents for audit
It is of utmost importance that a proper record is maintained for the vouchers and
other documents selected for audit. The selection of units and documents should
be done by the Resident Audit Officer except in cases where it will not be
possible for him to do so. In such cases the initial selection may be made by the
Section Officer and submitted to the Resident Audit Officer for confirmation.
The selection must be made personally by the Resident Audit Officer or Section
Officer and this duty cannot be delegated. The selection should be made in such
a way that the vouchers and other documents of every unit of the Corporation
come under audit during the year according to the prescribed percentages.
Suitable records should be maintained and attested by the Officer so as to
indicate which documents pertaining to each unit have been selected and who
14
has been made responsible for the various processes of scrutiny connected with
the audit of these documents.
The Officer-in-charge should take a personal part in original audit work in
addition to his supervision, direction and review of the audit work done by the
Auditors and conducted by the Section Officers/Assistant Audit Officers.
1.21 Review of Audit
After the accounts and vouchers have been audited they should be subjected to
review according to the prescribed procedure. The Officer-in-charge and the
Section Officer, when reviewing the accounts, should bear in mind the
requirements of audit against propriety (vide para 54 of M.S.O. (Tech)
Volume.I).
After the Auditors have completed the audit of documents and of accounting, the
Section Officer should review them generally to see that no important points
have escaped the Auditor's scrutiny. Particular attention should be given to the
adjustment vouchers to see the necessity and regularity of the adjustment. It
should be further ensured that the review conducted is in accordance with the
prescribed percentages.
Review and communication of audit remarks should normally be completed
within the period prescribed for the audit of the various accounts and documents.
Any such review not completed before the date fixed for the completion of audit
should be deemed to be in arrears and exhibited as such in the Green Book.
1.22 Local Audit
Audit of accounts of Corporations, Government Companies and Departmental
undertakings etc., is conducted at respective units by deploying local Audit
Parties. The provisions of paras 767 to 795 of the Manual of Standing Orders
(Tech) Vol-I form the basis for the detailed procedure of conducting local audit.
The principles of efficiency audit, overall performance audit and audit against
propriety laid down in the said Manual shall also be kept in view as guidelines
for local audit.
1.23 Composition of the field parties
Each field party attached to the Commercial Audit Wing shall comprise of atleast
one Section Officer/Assistant Audit Officer and one auditor depending upon the
availability of auditors.
15
1.24 Selection of staff to the deputed for inspection work
a) If inspections are to serve their purpose and if the maximum value is to be
obtained for the expenditure incurred on inspections, the inspection work shall be
entrusted to specially trained, competent and intelligent staff who would, in
addition to exercising the routine prescribed checks, also examine the accounts
intelligently and pay due regard to the principles of efficiency audit. Special
attention shall, therefore, be paid to the selection of staff deputed for inspection
work, so that it may be ensured that inspections are conducted in a really
effective manner. (CAG's Lr.No.539/Admn/5Rep/49 dt.23.3.1950).
b) As far as possible preference shall be given to Auditors who have about three
years experience of inspection work (CAG's Lr.No.5117-El/53-58
dt.31.10.1958).
c) It shall be ensured that the personnel of the local audit party particularly
Section Officers/Assistant Audit Officers and Audit Officers/Senior Audit
Officers are not changed in the midst of an inspection, as such changes seriously
affect the efficiency of local audit.
(D.O. Lr.No.673/TA.I/JO(TA)75 dt.5.8.1976 of Addl.Dy.CAG).
1.25 Quantum of Audit
While detailed quantum of checks to be exercised were prescribed for
conducting the audit of accounts of Electricity Companies, A.P. State Road
Transport Corporation and Departmental undertakings, no such checks were
prescribed in respect of audit of Government Companies/AP State Financial
Corporation and AP State Warehousing Corporation. Audit of Government
Companies/Corporations shall be conducted keeping in view the various
provisions of the respective Acts and Instructions issued from time to time by
Headquarters Office. The checks to be exercised are detailed in respective parts.
1.26. Percentage of supervision
The following percentages have been prescribed by CAG for supervision.
1. Government Companies/Corporations with paid-up capital of above Rs.2
crores. 100%
2. (a) Government Companies/Corporations with paid-up capital of above Rs.25
lakhs and up to Rs.2 crores - 50%
(b) Statutory/Autonomous bodies other than Government Companies and
Statutory Corporations 50%
16
3. With a paid-up capital of less than Rs.25 lakhs - 33 1/3%
4. Government departmental commercial undertakings 33% to 50% depending
upon the size/importance
5. Various units of APSRTC 50%
The above mentioned supervision shall be provided after excluding transit days
and holidays (CAG's Lr.No.1055CA/23/GE~II dt. 28. 3.1967 IV-22/58-59Nol.P.
189).
1.27 Movement of the field parties
The movement of the field parties shall be strictly regulated according to the
approved programmes, Any deviation in adherence to the approved programmes
of supervising officers and parties shall receive the prior approval of the Sr.
DAG (CAW).
1.28 Deviation from tour programmes and extension of time for local
audit
The time allowed for local audit should not be exceed without prior approval of
the Sr.DAG (CAW)/DAG (CAW) and the time schedule should be adhered to
scrupulously by making extra efforts, if necessary.
The AAOs/SOs incharge of the field parties should be in a position to gauge the
quantum of work in a day or two after the commencement of local audit and any
extension of time, found necessary, should be applied for immediately. In
applying for extension of time in any particular case, the circumstances which
render the extension necessary should be fully narrated for consideration and
orders. It should be especially noted by the field staff that extension of time will
not be granted as a matter of course in all cases. When extension of time is
absolutely necessary, it would be applied for sufficiently in advance, with the
definite recommendations of Inspecting Audit. Officer (in the case of supervised
inspection) so that orders of Sr.DAG(CAW)/ DAG(CAW) on the application for
extension of time may be communicated in time before the extension is availed
of.. Unauthorised extension of time will entail forfeiture of daily allowance
unless the case of extension is sanctioned by the Sr.DAG (CAW)/ DAG(CAW).
Note: The local audit of an office undertaken should not be left unfinished on the
plea that time allocated is insufficient. The field party should promptly initiate
action as above and obtain the required extension, lest it should lead to deputing
another party to complete the unattended items of work.
17
1.29 Audit of accounts of offices of the State Government situated outside
the State
Where Civil Departments of the State Government and Units of the Companies
have their activities in other States, the audit of the accounts of such offices may,
with the prior approval of CAG be entrusted to the AG in whose jurisdiction the
offices exist.
Receipt of Board Minutes and agenda of various Government Companies/
Corporations shall be watched and the same shall be reviewed and submitted to
the DAG(CAW)/ Sr.DAG(CAW). Areas of interest. shall be intimated to the
parties for indepth study.
1.30 General
1.30.1 Reportss, returns and Registers
A calendar of returns is to be maintained in accordance with the instructions
contained in para 6.01 of the Manual of General Procedure in the form
prescribed, in order to observe the due dates prescribed for the various items of
work and returns to be submitted to various outside authorities, officers in the
office and other sections. The actual date on which the work is completed shall
be filled in, in each case and the calendar duly completed shall be submitted to
the officer on due dates as prescribed from time to time.
1.30.3 Quaterly Review Meetings
Generally conference of Section Officers/Assistant Audit Officers and Audit
Officers/Senior Audit Officers of the Wing is held quarterly to review the
following:
(i) audits/reviews conducted during the last quarter and important points raised
and salient features to ascertain whether all aspects and areas were covered in -
audit with the desired efficiency, if not to tone up the system of approach to
audit.
(ii) identification of areas of interest having potential material for conducting
indepth study/review.
(iii) points of interest raised by the participants.
(iv) important studies made by various professional institutions. .
(v) difficulties encountered by the field staff for taking remedial action.
18
1.31 Time schedule for work in Commercial Audit Headquarters Section
The following is the time schedule for issue of various Reports.
a)Inspection Reports and comments on
proforma accounts of Departmental
undertakings
One month from the date of audit
b)Comments on accounts of
Government Companies
Two months from the date of
receipt of adopted accounts
c)Separate Audit Reports As early as possible
i)AP State Financial Corporation 31st October
ii)AP State Road Transport Corporation As early as possible
iii)AP State Warehousing Corporation As early as possible after receipt
of the certified accounts
d)Report of the C&AG of India For obtaining the signature of the
CAG of India on the printed
Audit Reports. For presentation
to both the Houses of State
Legislature
Time Schedule right from the date of receipt of annual accounts till the despatch
of approved Audit Reports in respect of item (C) supra is detailed in respective
paras.
1.32 Pursuance and settlement of outstanding audit Objection
Objections from previous Reports shall be incorporated in the current Inspection
Reports to bring this to the notice of the authorities concerned to enable to have
outstanding items in one place for facilitating their effective pursuit by Audit.
However, pursuance of these objections has to be done on the basis of the
original Inspection Reports and their progress watched through the prescribed
register. Outstanding objections shall not be pursued merely on the basis of
extracts appearing in part 1B of subsequent reports. Occasions may arise when
an outstanding objection in a previous report is examined at the time of current
inspection and the original incorporated as a separate item in part-II of the
current report, as a result of the current inspection and discussions. In such cases
pointed attention of the departmental authorities shall be drawn to focus the
inadequacy of action taken in the past. In such cases, outstanding objection
appearing in the original Report may be treated as settled. Such a procedure
should arise only in exceptional cases.
The objections for more than a certain period of years may be dropped, after (i)
furnishing the departments concerned as well as the Finance
Ministry/Department with a list of such objections and obtaining certificate from
the department concerned to the effect that the amounts held under objections
19
constitute bonafide public expenditure and (ii) making a report of the fact to
Parliament/Legislature through the Audit Report.
In cases where the objections involve money value (as for example, recovery of
overpayments, want of financial sanction etc.) the objections have to be pursued
to a finality and shall not be dropped from Reports. Where, however, objections
have been raised on grounds of propriety, they can be dropped from the
Inspection Reports/objection books after these have been included in the Audit
Report for discussion in Public Accounts Committee/ Committee on Public
Undertakings and further action thereon watched through action taken notes and
Reports of Public Accounts Committee/ Committee on Public Undertakings
separately.
Objections on the works side relating to want of estimates, excess over estimates,
want of technical sanction, want of administrative approval, cases of
overpayments, defective agreements, losses of stores and stock shall not be
dropped unless action to regularize them is taken.
Objections relating to want of sanction, receipts and vouchers, detailed
contingent bills and want of reference to bills through which refunds or
repayments have been made also shall normally be pressed and action to settle
the same insisted upon particu1arly in case of want of contingent bills in case of
objection book advances. Regarding other items, while efforts shall be made to
settle the same, a certain amount of discretion can be used in audit where the
matter is so old or petty or where alternative proof is available regarding the
payments made to correct parties etc.
Objections relating to defective sanctions or misapplication of rules can be
reviewed by Audit sue moto and it would be open to Audit to withdraw these
objections and accept the expenditure as regular.
All other objections which are more than five years shall be reviewed by the
Accountant General and may be dropped wherever money is not due for
recovery or where misappropriations and frauds are not likely and wherever they
are technical. It is desirable for this purpose that the powers of waiver are
exercised freely in case of old objections.
If it is considered necessary for valid reasons to pursue an o1d outstanding
objection, the decision to do so shall be taken at the Group Officers level. The
objective should be to formally clear the items more than three years old where
debts due to and by Government are not involved and only minor technical
irregularities are brought out.
20
The half yearly statement of outstanding objections/Inspection Reports in respect
of Public Sector Undertakings which could be settled by the Departments only
shall be sent to the Administrative Ministries concerned.
1.33 Maintenance of objection books in respect of Autonomous bodies set
up under specific Acts of Parliament/State Legislature
In cases where the Accountant General acts as sole auditor for certifying the
accounts of organisations, it is necessary to ascertain various types of money
value of objections as part of the audit. Such objections can broadly fall under
the following categories viz.,
i) Want of stamped receipts or other proof of payment.
ii) Non-recovery of overpayments.
iii) Non-adjustment of advances given.
iv) Expenditure incurred without sanction or with inadequate sanction.
In respect of each of these categories it would be necessary to ensure that the
points of objections are settled before the accounts are certified as correct or if it
is not possible to so settle, to bring the matter to the notice of the organisations
and the Government wherever necessary, so that steps are taken to settle them. If
the objections so raised are of considerable magnitude and/or accumulating over
the years, with due regard to the merit and period of objections it would even be
necessary to incorporate them as a specific paragraph in the concerned separate
Audit Report. If, however, such items are not many and are normally settled in
due course it would be necessary to keep record of such objections a proper place
and in addition to convey the same to the organisations/ Government concerned
through the objection statements or Inspection Reports and watch compliance.
In respect of all cases of money value objections a note should also be kept in the
programme book at an appropriate place and compliance watched.
In addition, in respect of each institution under Audit, a Register of important
results of Audit may be kept, in which a continuous record of the major types of
irregularities noticed in audit is recorded. The entries are to be made in the
register in the form of an epitome of each case duly approved by the Supervising
Officer in charge of the inspection. This register may also be taken by the
inspection parties with them for scrutiny on the spot. No objection book need to
be maintained in respect of autonomous and statutory bodies set up under
specific Acts of Parliament/State legislature and Government Companies. The
objection book and adjustment register in the form M.S.O. (Tech) 127-B, as
amended, shall be maintained in respect of Departmental Commercial
Undertakings.
21
1.34 Calculation of Audit Fees
Audit fee is charged according to daily rates of audit fee worked out by this
office from time to time. The powers to sanction of daily rates of audit fees for
the recovery of cost of audit of non-Government funds are delegated to the
Heads of the Departments by CAG with effect from the revision of daily rates of
audit fee due on 1st September 1968 subject to the following conditions:
1) 'Direct charges' are calculated on the basis of average cost of the particular
post or posts involved, plus the appropriate allowances instead of pay and
allowances of the staff actually engaged on the work on a particular day.
2) ’Indirect charges' are taken as constituting 125% of the direct charges
calculated according to the above method.
3) The figure relating to number of days in a year which is to be adopted for
working out the daily rate would be determined by the Accountant General.
The audit fee is credited to the head of account "O65-A.Other Administrative
Services - C. Other Services. Fee for Government Audit (Central)". .
While calculating the amounts recoverable the instructions contained in the CAG
of India D.O.NO.3164/TA.I/96-64 dt.7th November 1964 shall be kept in view.
The audit fee is to be recovered only for personnel of the party on duty. No
recovery shall be made for a person on casual leave, holidays etc.
Audit fee is leviable for whole days even though only a part of the day may have
been devoted to the audit work.
If a Sunday or holiday is devoted to audit, no audit fee is leviable for that day
unless the Audit actually puts in a full day's work on such Sunday or holiday. It
does not, however, imply that the local officials can be compelled to attend to
Audit on any Sunday or holiday.
Recovery of cost of audit of bodies/authorities taken up under CAG's (Duties,
Powers and Conditions of Service) Act, 1971.
Rules laid down in Section VIII of Appendix-3 of Account Code Volume-I
regulating incidence of expenditure involved in audit conducted by IA &.AD
shall be followed in regard to audit of the accounts of the bodies and authorities
including corporations will be recoverable in all cases in which audit is
undertaken by CAG or any other officer under him as the sole auditor. In cases in
which the audit of the accounts of the body or authority is conducted by another
agency and audit by CAG or an officer under him represents second or
22
superimposed audit undertaken under Sections 14, 15 or 19 as the case may be,
erred from the body or the authority concerned. Audit under Section 20 is
required to be undertaken on such terms and conditions as may be agreed upon
between CAG and the concerned Government. One of the terms to be settled
relates to recovery of cost of audit. The recovery is therefore, to be regulated by
agreement that is arrived in each case. These cases are required to be referred to
the office of the CAG for finalisation of the terms and conditions under which
audit of the accounts of the body or authority concerned may be undertaken
including the question whether cost of audit should be recovered.
23
CHAPTER - 2
AUDIT PROCEDURE – GENERAL
2.1. Types of Audit
The Government Companies, Statutory Corporations and Departmental
Undertakings are subjected to three types of audit, viz., (i) audit of transactions
(ii) audit of Annual accounts and (iii) Performance Audit.
While audit of transactions and audit of Annual accounts is conducted every year
in the case of Statutory Corporations and Departmental Undertakings, the
procedure shall be as follows in respect of Government Companies:
Particulars Audit of
transactions
Audit of accounts
1)Fully owned Government
companies and subsidiary
Companies
Every year Every year (subject to fulfillment of
certain requirements) (details are
dealt with in para)
2)Section 619(B) Companies Every year Every year
Performance Audits are generally taken up on approval of the topic by the
Headquarters Office.
The audits are undertaken under the provisions or various Acts passed by
Parliament to ensure the correctness of the accounts prepared by the individual
organisations and to report to the State Legislature about the functioning of the
Companies/Corporations/Departmental Undertakings along with the analysis of
achievements and/or deficiencies.
Performance Audits are taken up to have an indepth study and a critical analysis
of various activities with reference to the scope of the objectives for which the
organisations were formed and to make a report to the State Legislature through
the Audit Report.
2.2 Audit of Accounts
2.2.1 Audit U/s 619(4) of the Companies Act, 1956
The accounts of the Government Company duly approved by the Board of
Directors and signed by the Directors authorized to do so and certified by
the Statutory Auditors are submitted to the Comptroller and Auditor General of
India for conducting the audit U/s 619(4) of the Companies Act, 1956.As per the
requirement of the Companies Act, 1956 all Government companies are required
24
to finalise their Accounts and lay them before Annual General Meeting of the
Company along with the
auditors’ Reports and CAG’s comments, if any , thereon. While
finalizing/certifying the accounts, the managements /statutory auditors of these
companies are required to keep in view the various requirements of the
Companies Act as well as the Accounting Standards issued by the Institute of
Chartered Accounts of India. The important and apparent requirements of the
Act and Accounting Standards are indicated below:
2.2.2 Statutory Requirement
1. The accounts not prepared in the format prescribed in the Schedule VI to the
Companies Act 1956.
2. The accounts not being signed by the requisite number of Directors as required
in the Act.
3. Balance Sheet abstract and company’s General Business Profile as required
under Part-IV of Schedule-VI of the Companies Act, 1956 is either not attached
or not signed by the Directors/Auditors.
4. Certain disclosure requirements of Schedule VI to the Companies Act not met
with.
5. Adoption of annual accounts in Annual General Meeting without CAG’s
comments under section 619(4) of the Companies Act.
6. Certification of accounts of subsequent year without adoption of accounts of
previous year.
7. Borrowing money in excess of the aggregate of the paid up capital of the
company and its free reserves without approval of shareholders in the general
meeting under Section 293(d).
2.2.3 Accounting Standard
The important Accounting Policies have not been indicated in the Accounts.
2.2.4 Auditors Report
1. The Statutory Auditors have submitted the report in casual manner or not
addressed to the members of the Company.
2. The Statutory Auditors have not complied with various requirements of
Statement of Auditing Practices-such as failure to point out non-compliance of
mandatory Accounting Standard.
3. Improper certification of accounts by Statutory Auditors.
4. Individual and total effect of all qualifications of profit or loss and or state of
affairs of Company is not mentioned in the auditors Report.
5. Compliance to Companies (Auditor’s Report) Order, 2003
25
2.2.5 General
1. The Management has submitted the unauthenticated accounts to AGs for audit.
2. There is totalling error on the fact of the Balance sheet and Profit & Loss
Account.
3. There is typing error in the accounts.
4. Notes to the accounts are in the nature of qualifications of the Statutory Auditors.
5. Notes to accounts are included under the Accounting Policies or vice versa.
6. Previous year’s figures are not updated upto the pervious years.
7. Preparation of annual accounts on the letter head of the Statutory Auditors.
Such types of errors can be avoided by interaction with the
management/statutory auditors before finalization/certification of accounts.
Meetings in this regard may be arranged in the first week of April with the
Company management at the level of Chairman &Managing director/Chief
Finance Executive and the Statutory Auditors and the management as well as
Statutory Auditors may be advised to comply the various requirements of the
Companies Act/Accounting Standards while finalizing/certifying the accounts
and to ensure the assurances given by the managements/statutory auditors to
rectify the mistakes etc at the time of finalization of comments of earlier period
are fulfilled by them. They may also be impressed upon not to submit the
unauthenticated accounts for audit. (Lr.No.284-CA-II/398-99KW dt:12-2-03.)
Periodic meetings may also be taken with the management and statutory auditors
to impress upon them the timely finalization of the accounts as per the provisions
of the Companies Act,1956. Detailed time schedule from the starting of audit by
the statutory auditors till handing over of the signed copy of accounts to the
Accountant General for supplementary audit may be drawn-up in consultation
with the statutory auditors and the management. The time schedule may be
monitored through constant interaction with the statutory auditors and the
management. (DCA’sLr.No.11/A/Rep/28-1/59-60/1379 dt.19.02.1960 in
F.No.82/56/Vol.II). (Lr.No.284-CA-II/398-99KW dated:12-3-03).
On receipt of the authenticated accounts in duplicate along with the Statutory
Auditor's Report and certified copy of the Board Minutes approving the
accounts, it is necessary to ensure that auditors of the company have been
appointed by the Comptroller and Auditor General of India and that the audit
Report has been submitted by such auditor.
Cases involving Litigation/Dispute between the firms of Chartered Accountants
and Public Sector Undertakings:
A case has come to Headquarters notice where a firm of Chartered Accountants
appointed as Statutory Auditors of a Public Sector undertaking under Section
619(2) of Companies Act, had filed a Court
case against that undertaking. Such a situation has obvious implications. If
26
during the course of audit of Public Sector undertakings under our audit control,
any such cases of litigation or dispute between firms of Chartered Accountants
and any of the Public Undertakings and if any case of unbecoming conduct on
the part of firm of auditors come to notice, these may be communicated to
Headquarters office with complete details for information. (Circular No.1 No.
134-CA-V/AO/8-72/Vol.II/KW dt.7. 1. 1984).
2.3 Audit Checks
The following shall be kept in mind during the course of audit under Section
619(4) of the Companies Act, 1956.
Where it is not possible to complete the test audit under Section 619(3)(b) of the
Act, the Report examined generally and comments made on the content or scope
of the Company’s Auditors report or any matters on which we may seriously
differ from the Company Auditor's report, but in our opinion require greater
emphasis.(CAG'S Office . Lr.No.528-Rep/86-57 dt.10.4.1957 in F.No.82/56
Vol.I).
It should be noted that the comments of the Comptroller and Auditor General of
India (as a superimposed auditor) under Section 619(4) of the Companies Act,
1956 should extend beyond the scope of the Statutory Auditors' work and the
review shall not be confined merely to an assessment of the efficiency of the
audit. The issue of a ‘no-remarks’ certificate on the basis of the Statutory
Auditors work within the limited sphere of their duties will give a misleading
impression to the shareholders who should also be made aware of important
objections having substantial financial significance which had been raised with
the Management but not satisfactorily answered before the General Body
Meeting.
It is for the Statutory Auditors to satisfy themselves that the Balance Sheet and
Profit and Loss Account have been approved by the Board of Directors before
they are signed on behalf of the Board in accordance with the provisions of
Section 215(3) of the Act before they are submitted to them for their report
thereon; before their taking up the audit work. The matter should not ordinarily
form part of our comments under Section 619(4) of the Act. If, however, there is
concrete evidence that the procedure adopted is not correct, Audit shall bring it
to the notice of the Company and the Statutory Auditors and comment on it only
after both have refused to act in the manner prescribed. (Lr.No.15/ 56/CL.VI
dt.14.9.1961 of CLB and No.HA/20/18/62/265 dt.15.5.1963 of F.No.IV- 38/60-
61 Vol..I.P.215/c).
The power to approve the accounts as originally prepared or modified
subsequently cannot be delegated by the Board of Directors to a Committee of
Directors. Approval of annual accounts by circulation is permissible. (Authority:
27
D.O.No.965-CA.IV/84-78 from CAG's office addressed to MAB Ex-Officio
DCA, Hyderabad F.No.Circular file Vol.III).
It shall be ensured that Government Companies make appointment of branch
auditors in terms of Section 228 of the Companies Act, 1956 only in respect of
those branches which are not audited by auditors appointed either under the
directives issued by the CAG of India or under the orders of the Central
Government appointing auditors of the Company on the advice of the CAG of
India.
While scrutinising the accounts, it shall be ensured by the audit party that either
the horizontal form or the vertical from of Balance Sheet as given in Part I of
Schedule VI to the Companies Act, 1956 and requirements as to Profit and Loss
Account as enunciated in Part II of Schedule VI to the Companies Act, 1956 are
scrupulously adhered to. The interpretations contained in Part III of Schedule VI
to the Companies Act, 1956 shall also be kept in mind. (No.3.CA/243-64
dt.5.l.1965 P.577 of F.No.82/56/55-56 Vol.II).
Audit of a Government Company ceased to be such during the course of a year
should also be conducted under Section 619(3)&(4) of the Companies Act, 1956.
(343/CA.II/205-69/25.3.80 IV-46/68-69 of Associated Glass Ind. Ltd.)
2.4 Watch on receipt of accounts
A close watch shall be kept on the timely receipt of the authenticated accounts
together with their report thereon by the Statutory Auditors and in case of delays
in the receipt, the matter shall be taken up with the auditors as soon as the
accounts are received (Hqrs. office D.O. No.80/CA.II/l02-79 circular
No.3/CAW/II/State Commercial Audlt-II/80, dt.30.06.1980 P.84/c. of
F.No.IV.17/72-073/Vol.V)
The AG's should complete the supplementary audit and finalise the comments
under section 619(4) of the Companies Act, 1956, within two months of the
receipt of the certified accounts from the Statutory Auditors of the concerned
Government Company. In the context of the overall time limit of six months
available to the Company in terms of Section 210 read with Section. 166 of the
Companies Act, 1956, the period of two months at the disposal of the A.G. for
certification of accounts is reasonable. Accountant General/Group Officer may
maintain constant liaison with the top management of the Government
Companies to ensure that receipt of accounts is expedited well in advance.
(Authority: CAW/IV-17/83-84/Vol.II P.94/c to 92/d, CAG Office circular
No.685.CA 11/185-84 circular no.5.CA II/State Commercial Audit.II/85 dated
12.04.1985).
28
The reasons for the delay, if any, in finalisation and certification of accounts as
ascertained from the Auditors shall be intimated to the Headquarters Office
while forwarding the draft comments/nil comments, etc.
2.5 Phasing of audit
The system of conducting audit more or less simultaneously with the Chartered
Accountants shall be discontinued. However, with a view to avoid delay in
certifying the accounts in exceptional cases audit may be taken up more or less
simultaneously along with the auditors on receipt of a copy of the accounts
(CAG office Circular CA:II-88 No. 1871-CAII/253/82 dt.9.9.1988, file V-
30/87-88 P.l06.C).
In such a case, the preliminary comments or audit objections shall neither be
issued to the Management, nor made known to the Chartered Accountants till the
certified accounts along with the audit report of the Chartered Accountants are
made available to Government Audit. If on the basis of audit observations made
known to the Management after receipt of the certified accounts in the manner
mentioned above, the Management desires to revise the accounts, they may do so
provided the Board of Directors approve the revised accounts and the Statutory
Auditors issue fresh certificate on these accounts and submit them to
Government Audit for scrutiny and comments, if any. (CAG’s Office Lr.No.447-
CA IV/63-72 dt.22.8.1972 circular No.69 dt.18.9.72 F.No.IV-17/72- 73/
Vol.I.P.19/c).
In view of the legal position regarding the responsibility for preparation of the
accounts, it would not be appropriate on our part to suggest revision of accounts,
In any case but If the management choose to revise the accounts, the AG may
have no objection as the intention is only to ensure that accounts as finally
presented at the annual general meeting present a true and fair view of the state
of affairs of the Company and the correct position of working results.
(CAG,Circular Lr. No. 7-CA/O&M/RC/97-83. dt.14.11.1983. F.CAW/IV-17
/83-84/P .110/c).
To avoid undue delay in the revision of accounts, A.G. may insist that the
revised accounts should be sent within a stipulated time. (CAG's circular
No.685-CA.II/185-CA..II/185-84 (Circular No.5/State Commercial Audit-II/85
dt.12.4.85).
Note: Any changes made in the figures of the accounts, any addition/deletion of
notes to Balance Sheet, based on the audit observations, will be deemed as
revision of accounts, which have to be approved by the Board of Directors and
certified afresh by the Statutory Auditors. (CAG's clarification in Lr.No.545-
CA.II 91-72 dt.6.11.73 in F.No.IV-27/73-74 P.223).
29
2.6 Returns to be sent
The delay in finalisation of Annual Accounts by the Public Sector undertakings
has to be reported to Hqrs. every quarter. (CAG Office letter No.149/AO/CA-
II/l/86 dated:10.01.1986). The delay in finalisation of accounts should be
discussed with the statutory auditor to sort out any difficulties in expediting the
finalisation (ADA/s Do.Lr.No.654-CA 11/72-92 dated:14th May 1992 to all
AGs/DCAs).
The matter in regard to Companies whose accounts are not received within the
prescribed time including extension granted, if any, shall be reported to the State
Government periodically. The A.G. may, therefore, report the position of arrears
in compilation and submission of accounts by the State Government Companies
for more than six months to the Secretary of the Administrative Department
concerned quarterly in the, first week of January, April, July and October and the
Chief Secretary from the next quarter onwards, with a copy to the Headquarters
office. (CAG Lr.No.1306-CA.II/185-84 (Circular. No.8-CA.II)State Commercial
Audit II/85 dt:28.6.1985 F.No.CAW/IV-35/82-86/Vol.I).
In order to keep an element of surprise, no advance intimation shall be sent to the
Company where it is decided to conduct audit under Section 619(4) of the
Companies Act, 1956. (CAG Lr.No.1723 Admn.III/349-61 dt:l.ll.1961).
2.7 Watching of Receipt of Supplementary Reports
The Statutory Auditors are required to submit their audit report under section
619(3)(a) of the Companies Act 1956(Report on directions and sub-directions)
along with their report under section 227 of the Companies Act, 1956. Statutory
Auditors of all PSUs to be directed accordingly. This has to be included in the
list of directions issued to the Statutory Auditors under section 619(3)(a) of the
Company Act 1956. In case there is no compliance by the auditors, the matter to
be reported to Headquarters office.
(CAG’s Lr. No. 44-CA-IV/42-2001/Vol-II, dt:31.01.2006)
(CAG’s Circular No. 5967/CA-V/49-83 dt:4.7.1983).
2.8 Section 619 B Companies
The same procedure as followed for finalising comments of Government
Companies may be followed in the case of Section 619 B Companies also. If a
Government Company ceases to be a Government Company and comes under
Section 619B, audit should be restricted to the audit of annual accounts only,
until further orders. The report on the performance of the statutory auditors
should be sent after finalisation of comments on accounts in the same manner as
is done in the case of Government Companies.
30
2.9 Comments of the Comptroller and Auditor General of India under
Section 619(4) of the Companies Act, 1956
For the purpose of Para 3(ii) of Part II of Schedule VI to the Companies Act,
Companies have been classified under five: Categories and the information
required to be disclosed by these five categories of Companies is as detailed
below:
(CAG’s Lr.No.899/CA.II/225-86 dated 10.05.1988)
In case of the Companies with diversified objects which include manufacturing,
ensure that the Companies comply with the requirements of clause 4(c) of Part II
of Schedule VI to the Companies Act, 1956 and give the requisite information
relating to the items manufactured by them viz., (a) the licensed capacity (b) the
installed capacity (c) the actual production (d) raw materials purchased or
acquired and (e) the opening and closing stocks of goods produced. (CAG's
Office Lr. No. 1920- CA.III/247-72 dt.14.12.1972 F.NO.IV-17/72-73/Vol.I
P.42/C).
The total amounts of purchase with quantitative break-up and opening and
closing stocks thereof mentioned in clause 3 (iii) (d) of Part II of Schedule VI of
the Companies Act, 1956 is required to be supplied in the case of a Company
which falls under the categories of ‘Manufacturing and Trading’ in terms of
clauses 3(ii)9a) and 3(ii)(b) respectively and not for a Company which is
engaged in manufacturing and also rendering or supplying services under clauses
Category Information required to be disclosed
a) Manufacturing
Companies
Value and quantities of the raw materials consumed,
value and quantities of opening and closing stock of
goods produced, materials consumed, value and
quantities of opening and closing stock of goods
produced
b)Trading
Companies
Value and quantities of the purchases and opening and
closing stock
c)Service
Companies
Gross Income derived from services rendered
d) Mixed Feature
Companies
(Combination of
(a), (b) and (c)
above)
(a) Total amounts of value and quantities of opening and
closing stocks, purchases, sales and Raw materials
consumed
(b) Gross income from services rendered
e)Other
Companies
Gross income derived under different heads.
31
3(ii)(a) and 3(ii)(c). In such a case, ensure that only the gross income from
rendering or supplying services is shown in addition to the information required
to be disclosed under clause 3(ii)(a) so as to comply with the requirement of the
Act, (CAG's Lr.No.CA.IV/Tech/2-81 No.448-CA.4/87-80 dt: 8-5-1981, F.No.4-
17- 72- 73/Vol.VI).
2.10 Materiality
Materiality is an important aspect that governs the selection and application of
accounting policies by any Company and the extent of audit checks to be
conducted would depend upon the materiality of the item relating to financial
position and operating results. What is material is a matter of professional
judgment based on experience and they vary from company to company and
industry to industry depending upon the size of the undertaking and its
operations. Normally in respect of items appearing in the profit and loss account
and having an effect on the profit of the year, the materiality should be judged in
relation to the profit shown in the accounts and also the total expenditure or
income under the Head. In regard to items appearing in the balance sheet, the
materiality can be judged by relation to the group to which the asset or liability
relates. In many circumstances small amount become material if there is a
statutory requirement, transaction of abnormal nature like embezzlement etc.,
also considered material even though the amount involved is small. This aspect
of materiality may invariably be kept in view while raising comments under
section 619(4) of the Companies Act, 1956. (Circular No.7/CA/O & M/Rc/S-83
No.315-CA/O & M (Rc)97-83 dated 14.11.1983 File CAW/IV-17/83- 84/P
.110/c. and Lr.No.571 CA-II/398-99/KW dt:26.6.02).
Incorporation of the transactions of branches in the accounts of the company:
A profit and loss account for the company as a whole shall be prepared in
compliance with the requirements of schedule VI-Part II and Sections 210 and
211 of the Companies Act 1956.
However, the Management of a Government Company can prepare a separate
profit and loss account of branches, units, etc., if they so choose. Ensure that this
is done in any of the following ways:
(a) Preparing consolidated profit and loss account of the company and additionally
also giving separate profit and loss account of each branch, unit or head office.
(b) Preparing the profit and loss account in a columnar form so as to indicate the
transactions of the company as a whole as well as branches at one and the same
place.
(CAG Office Ir.No.3.CA.IV/Tech/80 No 63-CA IV/8-80 dt.06.02.1980 F.No.IV-
17/72-73/Vol.IV p.530).
32
2.11 Preparation of profit and loss account during the period of
Construction
(i) In terms of Section 210(3) of the Companies Act, 1956 it is mandatory for every
company to prepare a profit and loss account, by whatever name it may be called
detailing its revenue expenditure and income even when the company is in
construction stage.
(ii) Such profit and loss account shall be an account and not a schedule to the
balance sheet.
(iii) In case any company in construction stage is not complying with the provisions
of Section 210(3) of the Companies Act, 1956, a comment is to be taken under
Section 619(4) of the Companies Act, 1956. (CAG's Ir.No.539/CA III/74-69
dtd.01.07.1969 and 81-CA/IV/15-79 dtd.29.01.1981).
2.12 Material issued for works by the Construction Companies
In certain companies, in the work-in-progress account to which material issued
for works had been debited, no adjustment was made in respect of quantity
remaining at site unused on the last day of accounting year, whereas in others the
value of such stores was credited to work-in-progress account and accounted for
separately in the Balance Sheet as "materials at site account" under Current
Assets. In cases where the works were being executed on behalf of other
agencies including State Government Departments on cost plus centage charges
in respect of the materials lying unused at site, under mercantile system of
accounting, the work-in- progress should represent the actual expenditure
incurred on a contract and credit for centage charges should appropriately be
taken on the cost attributable to the contract actually executed, i.e., to the extent
of materials actually consumed on the works. Therefore, it may not be
appropriate for the companies to take credit of centage charges on the value of
materials lying at site as on the last date of accounting year.
The above aspect may be kept in view while auditing the accounts of
construction companies and comments under Section 619(4) of the Companies
Act may be proposed where companies have taken credit of centage charges in
respect of material at site (Extract of CAG’s Lr.no.1192-CA.II/156.79 dt.7th July
1982).
In addition to the regular unit work executed in their normal findings certain
companies (like APIIC, AP State Housing Corporation; AP State Police Housing
Corporation etc.) undertake deposit works for other agencies. Audit may
examine the deposit received, the process of execution, whether the work
resulted in profit or loss, whether there was any balance to be collected/refunded
to the concerned agency, etc.
33
2.13 Valuation of Closing stock
Mode of valuation of closing stock is required to be stated in the Balance Sheet
as stipulated in S.No.VI of The Companies Act, 1956. Two types of valuation of
closing stock are commonly adopted (i) valuation accounting to cost and (ii)
valuation accounting to market value. The lower of the two valuations adopted
with accounts.
For the purpose of valuation of closing stock, the cost should represent (a) the
cost of purchase (b) cost of conversion and (c) other costs incurred in the normal
course of business in bringing the inventories up to their present location and
condition. Cost of purchase should consist of the purchase price including duties
and taxes, freight inward and other expenditure directly attributable to aquisition
etc., Cost of conversion should consist of costs which are specifically attributable
to units of production, i.e., direct labour, direct expenses and production
overheads. Costs other than production overheads are sometimes incurred in
bringing the inventories to their present location and condition, for example,
expenditure incurred in designing products for specific customers. On the other
hand, general administration overheads, research and development costs, selling
and distribution expenses and financing charges should usually be considered as
not relating to putting the closing stock in the present location and condition and
should, therefore, be excluded from the computation of closing stock.
While conducting the audit of accounts of Public sector undertakings, if a
Company is found to have not followed the above method of computing the cost
for the purpose of valuation of closing stock, a comment under Section 619(4) of
the Companies Act, 1956 may be taken bringing out its quantitative effect on the
account in lines of CAG Office Lr.No.14 CA.IV/18-86 dt.11.1.1988. These
instructions will not however be applicable to the following categories of
inventory.
i) Plantation, Forestry, Agricultural commodities and live stock;
ii) Extractive industries such as mining, quarrying, etc.,
iii) Work in progress under long term contracts, such as Engineering, real estate
development and construction projects;
iv) Shares, debentures and other securities held as stock in trade;
v) Immovable properties;
vi) Loose tools;
(CAG's Lr. No. 25/CA.IV/45-88(CA.IV/Tech.6/89) dt..5.1.90).
In respect of i, iv, v and vi, the valuation shall be the cost or realisable value
which ever is less. In case the valuation is brought out as per Market value the
treatment of profit element (i.e Market value - Cost) if any, may be examined.
34
2.14 Booking of sales against F.O.R. destination contracts
Whenever the value of goods manufactured against specific orders covered by
F.O.R, destination contracts are treated as sales in their accounts immediately on
their delivery to transporters but before the goods reached destination the
Government Companies should be advised . To change its accounting policy to
bring it in line with the correct legal position as well as the accounting standard.
Mere appropriation of such goods and their delivery to the transporters would not
pass on the property/ownership in the goods to the customer. If the Company
does not agree to make a suitable change in the accounting policy a comment
should be made on the accounts under Section 619(4) of the Companies Act,
1956 bringing out clearly the effect of such incorrect policy on the working
results of the Company (CAG's Lr.No.449-CA.III/712.87 dt.2.3.1989).
2.15 Travelling Allowance
Ensure that traveling expenses paid to Directors were exhibited distinctly or
disclosed suitably in the accounts.
2.16 Audit fees
The audit fee shall be fixed/revised appropriately as contemplated in section
224(8)(aa) of the Companies Act,1956 read with the guidelines issued by the
Dept of Company affairs vide 7/76 dt. 8th April, 1976. As per the notification
No.1-CA(7)/75/2004 of 12 the May,2004 of the Institute of Chartered
Accountants of India treating acceptance of low audit fee by Statutory Auditors
has to be treated as professional
misconduct.(Lr.No.AG(C&RA/Caw/Companies/2004-05/63 dt.20.04.05)
It shall be ensured that expenses like traveling out of pocket expenses, etc., that
are paid to the Auditors, in addition to the audit fees, are included distinctly
under the head ‘Audit fees’ and not included in any other functional or objective
heads like entertainment, traveling expenditure.
2.17 Entertainment expenditure
In the light of the limits provided in the Income Tax Act on this expenditure, it
shall be seen whether such expenditure has been shown distinctly or merged with
under miscellaneous expenditure or partly under each of the heads. If the
miscellaneous expenditure includes entertainment expenditure, ensure whether a
note disclosing that "apart from the entertainment expenses shown under
separate head, miscellaneous expenditure also includes expenditure in the nature
of entertainment amounting to Rs…….. " was appended.
(CAG's letter no.65-CA.IV/5-72 dtd.15.01.1972 F.No.IV 17/69-70 p.248C.)
35
2.18 Encashment of leave
It shall be examined first the trend of encashment of leave by the employees for
the last three years. Since the introduction of the facility, it may be ascertained
whether a uniform trend of encashment of the leave by the staff is discernible
and the amount of liability is large. In case a fair estimate is possible and the
amount involved is not insignificant, then it shall be ensured that provision for
liability was made. (Circular No.173 dt.28.06.1979 F.No.IV-M/Vol.IV).
2.19 Gratuity
Ensure that the Company has either provided for the gratuity liability or
indicated the quantum of liability by way of a note, or the auditors have qualified
in their report.
Ensure that, with effect from 15.06.1988, the Company provided for the gratuity
liability on accrual . basis. (CAG's Office Lr.no.334-CA.IV/54-77 dt.12.05.1978
F. No. IV-17/72-73/ Vol.IV. p.60c)
2.20 Accounting treatment of Government grants
The Institute of Chartered Accountants of India has issued Guidance Note on the
subject "Accounting for Capital based grants". While one of the principal
methods for accounting for capital based grants is to transfer to a capital reserve
which may be regarded as not distributable as dividend, the following accounting
treatment has also been recommended for grant or subsidy given acquisition of a
specific Fixed Asset.
(a) Credit the grant/subsidy to the specific Fixed Asset for which the grant or
subsidy is made available. This procedure is also stated to be in conformity with
that provided for in the Income Tax Act, for computing the actual cost of such
assets for the purpose of depreciation.
(b) To keep the amount of grant/subsidy in a Special Reserve account and to
transfer proportionate part thereof annually to the P &. L account with reference
to the life of a fixed asset for which a subsidy was made available. The effect of
the Accounting treatment on the revenue account would be the same as in other
alternative method.
(c) Accounting treatment of the grant is purely a management decision.
It would be appropriate that any grant/subsidy received for acquisition of fixed
assets is only treated as capital reserve.
However, any Government Company/Corporation follows different accounting
treatment a suitable comment is to be included under Section 619 ((4) of the
Companies Act. (CAG's Lr.No. CA.IV/Tech. 12/82 No. 584-CA.IV/77- 75
dt.l.9.1982).
36
It has been decided that accounting of grants relating to specific assets
consistently by either of the two methods (i.e.. setting up of a grant as deferred
income or deducting the grant in arriving at the carrying amount of assets) is
acceptable and a comment may be taken only in the case of Government
Company/Corporation which follows an accounting treatment different from
either of the two methods indicated in the accounting standard No.20 and the
Guidance note on "Accounting for capital based grants" published by Institute of
Chartered Accounts of India.
Where the grant or subsidy is with reference to the total investment on an
undertaking or by way of contribution towards the capital outlay of the
undertaking and where such contribution has the characteristics similar to those
of promotes contribution, the grant should be treated as a capital receipt. In the
case of such grants, the Guidance note on "Accounting treatment for capital
based grants of the Institute recommends that the amount of the grant may be
transferred to a capital reserve which should be regarded as not distributable as
dividend. A comment in such cases will therefore be necessary if the amount of
such grant is not treated as a capital receipt not available for distribution as
divided. (CAG's Lr.No.124- CA.IV/77.75 Vol. II-CA. IV{Tech. 1-85
dt.4.2.1985).
2.21 Accounting treatment for excise duties
a) Excise duty should normally be considered as a manufacturing expense and like
other manufacturing expenses be considered as an element of cost for inventory
valuation.
b) Where excise duty contributes directly to bringing inventory to its present
location and condition and is a direct cost it must be included as an element of
cost in the valuation of inventories irrespective of whether the direct costing or
the absorption method of costing is used. Excise duty would normally be so
considered when it is a specific or ad valorem duty
c) Where excise duty contributes directly to bringing inventory to its present
location and condition but is in the nature of a manufacturing overhead, it need
not be included as an element of cost when the direct costing system is used but
must be included when the absorption costing system is used. Such a situation
will normally arise when excise duty is levied on a compounded basis
d) Where excise duty is not considered as a manufacturing expense on the basis that
the liability arises only after manufacture is completed and the inventory is
valued at direct manufacturing cost it may be charged out as an expense of the
period in which the expenditure is incurred, provided (i) the accounting treatment
is consistent from period to period and (ii) the full liabilitv is provided in respect
of all excisable goods manufactured during the period irrespective of whether
such goods have been removed from the factory or stored in bond. It is also
advisable in such circumstances to disclose the accounting treatment followed.
37
e) Where excise duty is paid on excisable goods and such goods are subsequently
utilised in the manufacturing process the duty paid on such goods becomes a
manufacturing cost and must be included in the valuation of work-in-progress or
finished goods arising from the subsequent processing of such goods
f) Where the liability for excise duty has been incurred but its collection is
deferred, provision for the unpaid liability should be made. If provision is not
made, the fact must be disclosed by a note on the account.
g) Where the excise duty is not expensed out, excise duty applicable to items in
inventory cannot be considered as a pre-paid expense. It is objectionable to treat
it as a deferred charge but the preferable treatment is to include it as an element
of cost in the valuation of inventories.
(Extract from the guidance note on accounting treatment for excise duties
received through Comptroller and Auditor General. of India's letter No.740-
CA.IV/56.79 dt..l0.8.1981).
2.22 Treatment of Packing Materials
In accordance with the provisions contained in para 3(ii)(a)(1) of Part.II of
Schedule. VI of the Companies Act, 1956, the value of raw materials consumed,
giving item-wise break-up and indicating the quantities thereof has to be
disclosed in the Accounts of a Company- in respect of the period covered by the
profit and loss account.
Ministry of Law and Justice and Company affairs, have opined vide their letter
dt.7.4.1988 that:
i) the packing material which physically enters into the composition of the finished
product be considered as "Raw material" for the purpose of para 3(ii)(a)(1) of
Part II of Schedule VI of the Companies Act, 1956.
ii) the packing material except at (i) above does not come within the purview of
expression "Raw materials" used in the above para. (CAG's lr.No.169.CA.IV/51-
81 dt.29.4.1988).
2.23 Reimbursement of expenses to the Directors
(i) Items like reimbursement of entertainment expenses, travelling expenses,
motor car expenses, medical expenses etc., which are in the nature of
reimbursement to Directors for expenses incurred by them on the Company's
business are not covered by clause 4(vi) of Part II of Schedule VI to the
Companies Act, 1956. If, however, a Director is paid fixed travelling allowance
then it shall be disclosed under clause 4(vi) of part II of Schedule VI to the
Companies Act, 1956.
(CAG's Office Ir.No.226-CA.IV/55-76 d:.23.3.78 IV-17/72- 73/Vol.IV p.38 C)
38
(ii) In case where the entertainment expenses were treated as 'business expense'
on the basis of vouchers produced, it shall not require a separate disclosure under
clause 4 of part II of Schedule VI of the Companies Act, 1956.
(CAG's' Office Lr.No.16-CA.IV{Tech/79 No.834-55-CA.IV/76 . dt. 16.11.1979
F.No.IV.17/72-73/Vol.IV p.348).
2.24 Advertisement
See whether the expenditure on publicity/advertisements (BPE OM dt:18.12.
1978) was shown as a distinct item.
2.25 Rent
The Companies Act, 1956 specifically requires exhibition of rent separately from
rates and taxes. If there is any genuine difficulty for exhibition of rent separately
from rates and taxes in individual cases, while forwarding accounts and the
comments under Section 619(4), to Headquarters it is required to indicate
specifically the reasons where separate exhibition has not been possible. (No.
290/CA.IV/52-69 dt.21.07.1969 of IV-17/69-7Q SI.No.20/p.14)
2.26 Prior period adjustment account
As adjustment of substantial expenditure in subsequent years may look prima
facie incongruous in view of unqualified certification of accounts of earlier
years, reasons for booking of such expenditure (where it is substantial) shall be
looked into.
Likewise write back of Reserve and Provisions may also be examined and
reasons for such write back may be closely scrutinised.
2.27 Inter Unit transfers
No credit in respect of the inter unit transfers shall generally appear in the profit
and loss account. But where they appeared it should be ensured that credits are
not in any way inflated.
In respect of capital jobs, care should be taken to ascertain that the jobs are not
valued above the cost. As most of the undertakings sell their products at less
than the cost price, the valuation of the capital jobs executed by .the undertaking
itself at cost may, in effect, mean inflation of capital expenditure by credit to
revenue. Attempts should therefore be made to correlate cost of such jobs done,
with the tenders, if any, or the market rates, if any, available. In cases where
there are significant variations between these two i.e., cost is more than the
market price, factual comment may be made
39
(Hqrs.lr.no.290.CA.IV/52-69 dt.21.7.1969 p.14/c F.No.IV- 17/69-70).
2.28 Commission
Commission (earned) shall be shown as deduction from the cost of investments
and not credited to profit and loss account as income.
(890-CN154/67 21.8.67 of CAG in file no.IV-B/67-68 of APIDC Comments
File).
2.29 Hire Purchase transactions
The more appropriate basis would be to relate the profit to the proportion of the
sale price realised rather than the time basis.(CAG's Office Lr.No.SO7-
CA.II/124-69 dt.16.12.1970 F.No.IV-14/69-70/Vol.II Circular No.3 dt:l:l.1971).
2.30 Items of Balance Sheet
(A) Share Capita1
1. The Memorandum and Articles of Association may be studied to see that the
subscribed capital does not exceed the authorised capital and that the requisite
procedure has been followed i.e., the Directors have passed resolution (other than
in respect of the shares taken by the signatories to the memorandum).
2. See whether there is specific resolution of Board of Directors for the allotment of
shares.
3. In case of subsidiary companies it may be seen whether the number of shares
held by the holding company as well as the ultimate holding company and its
subsidiaries have been separately stated.
(B) Reserves and Surplus
Shareholders/Directors' minutes authorising transfers to or from reserve accounts
shall be seen. The company's Articles of Association shall also be seen in order
to verify that the operations in this respect are in accordance therewith. The
development rebate reserve ceases to be statutory or committed reserve after the
expiry of the specified period and in such cases, ensure that the same is not
shown side by side with a debit balance of profit and loss account.
While examining the classification of the reserve the distinction between
reserves and provisions shall be borne in mind. (The term "Provision" would
include any amount by way of providing for any known liability of which the
amount cannot be determined with substantial accuracy e.g. provision for
taxation).
40
(CAG's Office Lr.No.815-CA IV/43-77 dt.13.12.77 p.189 of F.No.IV-17/72/73
Vol. III).
Care shall also be taken to see that if any portion of the reserve account is of
capital nature (and not a revenue reserve) such portion is not afterwards
transferred to the credit of the profit and loss account or applied in reduction of a
charge which should properly be debited to profit and loss account.
2.30.1 Free reserves include the following:
All legal and statutory reserves, which are not funded and not specific and for
whose utilisation (for the general purpose of the business except for distribution
of dividend) there is no embargo.
2.30.2 Legal or Statutory Reserves
Examples of such reserves are given hereunder:
i) Development Rebate Reserve.
ii) Reserve Fund created under Section 35(1) and 35(A) (i) of the State Financial
Corporations Act, 1951
ii) Reserves created for passenger amenities, employees' welfare, expansion
programme road development etc. under Section 30 of the Road Transport
Corporations Act, 1950.
iii) Reserve Fund created under Section 30(i) of the State Warehousing Corporations
Act, 1962
In regard to the exhibition of subsidy received from the Government of India
under the subsidised housing scheme, it shall be ensured that the following
procedure is followed:
Till the expiry of agreement with the Government of India, the amount of
subsidy shall be exhibited under sub-item No. (3) of item No.II “Reserves and
surplus” of schedule VI of the Companies Act, 1956 under the caption "Subsidy
received from Govt of India under subsidised housing scheme for industrial
workers"
The contingent liability for the subsidy received by the Company shall be
indicated by way of suitable note in the Balance Sheet that in the event of breach
of the terms of agreement, the Government will be entitled to take possession of
the land and building and sell them,
41
(a) After the expiry of the agreement, balance standing under the above head shal1
have to be transferred to Capital Reserve(not available for distribution as
dividend).
(b) The cost of the buildings shall be exhibited on the assets side of the balance sheet
at their Full value.
(c) Depreciation on buildings shall be provided on the gross value of the buildings.
(CAG's Lr.No.HA/83-59/1522 dt.28.3.60 p.41C of F.No.82/56/55-56 Vol.II).
2.30.3 Loans
Whether the nature of security has been clearly indicated or not shall be seen. To
ensure the correctness of classification of loans as long term or short term, the
totality of the loan shall be taken into consideration. Short term loans will
include those which are due for not more than one year as at the date of Balance
Sheet. However, any instalment of a long term loan which has already become
due for payment or is payable within one year from the date of the balance sheet
shall not be regarded as a short term loan within the meaning of general
instructions (d) under notes to Part I of schedule VI to the Companies Act, 1956.
2.30.4 Interest accrued
See whether interest on all loans has been accounted for up to date. Verify the
interest calculations generally. Ensure that the interest accrued and due on
secured as well as unsecured loans was included under these loans and exhibited
separately and the interest accrued and not due was shown under 'current
liabilities and provisions'.
2.30.5 Current liabilities and Provisions
In addition to verification of the total balances of the trade creditors' ledger with
the balance in the purchases/bought ledger total account, check the individual
balances at the end of the year with creditors statements. Peruse invoice files
relating to few weeks in the subsequent year in order to ensure that all the
invoices pertaining to the year under audit have been brought into account.
Go through the Minutes of the meetings of the Board of Directors to see whether
there is any reference therein to the claims against the Company or other actual
or contingent liabilities.
See whether provision has been made for all wages and salaries accrued up to the
date of the accounts.
Review the ledger accounts recording rents, rates, taxes, water, electricity etc.,
and see whether the charges accrued during the year and the amount accrued due
42
at the end of the year compare with similar items in previous year. Similarly,
comparison may be made regarding expenses of a fixed nature.
Inquire whether there were any special claims against the Company or whether
there were any legal or other charges for which claims/accounts had not been
received.
See whether there are any
i) debit balances under sundry creditors and if so whether the same have been
shown under the assets side of the balance sheet and
ii) suspense accounts representing differences in books, want of details etc., if so,
the same should be suitably commented.
In providing liability for imported items from foreign countries, see whether the
conversion of foreign currency has been correctly taken into account
If there is any excess provision towards doubtful realisation, it may be seen
whether the same is not included under current liabilities and provisions, but
shown under Reserves and Surplus.
See the adequacy of provisions made towards contingencies, provident fund,
insurance, gratuity and staff benefit schemes.
2.30.6 Dividend
See whether the Company has declared dividend out of profits only after the
transfer of the reserves of the Company of such percentage of its profits for that
year as may be prescribed as per Sec.205 (2A) of the Act. A higher percentage
can be transferred to the reserves provided such transfer is in accordance with the
rules framed by the Central Government.
Where because of loss or insufficient profits in the current year, a Company may
decide to declare dividend out of the carried forward profits of the previous year
or by drawing from reserves. In such cases there is no obligation to transfer to
reserves as prescribed, in respect of such carried forward profit or withdrawals
from reserves. This is true even in cases where there was no prescribed transfer
to reserves in the previous years.
Adjustment relating to the previous years such as, excess taxation provision
written back etc. shall be made while computing the profits available for
dividend declaration.
43
Items like development rebate reserve written back or adjustment relating to the
previous years, etc, would also have to be taken into account before arriving at
the current profits.
See whether the unpaid amount of dividend was transferred, in accordance with
the provisions of Sec.205A of the Act, to a separate account in a scheduled bank,
if the dividend remained unpaid for more than 42 days after its declaration. This
amount will have to be transferred even if the shareholders have not encashed the
warrants.
Any dividend lying unpaid for a period of three years should be transferred to the
General Revenue account of the Government. (A shareholder claiming such
amount would have to apply to the Government under Section 205 (8) of the
Companies Act, 1956)
2.30.7 Provision for taxation
Examine the provision for taxation bearing the following points in mind:
a) Advance payment of tax and penalty levied if any,
b) Tax liability in foreign countries,
c) Development rebate,
d) Adjustment of tax deducted at source and
e) Final adjustment of the tax against advance payments.
The distinction between provision for taxation and reserve for taxation shall also
be borne in mind.
2.30.8 Contingent liability
Ensure whether the following items were also included under this heading and
shown separately as a foot note:
a) Estimated amount of contracts. remaining to be executed on capital account and
not provided for,
b) Suits filed by or against the Company,
c) Matters under arbitration
d) Pending labour demands,
e) Penalties under contracts
f) Sales tax demands which are under appeal by the Company,
44
g) Sales tax liability arising from non-receipt of declaration forms and
h) Guarantees given by Government on behalf of the Company to outsiders, etc.
2.30.9 Fixed assets
If the Company takes over the assets and liabilities of the projects, it may be seen
whether a formal agreement of transfer has been concluded. If not, whether the
accounts indicate the position to that effect shall be checked.
Accounting treatment of land acquired for leasing out after development etc, and
of premium receipts by Companies.
When land was acquired by the State Government and passed on to a Company
for development and leasing out, the cost of acquisition and expenses for
litigation etc., being borne by the Company and when there was definite
prohibition imposed by the State Government that the land so acquired and
passed on to the Company shall not be transferred to any party except by way of
lease, see whether the following procedure was followed in connection with the
land, premium, premium/salami and other realizations.
(i) Though the Memorandum of Association of the Company authorises it to deal in
land, in view of the specific prohibition by the State Government regarding the
disposal of land by way of sale, such land constitutes the fixed assets of the
Company. Accordingly, the land whether leased out or not has to be exhibited in
the fixed assets section of the Balance Sheet. The cost of the land leased out
including the development expenditure should be segregated from the cost of the
land not leased out including the development expenditure incurred thereon, if
any, and exhibited separately in the balance sheet.
(ii) Since the land developed and leased out is not in physical possession of the
Company, a foot note indicating that "….. acres of land developed had been
leased out for a period of ………years" shall be appended to the Balance Sheet.
(iii) The premium/salami receipt in respect of land leased out constitutes the income
of the Company for the entire period of lease and hence shall be distributed over
the period of the lease equally initially accounting for the premium as and when
received to a "Rental Suspense" or "Premium Suspense" and then transferring the
proportionate share income to the profit and loss account of each year
iv) Depreciation allowance on assets at the cost of lesser will qualify as an
admissible expenditure against such income depending upon the conditions of
lease, nature of expenditure incurred on development etc.
At the same time, it shall be kept in view that no depreciation is allowable on
land, roads etc.
45
v) The value of the developed land leased out or that of the undeveloped land shall
in no way be disturbed by the premium receipts including . forfeiture of premium
moneys, forfeiture of earnest moneys etc., which constitute income of the
Company.
The above suggested accounting treatment is applicable where the lease is for a
longer period of 90 years. If the lease is for a longer period or in the nature of
perpetual lease eg., for 99 years, it would not be correct to accord the same
treatment, as in such a case it would be logical to conclude that the lease virtually
amounts to sale (CAG's Office Lr.No.430-CA.II/22-69 dt.14.10.1970 F.No.IV-
17/69-70).
Ensure that in cases where the land was acquired free of cost, its fair price has
been exhibited in the Balance Sheet with creation of corresponding capital
reserve.
To ensure the ownership of the freehold property, examine the actual title deeds.
As regards lease hold property the lease deed shall be seen (BPE.I/ADV-Fin/69
forwarded in CAG's office Lr.No.675-CA.IV/48-69 dt.18.11.1969 p.144 of
F.No.IV 14/69-70Nol.I).
Ensure that the legal expenses and conveyance charges in connection with the
purchase of property were charged to the asset account.
See whether (i) land acquired has been brought into account even though the
formalities for taking possession of the land are not completed. (ii) there is
indication regarding the value of land not fixed even though acquired and taken
possession of.
2.30.10 Expenditure incurred on social overheads
The following items of expenditure constitute social overheads.
i) Expenditure on township.
ii) Maintenance of schools and educational facilities.
iii) Provision of medical facilities over and above those which are statutorily required
to be maintained by the undertakings.
iv) Maintenance of dairy farms, vegetable farms, etc.
v) Provision of subsidised transport and canteen facilities.
vi) Subsidies in regard to social and cultural activities.
Ensure that (i) the capital expenditure on township and for providing various
amenities referred to above were exhibited separately in the balance sheet under
fixed assets and the depreciation of the capital expenditure invested in such
46
overheads in the appropriate schedules and (ii) the revenue expenditure on
township and other social overheads was exhibited on the debit side of the profit
and loss account (OM NO.BPE (i) 17/ABV(F)/69 dt.5.3.1969.F.No.IV-14/69-
70).
2.30.11 Plant and Machinery and Equipment
Where a newly formed Company has taken over plant and machinery from an
existing Company or a Government Department, the purchase agreement shall be
examined to verify the valuation. Where a lump sum was paid for all the assets
taken over, the basis of assessment of values of various assets shall be seen with
reference to technical reports. Subsequent purchases of plant end machinery shall
be verified from the invoices duly supported by receipts given for payments.
It shall be ensured that the expenses for erection of machinery only were
capitalised and that revenue expenses were not added to the value of the asset.
Particular care shall be taken to verify the distribution of administrative expenses
during the construction period.
The adjustment of the value of the assets in respect of plant and machinery
received under deferred payment scheme shall be examined to see that full value
of the asset was brought into account. Where machinery and equipment was
manufactured by the Company, examine the job cards and estimates. This cost
would generally include works overhead, besides direct material and direct
wages.
The plant and equipment register and the opening balance, additions, sales,
transfers and the closing balance shall be checked. Examine whether the
individual balances in the register agree with the total in the general ledger.
Ensure that the machines declared as surplus and pending disposal have been
shown under current assets instead of under fixed assets.
See whether the adjustments in the value accounts of assets and liabilities
consequent upon difference in exchange rates are made at those rates quoted by
Indian or foreign banks who are authorised dealers in currencies in India. On
actual discharge of liabilities made at the ruling rates, the variations are
accountable to revenue account and not to capital account. No objection need be
taken to a particular method of accounting followed by Government Companies,
provided the method followed is consistent and a clear disclosure is made about
the method followed, the rate of exchange adopted for different items, the total
amount of difference adjusted during the period indicating the amount debited or
credited to the profit and loss account in respect of capital items and the amount
of difference dealt with in other fashion, is made in the financial statements by
47
way of a note. (CAG's Office Lr.No.821/CA.IV/44-77 dt:22.12.77 P.215C
F.No.IV.17/72-73/Vol.III).
2.30.12 Depreciation
The Government of India, Ministry of Finance (Department of Expenditure),
have issued instructions to all undertakings which were following diminishing
balance method to switch over to straight line method as soon as possible. The
compliance with these instructions shall be examined (Vide OM. No.F3(S)-
PC/62 dt.11.4.1963)
It shall also be seen that the Company is following consistent policy regarding
the provision of depreciation and that the method is not changed. Where there is
a change, the need for the same shall be examined and ensure that an appropriate
note is appended to the accounts.
The provision for depreciation on additions shall also be examined with
reference to the useful life left for the original asset.
No comment under Section 619(4) of the Companies Act, 1956 for charging full
depreciation in respect of assets acquired during the year on pro-rata basis
rounding to 1,3,6 months need be taken provided (i) the method followed by the
Company is on a consistent basis and (ii) the requirement of Sections 205(2) and
350 of the Companies Act for writing off the asset to its residual value at the end
of the specified useful life is met. Determination of Depreciation under section
205 (2) of the Companies Act, 1956 consequent upon changes in the Income Tax
Rules introduced by Finance Act, 1983:-
It has been decided that under sub-section (5) of section 205, "specified period"
for providing depreciation on straight-line method under clause (b) of sub section
(2) of section 205 has to be recalculated on the basis of the revised rates under
Income Tax Act. The Companies which adopt the straight-line method of
depreciation should provide for the depreciation in their annual accounts on the
following basis:
a) No. of years for which asset has already been depreciated, before the change in
depreciation rate. Say 'A' years.
b) Specified period calculated at revised rates by which 95% of the original cost of
asset would have depreciated on written down value method at revised rates. Say
'B' years.
c) Written down value of the asset in the books at the beginning of the year in
which rates have been. Say, Rs. 'X'.
d) 5% of the origina1 cost Say, Rs.'Y'
48
e) Fixed instalments of depreciation to be provided each year after the rate has been
changed shall be calculated as per the formula. (X - Y) (B - A)
If 'A' is greater than 'B' then the amount (X-Y) may be provided for as
depreciation in the year in which rates are changed
(C.A.G's Circular No. CA/O & M(RC)/9-85 No.174-CA/O&M(RC)/4-83 dated
06.06.1985).
On reconsideration of this Department's Circular of even number dated
10.01.1985 on the subject the Department is of the view that once "Specified
period" is determined at the time of purchase of an asset in accordance with the
procedure laid down under section 205 (5) read with section 350 of the
Companies Act with reference to rates of depreciation under Income Tax Act at
that time and amount of depreciation fixed under section 205 (2) (b) of the
Companies Act, the same need not be changed subsequently consequent on
changes in the rates of depreciation under Income Tax Act. It is, therefore, open
to the Companies to provide for deprecation under clause (b) of section 205 (2)
of the Companies Act on the basis of rates of depreciation prescribed under
Income Tax Act and in force at the time of acquisation/purchase of the asset.
(C.A.G's Lr.No.467-CA IV/44-77 KW II dated 01.10:1986).
Pending receipt of reply from the Department of Company Affairs, compliance
of circular No.1/86 forwarded with their letter No.01.01.1986/CL V dated
21.05.1986 may not be objected to in audit.
(C.A.G's Lr.No.611-CA IV/47-77 KW VII dated:22.12.1986).
2.30.13 Depreciation as per amended Act
(i) Schedule XIV has come into force on 2.4.1987.
The amended provisions of sections 205 and 350 of the Act have come into force
on 15.6.1986 as per the notification issued by the Department of Company
Affairs. The Companies which have closed their accounts on or before 15.06.88
are not required to give effect to the rates of depreciation as per schedule XIV in
their accounts. Since the amended provisions have been enforced recently it is
open to the companies to provide depreciation with suitable clarificatory notes
forming part of the accounts.
(ii) An option under the Department's circular issued in 1986 would be available to
the Companies as at present not recomputing the specified period where the
Straight Line method is used, i.e, where a company decided to follow the 1986
circular, assets on which S.L.M. depreciation was being charged can continue to
be depreciated at old S. L. M. rates.
49
In view of the department's circular No.1 of 1986 dated 21.05.1986, specified
period once determined may not be recomputed. The Companies which follow
this circular may, therefore, continue to charge depreciation at the old S.L.M.
rates in respect of the already acquired assets against which depreciation has
been provided in earlier years on S.L.M. basis.
(iii) Rates as contained in Schedule XIV are the minimum rates and, therefore, a
Company shall not charge depreciation at rates lower than those specified in the
Schedule in relation to assets purchased after the date of applicability of the
Schedule. However, if on the basis of a bonafide technologica1 eva1uation,
higher rates of depreciation are justified, they may be provided with proper
disclosure by way of note forming part of annual accounts.
(iv) S.L.M. rates (corresponding to the W.D.V. rates as per Schedule XIV) can be
different than those prescribed under Schedule XIV provided a Company
continues to determine the rates as provided under Section 205. Thus, against
the S.L.M. rates prescribed under Schedule XIV of 11.31% (triple shift rate for
general plant and machinery), a Company can charge depreciation at the rate of
10.56% - the rate of 11.31% has been determined on the basis of 8 years and 6
months or so of specified period whereas if 95% is divided by 9 years the
corresponding S.L.M. rate comes to 10.56%, the method being that for
calculating the S.L.M. rates complete years are taken into account whereas the
rates under Schedule XIV also take into account fractions of years.
A company must necessarily provide S.L.M. depreciation on the rates prescribed
under schedule XIV and the interpretation that fractions of years cannot be taken
into account is not correct.
(v) It is a fact that there is no bar for a Company to write back in future years the
excess depreciation provided in earlier years.
(vi) The rationale for providing Schedule XIV is that the accounts may give a true and
fair view of the affairs of the Company. The rates of depreciation under the
Income Tax Act are for different purposes as the said Act is a fiscal legislation.
The Companies should calculate depreciation separately for purposes of the
Income Tax Act and the Companies Act, 1956.
(C.A.G's letter No.CA IV/Tech 11-89 No.334-CA IV/1-89 dated 22.6.89
forwarding copy of Government of India, Ministry of Industry, Department of
Company Affairs circular No.2/89 dated:7.3.1989, and C.A.G's letter No.473-CA
IV/1-89 (CA IV/Tech - 8/89) dated:16.10.1989, File CAW/I-3/BB-89).
50
2.30.14 Capital work-in-progress
Whether the cost of spares purchased for both capital works and maintenance has
been segregated and only the former is included under work-in-progress, if not
whether the position is explained in the accounts.
Whether the work-in-progress includes any advances to field officers.
Whether all the issues of stores for .capital works have been properly booked
under this head instead of the same remaining under closing stock.
2.30.15 Investments
The nature of the investments and the classification shall be examined. The
existence of these shall be physically verified, if considered necessary. The
dividend or interest due on these shall also be verified with reference to the
dividend warrants/advances.
Exhibition of market value of investments made by Government Corporations/
Companies
See whether the local stock exchange rate was generally adopted for purpose of
exhibiting the market value of investments of a Company in its balance sheet.
Where more than one rate from different stock exchange are available, the lower
of such rate only may be taken into consideration (No.77/70-71 Circular No.1
dt:23.12.'70)
2.30.16 Loose tools
Whether any items of machinery are included under "Loose Tools" instead of
under "Fixed assets" may be seen.
2.30.17 Stock-in-trade, stores etc
Test check the totals and extensions of the stock books or sheets. Compare the
prices with those of some recent invoices for goods purchased by the Company
or with the prices quoted in trade journals or bulletins.
Whether "stock-in-trade" includes raw materials if so the same has to be
excluded.
Enquire into the system for ensuring that all goods which were included in stock
had been duly charged up as purchases and that goods which were already sold
(during a financial period) had not been included in the closing stock (at the end
of such period).
51
The total stock at the end of the year may be compared with that of the previous
year and wide variations shall be enquired into and where stock was analysed
department-wise, comparison shall be made with the totals relating to each
individual department year by year.
The details shown by the stock books or sheets may be test checked and it should
be seen that a certificate has been recorded by those engaged in taking stock and
in the work of pricing, extending and adding figures. The certificate from the
Managing Director and/or other responsible person that the figure shown by the
inventory register/statements was correct to the best of his knowledge and belief,
should be insisted upon to be recorded.
See whether the valuation of stock-in-trade was done at cost or market price
whichever was lower at the close of the financial year.
In case of manufactured or partly manufactured stock a proportion of the
expenses of manufacture shall be added to the cost of raw material while fixing
the value.
The basis of valuation of inventories from year to year shall also be carefully
noted and deviations, if any, brought out if considered necessary.
Examine whether any line of goods has been discontinued during the year and if
so, whether the stocks thereof have been adequately depreciated.
In cases where continuous stock taking is adopted examine the system as a whole
and with reference to the frequency with which each item is checked and the
accounting adjustments of the shortages and excesses.
The value of stock of finished goods, stores etc., is generally taken from the
general ledger with suitable adjustments necessitated by physical verification. In
such cases, examine the difference between the general ledger and the detailed
accounts, where old stocks exist, examine the cost and the inventory value
thereof.
The extent of non-moving stock (if substantial) under closing stock shall be
indicated by way of a note in the accounts if the same has not been adequately
provided for.
See whether 'closing stock' includes any defective and damaged items and which
have deteriorated due to long storage and become unserviceable.
Whether the management has certified the closing stock of raw-materials,
finished goods, stores and spare parts etc. See that as far as possible the total
amount of material-at-site is shown distinctly in the balance sheet and not
merged with the closing balance of materials.
52
Whether the stock of goods remaining with the consignees had been included
and if so at what price.
Whether goods invoiced but not despatched are excluded from closing stock.
Where part-deliveries are made from work-in progress, it may be ensured that
proper costs have been absorbed in the part deliveries and that the balance of
work-in-progress is not under or overstated.
If the stocks are valued at standard costs, how a variances between standards and
actuals dealt with.
2.30.18 Goods-in-transit
The method of valuation of these stocks may be examined with reference to the
items included in the cost.
2.30.19 Sundry Debtors
The individual balances in the sales ledger should be critically examined. Check
such balances on to the schedule and the totals of the schedule and also compare
the total of the schedule with that of the total debtors account.
Where there are huge debit balances outstanding for a long time, ascertain the
reasons for delay in collecting the dues. The accounts, which show large credit
balances, should also be scrutinised carefully.
In case of debtors in foreign currencies, ascertain whether the accounts have
been tallied with statements received from the debtors and also check up the rate
of exchange adopted.
In case of accounts carrying interest, examine whether this has been properly
calculated and related at the date of the balance sheet.
Where impersonal accounts are included in sundry debtors, enquire into the
details.
The balances against branches should normally be reconciled. Where there is
difference, see how the same is exhibited in the Balance Sheet and the steps
taken to reconcile the difference.
The method of providing for bad and doubtful debts may be ascertained. The
adequacy of the reserve may be examined with reference to the age of the debt,
irregularity of the receipts in reduction of the balance and the notes and
correspondence. If no provision towards disputed items and doubtful debts has
been made, a note to the effect that the Management has considered these items
as good, should appear in the accounts.
Whether "Sundry Debtors" include amounts withheld by the customers on
account of penalties etc imposed for late execution of contracts and disputed
claims.
53
Whether sundry debtors have been properly analysed showing their age and the
extent of doubtful debts assessed, shall be seen.
In order to verify the correctness of the charge in respect of bad and doubtful
debts, verify on the one hand that proper authority exists for writing off the
amounts due from the debtors which have been charged to the bad debt account
and on the other hand that sufficient provision has been made for estimated loss
on the remaining debts. Although, the quantum of provision depends upon the
Management's decision, it will be necessary to verify that a regular procedure is
adopted for reviewing the accounts and suitable action is taken wherever
necessary. The accounts of customers whose outstandings have become doubtful
should also be examined.
Ensure that the authorisation to write off specific debts was given by an authority
such as the Managing Director or the Board of Directors, as it is not unusual for
the fraudulent appropriation of the cash received from debtors to be concealed,
by writing off the same as a bad debt.
Compare the ratio of bad debts reserve to the total debtors at the end of each year
and also the percentage which the bad and doubtful debts bear to the total sales
during the year. The comparisons may be of assistance in considering the
adequacy of the doubtful debts reserve.
The ratio of outstandings to sales may be worked out and compared with the
previous years and variation, if any, may be examined in detail.
2.30.20 Loans and Advances
Examine the loan accounts to see that no cash loans are given. The system of
adjusting the advances periodically against supplies or services must be enquired
into, examine, the period for which loans are outstanding and enquire into the
reasons there of. Where the loans are given against the security examine the
adequacy of the security and it may be seen whether the book value of the
security has not fallen below the amount of loan. If so, ensure that the Company
either obtained additional security or indicated in the accounts that they do not
consider its necessity in view of market value of such security etc.
Ensure that advances and liabilities for supplies from the same party were
adjusted.
2.31 High Court decision on the provisions of Section 295 of Companies
Act
The Directors of a Company had given an advance of Rs.5,000 to the Managing
Director's wife who was employed by the Company on a monthly salary. On the
ground that the provisions of Section 295 of the Company Act 1956 were
violated, prosecution was launched against the Company and its directors and the
trial court held that the advance paid to the employee amounted to a loan and
54
consequently convicted the accused for an offence punishable under Section
295(4).
In the instant case the prosecution had not established that the amount given as a
salary advance was a disguised loan, and therefore, the amount paid as salary
advance to the employee who happened to be the wife of the Managing Director
could not be characterised as a loan coming within the mischief of Section 295.
Consequently, the prosecution was not justified and the conviction and sentence
were set aside.
(CAG’s Circular No.CA/O & M (Rc)/1-87/1 No. 150- CA/O&M(Rc)/4-83
dt:3.4.1987).
2.32 Miscellaneous expenditure and losses
The classification of the expenditure shall be carefully scrutinised. Special
attention shall be given to the additions made from year to year as such additions
may result in temporary capitalisation of the revenue expenditure.
Ensure that loss in the profit and loss account did not exist simultaneously with a
general reserve.
2.33 General
2.34 Disclosure of income from Investments
Clause 3{xi) of Part II of Schedule VI to the Companies Act, 1956 requires the
disclosure of the following information in respect of the income from
investments and interest in the profit and loss account.
(a) The amount of income from investment, distinguishing between trade
investments and other investments.
(b) Other income by way of interest, specifying the nature of the income.
(c) The amount of Income tax deducted, if the gross income is stated under sub-
paragraphs (a) and (b) above.
Accordingly, the income from investments and income by way of interest shall
be shown separately in the profit and loss account. The amount of Income tax
deducted from such income. (if taken gross) is to be disclosed (i.e., either by way
of a foot note or under the item concerned )
In regard to interest on bank deposits, such interest is exempt from deduction of
tax at source with effect from 1.4.1970 under Section 194A of Income Tax Act.
The provisions of the above referred clause will be applicable in respect of such
interest which is subject to deduction of tax at source in accordance with the
provisions of the Income-tax Act in force from time to time. (Hqrs. Office
55
Circular No. 1135/CA.IV/74-80 No.CA.IV/Tech/15.80, dt:16.10.80 P.144/C
F.No.IV-17/72- 73/(Vol. V)).
2.35 Computation of aggregate amount of Rs.3000*
While checking the computation of the aggregate amount of Rs.3000*(This
amount has been raised to Rs.6000 with effect from 15.07.1988) towards the
emoluments received by the employees, it shall be ensured that the pension
contribution is included as a part of the remuneration and leave salary
contribution made by the borrowing department to the parent department of the
officer on deputation is not included as part of the remuneration of the
deputationist concerned.
2.36 Change in system of accounting from mercantile to cash system
Where a Government Company switches over to cash system of accounting,
wholly or substantially, a comment under Section 619(4) of the Companies Act,
1956 shall be made about the infringement of the provisions of Section 209, of
the Companies Act 1956.
Provisions of clause (b) of sub-section (3) of Section 209 of the Companies Act
as amended by the Companies (Amendment) Act, 1988, effective from
15.06.1988, require that the books of account to be kept by a Company are on
accrual basis. Subsequently, Government of India, Ministry of Industry
(Department of Company Affairs) vide notification No.GSR.550(E) dt.16th May
1989 exempted the Government Companies engaged in the business of financing
Industrial Projects and approved by the Central Government under Section 36(1)
(viii) of the Income Tax Act, 1961 to the extent it relates to income from interest
on loans and advances in respect of their financial year closed on or after
16.05.1989, the date from which the notification became effective.
When a comment on incorrect exhibition of interest accrued and not due and
interest accrued and due (as also under-provision/short provision thereof) is
proposed, full details of the issue are to be indicated in the aid-e-memoir. (1841-
CA.II/199-80 II dt:9.11.81 P.111/C of file No.IV-17/72- 73/Vol.I). Section
619(3)(a) of the Companies Act, 1956 does not contemplate submission of a
separate Annual Report other than the Annual Report of a Company with a copy
of the audit report and comments of Comptroller and Auditor General of India, if
any. (CAG's Office Lr.No.TC/17-72-73/231 dt:2. 1. 1983 P-2/C of F.No.IV-
l0/69-70 Vol.II)
56
2.37 Review of accounts of Government Companies
Review of accounts shall be compiled in the following cases only.
a) The Company should have completed at least three years of its working (File
No.CAW/ V-19/86-87 P.3/C) CAG Office confidential Lr.No.174-CA IV/25-86
CA.IV Tech. 2/86 dt:14.4. 1986).
b) Any Company selected for appraisal or review (CAG Office confidential
Lr.No.414-CA.IV/25-86/CA.IV/Tech- 3-86 dt:20.8.86 P.9/C).
c) Companies which qualify for selection annually. In respect of Companies
selected for audit under Section 619 (4) on a rotational basis and all 619(B)
Companies, no review of accounts should be prepared.
While review of accounts need not be prepared in respect of all State
Government Companies, proposing review of accounts or summarized financial
results in an appropriate form is left to the discretion of PAG/AG concerned after
assessing the Annual reports of the previous years of each corporation regarding
adequacy of financial disclosures.(Lr.No.578/CA-II/Coordn/Review of
Accounts/06-07/80-2006 dt:29.08.2006).
The Ministry of Finance, Government of India and State Government have
agreed to publish the ‘Review of accounts' as an annexure to the Director's
Report. In case of any Company not accepting this arrangement the review of
accounts shall inevitably form part of the audit comments under the Companies
Act, 1956 (Govt. A.P. in No.1392/Lo66-1/106-66 P.397/C of IV-26/61-
62/Vol.I). In case the managements are agreeable to treat it as an Annexure to the
Director’s Report the heading of the Review of Accounts should also be
appropriately worded as "Review of Accounts for the year ended ………..by the
Comptroller and Auditor General of India", (CAG Lr.No.625-CA.IV/91-81 No.
CA. IV/Tech. 14-82 dt:3.9.82 File No.CAW/IV-17/82-83 Vol.I P.l09/C).
Review of Accounts need not be sent to the Headquarters Office for approval
along with the comments. The A.G. may ensure the correctness of the Review
prepared in the Office and issue along with ‘Nil comments’. or "approved
comments" under his authority. The comments under Section 619(4) of the Act
would continue to be forwarded to the Headquarters Office for approval (CAG
Lr.No.907-CA.IV/91-81/NO.C~IV/Tech-4 83 dt:24.1.1984/CAW/ IV-17/83-84
Vol.I. P .122/C).
Presently, in the review of accounts of Government Companies, the figures
indicated in the accounts, as prepared by the Company, are adopted, without
giving effect to the comments of the CAG of India under Section 619(4) of the
Companies Act, 1956 or of the Company Auditors’ qualification in their Audit
57
Report (Circular Lr.No.3-CA.IV/91-82/CA.IV/Tech.8/84 dt:7.1.1985. file
CAW/IV-17/84-85 P.161/C).
If the comments of the CAG and/or qualifications of the Auditors on the current
year’s accounts of the Company are material and significant, a note below the
review of accounts may be inserted mentioning that no effect of the comments of
the CAG and/or qualifications in the report of Auditors has been given in the
review of accounts. (CAG's Office confidential Lr.No.331-CA.IV/91-
81.NO.CA.IV/Tech 6/85 dt:24.5.1985 file CAW 84-85/85-86).
While forwarding the draft comments to the Headquarters office for approval,
the Accountant General should indicate whether he proposes to insert such a note
and also indicate the specific comments of the CAG and qualifications of the
Auditors based on which he proposes to insert such a note.
Where the Review of accounts is issued along with ‘Nil Comment' Certificate
which does not require approval of CAG, the AG, while inserting such a note,
should intimate the qualifications of the Auditors based on which such insertion
is made to the Headquarters office after issue of 'Nil Comment' Certificate and
Review of accounts.
In order to make the review of accounts of Government Companies more useful,
the Accountant General (Audit) may vary the format of Review of accounts to
suit the special needs and peculiarities of each Company (CAG Lr.No.522-
CA.II/197-83 (Circular No.l-CA.II/State Commercial Audit.II/85) dt:26.3.1985).
2.38 Format and Guidelines for compilation of Review of Accounts:
The following instructions issued by the Comptroller and Auditor General of
India from time to time are to be borne in mind, while compiling the review of
accounts.
1) The paid-up capital shall include the "Share application money received".
2) Borrowings shall include secured and unsecured loans excluding "interest
accrued and due" plus “cash credit"
3) Trade dues and other current liabilities shall include "Interest accrued and due"
4) Capital employed - Interest accrued and due on borrowings need not be taken
into account while arriving at capital employed, unless under the terms of loan
agreement interest accrued and due also becomes part of the loan (Circular
No.22 dt:23.3.1976 F.NO.IV-19/72-73).
5) Calculation of rate of return
58
If a Company's income is predominantly from the financing activities, as in the
case of Andhra Pradesh Industrial Development Corporation Limited, the capital
employed and the return thereon has to be calculated. Where, however, as in the
case of the Andhra Pradesh Small Scale Industrial Development Corporation
Limited, the income is predominantly from trading activities, the instructions
issued for non-financial institutions shall apply (CAG's Office
Lr.no.11/CA.Iv/26.75 dt:3.1.76 F.NO.IV- 19/72-73).
2.39 Working capital
The difference between the "current assets and loans and advances" and "current
liabilities and provisions" (as shown in the format) represents the working
capital.
Normally current liabilities should include the provision made in the accounts
also as the funds are available for use in the business till the liability is actually
discharged. The provision for gratuity may not be included in the current
liabilities and provisions while working out the working capital.
As the Government Companies generally do not trade in investments, such
investments should be shown separately in the review of accounts and not
included in the current assets, etc. In cases where investments have been lodged
as securities by the contractors or others or represent earmarked investments and
figures appear on both the assets and liabilities side of the balance sheet, they
may, however, be included in the current assets or alternatively excluded from
current liabilities as well. (CAG's Lr.No.148 CA.III/14-76/dt:27.2.76 IV-114/75-
76).
For the purpose of para on "working results" the figures of profit/loss for the year
shall be adopted after prior period adjustments. However, in order that this
exercise does not become cumbersome, the recasting shall be limited only to
such of the cases where prior period adjustments above or below the line are
shown at one place in the profit and loss account. Subject to this the following
format shall be adopted for preparing the paragraph on working results.
Profit/loss as per accounts ……………….
Add/Deduct: past period adjustments
shown above the line …………………
Add: Development Rebate Reserve/
Investment Allowance Reserve shown
above the line …………………
II. Profit/loss for the year
Add/deduct past period adjustments.
59
shown below the line ………………….
III. Profit/loss before tax ………………….
IV. Tax provisions ………………….
V.Profit/loss after tax …………………..
Note: The adjustments relating to past periods will account either under item (I) or
item (II) as the case may be. One of these columns will have to be eliminated
depending upon the facts of the case.
2.39.1 Debt equity ratio
Debt should include long term loans, public deposits and deferred payment
liabilities without netting them off the deferred debts extended by the Company.
Short term loans or cash credit shall be excluded from the debt for the purpose of
working out this ratio.
Although in Balance Sheet "Interest accrued and due" is to be shown under the
heading 'Loans' for the purpose of review of accounts, it shall be included under
"Current liabilities and Provisions". Deferred credits may be taken under
"Current Liabilities", if those are for less than a year. If, however, they are for a
longer period those have necessarily to be treated as a long term loan. (CAG
Lr.No.38 CA.IV/15.88/(CA-IV/Tech-5/89) dt:6. 2.1990 CAW/I 3/88-89/P.
280/C).
2.39.2 Equity
Equity should include the paid up equity and preferential share capital, free
reserves and surplus excluding the "committed reserves". However, if the
preferential share capital is due for redemption within a short period (say three
years) it should be treated as part of debt.(CAG office Lr.No.432 CA.IV/15.88
(CA. IV /Tech. 3/90 dt:l0.10.1990 (I.3/88-89/P.382/c))
2.39.3 Liquidity and solvency
(i) The term "Quick assets" will include cash, debtors (other than bad and doubtful
debts) and securities which can be realised without difficulty. For this purpose,
only advances which can be recovered are to be taken into account while
working out the ratio of quick assets to current liabilities.
Pre-paid expenses shall not be included in quick assets while working out the
ratio of quick assets to current liabilities (No. 582/CA.IV/24-69 dt:23.10.69,
P.155/C SI.No.5)
The advances paid for Income tax shall not be taken into account while working
out the ratio as there is a specific liability for income tax and these advances are
set off against the provisions therefor. Similarly, the provision for income tax
shall not also be included under "Current liabilities and Provisions".
60
(ii) (a) Interest accrued and due on investment shell be included under Quick assets.
(b) Interest accrued and not due on investments shall also be included under quick
assets unless separate figures thereof are available in which case it may be
excluded.
Only those items which have the characteristic of quick assets appearing clearly
on the face of Balance Sheet and schedules and notes forming part of the Balance
Sheet as such, shall be taken into account. Advances for travelling expenses,
etc., which do not have the characteristics of a quick asset shall be excluded from
the computation of quick assets unless such advances are specifically shown on
the face of the Balance Sheet as recoverable. (Circular No.40 dt.14.12.1971
F.NO.IV-42/71-72).
For purposes of calculation of ratios of (i) Percentage of current assets to total
net assets (under para 4 liquidity and solvency) (ii) Percentage of value of
production to total net assets (under para 9 value of production) accumulated
losses and intangible assets shall be included in "total net assets". (CAG's Office
Lr.No.627-CA.IV/26- 27 NO.CA.IV/ Tech/8/80 dt. 1.5.1980 P.30/C F.NO.IV-
17/72-73 Vol. V).
2.39.4 Sources and uses of funds
The difference between the closing balances at the end of the year under
consideration and the preceding year of the following heads as shown in the
format constitutes the sources of funds.
(a) External sources
i) Paid-up capital
ii) Borrowings
iii) Trade dues and other current liabilities. (Excluding provisions)
b) Internal sources
i) Reserves and surplus
ii) Provisions
iii) Depreciation
In a particular year if there is a decrease in the internal/external sources and as a
result there is a minus figure, the item shall not be shown in the review of
accounts.
2.39.5 Cost Trends
For the para on cost trends, it is necessary that the figure of profit/loss for the
year shall be taken into account. The figure at item (II) shall .therefore, be
61
adopted in this para (CAG's Office Lr.No.124-CA.II/36-78 dt.22.1.81 P.292 C of
F.NO.IV 17/72-73Nol.V).
2.39.6 General
(a) If any change in the classification of some of the items of income and
expenditure from year to year was done or recast of the figures of previous years
to suit the classifications adopted in the latter year, the review of accounts shall
be based on the classification in the latest accounts and earlier years' comparative
figures shall also be recast and made comparable.
(b) If a ratio which is intended to give a better or worse performance comparatively
conveys a contrary impression, the position shall be clarified through an
explanatory note to help the reader to draw an appropriate conclusion (CAG’s
Office Lr.No.CA.IV/ Tech.l/79 NO.29 CA.IV/26-77 dt:20.1.79 F.NO.IV/17/72-
73/Vol/IV P.88/C).
(c) Where separate profit and loss accounts are prepared for each activity, transfer
from one process to another shall be excluded from sales for purposes of review
(CAG's Lr.No.353/CA.147-67 18,3,67 in F.NO.IV-44/66-67 of NSF Comments
file).
2.40 Inspection Reports
2.40.1 Inspection Report procedures
The Inspection Report should be divided into three parts and each part should
include the following particulars.
Part I (A)
(a) Introductory
(b) A gist of the outstanding observations from previous reports in brief.
(c) A Schedule of persistent irregularities.
Part II (A) Important irregularities likely to be developed into draft paragraphs
for the Report of the Comptroller and Auditor General of India (Commercial).
Part III(B) other paras Test Audit Note containing minor irregularities to which
should be attached a schedule of items settled on the spot. The procedural
irregularities in respect of which the Head of Office held out assurances about
following correct procedure in future should be noted in the schedule (CAG's
Lr.No.1647-Admn.III/286-60 dt:16.8.60 and OAD Civil circular
No.X/OAD/Civil/34-5/60-61/1058 dt:22.9.1960).
The introductory "Part IA" should be preceded by the title of the Inspection
Report/Note and should be as follows: "Inspection Report/Note on the accounts
of the --- for the year --- (Dates of Audit ---- to -----)".
62
The introductory paragraph which follows then should be in two divisions viz.,
(i) Scope of Audit and (ii) Personnel as follows:
Part I-A Introductory
(i) Scope of Audit The accounts of ---- were last audited in ---- During the present
audit, the accounts for the period were generally examined and test audit check
conducted.
(ii) Personnel
Name Designation Period
(a)
(b)
Note: It would be sufficient if the names of the Head of the Office and Accounts
Officer, if any, are given.
In the case of an organisation, the accounts of which are audited for the first
time, a brief history indicating the background, nature and objects of the schemes
or projects, Government sanction and the name of the agency by which the
Scheme/project is financed, should also be given.
Part I-B. List of outstanding paras from previous IRs
Only such of the paras which remain pending even after the settlement effected
during the current Inspection should be incorporated in Part IB. A separate sheet
should be attached for the paras recommended for dropping duly indicating the
reasons therefor.
Part I-C Persistant irregularities to be listed out
Part II
Section A: It consists of major and important irregularities i.e., irregularities
involving recoveries, question of principle or losses etc., which are to be brought
to the notice of the higher authorities and pursued.
Section B: It consists of irregularities which, though not major, are to be
brought to the notice of the higher authorities and pursued by this office (CAG's
Lr.No.2583-Admn.III/KW 268-60 dt.2.1.61).
The Inspection Report shall include -
i) Audit paras ready for incorporation in the Report of the Comptroller and
Auditor General of India for which all the facts and explanations are obtained.
63
ii) Serious irregularities which are likely to be developed into audit paragraphs
but in regard to which it was not possible to obtain satisfactory explanations on
the spot.
iii) Irregular expenditure and losses which require regularisation through orders
of higher authorities.
iv) Omissions and irregularities in accounts and registers which are serious and
common to more than one office and are generally mentioned without specific
reference to the office or department in the conventional Report of the
Comptroller and Auditor General of India. (O.O.No.OAD.Civil/1-12/56-57/829
dt.16.2.1957).
v) Cases of non-production of vouchers and documents and non-maintenance of
accounts.
2.41 Method/procedure of drafting the Report
The following instructions should be borne in mind in this regard:
a) Isolated routine objections need not, as a rule, be mentioned in the Audit Note
but, if a number of similar points are noticed, the type of error or irregularity
with a few instances can be mentioned.
b) All the paragraphs other than the introductory and general state of accounts
should be serially numbered, Roman numerals be adopted for the paragraphs in
the Inspection Report and Arabic numerals for those in the audit note.
c) Each item of the Inspection Report and Audit Note should be a self-contained
paragraph drafted after due consideration of the reply but not merely a verbatim
copy of the original observation issued and the reply received at the preliminary
stage.
Each paragraph should have a clear suggestive heading indicating the nature of
observation raised or irregularity pointed out. Mere general headings such as
"Cash Book", "Revenue on account of credit sales" or "Outstanding Revenue" do
not indicate anything but expressive headings such a "Omission to enter receipts
and payments in the Cash Book" or "Outstandings due from Government
Offices", give a definite idea about the subject matter contained in the paragraph.
Sub-paragraphs should also be given headings, if necessary and possible, with
letters a, b, c, d etc.
d) Reference to the observation memorandum/Audit enquiry number and page
number of rough sheets should invariably be given in the margin against the
paragraph in the Inspection Report or Audit Note. Cross-references to the
64
paragraphs in the Inspection Report or Audit Note should also be given in the
observation memorandum.
e) If the instances quoted in support of a point mentioned in the Inspection
Report/Test Audit Note are many, the same should be given as an Annexure. All
the annexures should be serially numbered, Roman numbers being adopted.
Each annexure should have a clear title indicating the nature of instances or
irregularities quoted. Reference to the number of the annexure should be given
in the para in the Inspection Report/Test Audit Note. Cross reference to the
number of the para should be given on top of the annexure.
f) If any office pays no attention to directions or repeats the mistakes or
habitually disregards the rules, the matter should be taken up in a special letter
with the Head of the Department, care being taken to substantiate the charge of
such disregard of rules etc., by sufficient evidence.
g) Wherever any irregularity or delay which was previously noticed is taken up
again by the field staff, the facts should be mentioned in the report with reasons
for its inclusion.
h) Money values of observations should be specified in all cases.
i) Observations which can be waived under para 808 of the M.S.O.(Tech) Vol.I
should not be embodied in the Report or the Audit Note. These should be put up
separately to the Senior Deputy Accountant General (Commercial Audit Wing) /
Dy. Accountant General for orders.
The material for the Report should be gathered by the field staff themselves from
the available records which are audited. The authorities of the institution, the
accounts of which are being audited, should not ordinarily, except under the
specific direction of the supervising officer and with the concurrence of the Head
of the Offices, be asked to furnish details on which conclusions can be based.
j) When a letter or Government Order is quoted which may not in the opinion of
the Section Officer of the field party, be available in the Central Office, a copy of
the same should be sent along with the rough notes for the information of the
Senior Deputy Accountant General (Commercial Audit Wing)/DAG(CAW).
The word `falsification' should not be used unless the act is done to benefit the
officer responsible. Otherwise, the term `manipulation' shall be used.
k) Unrecognised and uncommon abbreviation should not be used. Petty
objections shall be avoided.
l) Particular care should be taken to see that the reports are so drawn up so as to
afford no grounds for complaint from local authorities in regard to their tone and
65
substance. In drafting the Inspection Reports, the language used must be
moderate and impersonal, as the effectiveness of an audit observation is more
likely to be reduced rather than enhanced, by the use of strong language. As a
matter of fact, the more serious nature of an objection, the greater is the need for
using language which is both polite and unexceptionable. The use of such words
as "should", "must" etc., is to be strictly avoided and words such as "kindly"
"please" used as freely as possible. No improper or questionable motives should
be attributed in the reports even by implication to any Gazetted Officer. All
comments should, as far as possible, be in third person and in impersonal and
objective phraseology.(CAG's D.O.NO.PS/588/56 dt.23.10.1956 to all A.G.s)
m) Observations of the same nature e.g. want of payee's receipts, estimates,
agreements, measurement books and of relevant entries in stores and stock
register etc., should be grouped together as far as practicable.
Where there are several departments in an office, the observations relating to
each department shall be shown separately.
n) All details necessary for a clear understanding of each irregularity should be
given including:
i) an explanation of the transaction,
ii) a description of the nature and magnitude of the irregularity,
iii)any extenuating circumstances that might have existed,
iv)the defect, if any, in the system which lead to the irregularity and
v) the adequacy of remedial action taken, if any.
o) Where the irregularities noticed in the local audit come up to the stage of their
inclusion in the Report of the Comptroller and Auditor General of India, the
drafting of paras for their inclusion is at times rendered difficult due to missing
links in the facts and arguments put forth in the original Inspection Reports and
on which the paras are based. The information which is wanting cannot be
obtained except by a reference to the local records and the inevitable
consequence is that the paras have either to be abandoned or their consideration
postponed for an indefinite period.
Such a situation must not be allowed to arise.
p) The name(s) of the Official(s) personally responsible for any serious
irregularity should not be disclosed in the Audit Report. Only in cases of very
serious dereliction of duty or embezzlement, the designation or status of the
officer responsible should be mentioned. Such cases will be very rare and audit
should not take upon itself the duty of fixing responsibility for any irregularity
66
on any individual. All particulars should, however, be reported to the
Headquarters section in a confidential cover.
q) Cases which are sub-judice should not be mentioned in such a way as to
prejudice the claim or the defence in the Court of Law.
r) Irregularities in chalans are often the subject of long comments in Test Audit
Notes. The proper and effective procedure is to proceed to the Treasury in cases
of doubt and to verify the correctness of the remittances, as otherwise, these
items fizzle out in course of time on the strength of vague and unsatisfactory
replies and are therefore not much of value. It is also to be remembered that it
may be difficult for a departmental officer to obtain a certificate of remittance in
cases of remittances by private parties.
s) Observations that should have come to notice in Central Audit should be listed
out separately and sent to (Commercial Audit) Headquarters/EBRA/RTCRA
Sections.
t) Where the departmental officers have acted in pursuance of any instructions
issued by the Head of the Department or Government, the matter should not
generally be the subject of comment in the Report but should be dealt with
separately for necessary action in the Central Office.
A general para should be incorporated in the Report to the effect that some
irregularities of a minor nature were settled by personal discussion and other
irregularities of this nature have been dealt with separately in the Audit Note. As
regards the points settled by personal contact, a separate report should be sent by
the Inspecting Officer along with the other paras, so that the Headquarters is kept
informed of the action taken by him.
Facts and figures should be given in support of observations. The figures in
statements should as far as possible be abstracted year-wise (financial year) and
group-wise so as to facilitate collection of material for the Report of the
Comptroller and Auditor General of India.
2.42 General assessment of the state of accounts
a) The remarks about the general state of accounts of the office locally audited
should be recorded after proper appreciation of the facts disclosed in the body of
the Inspection Report and taking into consideration the position of outstanding
paras and reports. Defects should not be recorded in general terms and all
exaggeration of language should be avoided. In bad cases, the state of accounts
may be stated as "not quite satisfactory", and in other cases, it may be stated as
"there is scope for improvement". When it is noted as "not quite satisfactory",
the reasons should be stated in detail in the body of the report.
67
b) Remarks to the effect that the general state of the initial accounts is found to
be satisfactory should not be recorded as a matter of routine but should be
recorded only where the Inspecting Officer is thoroughly satisfied that the state
of accounts really merits such a remark. Otherwise the inclusion of remarks to
that effect in the face of serious irregularities is most undesirable, since such a
certificate may lead to legal and other complications besides creating a sense of
complacency in the administrative department/ministry. (CAG's circular No.336-
Rep 3-51 dt.16.6.1981 read with confidential letter No.53-C12/DO (TA)/1966
dt:15.1.70 Circulated in confidential circular No.OAD Civil XII/38-7/69-70/587
dt.5-2-1970-OAD (Civil) Headquarters case file No.38-7 69-70/Unit XII and
OAD.II/IV/45/64-65 dt:14.10.1964 file No.IV-45/64-65 of OAD.II).
c) The concluding paragraph should be carefully drafted with a view to bring out
a correct appreciation of the state of accounts. Special attention would be invited
in this paragraph to important matters such as -
i) Persistent irregularities, chaotic state of accounts,
ii) List of long, outstanding, unsettled objections,
iii) Mis-appropriation, fraud etc.
2.43 Test Audit Note
a) All observations involving procedural defects and minor irregularities having
apparently no financial implications and which could not be settled locally
during the inspection do no not merit inclusion either in Part-I or Part-II of the
Inspection Report should be written out in the form of a Test Audit Note (Form
SY 327) to be issued separately to the local office concerned.(Periodical Bulletin
No.2 Circular OAD/XII/47-II/66-67 dt:24.4.67).
Irregularities, the confirmation about rectification of which can wait till next
audit and which do not have recurring effect may be included in the Test Audit
Note.
b) The Test Audit Notes should be issued to the Head of the Office inspected
over the signature of the Inspecting Audit Officer supervising the audit. In cases
where the local audit is not supervised by an Audit officer, the Test Audit Note
should be issued over the signature of the Asst. Audit Officer/Section Officer in-
charge of the party.(CAG's No.2974 TA.I/867-65 dt:7.8.1965 to the A.G.Kerala).
Particular care should be taken to see that only such points are included in the
Test Audit Note as can be set right by the Head of the Office inspected without
reference to higher authorities.
68
As no reply is to be watched for the audit note, objections involving recoveries
or regularisation should not be included in the Note. But, if recoveries are for
small amounts, the objections may be included in the Audit Note, their
recoveries being verified at the time of subsequent audit.
Note: When minor objections can be settled at the time of audit, there is no
necessity for incorporating them in the Audit Note issued to the local office.
c) The following instructions should be carefully borne in mind in this context.
i) The authority in support of each objection/suggestions should be quoted.
ii) The Test Audit Note should be personally drafted by the officer under whose
signature it is issued.
iii) A copy of the Test Audit Note should be appended to the Draft Inspection
Report and the acknowledgement of the office inspected invariably obtained on
this copy. (Circular No.OAD Civil XII/Misc./65-66 dt:18.10.65 and
OO.No.OAD Civil XII/Misc/65-68/3 dt:2.5.67).
The copy of the Test Audit Note shall be sent by the Headquarters along with
other records to the field party concerned which takes up the next audit of that
particular office. These objections shall not be pursued from the Headquarters
Section, but it is the duty of the next audit party to verify the action taken thereon
by the local office concerned and incorporate the outstanding items in the next
Inspection Report.
2.44 General
The draft Inspection Report/Test Audit Note submitted to the Headquarters
section should be typed or written legibly in half margin only. Sufficient space
should be left at the top and bottom of the page and between the lines and in the
margin to provide space for editing. As far as possible each paragraph of the
Inspection Report should be on separate sheets.
The Inspection Report/Test Audit Note and forwarding memo (title sheets)
should be signed by the Section Officer, where the audit has been supervised by
an Audit Officer, the Inspection Report and the forwarding memo should be
signed by the Inspecting Officer also. (OO No.7 dt:12.4.1957 file No.12 17056-
57).
2.45 Revision of Title Sheet of Inspection Report
To avoid duplication of work, the form of title sheet has been revised so as to
include only those important items which do not find place either in the Manual
or in the Audit Note Book. A copy of the revised format of the Title Sheet is
69
enclosed (Annexure-I) which may be used by the Audit Parties conducting Local
Audit of the undertakings in future.
It has also been decided that the Audit Note Book need not be maintained.
(CAG's Lr.No.120-CA.IV/69-81 dt.28.3.1988).
Item No.4 of the proforma of title sheet (months selected for audit) may not be
filled up in the case of Government Companies (CAG's Lr.No.20-CA.IV/69-81
dt.16.01.1989).
It is clarified that item 4 as referred in this office circular relates to Part ‘A’ (and
not to Part ‘B’) of the title sheet the format of which was circulated vide this
office circular letter No.120-CA IV/69-81 dated:28.03.1998. (CAG’s Letter
No.220-CA IV/69-81 dated 10th April 1989).
The form of the Title sheet has been reconsidered and it has been decided to
amend the item No.4 (Part B) of title sheet as under:
"Whether a daily diary indicating the documents/records checked by
AAO/SO/Sr.Ar./Auditor has been maintained and submitted to Headquarters.
Whether any particular documents/records or registers were personally checked
by the Reviewing Officer. If so, details thereof may be furnished to
Headquarters. (CAG's Lr.No.245-CA.IV/69-81 dt:2.5.1989).
The fact of discussion in token of perusal of the report and correctness of the
facts contained therein should be specifically recorded as indicated below by the
Head of the Office locally audited on the first page of the Draft Inspection
Report under the "Introductory" paragraph/draft paragraphs/factual notes etc.,
and if no discussion could be held, the reasons should be indicated. In cases of
difference of opinion, the officer should hand over a note detailing his reasons
for disagreement with audit objections as contained in the
report.(O.O.No.OAD.I/XII/88-7/69-70/39 dt:12.2.70 File No.38-7/69-70 of
unit.XII-OAD Civil Hqrs.).
2.46 Certificate to be recorded on the report
"Certified that the audit report has been fully discussed and that all the facts
mentioned therein have been verified and found correct".
Certificate to be recorded on the factual Notes/Draft paragraphs
"Certified that the factual note/draft paragraph prepared by the Supervising
Officer on the points has been discussed and that the facts mentioned therein
have been verified and found correct (Cir.Memo.No.71287/791/68 dt:20.11.68 of
the Govt. of A.P. Finance (Rev) Dept. file No.II-1/6869 of report section and
Circular No,OAD.II/45/64-65/25 dt:31.8.1971).
70
2.47 Discussion of the Report
Inspecting Officers should invariably discuss the reports with the Heads of the
Offices inspected on the last day of Inspection. (Circular No.OAD.I
dt.24.3.1956).
Opportunity afforded by local inspection should also be taken by the Senior
Deputy Accountant General (Commercial Audit Wing)/Dy.Accountant General
(CAW) or the Gazetted Officer for discussing with the Head of the Office any
important points referred to by the Central Office.
2.48 Documents to accompany the report
The report should be accompanied by -
a) a list of the registers produced for audit with the initials of the Section Officer
and of his assistants checking them,
b) a note on the paragraphs which, in his opinion, should be included in the next
Report of the Comptroller and Auditor General of India.
c) a certificate under the dated initials of Section Officer that the receipt books
used have been checked since the date of last inspection in regard to continuity in
serial number of receipts, entries in the cash book and completeness in all
respects and that the unused receipt books are under proper custody and have
been verified and found correct,
d) a certificate of cash balances on the 1st April or 1st May or any subsequent
day, if they happen to be holidays and
e) a special note regarding the adequacy or otherwise of the existing system of
departmental/internal audit, etc.
The note inter-alia should contain the information on the following points:
i) Frequency of inspections carried out by the Head of the Department.
ii) The agency through which they are conducted.
iii) Whether the results of such inspections are recorded in writing and
communicated in the form of a report of the officer-in-charge.(Circular
No.OAD(Genl)126 dt.24.4.1956).
iv) Whether the departmental officers are taking prompt action to rectify the
defects pointed out.
v) Whether the results of inspection are being communicated to Government
also.
71
vi) Whether any cases of irregularities noticed during local audit which in the
opinion of the Section Officer/Inspecting Officer could have been set right by
regular departmental inspection and if so, the para number may be cited.
vii) A note detailing the documents not produced and indicating the specific
checks which could not be exercised by them for want of those documents so
that the note may be made available to the field party conducting the next local
audit along with the other required documents/files etc., for the completion of
checks omitted to be exercised in the preceding audit or to take up the matter
with the higher authorities, if required by Headquarters Section.
The results of local audit inspections shall be communicated through Inspection
Reports/Test Audit Notes to the Heads of Offices audited/inspected within one
month from the date of completion of the local audit as envisaged in para 779 of
the Manual of Standing Orders (Technical) Volume I. A copy of the inspection
report which includes only important points and serious financial irregularities
shall be forwarded to higher authorities while Test Audit Notes shall be issued to
Heads of Offices locally audited for necessary action. The communication
forwarding inspection reports shall make it clear that the first reply to these
reports should be received within a month of its issue.
The following time-table shall be adhered to:
-----------------------------------------------------------------------------------------
Sl.No. Item of work Maximum number of days allotted
-----------------------------------------------------------------------------------------
1. Receipt of the reports in One week/three days from
headquarters from parties. the date of completion of
audit in respect of out-
station/headquarters units
respectively.
2. Editing by headquarters One week.
section.
3. Approval of the report by Three days.
Officers.
4. Typing. One week.
72
5. Comparison and issue to Three days from the date of departmental
authorities. receipt from type section.
----------------------------------------------------------------------------------------
The compliance of the above time-table shall be watched through a report to the
Senior Deputy Accountant General (Commercial Audit Wing)/Dy. Accountant
General (CAW) in the following form:
-----------------------------------------------------------------
Due Actual No. of Remarks
date date days of
delayed Sr.D.A.G/DAG
-----------------------------------------------------------------
Completion of audit
Draft IR received from the party
Sent for typing
Received from typing
Date of issue
-----------------------------------------------------------------
Inspection Reports shall not be considered as issued till this form has been
signed by the Senior Deputy Accountant General (Commercial Audit Wing)/Dy.
Accountant General (CAW).
In the case of Section 619 B Companies, the Inspection Reports shall be issued
only after these are approved by the Accountant General. Any controversial
issues shall be referred to the Headquarters office before being included in the
Inspection Reports.(CAG office Lr.No.CA.IV/Tech.5/84 No.604-CA.IV/57-84
dt:29.10.1984 File CAW/IV-17/84-85 P.78/C).
2.49 Functions of Inspecting Audit Officers/Senior Audit Officers
In addition to normal supervision of the work of the Section Officers/Assistant
Audit Officers/Auditors of the party, the following duties and responsibilities are
entrusted to an Inspecting Audit Officer/Senior Audit Officer.
In addition to provisions in Para 27 of Secret Memorandum of Instructions
regarding the extent of audit, the Accountant General may issue necessary
instructions with regard to important items of work depending on the nature of
73
the concern, to be done personally by the Inspecting Audit Officers/Senior Audit
Officers in the audit of different commercial concerns.
i) He is expected to (a) guide his staff (b) initiate audit notes on important
matters (c) do a certain amount of original work himself and (d) examine
personally with reference to the initial documents, all serious and important
points raised by the field staff.
ii) He shall conduct an intelligent probe into the initial records to see whether the
defective maintenance or the non-maintenance of records is a camouflage to
conceal fraud or misappropriation.
iii) He shall devote personal attention to more important matters e.g. to review
the manner in which (a) the contracts are initially negotiated and later executed
and (b) plans and programmes of various departments implemented. These
reviews shall be conducted to ascertain how far "wisdom, faithfulness and
economy" are observed by the units/undertakings/organisations.
iv) He shall also personally scrutinise the state of accounts of the Office
inspected, especially the cash account.
v) The Inspecting Audit Officer's work of supervision consists of seeing that all
the accounts, registers, etc., are audited by the inspecting staff and that
prescribed/necessary checks are carried out by them. He shall bear in mind the
general instructions laid down in para 769 of the M.S.O.(Technical) Volume I
and see that no point of importance or case of irregularity or defalcation escapes
attention during the audit or left undiscovered.
vi) He shall also discuss points of importance during the course of audit with the
head of the office inspected and endeavor to settle on the spot as many objections
as possible of the current audit as well as the outstanding points of the previous
Inspection Reports.
vii) He must keep prominently in mind that he is concerned with the accuracy of
accounts and regulation of financial procedure and not with administration.
Suggestions which affect financial or departmental administration shall not be
included in the Report unless the same have been discussed with the
departmental officer either personally or by a demi-official reference.
viii)(a) In cases where inspections are conducted under the supervision of an
officer throughout or where the concluding stage of audit is supervised by him,
the officer shall write out the report himself and not leave it to his subordinates
to do the drafting. This is necessary in order to enable him to apply his mind
actively to everything mentioned in the report. This is also calculated to ensure
the accuracy of the facts stated, the cogency of arguments applied, and
74
moderation in and preciseness of the language used (CAG's Confdl.DO
NOs.1307/Admn.I/338-55 dt:24.6.1955 and 388-Admn.I/55 dt:9.12.1955 read
with CAG's Lr.No.971-TA.II/31-68 dt:2.5.1968. File No.1-13/59-60 OAD
Civil).
b) In cases where the supervision closes before the end of the audit, the
Inspecting Audit Officer may draft all the paras that could be finalised by that
time and impart proper guidance and instructions to the Section Officer for
completion of the Inspection Report.
In all the cases where there is supervision throughout or on the concluding day of
audit, a certificate to the effect that the Report had been drafted by him shall
invariably be furnished by the Supervising Officer.
ix) He shall draft paras proposed for the conventional Report of the Comptroller
and Auditor General of India taking the specific comments of the highest
authority available locally and collect certified copies of the supporting
documents, all relevant information, facts and explanations on the spot.
x) He shall also conduct general review of all the books of accounts and
connected files and check all important items and some other items at random.
Whenever the Section Officer is not available (absent either on leave or
otherwise) the Audit Officer shall exercise all the checks prescribed for him.
The check of cash book in such circumstances shall not be left to the auditors
(Confl.Circular No.OAD Civil/X/1-7/67-68/42 dt:20.2.1968 file No.1-7/67-68
OAD Civil Headquarters).
xi) He is responsible to ensure that audit conducted is complete and thorough.
xii) Review of the position of compliance with old outstanding observations after
verification by the Section Officer
He shall draw special attention of the head of the office to the outstanding
observations and suggest appropriate steps for settlement of observations. The
settlement of outstanding paragraphs of the earlier Inspection Reports, which is
one of the important duties of the Supervising Officer, shall be given adequate
attention. The discussion and settlement of such observations in respect of the
offices situated at a station visited by a field party, but which are not actually
audited by that party, shall normally be done by the Inspecting Officer himself,
but no extension of the stay of the party as a whole should be necessary.
Normally additional time for the supervising officer would also not be necessary,
but where this is justified he may be allowed to extend his stay at the station.
(CAG's Lr.No.15/ Admm.III/ 432 Admn.II/59 dt:9.1.1960 C.S.No.40 AD
Manual O/o the A.G., Bihar).
75
xiii) The Supervising Officer may sanction casual leave to the Asst. Audit
Officer/Section Officers/Assistant Audit Officers/Senior Audit Officers of the
field party upto the prescribed limit subject to the condition that no extension of
time is required for the completion of audit on account of such absence. The
application for casual leave duly sanctioned has to be forwarded to the
Headquarters Section for further action.
xiv) The Supervising Officer shall appraise the Senior Deputy Accountant
General (CAW) / DAG(CAW) periodically in regard to the quality of work or
any special or good work done by the members of the field parties supervised by
him.
Expeditious settlement of outstanding Audit Objections and Inspection Reports
In order to impart momentum for expeditious settlement of outstanding audit
objections, the following procedure may be introduced:
1. (i) All the audit objections should be reviewed company-wise half-yearly in
respect of each Public Sector undertaking under the Accountant General's audit
control.
(ii) An audit objection on which a comment has been included in the
conventional Audit Report should be treated as deleted from the list of
outstanding objections as soon as the relevant paragraphs are discussed by
COPU or Action Taken Note thereon is received and verified in respect of the
particular objection.
(iii) When an objection can be developed into a Draft Para, the pursuance should
be elevated at a higher level and efforts should be made to develop it as a Draft
Para early.
(iv) A report of the results at the end of each half-year (30th September and 31st
March) indicating the number of objections at the beginning and number at the
end pending settlement year-wise and company-wise, should be furnished to
Headquarters office and the Administrative Ministry in April and October of
each year. The Ministry may be requested to advise the undertakings concerned
to take remedial action without delay.
2. (i) It is also required that `Audit Committees' in consultation with the Public
Sector Undertaking should be formed in respect of those who have heavy and old
out standings paragraphs. It should include members of Public Sector
Undertaking of sufficiently high rank, say the G.M. (Finance) and on the audit
side it should include members of the rank of Senior DAG/DAG. Meetings of
`Audit Committees' should be held as often as necessary and possible and efforts
should be made to have a final view on outstanding audit objections in such
76
meetings which otherwise could not be settled on the basis of replies or by way
of discussions during periodical visits to the undertaking for audit.
(ii) In the light of para 2(i) above, a list of outstanding audit objections should be
furnished to the Head of the Undertaking before convening the meeting of Audit
Committee so that they may prepare themselves for the meeting well in advance
of the date of which may be decided mutually. A notice of atleast a fortnight
may be given (CAG's letter No.292-CA.IV/92-85, dt:7.7.1988).
Since the objections and paras of inspection reports of Public Sector
Undertakings issued by this Office have a different bearing when compared to
the Government departments, it is desirable that all paras relating to each
commercial undertaking (Company/Corporation) are discussed separately by the
Committee associating Managing Director and General Manager (Finance) etc.,
of the organisation only. Senior Deputy Accountant General (Commercial)/Dy.
Accountant General will be the nominee of the Accountant General on this
Committee (AG(Audit)-I's letter No.CAW/XVI/IV-2/29 dt.8.9.1988 addressed to
the Principal Secretary, Finance Department, Government of A.P., Hyderabad).
2.50 Review of the system of Audit Committees
Certain deficiencies in the formation/functioning of Audit Committees in field
offices were noticed.
CAG desired that every effort must be made by field offices to make the system
of Audit Committee really effective.
The following specific decisions have been taken:
i) Wherever the Committees have not been formed, immediate action should be
taken to form them.
ii) The Accountants General should periodically meet the State Finance
Secretary and Chief Secretary to emphasise the importance and the need for
holding the Audit Committee meetings.
iii) A half-yearly list of outstanding objections is sent to the State Government
listing out the objections of all the departments which are more than six months
old for their information and action. At that time the names of the departments
which are not responding to audit objections should be specifically brought to
notice of the Finance Secretary.
iv) It has also been felt that a careful look should be taken by the Accountants
General about the nature of audit objections to be raised. Only serious objections
which can be developed into Draft Paragraphs or those that require recovery of
money or regularisation by sanction, or denote a systems failure, etc., should be
77
included in the Inspection Reports. The other objections could be incorporated
in the Test Audit Notes which could be watched and settled by the departments
themselves.(CAG's Circular Lr.No.1/Audit-II/91, No.8-Audit.II/51-90
dt:3.1.1991).
2.51 Procedure for preparation of Draft Paras
All Inspecting Officers should submit a report demi-officially to the Accountant
General in respect of important points or cases noticed by them during the course
of inspection in the form of draft paras after getting the facts verified and signed
by the Heads of the Institutions visited. The draft paras should contain (i) central
idea or theme of the para (ii) a specific observation on the system or flaw in the
decision taken due to which the irregularity or loss occurred and (iii) rectification
measures to plug the flaws. Draft paragraphs below a monetary value of Rs. 10
lakh should not be proposed unless systems lapses/ cash loss/fraud etc are
involved. In order to bring uniformity in reporting instructions contained in style
guide may be adopted while drafting the paras.( C&AG Lr. Nos.153/CA-II/Co-
ordn/2001-02/Misc/48-2002 dt.2.6.03/No.215 Audit/AP/6-2003 dt.3.12.04 and
No.107-CA-II/Co-rdn/MAE/2002-03/55-2003dt.2.2.06)
On the completion of the local audit of a particular office, it was noticed that
there were no important points, then the Inspection Officer should send a D.O.
letter to the AG and a copy to the group Deputy Accountant General concerned
stating that there were no important points.
The factual notes/draft paragraphs enclosed to the D.O. letter addressed to the
Accountant General should be prepared in triplicate together with copies of
relevant departmental correspondence and documents which have a bearing on
the subject. One copy should be enclosed to the D.O. letter addressed to the
Accountant General, second copy being endorsed to the Senior Deputy
Accountant General (COM)/Deputy Accountant General (Commercial) along
with copies of all enclosures and the third set retained by the Inspecting Officers
to enable them to furnish clarifications, if any, required at a subsequent stage
while processing the draft para. The Inspecting Officers, whenever they are at
Headquarters should invariably meet the Senior Deputy Accountant General
(Commercial)/Deputy Accountant General (Commercial) and discuss. (AG's
D.O.Lr.No.Report-II/47-60/76 dt.1.12.1967 and D.O.No.OAD/II-VII-13/70-71
dt.22.3.1971).
Inspecting Officers should appreciate and distinguish between draft para
intended for inclusion in Comptroller and Auditor General's Report and
Inspection Report para by way comment. Furnishing of extracts of paras from
Inspection Reports without attempting concise draft paras would not help at all.
78
2.51.1 Processing of draft paragraphs
In some cases, even if the full details and/or key documents were not available a
factual note should be proposed for inclusion in the Audit Report (Comml.) to
ensure topicality. (CAG's Lr.No.1091-CA.III/26878 dt.7.5.1987).
The direction and prevention of frauds is one of the main duties of the
Commercial Audit in terms of paras 27, 212, 213 and 239 of "An introduction to
Indian Government Accounts and Audit" and paras 58 (item 18 of annexure) and
85 of CAG's MSO (T) Vol.I. It has been decided that a consolidated para on loss
of Revenue through fraud, theft, mis-appropriation and embezzlement along with
modus operandi in each case noticed in our audit of PSU's would be included in
the conventional Audit Reports. Standing orders of Headquarters office on role
of audit in relation to cases of fraud and corruption vide Lr.No.126/Audit/AP/1-
2004 dated 6.9.2006 should be kept in mind. The draft paras should contain (i)
Central idea or theme of the para (ii) a specific observation on the system or flaw
in the decision due to which the irregularity or loss occurred and (iii)
rectification measures to plug the flaws.(Lr.No.513/CA-II/Coordn/2001-
02/Misc/48-2002 dt.02.06.03).
In order to bring uniformity in reporting instructions contained in style guide to
be adopted while drafting the para s.(Lr.No.215 Audit(AP)/6-2003 dt.3.12.04)
The information in the case of Government Companies can be obtained from the
Statutory Auditors of such Companies. But in the case of Corporations where
CAG is the sole Auditor where directions cannot be given for want of
empowering clause in respective legislation it is necessary that all such cases
noticed in audit may be sent to Headquarters office annually in a consolidated
statement indicating modus operandi of each case resulting in such losses, in
brief for inclusion in the conventional Audit Reports (CAG's Lr.No.234-
CA.IV/11-86 dt. 20.5.1988).
2.52 Procedure for pursuance of Draft Paragraphs in respect of
Companies under Section 619-B of the Companies Act 1956:
Inviting a reference to this office circular No.124 O&M(RC) 43-81
dt.31.07.1981, it is re-emphasised that while processing the results of efficiency-
cum-propriety audit of 619-B Companies, instruction issued from time to time
may be kept in view and draft paragraphs involving only points of adequate
substance for inclusion in an Audit Report may be issued to Government
concerned.(CAG Lr.No.IV/Tech.5/84 No.604-CA.IV/57-84 dt. 29.10.1984).
79
2.53 Compilation of Reviews/Comprehensive Appraisals Concept
Public enterprises have been set up with a view to speeding up the planned
economic development of the country. With direct participation of the State in
Trade, Industry and Commerce, the pattern of Governmental expenditure has
undergone a significant change. The vastness and variety of investments in
Public Sector undertakings and the crucial role they are expected to play in
achieving a self-reliant and self-generating economy have an impact on the life
of the people. Consequently, the concept of comprehensive appraisal has been
evolved with a view to judge the overall efficiency of the Public Sector
Undertakings in achieving the objects like creating of employment opportunities,
substitution of imports and promotion of exports, development of ancillary
industries, removal of regional economic imbalances, alienation of prices of
goods from their values for attaining socio-economic objectives, optimum
utilisation of scarce National resources for production of goods and services
most economically consistent with the goal of certain socio-economic objectives
and various other socio-economic measures along with the result detection and
reporting of individual cases of loss, wastage, infructuous expenditure and
irregularities are only incidental for such appraisals. Comprehensive Appraisal
of Public Sector Undertakings cannot be an annual affair, not only because of the
cost involved but also because of the difficulties in evaluation of the decisions
taken by the Management as a measure of long range planning. This is partly
because of the fact that the results of the action taken on the basis of long range
planning may not be susceptible of measurement until after efflux of sufficient
time and also partly due to the risk of deriving misleading conclusions from such
premature evaluation.
2.54 Principles for selection
For selection of a Company/Corporation/Departmental Undertaking for the first
time, the following shall be taken into consideration:
a) Atleast five years period should have been completed from the date of its
inception.
b) The activity undertaken shall be such as to warrant conducting reviews.
c) The investment/borrowings/capital/revenue/expenditure/ receipts shall be
substantial.
d) Objects of the institution shall have a bearing on the social efficacy of
programmes.
The following shall be the guiding factors for selection for second time.
a) There shall be a gap of five years from the year of first review.
80
b) The earlier report should have been discussed by the Committee on Public
Undertakings and their recommendations issued to the State Government for
their consideration.
c) Reasonable time shall be allowed to the institution for implementation of the
directions of the State Government based on the recommendations of the
Committee on Public Undertakings.
2.55 Preliminary Scrutiny
Study of the following documents shall be made by the Reports section to draw
conclusions for selection of Unit and to identify the areas that could feature
prominently in the Review and where concentration of effort is called for/lines of
audit investigations, type of data/materials that would be available/ needed so
that the Headquarters office can be apprised of the probable aspects proposed to
be dealt with at the time of forwarding proposals for selection.
a) Five year plan schemes.
b) Budget estimates and revised estimates.
c) Targets fixed for various activities to determine the magnitude.
d) Key directions issued by the State Government and leading financial
institutions.
e) Published Accounts.
f) Administrative reports and allied Management reports.
g) Agenda/Minutes.
h) Inspection Reports.
i) Handouts of Bureau of Public Enterprises.
j) Other material available in the office.
2.56 Performance Audit
The existing guidelines for performance auditing, hitherto variously termed as
‘review’ or efficiency-cum-performance audit’ or ‘value for money audit’
contained in chapter 8 of Comptroller and Auditor General’s Manual of Standing
ordered (Audit)-second edition- have been further fine-tuned in the context of the
ASOSAI Performance Auditing guidelines and INTOSAI Exposure Draft
Implementation Guidelines for Performance Auditing Standards and
contemporary best practices. These guidelines will replace en-block chapter 8 of
the Manual of Standing orders (Audit), in the context of performance auditing in
SAI India.
81
These guidelines combine the contemporary practices in the field of performance
auditing with the procedures to be followed in the context of the prevailing entity
environment in India. Significant emphasis has been placed on the practical
steps and procedures with a view to ensuring compliance to Headquarters office
and INTOSAI Auditing Standards and principles and the procedures in
contemporary auditing. These guidelines, thus, attempt to provide a link
between the modern best practices in performance auditing in the context of the
entity environment in the country and corresponding procedures with in IA
&AD.
Performance audit is a new approach of audit introduced by Headquarters office
in the recent past. Each performance audit is knowledge based mission and to be
planned and implemented by a dedicated team led by an Audit Officer/Sr. Audit
Officer under the supervision of group officer. The salient features of
performance audit are:
Covers the subject/programme over a period of time.
Coverage is selective.
Focused only on a part of the entity’s activities/programmes.
Audit of economy efficiency and effectiveness.
Extends to non-financial governance subjects.
More importance given to strategic planning wherein 20 to 25 percent of
the total time is provided in the planning stage. The strategic plan, in
pursuance of strategic goals and objectives prepared by the Accountant
General to be approved by Headquarters office.
Determining the audit criteria. Audit criteria are reasonable and
attainable standards of performance against which economy, efficiency
and effectiveness of programmes and activities can be assessed. When
criteria are compared with what actually exists (What is), audit finding
are generated. The audit criteria should be acceptable to the auditee.
Conclusions related to audit objectives.
Entry and exit conferences involving the heads of the officers of the
auditee and audit.
Engaging outside agencies in conducting surveys for collection of
required information for improving the quality of the audit report.
Developing recommendations. The recommendations are the logical
conclusions of the performance audit process and relate to the audit
findings and should, in most cases, be acceptable to the auditee for
implementation.
82
2.57 Characteristics of good report
The following points need to be emphasized in regard to performance audit
reports :
The audit report should be complete i.e. all pertinent information required
to satisfy the audit objective, including the information relating to the
scope, criteria, evidence, conclusions and recommendation should be
available in the reports.
The obligation for the audit report to be accurate implies that the
evidence prescribed is true and the conclusions are correctly portrayed;
The objectivity of audit report is ensured through fair conclusion and
balanced content and tone ;
The audit report is convincing if the results of audit are presented
persuasively and the conclusions and recommendations followed
logically from the facts presented ;
The report should be clear, which signifies that it should be easy to read
and understand
The report should be concise, which required that the report should be of
optimum size, no longer than necessary to convey the audit opinion and
conclusions ;
A report is balance if it does not focus on criticism alone but contains fair
assessment or evaluation, which would means that good performance
should also be reported ;
Consistency of the report is secured by ensuring that it does not contain
contradictory findings or conclusions in similar contexts or the
conclusions on the same segment in different sections or part of the
report are not incompatible ;
The report is constructive if it manifests a remedial approach rather than a
critical approach and includes appropriate recommendations ;
The report adds value to the entity, if is timely : and;
The acquiescence to the report, including of the audit conclusions and
recommendations grows with display of entity cooperation’s entity
responses, audit methodology, audit criteria. And evidence, etc. within
the performance audit reports.
2.58 Adherence to style guide
The presentation and language of the performance audit report should abide by
the ‘style guide’ of SAI India. The essence of the style guide is to adopt uniform
format and language, render the report simple and reader friendly as well as
interesting. Accountability centered, third person active voice narration by
83
designation enhances the readability and interest of the reader and induces
objective response from the entity, it should be followed informally.
2.59 Forwarding of the draft report
The Accountants General has to forward the draft performance audit report to the
government with a demi-official forwarding letter to the secretary with a copy to
the financial adviser to the ministry, which should contain the following:
Subject of the performance audit and reference to previous dialogues ;
Gist of major audit findings and recommendations along with the risk and
materiality of the issues ;
Attention to the orders of the government issued on the recommendation
of the parliamentary/Legislatures committee,, setting time limit for
formal response, (when specific time limit has not been set, the
Accountant General may follow that set by the parliamentary committee
or any other legislature committee as a reference point);
Invitation to a formal discussion and presentation of the audit findings
and conclusions ;
The expected value additions to the programmed management, if the
recommendations are implemented.
The Accountants General may forward simultaneously a copy of the draft
performance audit report and the forwarding letter to the secretary of the
ministry/department to the SAI headquarters. (Where the reports are finalized
in the SAI field offices) along with the following.
Evidence for each audit finding and conclusions along with test of
evidence against the standards of relevance, competence and
reasonableness, sources of evidence, evidence analysis along with cross-
references to the findings and conclusions;
Copies of basic documents referred to in the report viz. rules, orders, acts,
correspondence etc., with cross-references ;
Details of all correspondences, meeting, presentations, etc. with the entity
with cross-reference, where applicable;
Complete audit management process documentation from the stage of
audit planning (implementation guidelines) to the processing of the draft
report, which demonstrates conscious application of through on all
major issues involved with the management of the audit;
An assurance memo in the prescribed form
Period during which audit were conducted in the field along with break
up for each stage/unit; and
Name and designation of the members of the audit team and supervisory
officer.
84
2.60 Response of the entity
It is important that the entity is persuaded to provide written response to the draft
performance audit report. This may be achieved through correspondence,
personal meeting and presentation of the draft audit report. A formal response,
apart from ensuring compliance to the orders of the government, issued mostly at
the behest of Parliamentary/legislative committees demonstrates earnestness of
the entity in implementing the recommendations of audit for improvement in
programme management. The Accountants General has to facilitate a formal
presentation of the draft performance audit report before the secretary of the
ministry and his team.
Since the audit report is presented to the Parliament/state legislature, it is crucial
that the response of the entity has the approval of the secretary of the
ministry/department. The Accountant General may evolve procedures to assure
that the response by the entity is issued by or with the approval of the secretary
and an indication to this effect is given in the latter case.
Observation of the SAI headquarters on draft report:
The observation in relation to the audit findings and conclusions,
recommendations, evidence, draft, etc. by the headquarters is a combination of
quality control, quality assurance and supervision measures. The observations
and suggestions for improvements by headquarters provide assurance on the
logical development of findings and conclusions, quality and validity of
supporting evidence and objective approach by the field office/by the top
management, which has not been involved on day-to-day basis with the conduct
of the audit. It also facilitates review by the Headquarters to ensure that
appropriate procedures have been followed by the Accountant General in
implementation of the audit.
2.61 Second journey of the report to SAI headquarters
The system of simultaneous forwarding of the draft audit report to the entity for
its response and headquarters office for approval facilitates parallel processing.
On receipt of the response of the entity and observations of the Headquarters
office the Accountant General may incorporate the modifications, warranted by
them and forward the draft report along with a responses sheet to the
headquarters for approval of the report.
2.62 Final report
On approval of the report by Headquarters office the Accountant General may
send the bond copy of the report with appropriate annotations for formal
approval of the report by Comptroller and Auditor General, after which the
report stands cleared for printing of the prescribed number of copies, signature
copies for signature of the Comptroller and Auditor General in ink and others
with his facsimile signature.
The printed signature copies of the report are to be forwarded to the
Headquarters for signature of Comptroller and Auditor General. The signed
85
copies of the report should be forwarded to the government for placing it on the
table of the Parliament/state legislatures. Simultaneously, intimation on
forwarding of the report along with a copy of the report to the Union and state
governments respectively. The remaining copies of the printed reports are
forwarded to the Parliament/legislatures secretion on this request, generally on
the day the report is presented.
The Headquarters office guidelines on performance audit to be complied with in
all respect while conducting performance audit.
The instructions contained in the style guide vide CAGs Lr.No.215 Audit(AP)6-
2003 dt.3.12.2004 to be adopted while drafting the review.
2.63 Information Sources
The following sources of information shall be consulted/studied/examined while
conducting reviews. Files in the Secretariat and the concerned heads of
departments leading to the issue of Government orders forming the Company /
Corporation / Departmental undertakings:
1. Memorandum and Articles of Association.
2. Correspondence files with the State/Central Governments, Planning
Commission/various Financial Institution like I.D.B.I., I.R.C.I. etc.,
3. Plan Documents
4. Annual budget papers of the State/Central Governments.
5. Budget and revised budgets of the Institution.
6. Agenda and Board minutes of the Institution.
7. Proceedings/Reports of various internal/external committees of experts.
8. Minutes of the various sub-committees on various fields like Finance,
Works, Purchase, and Managerial Planning on various aspects depending
upon the undertaking, monitoring, appraisal etc.
9. Key notes submitted from time to time to the State/Central
Governments/leading Financial Institutions, Seminars/Conferences,
visiting dignitaries etc.,
10. Internal Audit reports.
11. Administrative reports.
12. Published accounts/documents/brochures/handouts.
13. Annual reports, documents, circular guidelines etc., of State and Central
B.P.Es.
86
14. Guidelines/Circulars issued by R.B.I., I.D.B.I. etc and other financial
institutions.
15. Annual reports/documents/spl. key notes of R.B.I., IDBI etc.
16. Reports/documents of Planning Commission.
17. Notes/Circulars/Reports of various professional Institutions like Institute of
Chartered Accounts of India, Institute of Cost and Works Accountants of
India etc.
18. Articles/papers presented by eminent experts in respective fields.
Administration reports and published accounts of similar companies in
private sector.
19. Guidelines issued by the Headquarters office from time to time.
20. Audit reports of other States and Central Government undertakings.
2.64 Audit Findings
The Report of the Comptroller and Auditor General of India is the only
document by which the achievement, effectiveness and usefulness of Public
Sector undertakings are judged by the Legislature and General body of tax
payers. It provides the legislature with a powerful weapon against extravagant,
irregular and wasteful expenditure, of public money. Hence the audit findings
made in reviews shall be constructive and critical but shall not create an
impression that it is meant to utilise for fault-finding. They shall be analytical
supported by data together with the reasons for the situation obtaining while
dealing with the facts, objectives, inefficiency, non-achievement etc.
Where comparable with Private Undertakings in similar fields, comparative
figures may be added.
While mentioning the objectives of the organization, analysis of the actual
activities undertaken in furtherance of the specified objectives, one by one, or
attempts made to portray how far the said activities with reference to
programmes formulated from year to year have been achieved and if there had
been any deficiencies or shortfalls-what they were-how they occurred and why
etc., shall be dealt with. After dealing with this aspect with reference to each one
of the objectives, specific cases of irregularities/losses or any other important
matter of financial magnitude relevant to the said activity shall also be dealt with.
There shall not be mechanical comparison of targets and achievements. To
throw light on the social efficacy of a programme, the actual accomplishment
shall be brought out keeping in view the level of staff and facilities provided.
87
Factors leading to the shortfall like lack of proper coordination, non availability
of adequate flow of requisite funds from government or other sources, abnormal
climate or other factors, non availability of suitable land, equipment, personnel,
etc., shall be brought out with their consequential effects.
Where loans are given to weaker sections the thrust shall be on how far the
object for which the loans were given has been secured rather than on over dues.
Lastly, matters of practical concern and real interest to the State Legislature and
of public importance.
The following individual cases of importance shall be included in the Report:
Draft paragraphs involving Rs.10,00,000 more. However, paragraphs for
amounts less that Rs.10,00,000 may also be proposed if they present special
features e.g. instances of system failures cash loss, fraud, etc. (P.40/Rep/188-
79/17.7.1979P.391/cofVII-20/80-81).(107-CA.II/Coordn/MAE/2002-03/55-2003
dated:.2.2.06).
The results of review of the statement of affairs of the Government Companies in
liquidated. (DAG’s Lr.No.Rep.II/77-1/63-64 dated 21.4.1964 P.545/c of
F.No.82/56/55-56 Vol.II).
Cases of persistent and important irregularities against rules and procedures etc.
noticed in the accounts from year to year, the continuance of which is likely to
lead to losses, frauds etc. (AGCR’s lr.No.R-9-20 (KW) -2070 dated:21.4.1952).
Negligence or manipulation in accounts and fraud in a monetary transaction or in
the disposal of stores, etc.
Appreciable loss of Government money/property.
Serious irregularity connected with a contract or heavy purchase.
Important irregularity in the realisation of revenue.
Advance or large claim which is outstanding for an unduly long time.
Absence of administrative regulation or procedure to secure a proper and
effective check upon monetary transactions.
Any extraordinary, infructuous or apparently unnecessary expenditure, such as
(a) payments made as acts of grace, (b) unnecessary payment of demurrage or
rent or compensation paid for damage consequent upon some executive failure
(c) payments of heavy amounts which appear to be contrary to rules or terms of
contract.
88
Irregularity connected with grant in aid, such as neglect (a) by the sanctioning
authority, of the conditions precedent to the grant of (b) by the grantee, of the
conditions attached to the grant by the sanctioning authority.
Grant of concessions to industrial concerns by the Government.
Cases of concession, though fall under the declared policy of government under
acts of State Legislature, which are substantial and continuing (CAG’s
Lr.No.780/Rep/273/59-II/17.3.1961).
Cases of one Government receiving assistance from another Government for
establishing an industry.
Cases of ex-gratia payments to employees of State Government enterprises and
establishments viz., State Financial Corporation, to which the payment of Bonus
Act, 1965 does not apply, if these are not (a) covered by any regulations made in
pursuance of Section 48 and/or (b) paid in the absence of any specific directions
issued by the Government (CAG’s Office Lr.no.CA.IV/Tech/6-78 dated
22.11.1978).
In respect of industrial estates, arrears of rent recoverable from the tenants,
interest and penal interest thereon, arrears of water and electricity charges,
differences between the economic rent and the subsidized rent etc., together with
year-wise breakup. (Cir.No.106 dt. 7.6.74 F.No.IV- Misc/73-74).
Cases where there was lack of response to constructive suggestions made by
Audit/COPU in earlier years for rectification of defects in financial or accounts
control if the continuance of the unsatisfactory features is attendant with risk of
fraud or loss to Government.
A general paragraph inviting pointed attention to Departments in respect of
which the outstanding observations and inspection reports are very heavy in
respect of Departmental undertakings.
If necessary, a para on outstanding objections may be included in the Review of
the public sector undertaking concerned at the time of making comprehensive
appraisal.
Cases of the following nature shall not be included in the reports.
Very old cases where it is very difficult to take any corrective action
or even to reconstruct the facts and circumstances in which the
alleged irregularities had taken place.
Cases where remedial action had been taken including suitable
disciplinary action to prevent recurrence of such irregularities.
Minor cases where malafide or deliberate intention to circumvent
procedure is not involved.
89
Cases which are sub-judice, should not be mentioned in such a way as
to prejudice the claim or defence in the Court.
The money value is insignificant.
Hypothetical observations.
Where there is no fault of the management and/or when the
management/Government’s reply is convincing.
Direct attack on/reference to the CMDs/Officers of the PSUs
(139-CAII/Coordn/Action Plan /2005-06/1-2006 dt:8.2.2006).
General
The defects noticed/important points brought out by the Statutory Auditors of
Government Companies in their reports furnished by them in response to the
directives issued to them under Section 619(3) of the Companies Act, 1956 shall
also be included as a para in the Introductory Chapter (Government Companies)
below the para on “Results of audit of accounts by C & AG of the State Audit
Report”. (Lr.No.672-CA-II/48/99-Vol.III dt:21-08-2003).
Similarly, a para containing a synopsis of important points included in the
comments on the accounts of the Companies during the last year under the
heading “ observations and comments made under Section 619(4) of the
Companies Act, 1956” shall also be included in the Audit Reports. (CAG’s
Office Lr.No.281-CA-II/182-78 dt:6.03.1980 P.138. C of F.No.IV.17/72-
73/Vol.V).
Paragraphs in chapter on ‘Miscellaneous topics of interest’ in State Audit
Reports (Commercial) include paragraphs as a result of transactions audit. The
existing title of the chapter may, therefore, be substituted as “Transaction Audit
Observations” in the State Audit Reports (Commercial) and corresponding
charges may be made in the table of contents, overview, etc.
In the beginning of chapter ‘Transaction audit observations’, brief introduction
may be given as under.
Important audit findings noticed as a result of test check of transactions made by
the State Government Companies /Corporations are included in this Chapter.
Categorisation of observations in the “Overview” of the audit report
(Commercial) under the heading “Transaction Audit Observations” may be given
as below:
Audit Observation included in the Report highlight deficiencies in the
management of PSUs, which resulted in serious financial implications.
90
Gist of some of the important paragraphs may be made in the ensuring Overview
(Lr.No.333-CA-II/Co.ordn/Format of Audit Report/03-04/112-2003 dt:31-03-
2004).
For the purpose of calculating “Return on capital” in the synoptic statement in
the Audit Report, the following is the procedure prescribed.
(i) For Government departmental undertakings return on capital shall be
calculated on the mean capital on which interest is worked out. As this mean
capital will not be available as a distinct in the Balance Sheets of the
Government Departments, the same may be shown as a foot note in the Balance
Sheet of the Department concerned.
Measuring Audit Effectiveness
With a view to assess audit effectiveness of the State Audit Report (Comml)
weighted aggregation of money values of reviews, draft paragraphs and
certification of account to be given alongwith the Bond Copy.
The extent instructions required that the assigned money values should not be
misleading and unnecessarily inflated. The money values should reflect the real
Audit effort and hypothetical losses, procedural irregularities etc should not be
reckoned while computing total value of audit observations as inclusions of these
inflate the value of the report and distorts the true worth of the report. Therefore,
the matrix has to be worked out very carefully, and in true Audit traditions,
somewhat conservatively so that it realistically reflects the impact of the Audit
effort. The following points may be kept in view while working out money
values of the paragraphs in the Audit Reports (Commercial)/Commercial
Chapters.
i) Money value may be assigned only to those paragraphs where Audit effort
or the contribution is evident. No money values should be assigned to
paragraphs based on the date obtained from the PSU/Government and
incorporated in the Report as factual statement or statistical information or
without audit findings based on analysis.
ii) Money value may not be prescribed to paragraphs of excessive T&D
losses, as this does not constitute an audit finding.
iii) Money value may not be attributed to paragraphs on shortfall in production
of certified seeds etc.
iv) The observations pointed out by the internal audit wing of the PSUs/Dept
and those already in the knowledge of the PSUs/Department need not be
incorporated in the Audit Report. However, in case of their inclusions, in
91
special circumstances, no money value may be assigned to them while
computing the financial impact of the Audit Report.
Money value may not be assigned to paragraphs on potential loss of
revenue.
v) Money value may not be assigned to the amount blocked. Audit can at
best take credit for the interest amount on the blocked fund.
vi) Where the para deals with delay in implementation of a scheme, money
value should be attributed with reference to additional interest burden on
the cost of the scheme only and not the entire amount of the scheme.
vii) Money value may not be assigned for inflated bills, already in the
knowledge of the auditee organizations and where recovery cases have
been filed by the auditee organization.
ix) Money value may not be assigned to the consumption of fuel in excess of
norms in Thermal Power Station.
(CAG/s Lr. No. 481/CA-II/Co-ordn/MAE/2002-03/55-2003, dt:24. 05.2005)
(CAG/s Lr. No. 107/CA-II/Co-ordn/MAE/2002-03/55-2003, dt:02.02.2006)
2.65 Presentation of results
The provisions of Chapter VI of the Manual of Standing Orders (Technical)
Volume II and Chapter VII of the Manual of Report and Appropriation Audit
Department shall be specially borne in mind in respect of the material for
inclusion in the Report of the Comptroller and Auditor General of India.
While drafting the paragraphs/reviews proposed for inclusion in the Audit
Report, the following points shall be borne in mind:-
i) The thrust, principal point and conclusion must be clearly brought out to a
sharp focus.
ii) The paragraphs shall not be clubbed with information not relevant to the
point sought to be made.
iii) The paragraphs shall be self-contained and there shall not be missing links.
The emphasis shall be on quality and analysis rather than quantity and
narration.
iv) Steps taken/proposed to rectify/improve matters shall be spelt out.
v) While the language shall be precise, brevity shall not be sought at the cost of
clarity.
92
vi) Paragraphs shall not be based on unilateral conclusions of the Audit against
specific replies of the field offices challenging the objection. In such cases,
the paras can be processed, if tangible and written evidence in support of our
Audit views can be provided to C.P.U/P.A.C./ C.O.P.U.
vii) Number of Government orders/letters shall not be quoted. The
reviews/paragraphs should, at the final draft Report stage indicate in the
margin or at the end of each paragraph or review, the points sought to be
emphasised. The time of occurrence of each event and at what level it
occurred shall be indicated. If in any case, a reference to the correspondence
with the Executive Government/Institution/Undertaking is absolutely
necessary, the subject matter of the correspondence shall be summarised as
briefly as is compatible with vivid exposition.
viii) If it is necessary to refer to the infringement of any rule, whether statutory
or otherwise, a gist of the rule shall be furnished and the actual or possible
effect of the violation on the financial interests of the State clearly brought
out.
ix) The actual amount involved (or when this is not possible, the approximate
amount) shall, as far as possible, be indicated together with the basis on
which the same had been arrived at. But it shall be borne in mind that it is
more important to drive home a general lesson than to drill upon a particular
irregularity.
x) Piecemeal paragraphs on irregularities of the same nature shall be avoided.
These shall be consolidated.
xi) Detailed annexures shall be furnished in support of all calculations wherever
the same are accepted by the field officers.
xii) Cases involving transgression of Statutory provisions, rules or orders and
other cases which lead to or are likely to lead to substantial pecuniary loss
may be mentioned individually.
xiii) Comments regarding extra expenditure or avoidable expenditure on account
of urgency can be included only if it can be proved that there was no real
urgency.
xiv) The paragraphs regarding avoidable procedural delays in finalisation of
tenders resulting in additional expenditure may be consolidated for the
institution/organisation as a whole.
93
xv) Paragraphs shall contain as to how many cases out of the total number of
cases were test checked so as to arrive at conclusions on a rational and
realistic basis.
xvi) The prefatory remarks of State commercial reports shall also include a
comment covering the State Government Corporations created under the
State Statutes wherein the State Government has invested, though the
accounts are not subject to audit by the Comptroller and Auditor General
of India.
xvii) If comments necessitating a change in the original paragraph are received,
orders of the Accountant General in the matter shall be obtained.
xviii) If in the light of subsequent development, any paragraph required
amendments before its incorporation in the Report of the Comptroller and
Auditor General of India, the amendments shall be submitted to the
Accountant General for approval.
xix) If any abnormal delay is apprehended in getting replies in any particular
case, the paragraph should be finalised treating/making it factually correct.
xx) No change whatsoever shall be made by the Accountant General in the
draft report approved by the Comptroller and Auditor General of India
without obtaining clearance from the Headquarters office.
Consequent upon setting up of the Committee on Public Undertakings by the
State Legislature to deal with Government Companies and Corporations, the
material relating to Departmentally managed commercial undertakings is
discussed by the Public Accounts Committee along with the other materials
relating to other departments of Government. Hence the report relating to
Departmentally managed Commercial undertakings forms part of Audit Report
(Civil) and the Audit Report (Commercial) deals with the other two categories.
2.66 Procedure for obtaining the approval of Headquarters Office
After the draft chapters for all paragraphs and reviews are approved by the
Senior Deputy Accountant General (CAW)/ Deputy Accountant General (CAW)
and Accountant General, the same shall be forwarded to the Headquarters office
in triplicate for obtaining the approval along with the questions to be suggested
to CPU/PAC/COPU on each para/review.
The following guidelines of Headquarters office should be kept in mind.
The draft review to be prepared strictly as per the Performance
Auditing guidelines and after discussion by the Audit Review
Committee as per Headquarters office Lr.No.746/DA-
94
I/C/P&T/ARCPSE/84-2002 dated:4-9-02. A certificate to the effect
needs to be recorded while forwarding the report.
Draft paras below a monitory value of Rs.10 lakhs should not be
proposed unless systems lapses/cash loss/ fraud etc. are involved
(Lr.No.139-CA-II/Co-ordn/Action plan/2005-06/1-2006 dt:8.2.2006)
The instructions contained in the style guide to be followed by drafting
the Audit Reports. (CAG office Lr.No.215 Audit/AP/6-2003
dt:3.12.04)
The amount below Rs.50 lakhs to be expressed in lakhs and amount of
Rs.50 lakh and above to be expressed in crore.(617-CA-II/398-99kw
dt:23.7.03)
The document required as per the check list should be attached to the
Audit Report while forwarding the draft report to C&AG’s office for
approval.(Lr.No.249-Rep/AB/91-2003 dt:19.08.2004)
While submitting the bond copy to Headquarters office check points in
the internal quality assurance frame work to be applied by the field
offices.(Lr.No.478/CA-II/398-99/dt:7.5.04)
In the second round, after attending to the Headquarters marginal remarks, the
first impression also shall be annotated (by pasting replies to the comments of
the Headquarters in the facing pages). Only at the final stage when the final
draft for when the final draft for approval of CAG is sent, the bond shall be
without any annotations.
2.67 Size of the Audit Report to be printed
It was decided that Audit Reports (Commercial) may be printed in RA-5 size
(approximate size 15.2 cm x 21.5 cm) in any sober colour at the discretion of
Accountant General. The size of the Audit Report should be restricted to 100
pages (excluding annexures) unless there are very weighty and justifiable reasons
for exceeding the limit. Reviews which are of outstanding quality and substance
can be considered for being brought out as a separate Audit Report/ volume
during the year and presented to the state legislature during any possible session.
(Authority: CAG's D.O. letter No.2611-CA.II/253-82 dt:1.1.'88 read with letter
No.1530-Rep(S)/136-87 dt:22.12.'87) (Lr.No.570/CA-II/143-97 dt:26.06.02.)
Whereas the audit Reports on accounts are submitted to the President/Governors
in terms of Article 151 of the Constitution, Section 19-A of CAG's (DPC) Act,
1971, as introduced in 1984, provides only for submission of Commercial Audit
Reports of the CAG of India to the Government and not to the President or
Governor. As such the above instructions of keeping the President/Governor
informed will not apply to Commercial Audit Reports.
95
The information to the press about the submission of the Audit Reports including
brief of the contents will be done by the Accountant General (C&RA). (General
circular no.3/6/1999/no.751/rep(s)/99/dt:5.08.99)
Incidence of the cost of printing of the State Audit Report, Appropriation
Accounts and Finance Accounts
The cost of printing of copies of the above publications supplied to the State
Governments for their use and for sale purposes should be borne by those
Governments. The cost of copies supplied to the Comptroller and Auditor
General of India and the Accountant General of the State for purposes of audit
should also be borne by the State Government concerned under the provisions of
paragraph 16(i) of the Audit and Accounts Order, 1936 as adopted. The cost of
copies supplied to the Audit Officers of other States on an exchange basis and of
those kept in reserve in the Audit Office to meet possible future demands should
be borne by the Central Government.(Lr.No.1436 dt:22.9.1944 and dt:9.12.1944
of CAG's Lr.No.1077-Rep/168-54 dt:30.9.'54).
The instructions contained in Head Office Circular No.605 Rep(C)/82-88
dt:22.3.1988 apply mutatis mutandis regarding submission of Audit Reports
(Comml.) to State Government in so far as Audit Reports (Commercial) are
concerned.(Lr.No.1929-CA>II/291-87 dt:7.9.1988 Pt. No.Sr.DAG's (PA) No.61
dt:21.9.1988).
Wherever delays in printing are anticipated the Secretary to the Governor and the
Chief Secretary may be informed about the delays. This may also be reported to
the Headquarters office for considering issue of a letter by the Comptroller and
Auditor General of India to the Finance Minister and/or Governor of the State.
Six copies of the printed Audit Reports shall be forwarded duly signed by the
Accountant General to the Headquarters Office for obtaining the counter
signature of the Comptroller and Auditor General of India. The Headquarters
office will forward two copies to the State Government for being placed on the
table of both the Houses of State Legislature.
The date of presentation of the Audit Report shall be watched by the Senior
Audit Officer (Reports). On getting the information 250 copies may be sent to
the Legislature Secretariat for circulation among MLAs etc. On receipt of
communication from the Legislature Secretariat as to the presentation of the
Audit Report, the date(s) of presentation shall be intimated to the Headquarters
by telex. Simultaneously, about 350/400 copies may be sent to the State
Secretariat (Fin.Dept) for circulation among various companies reviewed in the
Report and other departments.
96
The latest position of the details of outstanding items is required to be supplied to
the Finance Department and the Public Accounts Committee/COPU at the time
the reports are examined by it.
Any development occurring after the Report is printed, shall also be brought to
the notice of the Accountant General so that the latest position of the case would
be available at the time of examination of the Report by the public Accounts
Committee/Committee on Public Undertakings.
2.68 Committee on Public Undertakings
The Committee on Public Undertakings is constituted under Rule 230 of the
Rules of Procedure and Conduct of Business in the Andhra Pradesh Legislative
Assembly. The Committee shall examine the working of the Public undertakings
specified in the Second Schedule and such other Public Undertakings, as may be
specified by the Speaker from time to time. The functions of the Committee
shall be:
(a) To examine the reports and accounts of the Public undertakings specified
in the Second Schedule;
(b) To examine the reports, if any, of the Comptroller and Auditor General on
the Public Undertakings;
(c) To examine in the context of the autonomy and efficiency of the public
undertakings whether the affairs of the public undertakings are being
managed in accordance with sound business principles and prudent
commercial practice; and
(d) To exercise such other functions vested in the Committee on Public
Accounts and Committee on Estimates in relation to the public
undertakings specified in the Second Schedule as are not covered by
Clauses (a)(b) and (c) above and as may be allotted to the committee by the
Speaker from time to time.
Provided that the Committee shall not examine and investigate any of the
following namely:
i) Matters of major Government policy as distinct from business, or
commercial functions of the public undertakings;
ii) Matters of day to day administration not relating to past acts; and
iii) Matters for the consideration of which machinery is established by any
special statute under which a particular public undertaking is established.
97
The explanations of the departments/undertakings in respect of the Accounts and
Audit Report of the Comptroller and Auditor General of India shall be sent to the
Committee through the Accountant General.
2.69 Accountant General to assist the Committee
i) The Accountant General will generally assist the Committee in the
examination and scrutiny of matters reported in the accounts and audit
paras/comprehensive appraisal reports of such undertakings as come within
the scope of the Committee.
ii) The Accountant General will submit memoranda of important points in
respect of the Audit Report (Commercial) as and when taken up by the
Committee/Sub-Committee for detailed examination.
iii) The Committee/Sub-Committee may hold an informal meeting with the
Accountant General for clarification of any points arising out of the Audit
Reports, paras/accounts of the undertakings and the Memorandum of
important points referred in (ii) above.
Meetings of the Committee on Public Undertakings in which subjects not
included in the Audit Report are considered may be attended by the Accountant
General or Deputy Accountant General as observer with a view to draw
conclusions from the discussions for devising audit strategy in similar areas. It
may not be appropriate or fruitful to participate in such discussions in the
absence of availability of authentic records.
On completion of examination of any undertaking by the Committee, report
containing the recommendations of the Committee shall be presented to the
House. After its presentation, copies thereof are made available to the concerned
authorities, among others.
Action taken by the Government on the recommendations of the Committee
contained in the said Report is put up to the Committee with suitable comments.
The Committee may in turn consider the same and give its report.
2.70 Reports Section (Commercial Audit Wing)
The Reports Section (Commercial) is under the control of Sr. Deputy Accountant
General (Commercial)/Deputy Accountant General and is supervised by an
Audit Officer/ Senior Audit Officer (Commercial). This section should function
in close liaison with the Administration and technical sections of Commercial
Audit Wing.
The Section is responsible for:
98
i) selection of topics of the undertakings for review and for obtaining
approval of Comptroller and Auditor General of India for inclusion in the
Commercial Reports of the Comptroller and Auditor General of India
(Audit Reports).
ii) finalisation/coordination of the work of reviews of undertakings and draft
paragraphs for inclusion in the Audit Reports, communication thereof to
the respective departments of the State Government/Managements of the
Undertakings/CAG's Office wherever necessary.
iii) Drafting factual notes, issue of same after approval by the A.G. to the
concerned undertakings.
iv) Examine the replies received from the Managements of undertakings in
respect of Review/Draft Paras/Factual notes and incorporate them in the
material under process whenever necessary.
v) Compile the chapters on the working of companies/corporations based on
the material furnished by Senior Audit Officer incharge of
Companies/Electricity Board/Road Transport Corporation/State
Warehousing Corporation Audits and prepare a synoptice statement on the
working of Companies/Corporations for approval by Headquarters office.
vi) Preparation of annotations to the headquarters office (CAG's Office)
marginal remarks before finalisation of draft paras, Reviews and Reports.
vii) Preparation, finalisation, printing and issue of Audit Reports.
viii) Liaison work with printing department/State Government/ Legislature
Secretariat for placing the Audit Report before State Legislature.
ix) Intimating the Headquarters office about the dates of presentation of Audit
Reports (Commercial).
x) Vetting of notes, reports forwarded by the administrative
departments/Legislature Secretariat for placing before Committee on
Public Undertakings (COPU).
xi) Preparation of memorandum of important points in connection with the
discussion of Audit Reports by COPU.
xii) Assisting the Accountant General for COPU meeting.
xiii) rendering assistance in finalisation of recommendations of COPU.
xiv) review the Audit Reports (Commercial) of other States/Reports of COPU
of other States and circulate important points noticed in the Reports to field
parties.
99
xv) preparation of material for Chapter-VI (material relating to departmentally
managed commercial undertakings) and submission of the same to the
Reports Section (Civil) for both State and Central Reports.(Authority:
C&AG letter No.790/Rep/71-51, dt.21.11.1961).
xvi) liaisoning and collection of material for appropriation accounts and
forwarding the same to concerned authorities.
xvii) Compiling guidelines for conduct of review and issue them to the
concerned review parties on approval from Headquarters office.
xviii) Drafting of overview and highlights for approval by Headquarters office.
2.71 Time Schedule for finalisation of material for Reports
The time schedule for submission of material is fixed and communicated by
Headquarters every year. The date as fixed by headquarters office for
submission of draft material so as to reach CAG's Office should be adhered to
strictly. The material may be sent in most convenient batches, so that adequate
time is available to headquarters office to bestow attention. It may be ensured
that replies to comments/marginal remarks of CAG as well as revised
reviews/draft paras are prepared simultaneously within a fortnight after receipt of
CAG's remarks. The annotated copies may be sent to headquarters office
immediately thereafter, after obtaining the approval of AG. Draft paragraphs
may be finalised and sent to headquarters office as and when ready without
waiting for selection of reviews. (Authority:1. D.O.No.1436-CA-II/253-82
dt:30.7.1984 of CAG's Office 2. 1474-CA-II/253-82/20.8.1986 (p.30
F.g.V4/13/86-87).
2.72 Due dates for submission of material to Headquarters Office
While sending the draft audit material to headquarters office the following
procedure may be observed:
1) The matter should be typed on a reasonably thick type of white paper.
2) Should be typed strictly in half margin and with triple line spacing.
3) Typing should be neat and clean.
Non-compliance with the above requirements will result in return of draft
material from headquarters office at dak stage itself. The material should be
thoroughly vetted before forwarding to CAG's Office so that the drafting is
proper and there are no mistakes of grammar (usage of wrong tense and number
viz. singular for plural and vice versa, incomplete or disjointed sentences,
needless use of capital letters etc) and punctuation mistakes. In any review the
matter should be presented in an orderly manner covering the major activities of
100
the undertaking concerned and expressing the deficiencies in the context of, and
in terms of percentage of, total activities. Greater involvement at higher levels is
needed for planning a review, reviewing the material gathered periodically and
chopping, chipping and polishing of material with the attitude a sculptor adopts
for his objects.(Authority.No.1300-CA-II/253-82 dt:21.7.1986 Page 4 of file
No.CAW/VII-13/86-87).
However with the introduction of computers the material for the Report as well
as bond copy are printed on computer stationery Bond paper for transmission to
Headquarters office.
2.73 Selection of topics/reviews for inclusion in the Audit Report
(Commercial) and finalisation of report
(i) The Resident Audit Officers/Senior Audit Officers attached to A.P. State
Road Transport Corporation and A.P. State Electricity Board, Sr.Audit Officer
(Commercial) headquarters, may have to be consulted regarding the items of
reviews or the topics to be selected for inclusion in the Audit Report
(Commercial) as well as in the Commercial Chapter of Audit Report (Civil).
After the selection is completed with the approval of Accountant General, the
State Government may be informed and suggestions, if any, may be invited from
Secretaries of Finance Department and other Administrative Departments, in
addition to the Managements of undertakings or Companies. The final proposal
should be sent to CAG's Office for their approval of reviews/topics selected.
Information in the proforma prescribed along with the proposals for selection of
undertakings/topics for review should be furnished to the Headquarters Office.
(Authority:Lr.No.135-CA-II-271-81 dt:25.1.'82 of CAG's Office).
1) 3 year Plan for selection of Reviews.
2) Selection of 619 B Companies.
(ii) Simultaneously, guide-lines for the benefit of the local audit parties
undertaking the reviews should be prepared and got approved by the
headquarters office. The annual audit of the records of the undertakings selected
for review may however, be taken up immediately, pending receipt of CAG's
Office approval so as to avoid delay in finalisation of reviews. The progress of
the reviews should be watched by Reports Section (Commercial Wing) which
should bring out cases of delay in receipt of replies etc. to the notice of
appropriate authorities and initiate remedial steps to adhere to the deadline.
(iii) The field parties undertaking the review should collect all the relevant
material/key documents in their first visit itself of the office concerned as far as
possible so as to avoid re-examination of the records of the
101
Company/Corporation. Proper care should be taken to analyse the data and to
make comments from audit angle on the data to be presented in tabular form.
Emphasis is laid on the audit comments on specific irregularities, system
deficiencies, cases of infructuous or extra expenditure. Failure of the
Management at different levels should assume greater importance in the Review.
(Authority:D.O.No.1135-CA-II/253-82 dt.20.6.1983 of CAG's Office).
(iv) While finalising the Review or a draft paragraph care should be taken to
ensure, particularly, brevity and effectiveness of the central idea of the audit
comment.
(v) Quotations from Management's report or other literature should be minimised
depending upon the need if it could not be avoided. It may be ensured that the
thrust is given to justify Audit comment. Conclusion should be based on
supported documents. (Authority.No:1436-CA-II/253-82 dt.30.7.1984 of CAG's
Office).
vi) The draft paragraphs may be sent to headquarters office in convenient batches
so as to enable them to communicate their observations/queries within 15 days.
Within one month of the receipt back of the last batch, the Draft Report should
be prepared meeting the points raised and sent back to headquarters. The Audit
Report should be made available to the Legislators/Members of Parliament well
before the annual budget is taken up for discussion in the
Legislatures/Parliament. A time schedule should be worked out in such a way to
ensure that the Audit Report is presented along with the Finance and
Appropriation Accounts before the commencement of the Budget discussions.
The Audit Reports for major State Schemes may be printed and presented in
separate volumes at the discretion of the Accountant General (Audit) with the
approval of the headquarters. The audit report may be got printed by adopting
photo offset method wherever feasible. (Authority. No:1453-Rep c/99-87
dt.17.8.'87 page 8 of File No.CAW/ Report/VII-19/87-88).
vii) The work on review with potentially worthwhile material need not wait for
the formal approval of CAG's office. Where preliminary investigations show
that worthwhile material for a review on a selected undertaking/topic is not likely
to be ready at least in time for the Report on hand, Accountants General should
concentrate on review of other undertakings/topics and inform CAG's Office.
The audit parties conducting reviews or proposing draft paragraphs are
responsible for drafting in complete shape and for submitting the same to the
Group Officer for approval. The Group Officer may direct the concerned Audit
Officer, Asst. Audit Officer or Section Officer or Resident Audit Officer to
modify the review or draft paragraph to make it more meaningful and create
102
more thrust on the lapses. The Group Officer will then finalise the review/draft
paragraph after associating the Reports Section for overall examination taking
into account the latest instructions or directives of the headquarters office. The
Reports Section (Commercial) is responsible for checking all the documents of
the review or draft paragraph, accuracy of the calculations in support of the
figures mentioned therein and maintain all the key documents files. The party or
the section initially associated with the reviews or draft paragraphs should also
furnish memorandum of important points along with the draft review or draft
paragraph so as to appreciate the points brought out in the review or draft
paragraph and for use in the discussion by COPU at a later stage. The Reports
Section should maintain a register of reviews received in Section duly registering
all draft paragraphs and reviews indicating their disposal and watching the
progress.
viii) While preparing the draft paras for Audit Report it may be kept in mind that
-
a) Unpleasant phrases and words like audit comments may be avoided.
b) Names of the individual should not figure but only the designations are
indicated in the paras.
c) Special attention should be given to the following so that the responsibility of
the Management for irregularities can be brought out:
i) Was the management aware of the issue at any stage? If the management was
not sufficiently vigilant, this fact may be indicated.
ii) What was the action suggested by them?
iii) Did the executive follow the instructions or advice of the Management in a
given case and irregularities resulted in respect of such cases? Whether the
Management/Board has taken or suggested any action after the irregularities
have taken place?
d) Relevant information with dates may be indicated in the para emphasising the
exact point. (Authority: CAG's letter No.547-Rep/58-61 dt:24.2.'61).
ix) With a view to improve the quality of Audit Reports, headquarters office
suggested certain guidelines as detailed below:
Clear-cut guide lines/instructions in writing should be issued to audit parties
before they proceed on local audit/inspection. In the case of important audits
specially the reviews, before local audit/inspection parties proceed to the field,
various aspects of those audits are required to be discussed and guide-lines
provided to the parties by the Group Officers. In the case of reviews, the
103
guidelines should be in the shape of an Audit Plan covering the under-mentioned
points:
a) Background material
b) Objectives of the review
c) Areas to be covered
d) Points to be seen
e) Information to be collected
f) Methods of analysis of information
g) Objection likely to be noticed
h) Time-frame for completion of review.
These can be modified or amplified with reference to the local conditions
available. At the time of discussion for finalising the current Audit Report or on
any other occasion the list of selected reviews should also be discussed so that
changes can be made, if necessary.
2.74 Criteria for selection of reviews
(1) Normally major schemes involving substantial amount with activities
spread throughout the State should be selected. However, the complexity
and content of the scheme and the apparent difficulties in implementation
should also be a factor.
(2) The schemes implemented in smaller geographical area should carry
priority over the schemes implemented throughout the State with a thin
annual budget.
(3) The schemes which are of interest to the public as well as the members of
the Public Accounts Committee merit selection
(4) Horizontal reviews of certain functions cutting across all the departments
e.g., Man power Management, Materials management, Computerisation,
monitoring and control over implementation of schemes, etc., may be
selected.
Greater personal rapport and equation should be developed between Senior
Officers of our department and auditee organisations to facilitate useful
interaction. Accuracy, brevity, clarity and purposiveness should be the hall-mark
in drafting the Audit Report. Efforts should be made to simplify the language of
presentation, reduce use of passive voice and complex sentences, avoid
verbosity, brackets, parenthesis, extraneous information, etc.
104
Draft paras for inclusion in the Audit Reports once submitted to CAG should be
withdrawn only under specific authority of CAG.
(x) In the case of reviews of commercial undertakings (Corporations/Companies)
they may run on the following lines (1) Highlights (2) Introduction (3) Scope of
Audit (4) Audit Objectives (5) Audit Criteria (6) Audit Methodology etc., after
which one may go on with the results of state of (a) funding (b) implementation
of schemes and allied activities (c) systems (d) monetary mechanisms (e)
Efficacy of internal audit etc. The pattern may vary depending upon the nature
of the activities of the Company reviewed. It is desirable that the records at the
level of decision making authority are consulted as far as possible. The
following points may be borne in mind while finalising the conclusions in the
reviews:
i) Whether the activities are of a kind that would lend themselves for a
commercial operation.
ii) To what extent do the Government and organisations avoid overlapping.
iii) Does the enterprise operate in a highly competitive market?
iv) Do the operations call for highly specialised skills?
v) What, in your opinion, contributes to technical inadequacies/financial
extravagance?
vi) Are the relative responsibilities of the various wings of the Company
clearly demarcated? Any weakness in the organisational set-up which has
hampered the efficient working?
vii) To what extent administrative overheads constitute a burden on the
enterprise?
viii) How frequent and effective are the meetings of the Board of Directors?
ix) In the case of an enterprise incurring losses over a period of time, is
continued financial assistance by way of grants/loans likely to improve the
position?
x) Has the Company succeeded despite the loss, in extending the socio-
economic benefit for which it has been constituted?
xi) What are the liabilities of Government by way of capital, loans, guarantees
etc?
x) Financial performance and the working results of the Company directly
related to its operation may be incorporated at the end of the review after
various deficiencies are discussed.
105
xi) Wherever, replies of the department/government are not received within
six weeks the fact "reply has not been received" should be added at the end
of the review or the draft para.
(xii) A normal period of six weeks is given to Ministries/ Departments for
acceptance of facts and figures and giving comments, if any, on the draft
paragraphs/reviews issued to them. In case no reply is received within a
period of six weeks the fact that "reply has not been received" should be
added.(Authority:2522 Rep(C)/86-87 Vol.I dt.9.12.87 Page (38) File
No.VII-19).
(xiii) Chapter I of the Report consists of all statistical data about
Companies/Corporations etc., Chapter II incorporates all reviews relating
to Government Companies with the title reviews relating to Government
Companies and Statutory Corporations, while Chapter III consists of
Transaction Audit Observations incorporating individual draft paragraphs
relating to Companies/Corporations being placed together. Where the
number of draft paras relating to the Companies as well as statutory
Corporations is large, there could be a separate chapter titled
Miscellaneous Topics of Interest relating to Government companies and
miscellaneous topics of interest relating to Statutory Corporations. Efforts
should be made to select some aspects of working of Electricity Companies
for detailed review and results of such reviews and other major audit
observations could be incorporated in a separate chapter in Commercial
Audit Reports. The data of up-to-date paid-up capital, loans, profit/loss
with data of working results of all Companies for the latest year to which
their accounts have been finalised have to be given. Important comments
on the annual accounts of Statutory corporations may be incorporated with
working results and summaries in the Audit Report. This should be done
while dealing with respective statutory corporations in the proposed
Chapter I.
While forwarding draft Audit Reports of Statutory corporations to headquarters
office, the draft comments to be incorporated in the conventional Audit Reports
should also be brought out in the forwarding letter. In addition, the following
information in respect of Financial Corporations viz., data about overdues, year-
wise analysis, investment in closed/sick units, dues considered bad and doubtful
etc., may also be given in Chapter I. In case of Warehousing corporations,
indices of performance such as storage loss, transit loss, showing the total
quantity transported/stored (in quantities and value) and percentage of loss duly
comparing the same with the norms laid down, if any, may be given where
expedient, data may be given, commodity-wise.
106
(xiv) The report need not be very bulky and what is required is the quality of the
material and not the quantity. In addition to the points mentioned in
headquarters office Circular No.1300-CA-II/253-82 dt.21.7.1986 about reviews,
personal attention may be given by Accountants General on drafting `overview
and highlights'. In regard to draft paragraphs generally paras are prepared
straight from rough Audit notes whose contents are incorporated in the
inspection reports and no further scrutiny is carried out covering the position for
the years up to date or some more aspects on which scrutiny is clearly indicated.
It is desired that each paragraph should be considered as a mini review and in
fact a draft para often suggests study of such points in other units to make audit
observations more comprehensive and weighty. The original documents/copies/
calculations relevant to the para should be duly page numbered, bearing key
document numbers on them, with the office copies of the draft paras/reviews
showing key document numbers at appropriate places in the margin of its
contents. A list of key documents should be attached at the end of the draft paras
showing the number and date of letter, calculation statements which each key
document represents, followed by attested copies of such letters/ calculation
statements bearing key document numbers. The Accountant General should
approve the fair copy of draft para or review for issue to Government etc., and
initial the clean office copy only after the above exercise is done. The draft
paras/reviews submitted to headquarters office should be accompanied by a list
of key documents in the following terms.
------------------------------------------------------------
SL.No. Key document No. Particulars of documents
------------------------------------------------------------
Key document numbers should be indicated in the margin of the draft
paras/reviews against relevant observations. The material for draft Audit Report
should be typed in half margin, triple space and on good quality paper, giving
proper attention to avoid grammatical and spelling mistakes. Instructions
contained in the headquarters office letter No.1300 CA-II/253-82 dt.21.7.1986
may be kept in view. All reviews and all major findings should be invariably
discussed at Accountant General's level as far as possible with the highest
possible level in the Companies/Corporations and in the Government. While
forwarding the bond copy of the Audit Report, a statement in the following
format to which reference should be made in the forwarding letter may be sent to
headquarters office:
107
Sl.
No
Reference
to
DP/Review
Date of
discussion
Officers
from AG
side
Officers with
rank from
Management/
Government
side
Whether
minutes
recorded
(Authority: Lr.No.1474-CA-II/253-82 - circular No.CA-II SA-II/86 dt:20.8.'86
File No:CAW/VII-13/86-87.)
(xv) Format of the Audit Report (Commercial)
The layout of the Audit Report (Commercial) shall be as follows:
(1) Preface (2) Overview
The contents of the "overview" should be lucid, accurate, brief but
comprehensive and phraseology well-drafted without parenthesis etc., and which
the public and Members of the Legislature/Parliament can easily understand.
The Accountant General should take personal interest in preparing the
"Overview" as it will not be just a summing up. Cross references to the relevant
paras should also be given. Overview should be printed in distinct coloured
pages and should be printed along with each Audit Report for the year 1986-87
and onwards. For all reviews, paragraphs where summing up is considered
necessary, it should be given at the beginning terming it as "Highlights" to be
printed in bold letters. Graphs, charts, photographs, sketches, diagrams, etc.,
should be used for improving the visual impact. However, it should be ensured
that charts etc., included are relevant to the Report.
CHAPTER I: General view of the Government Companies and statutory
corporations.
Separate sections should be allocated for each Government Company selected
for review.
CHAPTER II: Reviews in respect of Government Companies and Statutory
Corporations.
CHAPTER III: Miscellaneous topics of interest in respect of Government
Companies and Statutory Corporations
The prefatory remarks include a mention about certain companies whose
accounts are not subjected to audit by the Comptroller and Auditor General of
India. Similar comment covering investments by State Governments in the
Corporations created under the State Statutes may be included in the prefatory
remarks as and when investments are made by State Governments in such
Corporations. The text of the paragraphs to be incorporated in prefatory remarks
108
in any such case is given in CAG's Lr.No.1244-CA-II/174-80 (Circular No.CA-
II/Commercial Audit/4/81) dt.4.8.1981).
The instructions of CAG in this regard are as enumerated below:
1. Normally the figures of Government investment (in the paid-up capital of
Government companies) in the introductory chapter on Government Companies
should tally with the figures appearing in Finance Accounts. Substantial
difference may be explained by way of a note. Specific reasons for the
difference should be intimated to CAG while forwarding the draft Audit Report
to CAG.
2. In the synoptic statement showing the "Financial results of Government
companies" the subsidiary companies should appear just below the respective
holding companies (with a suitable asterisk mark for identification).
3. The figures of "Capital invested" and "Percentage return on capital invested”
should also be indicated in respect of financial companies/corporations in the
synoptic statement. These figures should be worked out in the same manner as
in the case of other Companies.
4. There is need to divide the synoptic statement showing the financial results of
Statutory Corporations as between Electricity Companies and other Corporations
all Corporations may be shown seriatim.
5. While preparing paragraphs showing the defects pointed out by the Statutory
Auditors in their supplementary reports under Section 619(3) (a) of the Act, a
synopsis of important points included in the comments under Section 619(4) of
the Act, supplementary reports and comments featuring in the summarised
financial results of the working of Government Companies included in the Audit
Report need only be considered.
6. While preparing the summarised financial results of companies and
corporations, return on capital should be calculated on the paid-up capital plus
long-term loans and free reserves at the close of the year. The basis to be
adopted for working out the figures under "Free Reserves" and "Return on
capital employed" is as follows:
The following include free reserves:
(a) All legal and statutory reserves not funded and specific and for whose
utilisation for the general purpose of business (except for distribution of
dividend) there is no embargo. Examples are as shown below:
1. Development Rebate Reserve/Investment allowance revenue after a specified
period.
109
2. Reserve fund, Special Reserve Fund created under Section 35(a)(i) of the State
Financial Corporation Act, 1951.
3. Reserves created for passenger amenities, employees' welfare, expansion
programme, road development etc., under Section 30(b) of the Road Transport
Corporations Act, 1950.
4. Reserve Fund created under Section 30(i) of the Warehousing Corporations
Act, 1962.
(b) All discretionary and budgetary reserves other than those in the nature of
valuation reserves (e.g., reserve for anticipatory inventory price decline) or those
reserves which are created to equalise the charge on revenue in respect of certain
liability the actual expenditure on which is debited to such reserves (e.g., repairs
reserve, pension fund, etc.). Examples under the category are as below:-
i) Worker's housing subsidy received from Government.
ii) General reserve.
iii) Capital reserve.
iv) Dividend equalisation reserve.
v) Research and development reserve.
vi) Plant rehabilitation development reserve.
vii) Reserve for contingency.
viii) Building reserve.
ix) Price fluctuation reserve.
x) Trade development reserve.
xi) Fertiliser development reserve.
xii) Exchange reserve.
xiii) Balance of profit and loss account.
xiv) Share premium.
xv) Additional reserve for depreciation/bad debts.
(CAG's Lr.No.238/CA-IV/CA/66-68, dt:28.6.1969).
The return on capital in the case of financial institutions and State Financial
Corporation be calculated on capital employed in earning the revenue as
disclosed in the accounts. Capital employed for this purpose should be taken as
aggregate of:
110
1. Paid-up Capital.
2. Bonds and debentures.
3. Reserves (other than those which have to be funded specifically and
backed by investments outside).
4. Borrowings including re-finance.
5. Deposits.
It has also been decided that for the purpose of working out capital employed as
above, mean figures for the year (i.e., aggregate of opening and closing balances
divided by two) may be taken and if necessary a suitable remark may be given in
the remarks column of the synoptic statement to indicate that mean figures have
been adopted. The return may be taken as net profit before charging interest and
tax provision.(CAG's Lr.No.CA-IV/26-75/574 dt.27.9.1975).
The following should be kept in mind in the treatment of Reserve for self
indemnification and in the case of cumulative loss while calculating the capital
invested, in regard to State Warehousing Corporation.
i) As the "Reserve for self Indemnification" is created to meet out the
losses/damages due to fire only and neither the profits can be augmented nor the
losses can be set off from it, it is a specific Reserve and not a `Free Reserve'.
ii) On the analogy of the provision in Schedule VI to the Companies Act, 1956
cumulative losses should be deducted from the "Free Reserves" for working out
`Capital invested' (CAG's Lr.No.360-CA-II/349-85 Circular No.1-CA.II State
Commercial Audit-II/86)dt:25.2.86).
2.75 Separate audit reports on the accounts of statutory corporations for
which the C&AG of India is the sole auditor.
General instructions issued by headquarters office in No.128-CA.II/253-82
dt:12.1.1987 should be borne in mind. Each Statutory Audit Report (also called
as separate audit Report) should broadly be divided into three parts (i)
introductory (ii) comments on accounts and (iii) other points of interest.
i) Introductory
i) This part refers to the establishment of the Corporation and authority for audit,
the patten of financing, financial position and working results summarised
briefly, with details, if need be, in annexures. In a sub-para of this part a brief
about organisational set up of the body indicating how and where detailed
records are kept and other information about flow of information/data for
building up the final accounts should be given.
111
ii) Comments on Accounts
(1) There should be paras about general deficiencies in records/procedures,
even if there is some duplication.
(2) Various items which are distinctly shown in the Balance Sheet may be
mentioned individually and comments in respect thereof may be given.
However, there should be consecutive numbering of paras of such items to
avoid confusion instead of adopting separate numbering for `Liabilities'
side and `Assets side'. The amounts in respect of individual items can be
noted in Rupees in crores or in lakhs in bracket as the aim is only to
identify the item on which comment is offered.
(3) Sometimes, a total amount is shown against a particular item and details
are shown in some schedule, e.g., the total value has been shown against
`Fixed Assets' in the Balance Sheet and asset wise details are given in a
schedule. In such cases, under `Fixed Assets', the various points relating to
various categories of assets, can be mentioned, instead of giving too many
headings. The whole object should be to draft comments in a manner
intelligible to the lay reader and to de-mystify audit observations.
(4) Sometimes, a number of items are shown as sub-items under a common
item. This often happens in the case of `Current Assets'. In such a case,
the title `Current Assets' with the further sub-titles and amount can be
given in each para. Alternatively, the same method as adopted in the case
of `Fixed Assets', as mentioned in item (3) above can be adopted.
(5) At the end of this portion, there should be a separate para with the title
"Overall impact of observation on the working results".
Such a para should not only be included in each SAR but also in supplementary
comments on the companies' accounts, if there is an impact of audit observations
on net profit/net loss.
iii) Other points of interest
Observations incorporated in the Statutory Audit Report have to be necessarily in
the nature of observations connected with comments on accounts, internal audit,
state of records, reporting and pursuance of losses etc. However, a detailed
review of any major item of annual accounts can be taken in this portion with a
suitable title. In the case of financial corporations paras relating to loaning
operations, over dues etc., can be incorporated in this portion (Authority:
Lr.No.134-CA-II/392-86 dt:14.1.1987 page.186 of File No.CAW/VII-13/86-87).
112
2.76 Uniformity in use of capital and small letters in the official
publications
The following broad principles should be adopted for the use of capital and small
letters.
i) As a general rule, capital letters at the beginning of words occurring in the
middle of sentences should be avoided and general preference should be to
use small letters.
ii) Capital letters should be used wherever a term is used to refer to a specific
object (e.g., a particular fund, department, document, scheme etc.)
iii) The term `grants', `appropriations' etc., should begin with letters of the
lower case, i.e., small letters. However, when any specific grant or
appropriation is mentioned, capital letters should be used e.g., Grant
No.42, Roads and Buildings.
iv) The usage of capital and small letters as shown in the Constitution of India,
budget documents, demands for grants etc., of the Central and State
Governments should be adopted.
v) Capital letters should be used for Government only when referring to the
full legal title, used as a proper noun or as a political decision making unit,
e.g., Government of India, Government of Bihar.
vi) The names of Acts passed by Parliament and Legislatures should be used
exactly as notified in the gazettes, with capital letters at appropriate places.
These principles may be strictly followed, while editing inspection reports, audit
notes, draft paragraphs, Audit Reports and other departmental documents.
An illustrative guide on the usage of capital letters is given below:
1. Audit (where it is used to denote the Audit Institution of the CAG).
2. Appropriation Accounts.
3. Audit Reports (When it refers to CAG's reports).
4. Accounts and Entitlements (When it refers to the organisation).
5. Accountant General/Director of Audit/Member Audit Board.
6. Abstract of Stock Receipts/Issues.
7. Administration (When it is used to refer to a specific authority).
8. Buildings, Roads, Irrigation, Public Health Engineering Branches (in
relation to Public Works).
113
9. Cash Account (in relation to treasury accounts).
10. Centre/Central Government.
11. Comptroller and Auditor General (of India).
12. Combined Finance and Revenue Accounts.
13. Constitution (when it refers to the Constitution of India).
14. Committees of Parliament.
15. Consolidated Fund/Contingency Fund/Public Account.
16. Civil Audit (in relation to CAG's audit).
17. Commercial Audit (when it refers to CAG's Commercial Audit).
18. Defence Audit ( in relation to CAG's audit).
19. Consolidated Treasury Receipts.
20. Committee (when it refers to a Financial Committee).
21. Committee on Public Undertakings.
22. Defence (When it refers to Defence Department).
23. Debt, Deposit, Remittance heads.
24. Defence Services (When it refers to Army, Navy and Air Force).
25. Executive (When used as an organ of State).
26. Finance Accounts.
27. Finance Bill.
28. Food, Rehabilitation and Supply Department.
29. Financial Committees.
30. Goods Received Sheet.
31. General Revenues.
32. Government Companies/Corporations.
33. Governor.
34. Government.
35. Heads of Departments/Administrations.
36. Indian Audit and Accounts Department.
37. Inter-State Suspense Account.
114
38. Indian/British Postal Orders.
39. Judge (in relation to High Court Judge/Supreme Court Judge).
40. Legislature.
41. Lok Sabha Secretariat.
42. List of Payments (in relation to Treasury Accounts).
43. Legislative Assembly.
44. Ministries/Departments ( in specific cases).
45. Organisation and Methods.(Division).
46. Priced Stores Ledger.
47. Public Works Department.
48. Public Accounts Committee.
49. President.
50. Parliament.
51. Posts (when it refers to Department of Posts).
52. Pay & Accounts Office.
53. Public Account.
54. Railway Administration.
55. Railway Audit. (in relation to CAG's Audit)
56. Railway (when it refers to Railway department).
57. Register of Works.
58. Register of Cheques drawn.
59. Railway Finance.
60. Rajya Sabha Secretariat.
61. Rules of Procedure and Conduct of Business.
62. Settlement Account Abstract.
63. Schedule of Remittances.
64. State/State Government.
65. Telecommunication (when it refers to Telecommunication Department).
66. Telephone Development Fund.
67. Union/Union Government.
115
68. Union Territories.
(Authority: CAG's Circular No.8-O&M/87-(931-O&M)/72-87 dt.17.11.1987
Page (28) File No.VII-19).
116
CHAPTER - 3
3.1 Procedure for finalisation and issue of comments under Section
619(4) of the Companies Act, 1956
After conducting audit of the Government Companies under Section 619(3) (b)
of the Companies Act, 1956, the Inspecting Audit Officer shall prepare draft
provisional comments on the accounts under Section 619(4).
The draft provisional comments prepared as mentioned above, duly discussed
and verified by the Management of the Company, shall be forwarded to
Commercial Audit Wing along with a note justifying the comments proposed
and also enclosing Proforma on the Performance of Auditors of Government
Companies and Corporations as shown in Annexure-II.
Statutory Auditors are directly concerned with draft comments which reflect,
inter-alia, on their performance. It is, therefore, imperative that when the draft
comments are discussed with the Management, Auditors should have an
opportunity for full participation in the discussion, as it enables the Auditors to
appreciate the basis and the implications of the draft comments and to state their
point of view. (CAG's Lr.No.4358/CA V/AO/40-84 dt:20.05.84 CAW/IV-17/83-
84 Vol.II P.88/c). The Commercial Audit Wing, on receipt of the comments,
shall examine and issue provisional comments immediately over the signature of
the Senior Deputy Accountant General (CAW)/Dy. Accountant General (CAW)
to the Statutory Auditors and the Management for their remarks.
While forwarding the provisional comments to the Auditors/Management it shall
be made clear that if their final remarks are not received within ten days of the
issue of the comments, it will be treated that the Auditors/Management have no
comments to offer and the facts and figures mentioned in the provisional
comments have been accepted by the Management; the object being not to delay
comments under Section 619(4) of the Companies Act, 1956, for laying them
before the Annual General Meeting of the Company in the same manner as the
Auditor's Report (CAW/IV-17/83-84, Vol.II CAG Lr.No.685-CA II/185-
84/Circular No.5-CA-II/State Commercial Audit 185 dt:12.04.1985).
On receipt of the remarks thereto by Commercial Audit Wing from the
Auditors/Management or on the expiry of the period of ten days from the issue of
provisional comments, whichever is earlier, the report containing draft comments
upon or supplemental to the Audit Report of the Statutory Auditors,
accompanied by an aide-memoir containing finally proposed comments, remarks
of the Management and of the Auditors and further remarks of the Accountant
General wherever necessary, shall be forwarded for approval of the C&AG of
117
India. (CAG's Lr.No.742-Rep.I/9(12)60-61 in F.No.82/56 Vol.II CAG's
Lr.No.1416-CA/81-65 dt:03.12.1963).
After the receipt of the approved comments, the same shall be issued to the
Management over the signature of the Accountant General. Copies of the
comments and review of accounts (wherever applicable) as issued to the
Management shall be forwarded to the Headquarters Office. It should be
ensured that the draft comments are processed within 3 days of receipt of the
replies of the Management/Auditors and sent to CAG’s Office for
approval.(CAG's Office Lr.No.685-CA-II/185-84 (Circular No.5-CA-II/State
Commercial Audit-II/85) dt:12.04.1985. (CAW/IV-17/83-84 P.74/C).
Where the Government Company revised the approved accounts, keeping in
view the provisional comments issued by this Office and forwarded the same in
duplicate, duly authenticated along with the Auditors' Report thereon, the same
shall be arranged to be checked by the Headquarters section. During the check, it
may also be ensured that adequate disclosure of the fact of revision together with
its impact on the accounts is made either by way of a financial note in the
accounts itself or this fact is referred to in the Auditors' Report to the
shareholders, in case the revision of audited accounts substantially affect the
working results or otherwise bring out important points of significance having a
bearing on the accounts.
After ensuring that the accounts are properly drawn during the revision to bring
in the fact of revision of accounts in the light of the observations made in local
audit, the comments of the CAG under Section 619(4) of the Companies Act,
1956 may be issued in the following formats:-
(i) Where Management revises the accounts in the light of draft comments and
the fact of the revision is mentioned either in the Financial Notes or in the
Auditors' Report, the comments of the CAG may be issued as follows:
"In view of the revisions made in the accounts as a result of the observations
made by CAG as indicated in Para...... of the Auditors' Report to the shareholders
or Note No...... of notes forming part of Accounts, there are no further comments
to offer upon or supplement to the Auditors' Report under Section 619(4) of the
Companies Act, 1956 on the accounts of the
Company.....................................................
(Name of the Company) for the year ended.................
Place:
Date:
ACCOUNTANT GENERAL
118
(ii) Where Management revises the accounts in the light of some of the draft
comments only and do not revise their accounts in respect of the remaining
observations, the comments on accounts may be issued as follows:
"The accounts of the Company have been revised as a result of the observations
made by the CAG as indicated in Para...... of the Auditors' Report to the
shareholders or Note No....of Notes forming part of accounts. The following
further comments are made upon or supplement to the Auditors' Report under
Section 619(4) of the Companies Act, 1956 on the accounts of the Company
(Name of the Company) ……………………………………………….for the
year ended................
Place:
Date:
ACCOUNTANT GENERAL
(iii) Where Management revises the accounts but the fact of revision is not
mentioned either in the Financial Notes or in the Auditors' Report, the comments
of the CAG may be issued as follows:
"The Balance Sheet and Profit and Loss Account adopted by the Board of
Directors and certified by the Auditors on.......... were revised in the light of the
audit observations of the CAG of India under Section 619(4) of the Companies
Act, 1956 resulting in a net increase/decrease of Rs........... in Profit/Loss for the
year ended..........and increase/decrease in assets and liabilities in the Balance
Sheet as at....... There are no further comments upon or supplement to the
Auditors' Report under Section 619(4) of the Companies Act, 1956 on the
accounts of the Company(name of the Company)
……………………………………………………………….….. for the year
ended.............
Place:
Date:
ACCOUNTANT GENERAL
(iv) In cases of revision of accounts where the effect of the revision of the
accounts is of minor nature and a disclosure about the revision is not made either
in the Financial Note of the Company or in Auditors' Report, there is no need to
take a comment under Section 619(4) of the Companies Act, 1956.
Format of certificate of `Nil' comments:
119
"I have to state that the Comptroller and Auditor General of India has no
comments upon or supplement to the Auditors' Report under Section 619(4) of
the Companies Act, 1956 on the accounts of.........for the year ended......."
Format of non-review certificate to be issued in cases when it has been decided
not to review the Auditors' Report.
"The Comptroller and Auditor General of India has decided not to review the
report of the Auditors for the year.........on the accounts of.........and as such he
has no comments to make under Section 619(4) of the Companies Act, 1956".
The issue of such comments/certificate should invariably be in the form of a
statement and not in the form of a letter. The forwarding letter of the certificate
shall be as under: "I am to forward herewith the comments/nil comments/non-
review certificate under Section 619(4) of the Companies Act, 1956 on the
accounts of _______________for the year ended ". (CAG's
Lr.No.34/CA.IV/91-81 dt.19.1.82 IV-17/72-73/Vol.VI Sl.No.195).
The nil comment certificate/non-selection certificates can be issued by the
Accountant General without prior approval of the Comptroller and Auditor
General of India.
As non-selection of accounts of the Companies is known to the Accountant
General well in advance, issue of such non-review/non-selection certificates
should be issued immediately on receipt of certified Accounts under intimation
to Headquarters Office. The other documents like proforma for appointment of
Auditors, etc., should also be forwarded immediately. (CAG Office Lr.No.1420
No.312-CA.II/85 (Circular No.3-CA.II/89 dt.25.7.89 (CAW/I-3/88-89 p.172/c).
Form of communication of comments upon accounts of Government Companies
Comments of the Comptroller and Auditor General of India under Section 619(4)
of the Companies Act, 1956 on the accounts of _______________________
(Name of the Company and place where located)
________________________________ for the year ended March
_____________. (CAG's Lr.no.344/CA.IV/31-90 (NO.CA.IV/Tech. 2/90)
dt.17.8.1990 F.CAW/1-3/88-89 P.332/C).
However, where there is any disagreement between the Management and the
Chartered Accountants on any important matter, the `Nil' comments certificate
shall not be issued without referring the matter to the Comptroller and Auditor
General of India. In all such cases Accountant General should discuss the points
under dispute both with the Management and the Chartered Accountants and
refer the case to the Comptroller and Auditor General of India with his
comments and all supporting papers.
120
The letter to the Headquarters office forwarding the draft comments/nil
comments/non-selection certificate shall be accompanied by the following
Annexure, wherever applicable.
Annexure I Draft comments in duplicate/Nil comments Certificate/
Non-Review certificate.
Annexure II Certified Accounts.
Annexure III Aide-me moiré (in case of forwarding draft comments).
Annexure IV Review of accounts wherever applicable (in duplicate when
draft comments are forwarded or one copy in case of nil comments).
Annexure V Working sheets for the review of accounts.
Annexure VI Prior period transactions indicating the reasons for non-
incorporation in the respective years.
Annexure VII Appointment of Auditors (together with note, if any).
Annexure VIII Classification of draft comments/provisional comments.
Annexure IX Statement indicating the corrections/revisions made to the
originally adopted accounts (where accounts are revised).
Annexure X Copy of specific replies of the Statutory Auditors in the revisions/
Corrections made to the originally adopted accounts (where accounts are
revised).
3.2 General
3.2.1 Revision of adopted accounts
The accounts once adopted by a Company cannot be reopened under any
circumstances. If any inadvertent wrong calculation in the compilation of a
figure had crept in, the mistake if not corrected might result in loss to a
Company, to correct such mistakes the companies are not required to reopen the
audited accounts, but only add a corrigendum sheet showing the necessary
corrections to the copy of the balance sheet already filed with the concerned
Registrar of Companies. Such corrigendum will always form part of the audited
accounts and will be read together. The subsequent corrections are to be
approved by companies only in General Body Meetings held in pursuance of the
provisions of Section 210 of the Companies Act, 1956 and not in any
extraordinary General Meetings.
The corrections made in the adopted accounts as referred to above are to be
certified by the Statutory Auditors of the following year and should also be
121
audited by us at the time of conducting Audit under Section 619(4) of the
Companies Act, 1956.
3.3 Procedure to be adopted where the annual accounts of a Company
were adopted in the Annual General Meeting without the comments of the
C&AG of India under Section 619(4) of the Companies Act, 1956.
a) no comment need be made under Section 619(4) of the Act about violation of
the provisions of Section 619(5) of the Act.
b) whenever a case of violation of the said provisions of Section 619(5) of the
Act is noticed, a report may be made to the appropriate Government, Department
of Companies Affairs and Registrar of Companies simultaneously, keeping the
Headquarters informed. (CAG's Office Lr.No.974/CA.IV/61-80 dt:30.09.81,
P.87/C of IV-17 72-73/Vo.VI S.No.195).
c) A consolidated record of all such violations may be kept so that they could be
reported through conventional Audit Report.
3.4 Where the report of the Statutory Auditors is in negative
In cases where the Statutory Auditors have qualified their Audit Reports on the
accounts of the Government Companies in the negative and the results of
supplemental audit conducted under Section 619(4) of the Companies Act, 1956
do not bring out any substantive comment which would alter or supplement the
position stated in the Auditors’ Report or our comments do not substantively
alter the profit and loss account or the various items of assets and liabilities
materially, a nil comment certificate in the prescribed form may be issued.
However, each case may have to be decided on merits and utmost care should be
taken in deciding whether the comment taken under Section 619(4) of the Act is
rational in the context of the negative report issued by the Auditors. Doubtful
cases, if any, may be referred to the Headquarters Office for clearance.
The areas of major deficiencies in the accounts mentioned in the Auditors'
Report may be brought to the notice of the Government for appropriate remedial
action. Draft Paras may be floated if remedial action taken by the Government is
not adequate. (CAG's Office Lr.No.642-CA.IV/Tech/79 dt:16.8.79 F.No.IV-
17/72-73/Vol.IV P.390/c 1723/admn/ iii/349/61/1.11.61)
3.5 Appointment of Auditors
As per the policy for appointment of auditors of Government Companies, an
auditor of a company can be appointed/re appointed for a term of four
consecutive years subject to the firm’s performances during the audit of the
company for the previous year is adjudged as satisfactory. (CA-V/30-2003/379
dt:21.07.03)
122
In respect of Government Companies, whose accounts are in arrears or delayed,
their cases shall be initiated for appointment of Auditors and the required
particulars furnished to the Headquarters Office as soon as the certified accounts
for the preceding year are received, i.e., without waiting for audit and finalisation
of comments under Section 619(4) of the Companies Act, 1956.
(No.546/CA.V/33/74/16.8.78 of Headquarters Office Sl.No.2 IV-35/78-
79/Vol.I).
As the Auditors for both home and foreign branches have to be recommended by
Headquarters office under Section 619(2) of the Companies Act, the existence of
foreign branches, ensuring the correctness of the list of branches, should be
specifically mentioned in the proforma (item v). (CAG's Office Lr.No.289-
CA.II/159-87 (Circular No. I-CA.II State Commercial Audit.II/89 dt:08.02.89.
CAW/V.30/87-88 P.140/c).
In respect of Companies whose accounts are current, while forwarding the draft
comments/copy of the Nil comments certificate/non-selection certificate to the
Headquarters Office, as the case may be, the particulars in the prescribed
proforma shall be furnished to the Headquarters Office.
The Inspecting Audit Officer shall, along with draft provisional comments,
forward the particulars required for initiating the appointment of Auditors to the
Headquarters Section.
Column No.XV of the proforma is meant to indicate specifically whether the
Accountant General considers the performance of the Auditors satisfactory or
not. Where the performance of the Auditors is considered unsatisfactory, the
Accountant General shall indicate the reasons and the manner in which the
Auditors shall be dealt with for allotment of audits in future.
The purpose of evaluation of the performance of the Auditors is for determining
whether the Auditors shall be given further audits either by way of
reappointment or by allotment of fresh audits. Results of evaluation could
indicate any one of the following:-
1. Where there are no corrections to the accounts and no comments on the
accounts, the auditors' performance may be considered to be satisfactory.
2. Where there are either corrections or comments or both, such cases could fall
in either of the following categories:
a. The corrections/comments are not of such a serious nature that the Auditors'
performance can still be considered to be satisfactory or adequate.
123
b. Where the corrections/comments are of a serious nature, the Auditors'
performance would be deemed to be unsatisfactory. Depending on the
seriousness of the `failure', a view would have to be taken as to whether
i) they would merely be cautioned for future but not denied appointments,
ii) reappointment of the Auditors of the company in question may be withheld,
but other existing audits may be renewed in the normal course,
iii) the auditors being considered for smaller companies or
iv) withholding of all audits for a period of time.
This being a matter of considerable importance, the evaluation of the
performance of the Auditors shall receive the personal attention/approval of the
Accountant General. In evaluating the performance of Auditors, a clear
assessment thereof should be given and where the performance is considered
unsatisfactory, it should be supported by a separate self-contained note indicating
the specific lapses due to which the performance had been considered
unsatisfactory. The self-contained note and Aide-me moiré may be sent in
duplicate along with the draft comments. (CAG's Lr.No.1146-CA II/240-
82(circular No. 1-CA II/State Commercial Audit II/84 dt:25.06.84.
F.No.CAW/IV-17/84-85 and CAG lr.no.1482-CA II/240-82 dt:10.08.84 P.72/C).
The Aide-me moiré shall indicate the provisional comments, Management's
replies, comments of the Statutory Auditors and the Accountant General's further
observations thereon, so as to ensure that the Auditors were given an opportunity
to reply to the comments and their stand, if any, on the comments have been
given due consideration. (CAG's Lr.No.2866-CA III/819-86 dt:14.09.87 File
CAW/V-2/1987-88).
To ensure timely receipt of Supplementary Report under Section 619(3) of the
Companies Act, 1956 from the Statutory Auditors, persistent delay on their part
in submitting the Supplementary Reports may be taken into account while
assessing their performance for appointment of auditors of Government
Companies. (CAG's Lr.No.1502-CA.II/197-83 (circular no.6-CA II/State
Commercial Audit II/84 dt:17.08.84 F.IV-17/84.85 P.74/c).
In case of Companies etc. not covered by the Companies Act, 1956 but whose
Statutory Auditors are appointed on the advice of the C&AG of India or in
consultation with C&AG of India, a similar evaluation of the performance of
Auditors shall be communicated to Headquarters Office, after the audit is over.
(Hqrs.Office Lr.No.1-CA-V/33-74 dt:5.2.80 F.No.IV-35/80-81).
124
The Headquarters Section is required to maintain a check register wherein the
following particulars are to be noted company-wise and year-wise to ensure that
the Audit Report is submitted by the Statutory Auditors approved by
Government of India on the advice of the C&AG of India only.
1) Name of the Company.
2) Year for which appointment of Auditors is made.
3) Particulars of Auditors advised by the C&AG of India and their letter
number.
4) Particulars of Auditors appointed by the Government of India and their
letter number.
5) Remuneration fixed etc.
3.6 Printing of Management's replies in the Annual Report against
C.A.G's comments under Section 619(4) of the Companies Act 1956
We should review the annual Reports of Government Companies and wherever it
is found that the Management had given incorrect version to the Annual General
Meeting or in spite of repeated comments had not bothered to modify or change
their procedure of construction of Accounts, then a paragraph should be
incorporated in the State Audit Reports bringing out important comments.
After having examined the printed accounts of the Companies, cases where the
Management had misrepresented facts or had given incorrect picture to the
shareholders at the Annual General Meeting through their replies to audit
comments, may be collected and a comment proposed for the Audit Report.
(C.A.G Office letter No.568-CA IV/53.88 CA IV/Tech-5/88 dated 8.12.1988).
3.7 Study of accounting policies, etc.
a) Whether the companies under the Accountant General's jurisdiction have
got distinct accounting policies, they are given at one place and form part
of annual financial statements. Further whether the accounting policies are
consistent with basic principles of accounting and are not deficient in
certain respects.
b) Whether there had been deviations from such declared accounting policies.
c) Whether significant financial information which should appropriately have
been included in the financial statements themselves are included in the
Notes on Accounts.
d) Whether the Financial Notes forming part of accounts disclose certain
basic deficiencies in accounting system which have persisted for a number
125
of years. Further whether the Notes have been used as a media to explain
away an irregularity or omission in the accounts so as to avoid a
qualification from the Auditor.
e) Whether some of the Financial Notes are such which have a material effect
on the declared profit or loss of the Company or a true and fair view of the
financial position of the Company as reflected by its Balance Sheet and
whether such notes, which should appropriately have the qualification of
the Auditor in his report have been suitably qualified by the Statutory
Auditor in his report.
f) Whether qualifications of the Statutory Auditors disclose certain persistent
accounting deficiencies, on which companies have not taken action to
improve; whether the qualifications have material effect on the Profit or
Loss declared by the companies.
g) Examination as in (f) may be done in respect of our own comments.
(CAG's Circular No.9-CA/O&M (RC) 5-83 Lr.No.CA/O&M(RC)99-83 dt:1-12-
83).
3.8 Qualifications of Statutory Auditors
1. It has been decided that the reopening or rectification of accounts after they
have been adopted at the Annual General Meeting should not be permitted under
any circumstances.
2. Notes to the Accounts (Statement on Qualification in Auditor's report).
The Council constituted by the Institute of Chartered Accountants of India is of
the opinion that in order to enable the reader to have a clear view of the
qualifications and their effect, it is necessary that the qualifications should be
given at one place, i.e. in the Auditor's Report itself. The Auditor should also
quantify, wherever possible, the effect of the qualification on the financial
statements in a clear and in an unambiguous manner. (CAG's circular No.5 - O
& M (RC)/5-83 No.301 CA/O & M (RC/91-93 dt:16.9.1983 forwarding extracts
from an article in `Chartered Accountant' of August 1983, for information and
guidance).
3.9 A gist of opinions (as expressed by the Expert Advisory Committee of
the Institute of Chartered Accountants of India) on some accounting aspects
are given below:
(1) Accounting treatment for the receipt of gift
Gift is to be treated in accounts as per the accounting treatment of capital based
grants.
126
(2) Liability for Excise Duty
The Committee has invited attention to the Guidance note on accounting
treatment for excise duties published by the Institute of Chartered Accountants of
India wherein it has been clearly indicated that the liability for excise duty arises
as soon as goods are produced, though the collection of duty may be deferred to
the time the goods leave the factory or bonded godown. The Committee is of the
view that the difficulty in ascertaining the precise amount of excise duty liability
on inventory items is not sufficient ground for not making a provision for
liability.
If the Company does not provide for the excise duty liability in respect of goods
manufactured and held in stock, it should make an adequate disclosure of the fact
in the accounts and where the amount of liability can be estimated it should also
be disclosed.
(3) Treatment of finished manufactured components
Keeping in view the disclosure requirements of Schedule-VI to the Companies
Act, the Committee is of the view that the finished manufactured components
requiring further production operations should be shown as `Work-in-progress'.
In the alternative this can be separately disclosed in the Profit and Loss Account
and the Balance Sheet as finished components. Whichever method is followed
should be consistently adopted.
(4) Disclosure of Bills discounted
Para I of Schedule VI to the Companies Act, 1956, specifically requires that the
obligations for which the Company is contingently liable are to be disclosed by
way of a foot note to the Balance Sheet. Non-disclosure of bills discounted, even
if covered by Bank guarantee or letters of credit is not permissible. However,
such bills discounted may be disclosed as `Contingent liability’ in respect of bills
discounted amount to Rs....... is fully covered by buyers' letter of credit and their
bank guarantee.
(5) Disclosure of a liability
The Committee is of the view that where a Company disputes its liability on
valid and bona-fide reasons in regard to the tax demands raised, it is not
"probable" that a liability has arisen on the balance sheet date.
In deciding what can be valid and bona-fide grounds for contesting a liability,
regard must be had to circumstances of each case.
127
(6) Report of branch auditors
The report of the branch auditor is only for consideration of the Statutory
Auditor and is not a report to the Members of the Company. A branch auditor,
cannot, therefore, insist on approval of the balance sheet and profit and loss
account by the Board of Directors before submitting his report.(CAG of India
Circular Lr.No.88-CA/O & M(RC)/21-82/92 dt:17.6.83).
(7) Treatment of unclaimed dividend by a Government Company
Transfer of the amount of unclaimed dividend to General reserve is correct
provided the Articles of Association specifically permit such a transfer. In the
absence of such specific permission whether the decision of the management is
correct would depend upon whether the general law of limitations permits such a
transfer.
(8) Provision for depreciation under Sn.330 and Sn.205 (2) of the Companies
Act
i) Committee notes that Sn.350 of the Companies Act prescribes that the amount
of depreciation to be deducted in pursuance of Sn.349 shall be the amount
calculated at the rate specified for the assets by the Indian Income Tax Act, 1961
and the Rules made there under for the time being in force, as normal
depreciation including therein extra and multiple shift allowances, but not
including therein any special, initial or other depreciation or any development
rebate whether allowed by the Act or the Rules or otherwise.
The Committee views that having regard to the specific provisions contained in
the proviso to Rule 5(1) of the Income Tax Rules, the depreciation has to be
provided for 18 months (the actual period arising from the decision to change the
current accounting year so that the previous year for the purpose of Income Tax
Act is of 18 months instead of 12 months only resulting in non-accountal of 6
months) for the purpose of Sn.350 of the Act.
ii) In case where depreciation has not been provided in respect of extra or
multiple shift allowance, it will be necessary for the auditor to qualify his report
accordingly.
iii) In case the Company insists on providing depreciation for 12 months out of
the 18 months' accounting year, the auditor should qualify his report stating
therein the extent to which the depreciation has not been provided due to non-
provision in respect of the part of the accounting year, i.e., for 6 months and non-
provision of extra shift allowance being contrary to the accounting practice
recommended by the Institute of Chartered Accountants of India. The auditor
128
should also qualify, wherever possible, the effect of the qualifications on the
financial statements in clear and unambiguous manner.
(9) Accounting treatment of time-barred liabilities relating to purchase of
Fixed Assets
Time-barred liability relating to purchase of Plant and Machinery, i.e., on
account of capital expenditure, should be written back in the P & L account as an
extra ordinary item. The nature and amount of the liability should be disclosed
in a manner that its relative significance and effect on the current operating
results of the period can be perceived. The said amount is available for
distribution as dividends.
(10) Value of finished goods - Inventories
i) Since the list prices are higher than the net realisable values of the stocks, the
stocks should be valued at net realisable values.
ii) As the concept of general market price is not applicable to the Company, the
net realisable value in respect of goods held to satisfy firm sales contracts should
be computed on the basis of the contract price and that of the remaining goods on
the basis of actual/estimated selling price in the ordinary course of business.
Where the net realisable value is higher than the cost, the goods should be valued
at cost.
(11) Conduct of audit where supporting vouchers and other records are
seized by Income Tax authorities
(i) The Auditor should report, after stating the facts of the case, his inability to
form an opinion whether the financial accounts give a true and fair view for the
reasons stated.
ii) With regard to extent of qualification of the audit report, the Auditors may
refer to the "statement on qualifications in Auditors report" issued by the
Research Committee of Institute. (CAG's Circular No.CA/O & M(RC)/12-84
No.251-CA/O & M(RC)/21-82 dt.4.12.1984).
(12) Empties of material amount
i) The amount in respect of empty drums/bags need not be reflected in the
balance sheet if the amount involved is not material. However, if the said
amount is material a disclosure thereof should be made under the head "Current
Assets" preferably as a separate item.
ii) In the latter case the empties should be valued at estimated net realisable
value.
129
(13) Conducting of audit of a company when a special investigation has also
been ordered by the Management
i) Neither the Companies Act 1956 nor any other law has prescribed duties of the
statutory Auditor in such a situation. However, the Auditor is expected to follow
the normal audit procedures in such situation.
ii) The statutory Auditor should take cognisance of the contents of the
investigation report and if he is satisfied about their relevance to his own work,
he can consider them for forming his own opinion.
(14) Creation of sinking fund for redemption of Borrowings
i) Sinking fund can be created to redeem borrowings by (a) appropriating current
year’s profits or (b) making a transfer from reserves otherwise available for
distribution as dividends, eg. General reserve or (c) a combination of both.
ii) The entire profits of the year can be appropriated to the Sinking Fund,
provided there are no other legal or contractual obligations having precedence in
appropriation of profits.
(15) Disclosure of the amount deposited with a bank in fixed deposit account
for research and development activities
i) Since Part I of schedule VI to the companies Act, 1956 specifically requires
disclosure of bank balances both current accounts and deposit accounts under the
head "Current Assets", the Committee is of the opinion that the fixed deposit
account representing funds set aside for research and development activities
should be shown under that head with appropriate disclosure.
ii) As the deposit is not retained for meeting any known liability but is created at
the discretion of the management by making an appropriation of the profits, this
should be considered as a 'Reserve' and not as a provision.
iii) Interest accrued on the fixed deposit account may be included in the amount
of the fixed deposit with an appropriate disclosure.
iv) The disclosure may be more appropriately made in the relevant schedule to
the balance sheet or by way of a note thereto and not in the statement of
accounting policies.
(A.G.AP (Audit) I Circular No.9 (CAW/IV-17/84-85) dt: -11-84).
(16) Auditing in an EDP environment
The overall objective and scope of the audit does not change in an EDP
environment. However, the use of the computer changes the processing and
storage of financial information and they affect the organisation and procedures
employed by the entity, followed by the Auditors in his study and evaluation of
130
the accounting system and related internal controls and the nature, timing and
extent of the other audit procedures may be affected by an EDP environment.
Separate auditing guidelines will give further guidance on auditing in an EDP
environment.
3.10 General principles of Audit of Transactions
The following are the general principles of audit of transactions. Since these are
not exhaustive, the principles of audit of transactions as enunciated in the
Manual of Standing Orders (Technical) Volume-I, General Financial Rules, and
the Rules and Procedures prescribed under the relevant Acts of Parliament and
Rules made there under, should also be borne in mind while conducting the
audit.
The right of independent criticism is inherent in the auditorial functions.
The audit checks prescribed should be observed in spirit and not in letter as
opposed to spirit.
The broad aim of audit is to safeguard the interests of the tax payer and to assist
the Parliament/State Legislature in exercising the financial control over the
executive.
It is the duty of Audit to bring to notice wastefulness in public administration and
in fructuous expenditure.
It should be seen to ascertain that checks are imposed to ensure the prompt
detection and investigation of irregularities, double refunds, loss of revenue
through fraud, error or wilful omission or negligence to levy or collect the
amounts due or issue of refunds. A study of the modus operandi should be made
which rendered the fraudulent payment possible and see that sufficient care has
been taken to plug the lacuna in the rules and procedures.
Maintenance of Audit note books-in the prescribed format:
For a consolidated record of the organisation and functions of each of the
undertaking which are audited and for recording details as to which member of
the party checked a particular document, an Audit Note Book should be
maintained for each undertaking showing broadly the essential particulars
relating to the audit thereof such as its objects and functions, organisational set
up, system of financial control, the accounting system, system of internal audit,
etc., i.e., an Audit Note Book is to be maintained in respect of each unit audited
which should be available to the audit party at the time of conducting audit of a
particular unit for their guidance and noting.(CAG's Circular No. CA.IV/Tech-
9/82, Lr.No.503.CA.IV/3-82 dt:16.7.1983).
131
A reference was invited to this office Lr.No.503-CA.IV/31-82 dt:6.7.1982
regarding the maintenance of Audit Note Book as required in Para 2.15 of the
Manual of Commercial Audit Procedure issued by the erstwhile Director of
Commercial Audit.
It is clarified that the circular also includes items of work which are to be done at
the time of accounts audit and as such filling up the particulars in the audit note
book is also necessary. Further, as the items detailed therein are only illustrative,
additional items of work depending upon local requirements could definitely be
added to this list. (CAG's Lr. No.O.923-CA.IV/69-81, dt:3.1.1984).
3.11 Scrutiny of Memorandum and Articles of Association of Government
Companies
It has been decided that the Memorandum and Articles of Association of
Government Companies need not be examined as a matter of course in pursuance
of instructions issued in 1980. However, when such documents had been
specifically referred to Audit, in draft stage, there need not be any objection to
offer our comments.
As regards Statutory Corporations, the relevant Acts may be examined to see
whether in respect of Corporations where the interest of Government of India,
State Government and other Institutions is more than 51 per cent, the audit of
such Corporations is entrusted to Comptroller and Auditor General or the
appointment is done in consultation with the Comptroller and Auditor General.
If not, the position may be brought to the notice of Head-quarters. (CAG's
Lr.No.CA.IV/Tech-8182 No.494-CA.IV/83-81 dt. 25.06.1982).
3.12 Internal control system in auditee organizations
(a) Government Companies
As a part of external audit of Government entities, audit is required to make an
assessment of the effectiveness of the internal audit arrangements in audited
entities. Though the responsibility for internal audit resides with the
management of the department, the responsibility for reviewing the internal
control systems including internal audit lies with audit. In case of Government
companies adequate provisions for ensuring internal control exists in the
Companies Act 1956.
As per Section 292A of the Companies Act, 1956, as amended by the Companies
(Amendment) Act, 2000 every public company having paid up capital not less
than Rs.5 crore is required to constitute an Audit committee for ensuring
compliance of internal control, its adequacy and to review the financial
statements of the company before their submission to the Board of directors etc,
132
Compliance in this regard to be examined and cases of non-compliance of
requirements of section 292A to be highlighted by taking audit comments u/s
619 (4) of the Companies Act 1956.
In this connection Headquarters circular letter No.579-C.A.II.398-99/KW/Vol.I
dated 9-7-2003 to be referred to and compliance thereof to be ensured.
Under section 227(4A) of the Act, ibid, statutory auditors are also required to
report specially as to whether there is an adequate internal control procedure
commensurate with the size of the company and the nature of its business, for the
purchase of inventory and fixed assets and for the sale of goods and whether
there is a continuing failure to correct major weakness in internal control.
Statutory auditors are also required to report separately to the Comptroller and
Auditor General of India under section 619(3)(a) of the Act, ibid about adequacy
of internal audit in the company.
Instructions have already been issued by headquarters office vide letter No.678-
CA-II/48/99-Vol.III dt:22-8-2003 for including a separate para on internal
audit/internal control in all comprehensive reviews. Besides, a para on internal
audit/internal control; based on major comments/recommendations by the
statutory auditors under section 227 (4A) and section 619(3)(a) of the Companies
Act is to be included in chapter I Audit Report (Commercial). It is also required
to conduct a mini review on deficiencies on internal control/internal audit
procedures and methods in power sector companies/corporations for Audit
Report (Commercial). Apart from the compliance to the aforesaid instructions,
deficiencies noticed in the compliance of Section 292A of the Act, ibid may also
be incorporated in the para on internal control-both in chapter I and individual
comprehensive reviews.
With the increasing significance of evaluation of internal control procedure and
methods, it has become essential to evaluate the same in a systematic manner.
A good system of internal control should comprise among others the following:
The proper allocation of functional responsibilities within the organization:
Proper operating and accounting procedures to ensure the accuracy and
reliability of accounting data, efficiency in operation and safeguarding of
assets:
Quality of personnel commensurate with their responsibilities and duties;
and finally;
The review of the work of one individual by another where-by possibility of
fraud or error in the absence of collusion is minimized.
International Organisation of Supreme Audit Institutions (INTOSAI) has also
issued guidelines for Internal Control Standards. These standards and
133
guidelines can apply to all managers, not just financial managers, and their
scope can be expanded to cover all government operations. PSUs management
can use these standards to implement an effective internal control structure. We
can use them to help evaluate those structures. An extract of overview of
internal control concepts, objectives and standards of INTOSAI are available in
website http:/www:intosai.org which may be downloaded for use.
For the purpose of evaluation of internal control, a specimen internal control
questionnaire is enclosed. Inevitably, a standard questionnaire may not be
applicable to all organizations uniformly. Enclosed questionnaire is intended to
provide general guidance. Individual variation may have to be made to suit
specific circumstances and organizations. The enclosed questionnaire can be
put to use while evaluating the internal control procedure and methods in
Government companies/corporations.
(Lr.No.38-CA-II/Co-ordn/internal control/2003-04/122-2003 dt:9-1-04)
(Lr.No.583-C A-II/398-99/KW/Vol-I dt:9-7-2003)
(b) Autonomous Bodies
Though the responsibility for the adequacy and effectiveness of the internal
control structure rests with management of respective Autonomous Bodies, the
responsibility of reviewing the internal control system including internal audits
lies on us as we are the sole auditors. Appraisal of internal controls enables the
auditor to restrict his detailed examination in areas where internal control is
satisfactory and extends it in areas where internal control is weak. With weak
internal controls and limited audit coverage, many things could go wrong.
Evaluation of internal control can be made in a number of ways but the most
effective and common method is through internal control questionnaire. In
general the control areas can be:
Policies and procedures
Scope and independence of internal audit
Receipt and disbursement of cash
Mixing of funds (Plan/Non-plan)
Purchase/custody of investments/securities
Accounting and receipt of interest on investments/Securities
Fixed assets/Vulnerable assets
Receipt and receivables
Disbursements/Payables
Payrolls/Loans and advances to the individuals
Bank balances/Bank Reconciliation
Man power analysis
134
For the purpose of evaluation of internal control detailed guidelines for internal
control standards issued by INTOSAI and an internal control questionnaire
issued by the Institute of Chartered Accountants of India are to be kept in mind.
(Booklet on INTOSAI guidelines vide Audit Wing’s Circular letter No 34-Audit
(AP)/7-2003 dated:5/8.3.2004 may also be seen). The purpose of these
documents is to provide an illustration of the questionnaire method of evaluating
internal control. A standard form of questions may not be suitable to all
Autonomous Bodies. Individual variations may have to be made to suit specific
circumstances and activity of Autonomous Bodies.
(CAG’s Lr. No.77 Reg CAG/63-2004 dt:5.4.2004).
3.13 Capital restructuring in public enterprises - guidelines
An extract of the Government of India, Lr.No.9 (1)E, Coord. / 87 dt:17.12.1987,
Ministry of Finance, Department of expenditure, on the above subject, was
forwarded for information and necessary action.
Extract:
The capital restructuring in public enterprises should be a means for revitalising
the enterprise and would help in most cases to restore or create conditions for
viability only if it is part of a package of proposal involving better management
practices, steps to improve productivity, reduce costs, etc. The capital
restructuring by itself cannot make an enterprise viable if owing to factors other
than capital related charges, the enterprise is unviable, e.g., if the prices of its
products do not cover even the variable costs.
It has been decided that capital restructuring proposal should be considered only
in genuine cases where adverse debt equity ratio and resultant interest liability or
capital related charges are the major constraints and otherwise the Company can
operate on viable basis. All proposals should be accompanied with package of
measures for improvement in management practices, reduction in cost, reduction
in inventory levels, identification of surplus manpower and reduction thereof.
(CAG's Lr.No.73-CA.IV/ 19-86 dt:12.2.1988).
3.14 Distribution of work in inspection
(a) It is always convenient in the interest of practical results to entrust the more
routine portion of the work to the auditor, the Section Officer doing the more
important work and pursuing other intelligent investigations. (CAG's
Lr.No.3010/Admn.I 436-60 dt.02.11.1962).
(b) The Supervising Officer shall distribute the work between the AAO/Section
Officers and Auditor and also indicate the items of work that he has done
personally. The distribution of work shall be recorded in the Inspection file. The
135
Auditors and AAO/Section Officers shall record a certificate to the affect that
they have completed the work assigned to them individually.
Before taking up the audit of any institution the inspecting staff should make
themselves conversant with the nature of the transactions, the system of
accounting, the account books prescribed, the budget, the relevant Codes and
Manuals, departmental or otherwise and the administrative report or any other
publication in order to make their audit both intelligent and useful.
3.15 First Audit of an Institution
In all cases where the local audit of an office or institution is conducted for the
first time, the adequacy and suitability of the system of initial accounts, forms,
registers, internal checks etc. shall be properly examined. The defects and
improvements if any, in the initial accounts and supervision shall be pointed out
in the report as usual.
The fundamental responsibilities of an officer in charge of local audit have been
laid down by the C&AG of India in the following terms:
(i) The Officer must acquaint himself with the system of finance of any
institution, the accounts of which he is auditing.
(ii) When an Auditor feels that he has touched on a matter which may require
investigation, he should examine in detail.
(iii) It is most undesirable that in local audit the check of the important initial
records should be neglected in favour of material which may provide cases of
draft paragraphs.
3.16 Intelligent exercise of checks
The efficacy of local audit depends largely on the intelligence, thoroughness,
resourcefulness and earnestness which are brought to bear on it. Even an
apparently minor defect or irregularity might conceal a fraud or mis-
appropriation. Where important initial records e.g. cash book, pass books,
security register etc., are not maintained properly, it is not sufficient for the
Inspecting Officer to state in the Inspection Report that such records were not
maintained properly. The Inspecting officer and the party would, in such cases,
besides mentioning the technical defects and shortcomings in keeping the
accounts registers etc., should also make an intelligent probe to see if the
defective maintenance or non-maintenance is a camouflage to hide fraud and
misappropriation. An illustrative list of irregularities which are likely to conceal
potential frauds is given below for guidance:
136
i) Erasures, over-writings, interpolations, alterations, and unattested
corrections in figures, pass orders, etc., in account books and registers,
invoices, sales bills, receipts etc.
ii) Removal of pages from account books and registers.
iii) Tampering in totals and carry forward of totals especially cash books and
stock books.
iv) Erroneous arithmetical totalling in bills.
v) Errors in carrying over figures from subsidiary registers to main register.
vi) Payment made on duplicate invoices, absence of proper reference to entry
in stock books in invoices.
vii) Issue in stock accounts not supported by proper indents and
acknowledgements.
viii) Persistent failure to conduct physical verification of stores or to take action
on the verification reports.
xi) Entries in important records like cash book, stock accounts, etc., not being
attested.
xiv) Absence of proper periodical scrutiny of cash book, stock books, and
contingent registers, by the Head of the office or the authorised officer.
The audit shall be conducted with tact and discretion so as to avoid possible or
unnecessary irritation to the Departmental Authorities.
3.17 Calling of files and records for checking
The Inspecting staff should call in writing for all registers and accounts records
of the offices inspected, required for audit purposes. If any of the records are not
produced, the reasons for the non-production thereof should be ascertained in
writing and the production of such records should be insisted upon during the
following audit.
3.18 Certificate of cash balance
Certificate of physical cash balance by actual count as on the date of
commencement of audit should also be obtained. It should be verified whether
the balance so certified agrees with the book balance as per the cash book. Any
variation between the two should be looked into thoroughly and necessary
comments offered.
(CAG Circular No.10 dt:26.2.1956 OAD files No.12-10 55-56).
137
3.19 Procedure for simplification of initial accounts etc.
The field parties shall assist the local officials with advice in matters affecting
account and financial regularity of transactions.
(a) Every observation noticed in the course of local audit or test audit shall be
recorded then and there.
(b) The defects noticed shall be classified as "Important" or "minor".
(c) Important defects and irregularities shall be incorporated in the report
which shall be narrative and descriptive in form.
(d) While the field staff should not make any relaxations of their own accord,
it is very important that the prescribed checks should be observed in the
spirit and not in the letter as opposed to the spirit.
(e) Replies to enquiries on doubtful points or on the memos calling for
information shall be obtained in writing on half margin forms. If the
replies are not received promptly, the fact shall be brought to the notice of
the head of the office and results communicated to the Headquarters.
(f) Audit observations which are simple directions and instructions for future
guidance, shall be included in the Test Audit Note. All minor errors,
which are of no consequence to the finances of the State and can be set
right on the spot, shall be settled and the notes carefully filed.
(g) All statements and observations made and all figures furnished shall be
based on clear documentary evidence. Reference to the orders or rules
which have been violated shall be quoted.
(i) The Audit staff shall go through all the Inspection Notes of the
Departmental Officers during the period of audit as valuable hints are
likely to be obtained from these sources.
(j) The field staff shall tick or cross-tick all entries checked by them and initial
all vouchers, accounts and documents.
3.20 Special investigation and independent enquiry by Audit
(a) No Inspecting Officer or Section Officer is competent to undertake any
investigation which is not strictly within the scope of test audit at the instance of
Administrative authorities whether such an investigation results in extra time
being taken or not. If any such important point is noticed in the course of an
audit, the Inspecting Officer/Section Officer should bring it to the notice of the
Senior Deputy Accountant General (Commercial Audit Wing) and seek his
orders.
138
(b) The Inspection staff should not also make independent enquiries from the
general public as such action amounts to an encroachment upon the function of
the administration (also see Para 15 of the M.S.O.Technical Volume I). Audit
should confine itself to calling upon the executives to furnish the necessary
information and in case of any difficulty, it should confer with the executives as
to the best means of obtaining evidence which it requires and if necessary the
Inspecting Officer/Section Officer should obtain specific orders of the Senior
Deputy Accountant General (Commercial Audit Wing) on the point.
3.21 Report of defalcations, frauds etc.
(a) All cases of defalcations or other types of serious financial irregularities
noticed or suspected during local audits and inspections shall be promptly
reported confidentially by the head of the audit party to the Senior Deputy
Accountant General (Commercial Audit Wing) and also to the Head of the
Office concerned or to his next higher authority, if it is suspected that the Head
of the Office himself has something to do with the irregularity. The report shall
also indicate whether any assistance e.g. the personal intervention of the Senior
Deputy Accountant General (Commercial Audit Wing) or additional hands and
records necessary for full and complete investigation is required. The progress
of investigation should be reported regularly through interim reports. When the
fraud or embezzlement has been fully investigated by the Audit Party a complete
report on the case should be submitted to the Accountant General explaining
clearly how the fraud was committed and whether there is any reason to suspect
that a detailed examination of the accounts would bring to light further cases of
frauds by the same or other persons. It should also be stated whether the fraud
was discovered during or prior to the audit.
(b) The Report should contain, inter-alia, information on the following points:
i) The dates or period of occurrence and the date of detection of the case by
the Department/local authority.
ii) The circumstances which led to the defalcation/ misappropriation/loss.
iii) The defect in or the neglect of the rules which rendered the
misappropriation/defalcation/loss possible.
iv) Whether the case was reported to the Finance Department and to our office
immediately on detection by the Department in accordance with Article
294 of APFC Volume I. If not, reasons for the same should be ascertained.
v) Whether recourse to judicial proceedings is considered necessary by the
Department and if so what action has been taken by the Department?
139
vi) Action taken to recover or to obtain Government sanction for the write-off
of the loss.
vii) Steps taken to prevent recurrence of similar cases.
viii) Disciplinary action taken against the official(s) held responsible.
ix) Whether the findings of the party during the course of local audit in respect
of the amounts misappropriated/ defalcated/lost have been verified with
reference to the facts reported to audit office and found correct. If not a
comparative statement should be furnished with reasons for the difference.
(Circular No.OAD.I/V/38-1/64-65/21 dt:2.11.1964 Nos.38.1/66-67/26
dt:20.1.67 File Nos.38.1/64-65 and 66-67 of Unit V OAD Circle HQrs.)
(Cir.OAD.Civil/X/1-7/67-68/32 dt:6.12.1967 File No.1-7/67-68 Unit X
OAD Civil HQrs.)
3.22 Raising and pursuance of observations
(a) All observations shall be issued in duplicate only under the signature of the
Section Officer or the Inspecting Officer whenever the local audit is supervised
by one.
(b) Objection memorandum should ordinarily be received back with replies
within 24 hours of their issue. It should be seen that the replies are issued under
the signature of the head of the Office inspected or by the next lower officer
when the former is not in station. Before the close of the audit, all the inspection
notes should be received back from the officer in charge. (Circular No.OAD
Civil.IX/Misc/32-10/69-70/57 dt:8.5.69).
Note: The State Government directed in their circular Memo.No.159556B
Accounts/58-2 dt.24.12.58 all departments of the Secretariat and the Heads of
Department to furnish replies to all the audit memos issued during the course of
local audit immediately and in any case not later than one day before the date of
completion of audit. They are further directed to issue necessary instructions to
all officers under their control.
Replies to memoranda should be carefully scrutinised by the Section
Officer/Supervising Officer and an attempt made to settle as many observations
as possible during the course of audit. Whenever an item is settled a note of the
same should be made in the margin and initialled by the Section Officer.
3.23 Prompt settlement of Audit observations
Perusal of the relevant files obtained from the Headquarters guides the field party
as to what precisely is to be done in connection with the last report. The
Inspecting Officers/Section Officers of field parties should discuss them with the
140
Head of the Office and impress upon them the necessity of settlement of old
paras expeditiously. In all cases where the promised action has not been taken,
attention should at once be drawn to the matter and in cases of recoveries or
missing documents; the office should be given every opportunity for rectifying
its previous omission before the completion of audit. If, however, the recoveries
are not affected or the required documents etc., are not produced by the time the
audit is over, the fact should clearly be mentioned in the report, with a brief
description of the nature of the receipt or charges. It should particularly be seen,
in the case of audit notes which revealed serious irregularities in the past that
remedial action is taken. If no action or only partial action is taken and the
results are not satisfactory, the matter should be reported separately to the Senior
Deputy Accountant General (CAW) who will take up with the appropriate higher
authorities. The defects/omissions may be rectified and necessary action
initiated to obtain sanction or ratification of higher authorities as the case may be
during the course of inspection. An indication of paras settled on the spot should
be given in an annexure to be appended to Part IB.
Correctness of replies should be verified before observations are cleared, as
clearance of observations without such verification tantamount to complete
failure of Audit.
The Asst. Audit Officers/Section Officers of field parties should record under
their dated initials a certificate on the last page of each of the previous Inspection
Report that the replies to them and to the further rejoinders thereon have been
verified on the spot and that all the outstanding items have been carried forward
to the current Report and Audit Note.
An all out effort should be made to settle all audit observations, on the spot, as
far as possible by discussion.
(Office orders Nos.OAD/Civil/XII/38-15/64-65/Vol.II/16&24 dt:21.7.1969 and
26.8.1969 - File 38.15/65-65/Vol.II Unit of XII and OAD Civil/XII/38-2/67-
68/39 dt:1.2.1968 File.No.i-7/67-68 of Unit X OAD Civil Headquarters).
3.24 Procedure for auditing cash transactions
3.24.1 Receipts
The chief aim while conducting the audit of receipts should be to ascertain that
an adequate procedure has been prescribed and regulations have been framed to
secure an effective check on the pricing of the products, of cost of services and
allocation of revenue. The procedure and checks imposed to guard against the
commission of irregularities at various stages of collection and accounting
should also be ascertained.
141
Verify the receipts for cash sales with cash sales book and the duplicate cash
memos.
See that all receipt books issued are accounted for and the printed number on the
counterfoils in the issued book runs consecutively.
Vouch income from investments with counterfoils of dividend warrants and/or
bank advices.
Vouch refund of T.A.advance with T.A.bills.
Vouch the receipts for rents with the counterfoils of the receipts issued or with
the certified statements from the estate office.
See whether interest on loans has been received when due and also interest on
bank deposits. Vouch the bank interest received with the bank pass book and
verify the correctness of the amounts.
Check the correctness of the analysis of the miscellaneous receipts; examine the
evidence in support of such receipts. Examine the terms of discounts allowed to
customers for any unusual favours shown.
3.24.2 Payments
It should be ensured whether
-The claims are made in accordance with the prescribed rules.
-The expenditure is in accordance with the sanction properly accorded and is
incurred by the officer, competent to incur it. The payment has been made to the
proper person and that it has been so acknowledged, the charges are correctly
classified and posted to the proper head of accounts and the payments have been
correctly brought to the account in the books of account.
Vouch each payment with the receipt given therefore and in the case of payments
which are posted to an impersonal account, examine the invoice, statement of
account, demand note or other independent document which furnished evidence
that the payment is proper and duly chargeable to the accounts to which it is
debitable.
For wages paid examine the wages sheets together with the aquittance of the
workers.
For salaries check the salaries book and vouch this with the a quittances given by
the employees, endorsed cheques, etc.
Vouch payments on account of petty cash with the petty cash book and examine
the vouchers for the disbursements shown in that book. Similar procedure may
be adopted for interest accounts also. Vouch bank charges, interest etc., with the
142
pass book. Similar check may be made in the pass book of customs authorities
and Port Trust for the charges debited in the cash book.
Vouch the bills payable with the returned/matured bills.
Vouch the purchase of investments with the brokers or Bankers advices.
It shall also be seen that the system of receipt and payment of cash, cheques and
bills, banking and custody of cash, verification of cash balances and recording of
cash transactions is adequate and satisfactory, whether there is any waste,
nugatory expenditure or loss of cash due to inadequate safeguards. All the
receipts and payments are posted to the proper accounts in the ledger. The
receipts and payments affecting the sales and purchase ledgers, when total
accounts are maintained, are posted in totals in the general ledger.
The total and carry forward balances are correct.
The balances of the bank accounts are periodically reconciled with the balances
shown in pass books.
The details of the various subsidiary books are periodically reconciled with the
total balances in the general ledger. The general rules of recording the
transactions in the chronological order, daily balancing and periodical
verification of the cash balances and certificate of verification are strictly
followed.
The cashier does not handle the accounts books other than the cash book.
The custody and issue of receipt books, cheque books, etc., should also be
generally examined.
3.24.3 Sales
As regards cash sales, the system under which goods are sold and the cash
received and banked should be seen, check the additions in the cash sales book
and test the entries therein with the duplicate of cash sales slips in the salesman's
book. The daily total of the cash book (sales) into the general cash book should
be checked and see that the money was promptly deposited into the bank. As
regards cash sales the method in force concerning the ordering of the despatch of
goods should be examined. The additions of the sales day book and the
periodical journal entries for recording the totals should be checked.
The correctness of the entries in the sales day book can be test checked by a
reference to the order book and the goods outwards book and also by comparison
with the duplicates or press copies of the invoices despatched.
143
The procedure for obtaining orders, planning production in accordance with the
orders in hand and anticipated demand, the reasonableness of the time lag
between the receipt of the order in the Company and the execution of order
should also be examined.
The promptness with which the invoices are prepared and sent and the
periodicity of reviewing the ledger accounts must be examined.
The credit policy followed by the Company should be reviewed. The action
taken against overdue accounts must be specifically examined.
3.24.4 Sales returns
Enquire into the system of recording goods returned by customers and issuing
credit notes in respect thereof.
Check the entries in the sales returns day book with the duplicates or counterfoils
of credit notes issued and the goods returned books.
Check the additions of the sales returns day book and the postings of totals
periodically in the general ledger.
3.24.5 Wages
Ascertain the system in force for the record and payment of wages. Check the
cash disbursements with certified copies of wage sheets.
Check the wage sheets with primary records like gate card, attendance,
production, overtime sheets etc.,
Test checks the bonus calculations to ensure that the same have been correctly
computed.
Check leaves payment (including payment from ESI) and holiday wages
payment sheets. Check the overtime wages, with special reference to the need,
sanction of the competent authority and the periodicity.
Examine the reconciliation statement of the wages paid with attendance or
production of records and ensure that the system of recording attendance and/or
production is fool-proof.
See that the analysis, where necessary, is certified as correct by those responsible
and that proper accounts are debited in the impersonal ledger. Special attention
should be given to wages which have been charged to capital account.
Compare the weekly, fortnightly or monthly totals of the wage sheets with each
other and obtain satisfactory reasons for any large fluctuations.
144
3.24.6 Special allowance
Where special pay or allowances are given the justification for such
pay/allowances and the orders of the competent authority should be seen. In
cases where special conditions are attached for the grant of such allowances, the
fact that the same have been carefully adhered to should be seen.
3.24.7 Payment of Bonus/Ex-gratia by Government Companies/
Corporations to Employees
Following decisions have been taken by Government:
A) No, Ex-gratia should be paid along with bonus.
B) No deviation from Bonus Act should however be made.
c) If any deviation is proposed to be made, the specific approval of the
Government must be obtained. (Lr.No.3911/Pc.Cell/79-1 dt:24.6.1982
forwarding Lr.No.1969/PE Cell/77-6 dt:14.6.1978, Government Industries
and Commerce Department, Hyderabad).
3.24.8 Travelling expenses
Whether the travelling expenses incurred are in the interest of the Company and
whether the person incurring them is entitled to charge them against the
Company. Apart from examining whether the claims are in accordance with the
rules prescribed by the Company, the following points should also be borne in
mind.
The travelling expenses of the Directors (Official) of the Company are not
chargeable to the Company and in the case of non-official Directors the
provisions in the Articles of Association should be seen. In the case of persons
on deputation, the Government Rules should be applied. (CAG's Office
Lr.No.350-CA.IV/38-2 dated:05.06.1982 F.No.IV-17/72-73/Vol.I P.8/c).
The details of the travelling allowance and the approval of the competent
authority should be seen together with the adjustment of advances already taken
and the time-lag between performing the journey and submission of the bill.
3.24.9 Rent, rates and taxes
Examine each cash payment with the receipt given on the authorised form and
see that the period covered by the payment as shown by the receipt or by the
demand note is correctly stated in the cash book and see that the periods are
continuous and do not overlap.
Scrutinise the various ledger accounts relating to the above items and see that the
payments have been made when due and the discounts, if any, have been availed.
145
Compare the total charges shown in cash ledger account with the corresponding
charges in the previous year and difference, if any, may be got explained
satisfactorily.
In the case of new rents payable, obtain particulars thereof from leases or
agreements.
3.24.10 Income Tax
As regards income-tax, familiarisation with the provisions regarding the concept
of profit for this purpose, the various expenses - ordinary and special - permitted
to be set off against the gross income (in particular, depreciation, allowance,
development rebate, capital expenditure on scientific research) items of
inadmissible expenses, carry forward of business and capital losses, deductions
admissible in respect of new industrial undertaking, priority industries, etc., will
be essential. During audit, the income-tax assessment and return files, advance
tax payments and tax refunds may be reviewed. Deduction of tax at source as
required under the Act may also be seen.
3.24.11 Bank charges
Bank charges as shown in the cash book/bank book should be vouched with bank
advices or the bank pass book.
3.24.12 Advertising
In addition to seeing the receipts given for the payments made under this head,
the auditor should carefully note the rate paid, the period covered and the media
approved and the agreement, if any entered.
3.24.13 Interest payable
The payment should be vouched with receipts given or with other evidence such
as endorsed cheques or with bank pass book. It should also be seen that the
proper amount of interest on account of all loans has been paid when due. As
regards interest payable on deferred payments, the relevant clause under the
schemes in the agreement should be seen.
3.24.14 Telephone and trunk calls
It should be seen whether separate registers are maintained for these charges.
Private calls should be noted in the register for recovering the charges.
146
3.24.15 Directors' fees
This may be verified with reference to the provisions in the Articles of
Association of the Company, the orders of Government and the Directors'
attendance books.
3.24.16 Commission payable
The agreement, if any, entered into with the Company or letters issued to agents
may be seen to verify the conditions under which the commission is payable and
the rate at which it is payable. The arithmetical accuracy should also be checked
to some extent.
In cases where the commission payable is based on profits earned, the provisions
of the Companies Act, 1956 should be borne in mind.
3.24.17 Rent receivable
Check the rent roll or list of properties and the rent recoverable as per the
provisions of the agreements.
The rents actually received should be vouched with counter-foils of rent receipts.
The details of arrears should be examined with reference to the rent registers and
the action taken to recover the arrears should be watched. Where arrears
covering somewhat long periods are still carried forward, it should be seen that
an adequate provision is made in the accounts.
3.24.18 Petty cash/Imprest accounts
Ascertain the system under which petty cash disbursements are made and
recorded and whether the records and vouchers are examined by any independent
official.
Vouch the receipts shown in the petty cash book with the cheques drawn on
account of petty cash as shown by the General cash book.
Check the totals and cross totals of the analysis column, if any. Vouch the
payments with receipts. Particular attention should be paid to large amounts in
the petty cash book.
The classification of petty cash expenses should be examined in a general way.
Where petty cash balances are considerable, the need for such a balance should
be examined. Drawal of cash from bank for reimbursement of petty cash
expenses when the balance is sufficient should be carefully scrutinised.
147
3.24.19 Construction period expenses
In the case of a manufacturing concern involving initially a heavy capital outlay,
examine whether the expenditure during construction was booked systematically
so that the cost of a particular unit of construction can be readily ascertained.
The allocation of the administrative charges and overheads, during the period of
construction should also be examined.
3.24.20 Shares
See that the application and allotment money has been duly paid and that the
total amount paid into the bank as shown in the bank account agrees with the
credit in the pass book. Ensure that the total cash received on account of share
capital as ascertained from the Register of Members agrees with the credit
balance shown in the share capital account after allowing for shares issued
otherwise than for cash.
The utilisation of the share capital money should be examined especially in the
case of subsequent issues. If any unused capital has been deposited in the bank,
the capital structure of the Company should be examined bearing in mind the
scheme originally proposed and the progress thereof.
3.24.21 Custody of funds
Normally, the major portion, if not the whole, of the capital of the Government
companies either in the shape of equity capital or debenture capital is contributed
by Government and it should be desirable that the funds of the Government
companies are banked with the Government banking institutions like State Bank
of India.
3.25 Works expenditure
Some of the important and special points for works audit are detailed below:
3.25.1 Estimates
The following aspects may be seen:
The estimates are prepared and sanctioned by the competent authorities
according to the rules laid down by the Management.
Proper technical advice has been obtained wherever necessary while framing the
estimates so that the contingency of shortages or excesses over the sanctioned
estimates in normal circumstances when the work is actually executed is
avoided. Bring to notice cases where revised or supplementary detailed estimate
had to be prepared in order to cover an actual probable excess over the
sanctioned estimate.
148
There is no undue delay in closing the accounts of the works when the works are
completed or abandoned and that excesses over the sanctioned estimates are
investigated and regularised.
Any anticipated or actual savings on a sanctioned estimate for a definite project
are not (without special order of the competent authority) utilised to carry out
additional works not contemplated in the original estimates or towards purpose
not authorised.
Any surplus recoveries of expenditure or savings due to abandonment of a work
are not utilised for works in other sections or towards objects not authorised.
Check the expenditure on each sub-head or sub-work with the estimated quantity
of work to be done, the date of sanction and the total sanctioned cost and bring to
notice all deviations from the sanctioned estimates.
Scrutinise the recoveries of expenditure and examine all marked deviations from
the provisions for such credits in the estimates of works.
3.25.2 Tenders
The following checks should be applied:
The rates quoted for various items and works in the accepted tender are not
higher than the rates as per the schedule of rates of the P.W.D. of the particular
area in which the work is being carried out.
In cases where tenders are rejected on the ground that the rates quoted are
unworkable, see whether the tenderer has specified in the tender itself any
special advantage in support of the unworkable rates and whether such
advantages have been given due cognizance by the concern while refusing the
lowest tender (on the ground of the unworkability of the rates).
Where cement is to be supplied by the Company see that proper clause exists for
the return of the empty cement bags.
Where water, electricity, etc., are to be supplied by the Company at the works
site, see that necessary clause exists for the recovery of cost in respect thereof at
proper rates. Where any plant or machinery of the concern is to be utilised by
the contractor at works site, see that proper clause exists for the recovery of the
cost thereof.
See that necessary penalty clause exists for the non-completion of the work
within the stipulated time.
See whether the tenders are examined and work orders issued to the tenderer
within the validity period of the offer.
149
3.25.3 Measurements Books
The measurement books are generally reviewed to see that the entries are made
in accordance with the instructions on the fly leaf of measurement books and that
no entries are made by officers other than those empowered to do so.
Acknowledgements are taken from responsible persons whenever,
measurement books change hands. Any corrections in rates made after the check
measurements indicate that irregular and incorrect measurements have been
made.
The dates of measurements of any outstation works are correctly traceable in the
progress reports or travelling allowance bills of the officials concerned.
In the case of cancelled measurements the cancellation is supported by the dated
initials of the officer ordering the cancellation and also full reason for the same.
Check measurement is conducted with discretion and that the items of work
easily susceptible of fraud or which would most seriously affect the total amount
of the bills, if inaccurate, are selected for check measurement.
Measurements are recorded and signed by the senior officer when measurements
are taken jointly by two or more officers. Test check the total measurements for
a particular item of work as billed for making the payment with the estimated
quantity of work to be done in order to find out the over measurements or
measuring the same work twice.
3.25.4 Material-at-site accounts
Scrutinise the material-at-site of completed works including those transferred to
surplus lists from completed works, in order to ascertain the circumstances under
which they were obtained in excess of requirements or in advance of
requirements and thereby became surplus due to change of design etc., and bring
to notice instances where lack of planning or foresight etc., was found.
See that proper numerical accounts of all receipts, issues and balances of
materials-at-site or of dismantled materials (not immediately transferred to stock
or work-in-progress) are maintained for their eventual utilisation on the work or
their disposal by sale or otherwise when rendered surplus on completion or
abandonment of the work.
See that materials are not transferred from one work to another without proper
authority. Where the works are being executed at distant places, see that proper
summarised returns of all receipts, issues and balances of materials-at-site are
sent periodically to the Head Office and that there are no undue delays in the
submission of such returns.
150
See that surprise physical verification of material at site is conducted by some
responsible officer besides the annual verification and that the reports of such
verification are forwarded promptly to the Head Office. Also see that any
surplus or shortages found as a result of such verifications are not adjusted in the
accounts without proper investigation of the causes.
See that materials are not issued to works in excess of their requirements as per
the data available.
See that besides the annual checking, the material-at-site is also checked on
completion or abandonment of a work or when an officer in direct charge of the
work is transferred before the accounts are closed.
See that the materials account of any of the major works is not utilised as a
temporary stock account for materials to be used on other works.
3.25.5 Muster Rolls
See that the engagement of the labourers has been done according to the rules of
the concern. Verify the rates of wages paid to the workers and variations in rates
from those prescribed in the schedule of rates of the particular area in which the
work is being performed.
3.26 Log books
Proper log books are maintained in respect of each motor vehicle.
All necessary particulars, e.g., time out, time in, name and designation of the
official travelling, purpose and details of journey, meter readings, kilometres run
etc., are properly recorded in respect of each journey in the log books.
The entries in log books are signed by the travelling officers or by a responsible
person on his belhalf.
The journeys are performed for authorised purposes only and that recoveries are
made for all journeys other than those for the bona fide purpose of the
undertaking.
The rates of recovery for such journeys other than those for the bona fide
purpose of the undertaking have been fixed by the competent authority and are
not unreasonably low.
Compare the K.M.P.L. done and examine in detail the cases of abnormally low
mileages. Whether log books are periodically reviewed by a responsible officer
and whether a certificate to that effect is recorded by him.
Whether the vehicles have been insured and whether the cost of repairs etc., as a
result of accident has been recovered from the Insurers. In cases in which
151
vehicles have been lying unused for a long time, investigate the reasons for the
same and also examine whether the refunds of road tax, insurance premium etc.,
which may be admissible in such cases have been obtained. See that a history
sheet is maintained for each vehicle.
All repairs (except minor repairs) to the vehicle together with the particulars and
cost of spare parts replaced are recorded in this history sheet with reference to
vouchers and the total expenditure for repairs on each vehicle is normal.
Examine correctly and critically abnormal expenditure and uneconomic repairs
and in the case of major repairs, see that the work has been got done at
competitive rates.
3.26 Log books
The following points should be borne in mind while conducting the audit of
contracts:
a) The terms of the contract are precise and definite and there is no room for
ambiguity or misconstruction therein.
b) As far as possible, legal and financial advice is taken in the drafting of the
contracts before they are finally entered into.
c) The terms of the contract once entered into are not materially varied
without the consent of the competent authority and there is adequate
justification for such change.
d) Contracts are placed only after tenders have been openly invited and in
cases where the lowest tender is not accepted, reasons are recorded.
e) In selecting the tender to be accepted, the financial status of the individuals
and firms is taken into consideration in addition to all other relevant
factors.
f) Payments are made in accordance with the terms contained in the contract.
g) In the case of construction/erection, see that the work is periodically
measured by a qualified engineer and entered in the measurement book and
these measurements are test checked by a superior officer in the
Engineering branch.
h) Check the rates charged/claimed in the bill with the contract rates keeping
in mind the specification.
i) Examine the analysis of rates and see how it compares with local P.W.D.
rates.
152
j) In case of alteration or modification of the plan, see whether appropriate
changes have been made in the contract.
k) Examine the rates fixed for extra items and ascertain the reasons as to
whether these could not have been settled at the time the tender was called
for.
l) Where material is supplied by the Company, examine the stock account
and the utilisation of the material (with reference to the standard formula
and measurement book).
m) In respect of the agreements entered into with foreign firms for providing
technical know-how and for setting up the project in India, it is necessary
that the salient features of the project reports are critically examined. In
addition, the points enumerated below should also be borne in mind:-
Aims and objects of the scheme as approved by the Government including
justification and production programme.
The project estimates as approved by Government, estimated cost of the project
giving details under plant, ancillary works and township, break-up of estimated
expenditure into foreign exchange component and rupee expenditure.
Examine files leading to the consultancy agreement, particularly with reference
to the basis of allowances admissible to foreign engineers and the basis of the
consultancy fee and the know-how fees, both in Indian and foreign currency.
The economics of other offers if received for the same project should be
compared with the one accepted and the reasons for rejections of other offers
should be investigated.
Copy of the project report given by the Consultants should be obtained.
Procedure adopted for the procurement of plant and machinery from foreign
collaborators, etc. Foreign aid given for capital constructions, the terms of the
financial arrangements regarding rate of interest payable and mode of
repayments.
3.27 Capital structure - Equity and Loans, total investments.
Organisational set-up of Head Office and Project Administration, total personnel
employed showing different categories of posts of officers, staff and workers for
the operation department, administration and townships (maintenance) compare
this number with the categories and the number provided for in the project
report, installed capacity and the actual production each year. The agency
employed for the supply of plant and machinery and execution of civil
engineering works. The main features of the contracts with the foreign suppliers
153
and Indian contractors and the defects in the terms of the contracts. The agency
for inspection of the machinery and plant before despatch from foreign countries.
Is there any safeguard to protect the interest of the project against defects noted
soon after installation?
The actual production vis-à-vis budgeted production and if there is shortfall, the
reasons therefore.
Comparison of the yield of the finished products with the normal percentage of
yield prescribed.
The quantity of rejections and scrap arising as against the norms prescribed.
Periods during which the plant or any unit was idle either due to defect in the
plant, strike or other causes or for want of raw materials or for want of demand.
The amount of demurrages incurred alongwith the reasons therefore.
The procedure followed for the purchase of raw materials, stores, equipment, etc.
Details (quantity and value) of primary products and by-products sold.
The cost of services like transport, canteen facilities, etc., given to workers. The
number of foreign technicians (construction and operation separately) working in
the project. The amount paid to them on account of salaries, allowances, etc.
How does this number compare with the provisions made in the project report?
Details of loans and overdrafts from Government, bank and the terms of these
financial arrangements including the rate of interest payable.
The following factors/principles are to be taken into account while entering into
consultancy arrangements:-
Some of the items of work may have to be done in the country, while others may
have to be done outside. It is necessary, therefore, that a clear indication in
regard to both should be available so as to determine the quantum of
remuneration. It should also be useful to include in the agreement a list of staff
that would be posted within the country so that no confusion or dispute arises at
a later stage. Certain facilities may have to be made available to the consultants
in regard to residential and office accommodation, travelling allowances both
from the parent country to India and within India, provision of vehicles,
equipment, medical facilities, etc., while assessing the remuneration and the
incidence of such facilities.
There should be a clause for premature termination of consultancy agreement in
case the work is found to be unsatisfactory or not suitable, and there should be an
indication in regard to the payments involved in case such a contingency arises.
It should also be clearly laid down that whatever work has been done by the
154
Consultants shall be the property of the employer and all papers, drawings and
designs etc., should be secured in suitable form before final payments are made.
The consultancy agreement should also provide a safeguard to the employer in
the contingency of any infringement of patent rights during their employment or
in future and the consultants must be required to guarantee indemnification for
all time.
The taxation aspects in respect of the remuneration, salaries, etc., paid should be
kept in mind and not left open, as otherwise foreign consultants are likely to
claim tax remissions later.
The foreign exchange aspects should also be kept in view, and as far possible,
the consultants should be required to work within India with the help of local
personnel so as to reduce payments in foreign currency.
When payments are to be made in foreign currency it would be better to deposit
the rupee equivalent in a bank of India nominated by the Consultants and
remittance facility allowed.
A penalty clause should be provided (in addition to the right to determine the
agreement) in case of delay in execution or unsatisfactory performance and also
a right to postpone the payments of every instalment in such a situation should be
secured.
3.28 Remuneration for consultancy services:
The fees as far possible should be calculated on the basis of the estimated cost
and expressed in the Consultancy agreement as a definite figure. If necessary,
provision may be made for varying the figure by negotiation if the scope of the
Project is changed and, as a result, substantial change occurs in the actual cost.
Where foreign experts are drafted for training Indian technicians, whether the
services of foreign experts were properly utilised.
3.29 Stores
Stores required are generally purchased by a central store purchase organisation.
To meet urgent requirements, field officers are delegated certain powers to make
local purchases. The examination of purchases shall be conducted with a view to
ascertain (i) how far the procedures followed for central and local purchases are
proper and adequate, (ii) whether the Company has prepared a Manual for stores
purchase and whether the guidelines indicated therein are followed, (iii) whether
the purchases are covered by adequate provision of funds in the budget, (iv) in
view of the delegation of powers to the field officers for the local purchase,
whether the same material is purchased by more than one agency from different
155
sources at different rates, (v) whether the decisions as to what to purchase, when
to purchase, where to purchase and how much to purchase are taken properly.
The following points shall also be kept in view.
Whether proper records were maintained to indicate the authorisation of
purchases, placing of orders, following of delivery schedule, inspection receipt
and accounting of the materials purchased and payment to suppliers.
Whether the method of recording payment fully ensures against double payment,
fraud or overpayment.
Whether the payments made are according to the agreed rates.
Whether allowances and adjustments were handled properly and approved by
competent authority.
Whether there were cases of overstocking or stoppage of work for want of
materials.
Whether deliveries were made by the suppliers according to schedule. Whether
delays, if any, affected production and if so whether action was taken against the
supplier for delays in supply.
Whether all the provisions of purchase orders were complied with before
releasing the final payment.
See that certificates of quality and quantity are furnished by the passing and
receiving authorities before payment is made.
Check the inspection notes with references to the remarks of the inspection
authority, follow-up of rejections, recovery of amounts and action against
unreliable suppliers.
Examine the day book, purchase journal with the invoices examining the date of
each invoice. See the invoices are made out in the name of the
Company/Corporation, that it is approved as correct.
Check the totals and cross totals of the day book.
Check the postings of the day book/purchase journal into the ledger and the
totals to the debit of the various purchase accounts.
Check whether reconciliation is done between the goods purchased as shown by
the day book with the goods received as shown by the stock records.
Examine whether the Company is taking advantage of the period of credit
allowed in every case.
156
Whether the system of receipts and issue of stores is satisfactory and pricing of
stores used is done on correct principles.
Ensure that the stocks were not issued in excess of the standards/estimates and
that the total value of the stores consumed was absorbed in costs.
Examine the system of physical verification of the stores on hand and the
accounting adjustments of the excesses and shortages.
Stores in many cases represent locking up of capital which is not justified unless
essential. In order to effect economy in this direction, it should be seen that the
balance on hand does not exceed the maximum limit prescribed and is not in
excess of requirements for a reasonable period.
Examine the system of locating and accounting of unserviceable slow moving,
redundant and obsolete stores.
3.30 Disposal of unserviceable, obsolete and surplus stores, spare parts,
vehicles, tools, empties, scrap, by-products, etc.
The following points should be seen in audit:
The stores have been condemned or declared unserviceable or obsolete only after
detailed survey wherever needed by a survey committee. Written orders have
been passed by competent authority on the report of the Survey Committee
declaring the stores as unserviceable, obsolete or surplus.
See that the sale is made to the best advantage of the concern through the
recognised methods of sale.
See that the reserve prices fixed, if any, have been taken into consideration at the
time of disposal.
The method of disposal and fixation of reserve price are approved by the
competent authority.
The disposal action is not unnecessarily delayed to the disadvantage of the
concern.
The sales are sanctioned by competent authority and financial concurrence is
obtained where necessary.
The sale value of stores sold is deposited by the purchaser within the stipulated
time and any extension of time is sanctioned by proper authority.
The description of stores sold as mentioned in the relevant disposal or auction
documents, tallies with the gate passes of the concern.
157
Stores are removed by the purchaser within the prescribed period and that in case
of default, penalty, if any, by way of ground rent etc., is recovered from the
purchaser.
In the case of disposal by auction, see that adequate publicity by way of
advertisement, was given in order to stimulate competition among the intending
purchasers and that the terms of auctioneering agreement, if any, regarding
prompt deposit of the sale money etc., were strictly observed by the auctioneers
and that the auctioneers' commission was allowed in accordance with the rates
prescribed in the auctioneering agreement.
In the case of manufacturing concerns special attention should be paid to the
procedure for the handling of by-products and scrap which arise during the
course of manufacture and their ultimate disposal. The following points should
be seen in audit:-
Whether any formula has been devised by the technical staff of the concern for
determining the quality of by-products or scrap that will arise in each operation
of manufacture. If so, see how the quantities so determined compare with the
actual quantities of by-products or scrap as shown in the books of the concern for
each month or each quarter.
In some cases the by-products are of only small value. In such cases the intricate
calculations to ascertain their cost are not warranted and the sale proceeds of
such by-products may either be treated as profit or as a reduction in the cost of
the main product and credited to the account of the process from which they have
been derived either in total or less a reasonable percentage to cover handling
expenses. But in some cases the by-products may be of considerable value and
assume much importance inasmuch as the same may be regarded almost as main
products. See that in such cases an accurate system of accounting is adopted to
ascertain the cost of the by-products, see whether the by-products are in saleable
condition or they require further processing before they can be sold. If they
require further processing see that all expenditure incurred on their further
processing is recorded separately and their cost is worked out similar to that of
the main product.
In the case of scrap, see whether the possibility of its utilisation in some of the
operations or processes of the concern itself or the operation of other
manufacturing concerns has been considered.
Find out what method has been adopted by the concern for the disposal of the
by-products or the scrap and see how far the method adopted results in the
maximum financial benefit to the concern.
158
3.31 Investments made by the Government Statutory Corporations,
Government Companies, Autonomous bodies
Besides ensuring that the provisions of Article 285 of A.P.F.C.Vol.I,
Government Securities Manual of Rules and Regulations of the
Organisation/institution concerned are observed, the following points are also to
be looked into during local audit.
That a complete list of all investments made in the shares, debentures, bonds,
etc., is available in the office concerned.
That the office keeps the acknowledgements obtained from the authorised
custodians of the securities, and, also arranges for the periodical physical
verification of the existence of the securities.
That in case the securities are held in the custody of the Head of the
Office/institutions the physical verification certificate is recorded periodically by
the competent authority. The records connected with the holding of the
securities viz., purchase, cost, sales, return, dates of remittance of the proceeds to
Government where necessary etc., should be checked.
That the return on investments is promptly collected (and remitted to
Government account where applicable) and that the return received is correct.
Soundness of the investments made may be examined and commented upon.
In addition to the above, Commercial Audit Parties (including those dealing with
Electricity Board and Road Transport Corporation) should attend the following
aspects:-
Where the assistance is by way of loan etc., a general Para may be included
indicating the quantum of investments, nature of investments, return received
during the year, percentage of return, extent of repayment of the assistance and
default, if any.
The organisation investing its funds in shares, debentures, etc., will be receiving
the annual accounts of the institutions in which the investments were made. As
the accounts of such institutions are not subject to audit, the annual accounts may
be obtained during local audit, reviewed and commented upon in the Inspection
Report, if necessary.
Where the accounts of the institutions to which the assistance has been given or
in which the investments have been made are subject to audit by the investor in
accordance with the terms and conditions or orders sanctioning such
assistance/investments, it may be seen whether such rights have been exercised
by the investor at the stipulated periodical intervals. If so, such reports may be
159
called for and reviewed. Any points worth mentioning may be included in the
Inspection Reports.
(No.OAD1/4 II/IV-6/69-70/Circular No.12 dt.16.12.1971).
3.31.1 Allocation of expenditure
It should be seen that-
(a) Common accounting or commercial principles are not infringed,
(b) The amounts exhibit the true financial facts and financial results of the
body,
(c) There is no transgression of accepted principles of public finance and
(d) There is no over capitalisation or under capitalisation by improper
allocation of amounts of expenditure between revenue and capital.
3.31.2 Grants-in-aid
It should be seen that-
(i) The amount of grant received was utilised for the specific purpose for
which it was granted,
(ii) The progress of work was commensurate with the expenditure incurred on
it and
(iii) The results/revenue expected to yield have been achieved after the
gestation period is over.
3.31.3 Deposits
It should be seen that -
(i) in respect of the moneys received to be held as deposits, it should be
satisfied whether these moneys can properly be held under deposit head,
(ii) no item is credited as revenue receipt or in reduction of ordinary
expenditure and
(iii) as regards refunds, it is to be seen that there are proper vouchers in support
of the amounts repaid. Each repayment should be traced against the
original receipt and its payment is noted against the original receipt entry
with full details of refund.
3.31.4 Loans and Advances
Reasons for making the loans and advances as well as the conditions on which
made are stated in the orders sanctioning the same. Ascertain that adequate
security has been obtained from private loanees, to safeguard the interest of the
160
Companies/Corporations and adequate arrangements made to keep themselves
informed of the continued solvency of the loanee. There is no tendency to grant
further loans for the same purpose to a loanee when the latter has already
substantial unutilised balances out of the previous loans. It should be seen that
there is adequate basis to show that the loans were utilised for the purpose and on
the objects for which they were sanctioned. Audit may also enquire the reasons
for any unusual conditions e.g., remission of interest in an individual case. Audit
should see that the conditions of repayment of a loan or advance are complied
with by the loanee and should exercise a close watch over repayment of principal
and realisation of interest, if any. In reviewing the outstanding loans and
advances, special attention should be directed to irregularities in repayment,
acknowledgement of balances and unrealisable and doubtful debts.
3.32 General
3.32.1 Interview with the Head of the Office inspected
a) Soon after taking up an audit, the AAO/Section Officer shall seek an interview
with the Head of the Office and invite suggestions, which the latter may like to
offer regarding any special point for examination during audit. He shall also see
the Head of the Office as often as necessary and possible, with a view to discuss
with him matters of importance arising out of his audit.
b) In the case of supervised inspections, the Inspecting Officer shall make it a
point to call on the Head of the Office and ascertain from him if there are any
suggestions for investigation of any portion of the initial accounts about which
he entertains any doubt of irregularity or of the processing of these accounts for
reduction of clerical or accounts work.
3.32.2 Action to be taken when accounts are not ready for Audit
When it is found that the accounts of an office are not written up to date and are
not ready for audit or there are any other facts which are likely to seriously retard
the progress of audit, the Section Officer of the field party should at once report
the full facts and seek instructions from the Headquarters.
3.32.3 Matters dealt with by audit parties to be kept confidential
All members of audit parties should carefully note that matters which they have
to deal with during the course of their professional duty are kept confidential.
The audit is intended to be for the assistance of local offices and Government
and the Audit Department is not justified in permitting their shortcomings to
become public.
161
3.32.4 Conduct of field staff
All officers and members of field parties, while on inspection, should on no
account put themselves under obligation to any members of the office, the
accounts of which they inspect and should not ask for or obtain anything in cash,
kind or service. Such conduct will contribute to detract them from their
independence and the proper discharge of their duties. A request for arranging
accommodation will not, however, be considered as an obligation.
3.32.5 Attitude of field staff
The field staff while yielding on nothing they consider to be part of their official
duty should be very careful to avoid any misunderstanding or friction with the
local officials with whom they come into contact. They should bear in mind that
unnecessary, meticulous and badly expressed objection, not only bring discredit
to Audit and cause annoyance to the local officials but also increase the work at
both the ends. The inspecting staff should, therefore, maintain a strictly
detached, dispassionate and technical attitude in day to day conduct of their
work. Nothing should be done to hamper the evolution of the complementary
roles of Audit and Administration, either by the use of extravagant language or
by the attitude that Audit alone is the keeper of the Nation's financial conscience.
(CAG's D.O.No.P.8508/56 dt:23.10.56).
3.32.6 Production of Identity Cards
The members of field parties should invariably carry their identity cards with
them and show them to the Heads of the Offices visited, if necessary.
3.32.7 Attendance
The field staff should attend the office, the accounts of which they audit, during
its regular office hours.
3.32.8 Holidays
The field staff may, while on tour, avail of the holidays specified in the copies of
tour programmes furnished to them, provided the state of their work permits
them to do so.
3.32.9 Attendance Register
The Section Officer of each party is supplied with an attendance register wherein
he and his assistants should mark their daily attendance. This register should be
submitted to the Inspecting Audit Officer, whenever the work of the party is
supervised.
162
3.33 Periodicity of audit: Under Section 619(3)(b) of the Companies Act,
1956: Government Companies
The efficiency cum propriety audit under Section 619(3)(b) of the Companies
Act, 1956 should be conducted every year in respect of all Government
Companies.(CAG's Lr.no.1723/Admn III 249-61/1.1161, P.17 of File No.22/58-
59/Vol.I).
3.34 Section 619 B Companies
The methodology to be adopted for the audit of these companies should be
chosen with care and the impression that a public inquisition is being made of
these undertakings should be avoided. To begin with, the propriety audit should
be limited to examination of systems, procedures, financial controls, major
contracts, etc. (No.246/CA.IV/106/Vol/II030-3-78 P.76/c.No.585/ CA.IV/106-
75/Vol.III/84-80 P.124/C of File No.IV-86/76-77 Sl.No.166).
Senior officers of the Department shall visit the undertakings, discuss problems,
deficiencies with the Management before any objection or point is formally
taken up. (No.671/CA.IV/106 75 dt.10.11.75 p.2/c of file).
3.35 Phasing of audits
The audit of Government Companies may be taken up in three phases in respect
of the Companies the accounts of which are subjected to audit during a year
under Section 619(4) of the Companies Act, 1956 and in two phases in respect of
the companies whose accounts are not subjected to audit under Section 619(4).
(CAG's Office Lr.No.1723-ADMN III/349-61 dt:1.11.1961. DCA's Lr.No.828-
Rep.I/8 (36)/61-62 dt:29.8.1962 in F.No.IV-38/60-61 Vol. I.P.147).
In order to adhere to the time schedule of completing the audit under Section
619(4) of the Act within six weeks from the date accounts are made available, it
would be necessary to conduct the audit under Section 619(3) (b) in two spells.
In the first spell to be taken up during January to March, accounts from April to
December may be scrutinised. The second spell will cover the accounts from
January to March. (DCA's Lr.No.122/Rep/73-56 III dt:28.3.1957 P.82 of file
82/56-Vol.I).
3.36 LIST OF GOVERNMENT COMPANIES
Sl.
No.
Sector and name of the company Status of the
company
(1) (2) (3)
AGRICULTURE AND ALLIED
1. Andhra Pradesh State Agro Industries Development
Corporation
W
163
2. Andhra Pradesh State Irrigation Development
Corporation Limited
W
3. Andhra Pradesh State Meat Development Corporation
Limited
W
INDUSTRY
4. Andhra Pradesh Industrial Development Corporation
Limited
W
5. Andhra Pradesh Industrial Infrastructure Corporation
Limited
W
6. Leather Industries Development Corporation of
Andhra Pradesh Limited
W
7. Andhra Pradesh Beverages Corporation Limited W
8. Infrastructure Corporation of Andhra Pradesh Limited. W
ENGINEERING
8. Andhra Pradesh Heavy Machinery and Engineering
Limited(S)
W
ELECTRONICS
9. Andhra Pradesh Electronics Development Corporation
Limited
NW
TEXTILES
10. Andhra Pradesh State Textile Development
Corporation Limited
NW
HANDLOOM AND HANDICRAFTS
11. Andhra Pradesh Handicrafts Development Corporation
Limited
W
FOREST
12. Andhra Pradesh Forest Development Corporation
Limited
W
MINING
13. Andhra Pradesh Mineral Development Corporation
Limited
W
14. The Singareni Collieries Company Limited W
CONSTRUCTION
15. Andhra Pradesh State Police Housing Corporation
Limited
W
16. Andhra Pradesh State Housing Corporation Limited W
17. Andhra Pradesh Urban Finance and Infrastructure
Development Corporation Limited
W
DEVELOPMENT OF ECONOMICALLY
WEAKER SECTION
18. Andhra Pradesh State Minorities Finance Corporation
Limited
W
PUBLIC DISTRIBUTION SYSTEM
19. Andhra Pradesh State Civil Supplies Corporation W
164
Limited
SUGAR
20. The Nizam Sugars Limited W
TOURISM
21. Andhra Pradesh Tourism Development Corporation
Limited
W
POWER
22. Andhra Pradesh Power Generation Corporation
Limited
W
23. Transmission Corporation of Andhra Pradesh Limited W
24. Eastern Power Distribution Company of Andhra
Pradesh Limited (S)
W
25. Southern Power Distribution Company of Andhra
Pradesh Limited (S)
W
26. Central Power Distribution Company of Andhra
Pradesh Limited (S)
W
27. Northern Power Distribution Company of Andhra
Pradesh Limited (S)
W
28. Andhra Pradesh Power Finance Corporation Limited W
FINANCING
29. Andhra Pradesh State Film, Television and Theatre
Development Corporation Limited
W
MISCELLANEOUS
30. Non-conventional Energy Development Corporation
of Andhra Pradesh Limited
W
31. Andhra Pradesh Technology Services Limited W
32. Andhra Pradesh State Trade Promotion Corporation
Limited
W
33. Overseas Manpower Company of Andhra Pradesh
Limited
W
B. WORKING STATUTORY CORPORATIONS
TRANSPORT
1. Andhra Pradesh State Road Transport Corporation W
2. Hyderabad Metro Rail Limited. W
FINANCING
2. Andhra Pradesh State Financial Corporation W
AGRICULTURE AND ALLIED
3. Andhra Pradesh State Warehousing Corporation W
NON-WORKING GOVERNMENT COMPANIES
AGRICULTURE AND ALLIED
1. Andhra Pradesh Fisheries Corporation Limited B
2. Proddutur Milk Foods Limited B
3. Andhra Pradesh Dairy Development Corporation
Limited
D
165
INDUSTRY
4. Andhra Pradesh Small Scale Industrial Development
Corporation Limited
B
ENGINEERING
5. Southern Transformers and Electricals Limited(S) A
6. Allwyn Watches Limited B
7. Allwyn Auto Limited B
8. Republic Forge Company Limited A
9. Andhra Pradesh Steels Limited(S) A
10. Andhra Pradesh Scooters Limited A
ELECTRONICS
11. Marine and Communication Electronics (India)
Limited(S)
A
12. Aptronix Communications Limited D
PUBLIC DISTRIBUTION SYSTEM
13. Andhra Pradesh Essential Commodities Corporation
Limited
C
DRUGS, CHEMICALS AND
PHARMACEUTICALS
14. Hyderabad Chemicals and Fertilizers Limited(S) A
MISCELLANEOUS
15. Andhra Pradesh Non-Resident Indian Investment
Corporation Limited
NW
W= Working
NW= Non working
A = Under liquidation
B = Under closure
C = Under Merger
D = Others
S = Subsidiary Company
3.36.1 ANDHRA PRADESH INDUSTRIAL DEVELOPMENT
CORPORATION LIMITED
The Company was established with the main objective of promoting medium and
large-scale industries in Andhra Pradesh. As part of its objectives the Company
had been identifying projects, promoters and obtaining necessary clearances for
establishing industrial units. Initially, the Company extended equity assistance
only and from 1978-79 onwards commenced extending term loan assistance
under IDBI refinance. The Company used to get budgetary support from the
State Government and refinance facility from IDBI. However, the removal of
licensing system in 1991 and liberalisation of economy has necessitated the IDCs
to restructure themselves to face up to the challenges of the new competitive
166
environment. The Company, as a part of diversification entered the areas of bills
discounting, short-term loans, merchant banking services, etc. The Company’s
operations in these areas are gradually shrinking due to lack of access to cheaper
finance. From the basic objective of development of industry, the Company’s
role is now limited to mere financing to continue its existence.
3.36.2 ANDHRA PRADESH INDUSTRIAL INFRASTURCTURE
CORPORATION LIMITED
The main objectives of the Company are to create industrial infrastructure in the
state like developed plots, built-up sheds with infrastructure facilities like
internal roads, water, power, street lighting, etc in order to assist promotion of
industry.
The company is presently engaged in acquisition of lands for establishing
Industrial Development Areas (IDAs), Industrial Estates (IEs) and Autonagars;
in implementing schemes entrusted by Government of India viz., Growth
Centres, Integrated Development Centres and those entrusted by the State
Government viz., Software Technology Park, Visakhapatnam Industrial Water
Supply Scheme etc., as a nodal agency, and in execution of deposit works like
construction of polytechnics, hospitals, Navodaya Vidyalayas etc.
3.36.3 LEATHER INDUSTRIES DEVELOPMENT CORPORATION OF
ANDHRA PRADESH
1. To promote, establish, improve, develop, own and run flaying and curing
centre, Hides exchanges, Tanneries etc.;
2. to manufacture, buy, import, export, sell and generally deal in all kinds of
leather and leather goods;
3. to manufacture, buy, import, export, sell and generally deal in all varieties
of vegetable tan-stuffs, tanning chemicals, acids, solutions and compounds,
utilised for tanning and all types of grinderies, eye-lets, toe-plates, horse-
shoes and nails, panel pins, shoe polishes, wax balls, buckles etc., for
manufacture of all type of foot wear and leather goods and;
4. to aid, counsel, assist, finance and protect and promote the interests of
leather industries in the State of Andhra Pradesh, whether owned by the
Government, statutory body, company, firm or individual and to provide
them with capital, credit, means, resources and technical and managerial
assistance for the prosecution of their work and business, to enable them to
develop and improve their methods of manufacture, management and
marketing and their technique of production.
167
Activities:
a) Leather goods manufacturing centres.
b) i) Community work centres to provide employment to skilled workers and to
increase the production and sale of shoes and chappals.
ii) to provide reasonable amount of work throughout the year.
iii) supply of raw materials to artisans at competitive rates, if necessary on
credit.
iv) purchases of products from these centres.
c) setting up of Common Facility Centres to enable small Scale entrepreneurs
to be competitive in export market.
d) Opening of show rooms.
e) i) appointment of authorised dealers on commission basis.
ii) granting of interest bearing loans to dealers.
f) Raw materials depots to supply quality leather and other materials to
leather artisans.
3.36.4 THE ANDHRA PRADESH BEVERAGES CORPORATION
LIMITED
The Andhra Pradesh Beverages Corporation Limited was incorporated in July
1986 to supply Pure, Clean and Hygienic Arrack to the consumers at reasonable
prices in bottles/sachets. The Corporation established 22 Arrack Bottling Units
(ABUs) in 22 Districts and 12 blending Units in 12 Districts. The ABUs went on
stream by January 1987.
The Corporation has stopped packing of Arrack with effect from 1.10.1993,
consequent to the ban on sale of Arrack in Andhra Pradesh. With effect from
1.1.1994, in pursuance of the Act 15 of 1993 (AP Regulation of Whole Sale
trade and Distribution and Retail Trade in Indian Foreign Liquor, Wine and
Beer) the Corporation took over the wholesale trade of IML and Beer in the State
of Andhra Pradesh and successfully handled the same till the imposition of total
prohibition with effect from 16.01.1995 through Act 17 of 1995.
Consequent to the partial lifting of prohibition through Act No.5 of 1997 (AP
Regulation of Whole Sale trade and Distribution and Retail Trade in Indian
Foreign Liquor, Wine and Beer), the Corporation was once again entrusted with
the conduct of whole sale trade in IML and Beer. The Corporation
recommenced its wholesale trading operations with effect from 08.05.1997,
through its 31 IML depots.
168
3.36.5 ANDHRA PRADESH STATE IRRIGATION DEVELOPMENT
CORPORATION LIMITED
To survey, investigate, construct, execute and carry out schemes (including
irrigated) and works of all kinds for the exploitation of irrigation potential of the
State and for maximum utilisation of available water resources of the State and
for the development of water resources for irrigation and also for development of
industries and for purposes of public health.
To recover such sums as may be determined by the Corporation from any person
or authority etc., for the supply of water or in connection with any other activity
in consonance with the objects of the Corporation.
3.36.6 ANDHRA PRADESH STATE TEXTILE DEVELOPMENT
CORPORATION LIMITED
To promote, own, establish, aid and assist rehabilitation, growth and
development of the Handloom (Cotton, Wool and Silk) Power loom, all types
including leather garment manufacturing and Sericulture Industries, both within
and outside the Co-operative fold.
To attain the above main object, the Company may undertake the following
activities.
a) The supply of raw materials required by the industries.
b) Borrow or raise finances required for the industries.
c) Own and run production centres and also assist in the marketing of finished
products of handlooms and power looms readymade garments etc.
d) Export and import cloth, yarn, readymade garments or any other finished
products.
e) Undertake the study of and preparation of project report, feasibility studies
and to act as General consultant.
Activities
i) Purchase and disposal of accumulated handlooms stocks in the private
sector.
ii) Implementation of the centrally assisted projects.
iii) Establishment of power loom unit and Mini-spinning mill.
iv) Revival of sick units.
v) Providing financial assistance to power looms.
vi) Production centres
vii) Show rooms.
169
3.36.7 THE ANDHRA PRADESH STATE FILM, TELEVISION
DEVELOPMENT CORPORATION LIMITED
To carry on the business of Cinematograph trade and industry and all its allied
and kindred trades and business, particularly the business of construction and
running of studios, Laboratories, Theatres and stages including grant of loans for
the construction of studios, theatres, laboratories etc., for the production of silent
and talking films, Television programme items, sound and music recording and
mixing special sound and photo effects work etc.
To encourage, foster, aid, establish and maintain institutions for imparting
knowledge about and instruction in all matters connected with and allied to the
cinema and television trade industry or business and to train, instruct and equip
any person or persons in any branch of Art, industry or business connected or
relating to the objects of the Company.
3.36.8 ANDHRA PRADESH STATE NON-RESIDENT INDIAN
INVESTMENT CORPORATION
To channelise the remittances made by Indian Nationals and persons of Indian
origin resident abroad and non-resident Indians returning to India with a desire
either to settle permanently or otherwise, for investment and assist in their
investment in the State industry, trade or any other business activities and
otherwise, with or without the freedom to repatriate the capital and income from
such investment, in order to accelerate the rate of industrial and economic
growth and generate employment.
Subject to the provisions of the Act to sell shares and debentures and other bonds
and to receive deposits and other moneys from Indian nationals and persons of
Indian origin resident abroad and non-resident Indians returning to India with a
desire to settle permanently or otherwise.
To carry on the business of an investment Company for providing finances to
share/debenture holders and deposit holders of the Company whether for
starting, running, expanding, diversifying or modernising industrial/commercial
enterprises of any description whether small, medium or large scale, to establish
subsidiaries for starting and running industrial enterprises of any description on
behalf of the share/debenture holders and deposit holders consistent with
Government of India's policy and to carry on the business of import of capital
goods, raw materials, components, consumables and spares required by the
share/debenture holders and depositors.
To provide term and working capital finances to the share/debenture holders and
depositors consistent with the Government of India's industrial policy in regard
to such non-resident and conforming to the guidelines laid down by the Reserve
170
Bank of India from time to time and also to assist share/debenture holders and
depositors in obtaining the Industrial Development Bank of India refinances.
To invest the funds of the Company in Central and State Government loans,
debentures of Companies, new or old issues of established Companies, deposits
in public Companies and in other capital appreciating securities in Companies in
such manner as is essential for the Company and its share/ debenture holders and
depositors to render their activities profitable so as to safeguard their financial
interests.
To buy, underwrite, invest in and acquire and hold shares, stocks, debentures,
debenture stock, bonds, obligations and securities issued or guaranteed by any
Company or body corporate or otherwise or by a person or association.
3.36.9 ANDHRA PRADESH HANDICRAFTS DEVELOPMENT
CORPORATION LIMITED
To develop and promote handicrafts in all its aspects.
To provide financial, technical, marketing, development or any other assistance
and guidance to any establishment, undertaking or enterprise of any description
whatsoever which is likely to facilitate or accelerate the development of
Handicrafts.
To promote, establish and operate sales offices such as Emporia, Show-rooms,
and Publicity offices, Exhibitions, Stalls and Centres with the object of
improving the marketability of Handicrafts anywhere both within and outside
India.
To acquire, own, construct, lease or manage industrial estates for Handicrafts, or
as agents of Government or any other body or Corporation.
To acquire land and construct houses and housing complexes to the artisans.
To give old age pension to deserving Master craftsmen.
3.36.10 THE SINGARENI COLLIERIES COMPANY LIMITED
Main objects
To prospect for, explore, open, raise, win, get and quarry, coal, minerals, oils,
metals, etc., to develop and turn to account any mines, quarries, etc., and to sell,
dispose of and deal in such product, either in a manufactured state or otherwise.
Activities
i) Explore and prospect for coal, develop mines, and produce coal.
171
ii) Workshops for repair and maintenance jobs, fabrication of tube and
components, production of iron castings required for haulage systems etc.
iii) Low temperature carbonisation plant for conversion into coal for use as
domestic fuel, briquette, disinfectant, creosote, timber creosote, coal tar
fuel.
iv) Works holding scheme.
v) Power houses.
3.36.11 THE NIZAM SUGAR FACTORY LIMITED
To carry on the business of manufacturers of and dealers in all kinds of sugar,
gur and sugar and gur preparations and their by-products.
To buy, sell, refund, prepare for market, manipulate import, export and deal in
sugar and gur and their by-products of all kinds.
To carry on the business of planters and cultivators of sugar plants.
To carry on any other business (whether manufacturing or otherwise) which may
seem to the Company capable of being conveniently carried on in connection
with the above or calculated directly to enhance in value of or render profitable
any of the Company's property or rights.
To receive money on deposit and to lend money and or give such help whether
monetary or otherwise and on such terms and conditions.
3.36.12 THE ANDHRA PRADESH MINERAL DEVELOPMNENT
CORPORATION LIMITED
To search for iron-ores and other minerals and precious stones in the State of
Andhra Pradesh and to acquire, by purchase or grant, mining and other rights in
the lands within the State of Andhra Pradesh or by acquiring mining rights and to
raise, sell and dispose of the same.
To carry on trading in minerals by acting as intermediaries between the State
Trading Corporation of India and the mine owners and by securing bulk
contracts for sale of export of minerals.
To promote, improve, establish and develop mineral industries in the State of
Andhra Pradesh.
3.36.13 THE ANDHRA PRADESH STATE AGRO INDUSTRIES
DEVELOPMENT CORPORATION LIMITED
To buy, import, export, sell and generally deal with on cash, deferred payment,
instalments on hire purchase basis in all plant and machinery, implements,
accessories, tools, materials, substances, goods or things of any description
including tractors, power tillers, sprayers, dusters, mist blowers and all types of
172
modern agricultural implements, fertilizers and all types of plant foods,
pesticides, insecticides, fungicides, and all types of plant protection chemicals,
fishing boats, crafts and trawlers, fishing nets, gadgets, cold storages, deep freeze
equipment and all types of equipment required for forestry, animal husbandry,
poultry farming, pisciculture, sericulture, agricultural equipment for processing
and preserving forest produce, agricultural produce and all other food materials
including materials of animal origin, fuel oils, lubricants and such other articles
allied to the above.
To promote, establish, improve, develop, administer, own and run agro-
industries, projects or enterprises or programmes for manufacture or production
of plant, machinery implements, accessories, tools, and materials, substances,
goods or things of any description which in the opinion of the Company will help
the growth and modernisation of agriculture, horticulture, forestry, pisciculture,
sericulture, apiculture, poultry farming and animal husbandry.
To promote, establish, improve, develop administer, own and run industries,
projects, enterprises and or programmes for processing and preservation of
agricultural produce, forest produce and products of pisciculture, sericulture,
apiculture and of animal origin for purposes of increasing quality or availability
or otherwise of goods and subsidiary foods in all their forms and variations either
for export or consumption in the country.
To aid, counsel, assist, finance, protect and promote the interests of industries or
projects or enterprises or programmes and to procure and provide with all types
of raw materials, plant, machinery, equipment, implements, accessories,
accommodation, capital, credit means, resources and technical and managerial
assistance for the prosecution of their work and business to enable them to
develop and improve their methods of manufacture, management and marketing
and technique of production.
3.36.14 ANDHRA PRADESH FOREST DEVELOPMENT
CORPORATION LIMITED
To develop land for forest plantations for the development of industries based on
their produce raise and deal in all varieties of forest plants, trees and crops etc.,
and carry on the business on forest products. The company is also engaged in
raising horticultural plantations viz., Cashew and Coffee and marketing the
produce obtained there from.
3.36.15 ANDHRA PRADESH ELECTRONICS DEVELOPMENT
CORPORATION LIMITED
To promote, establish, run, manage, supervise, finance, advise, assist, aid and
collaborate with any association, Company, enterprises, undertaking, institution
173
or scheme for the advancement and development of all branches of electronics
and of industries and business concerns based on or relating to electronics.
To identify and to introduce to prospective entrepreneurs well conceived, well
prepared projects in the field of electronics for setting up of industries in small,
medium and large scale sectors and assist in obtaining government clearances
and technical and financial sanctions from the concerned institutions for rapidly
setting up the production units in the electronics and allied industries.
To carry on the business of manufacturing, assembling and repairing and dealing
in electronic components, equipments, systems and sub-systems of all types of
and description including passive and active components, Ferrites, Transistors,
Integrated Circuits, Data Processors, Analytical instruments, power supplies,
mini Computer/Computer and process control systems, semi-conductor devices,
TV Receivers, Communication equipments used in entertainment radio
transmitters, receivers, process control equipments profession.
To carry on the business in and relating to research, development, pilot
production, manufacture, assembly, fitting up, repairing, converting,
overhauling, altering, hiring, letting on hire, improving, repairing and dealing in
apparatus, equipments, components required in industrial research, defence
control applications, electronic circuits, material entertainment equipments,
space research and communication and electronic industries.
To search for, get, win, raise, make merchantable, buy, sell or otherwise deal in
rubber, plastic metals, minerals, oils, gases and fuels, whether found in a natural
state or obtained by processing from other substances, and to carry on business
relating to the winning, production, working, manufacture and preparation of any
materials used in the manufacture of any of the above mentioned items or which
may usefully or conveniently be combined with the manufacturing or
engineering business of the Company or any contracts undertaken by the
Company and either for only such purposes or as independent business.
3.36.16 ANDHRA PRADESH HEAVY MACHINERY & ENGINEERING
LIMITED
To design, engineer, develop, procure, deal in, market and manufacture the entire
range of castings, of all types for any and all industries, forgings, rolled sections
and products, heavy industrial machinery, machine tools printing machinery and
other industrial products; all associated, ancillary, complementary equipment to
the above mentioned plants, machinery and equipment as well as the component
parts and spares thereof.
174
To carry on the business of mechanical, metallurgical and chemical engineering,
electricians, electrical engineers and manufacturers of all kinds of mechanical,
chemical, metallurgical and electrical machinery and electrical apparatus for any
purpose whatsoever and to manufacture, sell, supply and deal in the said
equipment.
3.36.17 ANDHRA PRADESH STATE TRADE PROMOTION
CORPORATION LIMITED
To co-ordinate the activities of the industry, trade and commerce including
agriculture and allied sectors with various Export promotion councils, chambers
of commerce, trade and industry, commodity boards, Government agencies and
to maintain liason with such organizations as to promote domestic and foreign
trade from the state of Andhra Pradesh.
To ascertain measures necessary to improve facilities for production and trade of
products in Andhra Pradesh and for this purpose undertake surveys, studies, or
reports as the Company may deem expedient.
To promote, design, develop, and maintain infrastructure facilities meant for
trade promotion like trade centers and convention centers.
To manufacture all kinds of paper products including the manufacture of note
books and with the sole objective of facilitating the paper products industry,
Government Departments and general public.
To develop and provide facilities like cargo handling, cold storage, warehousing
and other trade related services which facilitate promotion of Trade and
Commerce.
3.36.18 ANDHRA PRADESH STATE CIVIL SUPPLIES CORPORATION
LIMITED
To engage in, promote, improve, develop, counsel and finance production,
purchase, storage, processing, movement, transport, distribution and sale of food
grains, food stuffs and any other essential articles.
To act as agent for Government or other authorities or any manufacturers,
merchants and others and to transact and carry on agency business of every kind
and of any description relating to the purpose of the Company.
Activities
a) Procurement of rice for distribution under `Public Distribution System'
(PDS) and to supply to other States.
b) Paddy for supply to Food Corporation of India towards Central Pool.
175
c) Distribution of sugar, edible oil and cement under PDS.
d) Trading in groundnut, pulses, soaps, etc.
e) Warehousing.
3.36.19 ANDHRA PRADESH STATE POLICE HOUSING
CORPORATION LIMITED
To formulate and execute housing schemes for the benefit of employees of the
Police Department, Government of Andhra Pradesh.
To undertake construction of buildings for the housing of personnel of the Police
Department.
To achieve the above main objects, the Company may undertake the following:
a) Raise funds necessary for the above and other allied objects.
b) To acquire the lands and buildings necessary for carrying out any of the
objects of the Company by recourse to proceedings under the land acquisition
Act etc.
c) Provide drainage facilities, lighting, laying of roads, paths and parks etc., in
the construction and for housing schemes formulated, propounded, executed or
adopted by the Company.
Activities
Apart from formulation and executing of housing schemes for the employees of
the State Police Department, the Company undertakes the construction of
buildings to other departments or agencies like Social and Tribal Welfare
Department.
3.36.20 ANDHRA PRADESH STATE HOUSING CORPORATION
LIMITED
To formulate, promote and execute housing schemes for the benefit of people in
general and particularly the weaker sections or persons living in rural areas and
to those who are affected or are likely to be affected by natural calamities such as
cyclone and tidal waves.
To undertake or regulate construction of buildings and create or cause to be
created other infrastructural facilities required for the said Housing Schemes.
To undertake construction works including construction of houses, cyclone
shelters, cattle shelters, protective construction of the tenements and the like for
Government, individual and institutions including philanthropic organisations.
176
3.36.21 ANDHRA PRADESH TECHNOLOGY SERVICES LTD
Main objects
i) To provide consultancy services to Government Departments, Government
Companies/Corporations, Government Aided Bodies/Institutions in the
purchase of modern office equipment including computer hardware and to
assist in preparation of site and installation of all such equipment and
hardware;
ii) To provide consultancy services to upgrade computer and other electronic
systems to the aforesaid departments, companies/corporations and
bodies/institutions already processing them;
iii) To undertake maintenance and repairs of hardware and undertake to supply
spares wherever found necessary;
iv) To undertake development of software appropriate to the needs of user
agencies and generally deal in purchase/sale/exchange of software;
v) To provide services to operate the systems;
vi) To provide consultancy to user agencies for recruitment of professionals;
vii) To create computer awareness and provide detailed training to user
agencies at various levels;
viii) To aid development, purchase and maintenance of Telugu script typewriters,
word processors and other mechanical and electronic devices;
ix) To facilitate the use of Remote Sense data and communications by providing
training and consultancy facilities;
x) To undertake research and development in software;
xi) To aid adoption of innovations in reprographic technology and assist in
acquisition and maintenance of equipment and training of personnel
required;
xii) To assist in acquisition, maintenance and use of any other technological
aids to administration.
177
3.36.22 NON-CONVENTIONAL ENERGY DEVELOPMENT
CORPORATION OF ANDHRA PRADESH LTD
Main objects
i) To survey, investigate, construct, execute and carry out schemes and works of
all kinds for the exploitations of Non-conventional Energy for the development
of agriculture, industry and society;
ii) To promote, establish, run, manage, finance, develop, advise, assist, aid,
collaborate with any person, association, society, company, enterprise,
undertaking, institution or scheme for the advancement and development of all
renewable, non-conventional energy programmes, power generation,
conservation and promotion and development of rural energy through routes of
bio-energy, Biomass, Solar, Wind, Ocean, Thermal, Tidal, Mini and Micro
Hydel, animal and human energy etc.
iii) To carry on the business as designers, engineers, developers, manufacturers,
processors, and modifiers, repairers and maintainers, assemblers and installers,
distributors, dealers, stockists, importers, exporters, operators, hirers, leasing,
producers of and in all kinds and types of techniques and technologies, designs
and know-how, patents and licenses, materials, chemicals, apparatus, instruments
equipment devices, tools, components sub assemblies, engines, or systems and
things of all kinds capable of being used for or relevant to, energy saving and
conservation and non-conventional and renewable energy production, storage,
conversion, distribution and operation.
3.36.23 ANDHRA PRADESH TRAVEL & TOURISM DEVELOPMENT
CORPORATION LTD
Main objects
1. To start, operate and promote establishments, undertakings, enterprises and
activities of any description whatsoever, which in opinion of the company
are likely to facilitate or accelerate the development of travel and tourist
coach services and to promote coordination in development of travel and
tourism services and tourism in general in order to secure optimum
utilisation of resources in them.
2. To take over, develop, maintain and manage way-side facilities, tourism
guest houses, hotels, rest houses, travellers’ bungalows, sites of tourist
interest for the benefit of tourists, bus travellers and general road users.
3. To run, establish, manage transport units and transport centres, import,
purchase, lease, sell and run or otherwise operate tourist buses, car, cab,
coaches, trucks and other modes of transport.
178
4. To sell, construct, purchase, acquire, lease, take on lease, run and maintain
motels, restaurants, canteens, cafeteria, travellers’ lodges, guest houses and
other places for the purpose of boarding, lodging and stay of travellers and
tourists.
5. Produce, distribute and sell tourist publicity materials: viz., edit, design,
print, publish, sell or otherwise deal with books, magazines, periodicals,
folders, inserts, guide maps, pamphlets, bills, posters, picture postcards,
diaries, calendars, slides, cinematograph films and other material for the
purpose of giving publicity and developing transport services for tourists
and travellers.
6. Provide entertainment for travellers and tourists by way of cultural shows,
dances, music concerts, ballets, film shows, sports and games son-et-
lumiere spectacles and others.
7. Provide shopping facilities to travellers and tourists establish and manage
shops, emporia and other places for selling travel requisites and other
articles of interest.
3.36.24 ANDHRA PRADESH STATE SEEDS DEVELOPMENT
CORPORATION LIMITED
Main objects
1. To undertake the production of the certified seeds of all broad varieties
under the purview of the Seeds Act, 1966 and quality seeds of crop
varieties not covered by Seeds Act, 1966 and market them.
2. To implement the State Seeds Project forming part of National Seeds
Programme in accordance with the agreement reached between the
International Development Agency/ International Bank for Reconstruction
and Development, Government of India, National Seeds Corporation
Limited, Andhra Pradesh Government and the Company and between any
two or more of them.
3. To finance production, procure dry, process, test, store and distribute seeds
of various crop varieties to farmers on a basis that will sub serve
production schemes formulated by the State Government or the
Government of India.
4. To enter into contracts with the individuals, cooperatives and other
agencies in growing, processing, drying, procuring, storing, transporting
and marketing of certified and other quality seeds. To make arrangements
for supply of foundation seeds to seed growers.
179
5. To undertake and promote research in agriculture in general and seed
production, processing, preserving and storage techniques in particular, in
collaboration with ICAR, Agricultural universities and National Seeds
Corporation Limited and other allied institutions.
6. To undertake State or Centrally sponsored seed multiplication and
distribution programme on agreed terms.
7. To dispose of seeds and non seeds and any other material acquired by the
Corporation.
8. To promote the seed industry in a way that will improve the agricultural
economy of the farmer.
9. To process quality seeds on scientific and commercial lines.
10. To install, manage and operate processing plants and seeds storage
facilities.
11. To undertake the distribution of seeds to farmers at reasonable prices and
in sufficient quantities to support agricultural programmes.
3.36.25 INFRASTRUCTURE CORPORATION OF ANDHRA PRADESH
LIMITED
Main Objects
1. To undertake, identify, formulate, design, build, develop, structure, promote,
aid, finance, procure, establish, equip, manage, construct, erect, operate,
maintain, improve, upgrade, control, regulate, modify, restructure,
reorganize, participate and or assist in the designing, development,
construction, implementation, commissioning, operation and maintenance of
infrastructure projects in any sectors, including but not limited to tele-
communication services, power generation, transmission and distribution,
Gas transmission and distribution including setting up of gas grid, roads
including toll roads and national highways, bridges, transport terminus and
depots, rail systems, other highway projects including housing or other
activities being an integral part of the highway project, water supply projects,
water treatment system, Ports, airports, Inland water ways, inland ports or
any other public facilities for industrial parks, special economic zones or
other industrial clusters and other such places .
2. To procure, implement, operate and maintain schemes, projects programmes,
advisory mandates, concessions and other contractual arrangements on a
commercial format, in public private sector partnership mode.
3. To act as a special purpose vehicle and or as contractors for implementing,
executing, constructing different project schemes of the central/state
governments and other public authorities.
180
4. To carry out all kinds of business of developers, promoters, consultants,
designers, manufacturers, processors, assemblers, agents, system designers,
dealers, contractors, builders, engineers, distributors, marketing, materials
and personnel.
5. To accept appointment as trustees and to act as trustees for trusts or other
funds.
3.36.26 HYDERABAD METRO RAIL LIMITED.
Main Objects:
1. To engage in and or facilitate the business of Mass Transit System.
2. To engage in and or facilitate the business of transport.
3. To facilitate exploitation and or commercially exploit the resources.
4. To undertake road capacity improvement works.
5. To undertake planning for transit oriented development.
6. To run various modes of transport.
3.36.27 OVERSEAS MANPOWER COMPANY OF ANDHRA PRADESH
LIMITED
Main Objects:
1. To aid, assist, promote and protect overseas employment and for the purpose
carry on the business or vocation of acting as advisers, counselors, agents and
consultants on all matters relating to promotion and protection of oversea
employment.
2. To establish, organize, sponsor, conduct and mange workshops and to extend
training for facilitating promotion and protection of overseas employment
and to create awareness on the skill requirements and up-gradation thereof
connected with promotion and protection of overseas employment.
3. To collect, disseminate, circulate and make available information that is
related for promotion and protection of overseas employment by such means
as may seem expedient.
4. To function as recruiting, training and placement agent of skilled, semi-
skilled and unskilled workers for employments in foreign countries and to
carry on the process and handle of overseas recruitment and placement
activity.
5. To carry on the business of travel agents, placement agents, insurance agents,
training consultants, employment consultants for facilitating promotion and
protection of overseas employment.
3.37 Government Companies
Act provisions in brief
Government Company means any Company in which not less than fifty one per
cent of the paid-up share capital is held by the Central Government or by any
181
State Government or Governments, or partly by the Central Government and
partly by one or more State Governments and includes a Company which is a
subsidiary of a Government Company. (Section 617 of the Companies Act,
1956).
It is not necessary that this fifty one per cent of share capital held by the Central
Government and/or State Government should be equity share capital. Even if the
holding consists of only preference shares carrying no voting rights, the
Company will still be a Government Company.
Companies in which not less than fifty one per cent of the paid-up capital is held
by one or more of the following or any combination thereof are classified as
deemed Government Companies (619 B Companies)
a) The Central Government and one or more Government Companies.
b) Any State Government or Governments and one or more Government
Companies.
c) The Central Government, one or more State Governments and one or more
Government Companies.
d) The Central Government and one or more Corporations owned or
controlled by the Central Government.
e) The Central Government, one or more State Governments and one or more
Corporations owned or controlled by the Central Government.
f) One or more Corporations owned or controlled by the Central Government
or the State Government; and
g) More than one Government Company.
(The Industrial Credit and Investment Corporation of India and UTI are not
institutions owned by the Central Government within the meaning of Section 619
B of the Companies Act, 1956.) (No.28-CA.IV/61-76 dt.13.1.1976
P.31/c.F.NO.IV-86/ 76-77).
Where in addition to the Central Government Company, or when the Central
Government is not member of a Government Company, every State Government
which is a member of that Company or when only one State Government is a
member of the Company, that State Government shall cause an annual report on
the working and affairs of the Company to be prepared within three months of its
Annual General Meeting before which the audit report is placed under Sub-
Section (5) of Section 619 of the Companies Act, 1956 and as soon as may be
after such preparation, laid before both the Houses of the State Legislature
182
together with a copy of the audit report and any comments upon, or supplement
to the Audit Report, made by the Comptroller and Auditor General of India.
3.38 Annual General Meeting and Accounts
Every Company is required in each year to hold in addition to any other meeting,
a general meeting as its Annual General Meeting and not more than fifteen
months shall elapse between the date of one Annual General Meeting and the
next. The Registrar of Companies may, for any special reason, extend the time
within which any Annual General Meeting (other than the first) may be held, by
a period up to three months.
The first Annual General Meeting can be held within a period of not more than
eighteen months from the date of incorporation and if a such a general meeting is
held within that period, it shall not be necessary for the Company to hold any
Annual General Meeting in the year of its incorporation or in the following year.
At every Annual General Meeting of a Company, the Board of Directors should
lay before the meeting, (a) a balance sheet as at the end of the period specified in
sub-section (3) of Section 210 of the Companies Act, 1956 and (b) a profit and
loss account for that period.
In the case of a Company not carrying on business for profit, an income and
expenditure account shall be laid before the Company at its Annual General
Meeting instead of a profit and loss account and all references to `Profit and Loss
Account', `Profit and Loss' in the Companies Act shall be constructed in relation
to such a Company as references respectively to the `income and expenditure
account' the `excess of income over expenditure' and `the excess of expenditure
over income'.
3.39 Applicability of Section 619 of the Companies Act in respect of the
accounts for the period up to the final dissolution of a Company
i) if a Company goes into liquidation before the Annual General Meeting is held
or where the meeting has already been held but, the comments of C&AG of India
under Section 619(4) of the Act were not placed before the general meeting and
audit under Section 619(4) of the Companies Act, 1956 will have to be
conducted if no such audit was conducted for the period prior to the date of
liquidation. In such a case, as well as where the audit was conducted but the
comments were not placed before the Annual General Meeting of the Company,
the comments of the C&AG of India should be communicated to the
Administrative Ministry as also to the liquidator for placing them before the next
available meeting of the Company called by the liquidator under Section 460(3)
(a) or other relevant sections of the Companies Act, 1956.
183
ii) In respect of the accounts of the Company in liquidation for the period after
the last audited accounts up to date of passing the resolution for winding up of
the Company.
The provisions of Section 619 of the Companies Act, 1956 are applicable to a
Government Company till the date of its going into liquidation. Accordingly,
supplementary audit under Section 619(3)(b) ibid may be conducted in respect of
the accounts of the Company up to the date of placing the winding up resolution
and the comments may be issued to the Administrative Ministry concerned as
also the Liquidator for placing them before the general meeting of the share
holders, though the latter cannot be held responsible for any
discrepancies/irregularities found as a result of the audit of the accounts for the
period prior to his appointment. Items of special interest, if any, may be
considered for inclusion in the conventional Audit Report as usual.
iii) In respect of the accounts of a Company in liquidation for the period
subsequent to the date of passing winding up resolution.
Audit need not be conducted, but the copies of the statement of affairs of the
Companies in liquidation may be called for from the Administrative Ministries
concerned and reviewed from the point of view of the investments of
Government in terms of Article 100 of the Audit code. In the case of State
Government Companies, the Statement of affairs may be called for from the
relevant departments of the State Government. (DCA's
Lr.No.HA/20/2/61/1557/30-1-1963, P.451/C F.NO.82/56/55-56).
3.40 Internal audit
The system of internal audit exists in some form or the other in many public
sector commercial undertakings, with varying degrees of effectiveness. After
evaluating the adequacy of internal audit, which should be reviewed year after
year, the internal audit reports should be perused, its submission to appropriate
authorities and action taken thereon should be studied. Test Audit need not
repeat the work covered by the internal audit and should devote itself to conduct
the prescribed audit drill, taking the work done by internal audit into account.
3.41 Statutory audit
The accounts of the Government Companies are audited by the professional
auditors. The auditor of a Government Company shall be appointed or re-
appointed by the Comptroller and Auditor General of India. The auditor so
appointed shall submit a copy of his audit report to the Comptroller and Auditor
General of India.
184
The statutory auditors of Government Companies have to submit on completion
of their audits, special reports to this office on various points covered by the
directions issued to them under Section 619 (3) (a) of the Act. These special
reports not only give information on various important matters but also secure
that the Chartered Accountants have discharged their functions with reasonable
degree of efficiency.
The Comptroller and Auditor General of India shall have power:
a) To direct the manner in which the Company's accounts shall be audited by the
auditors appointed in pursuance of sub-section 2 of Section 619 of the
Companies Act and to give such auditor instructions in regard to any matter
relating to the performance of his functions as such.
b) To conduct a supplementary or test audit of the Company's accounts by such
person or persons as he may authorise in this behalf and for the purposes of such
audit, to require information or additional information to be furnished to any
person or persons so authorised, on such matters, by such person or persons, and
in such form, as the Comptroller and Auditor General of India may, by general or
special order, direct.
c) To comment upon, or supplement, the audit report in such manner as he may
think fit.
All the Government companies/deemed Government companies which are
engaged in financial business and whose paid up capital or turnover was Rs.10
crore and above should be selected annually for the purpose of audit under
section 619 (4) of the Companies Act, 1956. This stipulation applies to all the
companies irrespective of the period to which the accounts relate.
(Lr.No.381-CA-II/47-93dt.08.03.94)(Lr.No.381-CA-II/co-
rdn/criteria/Govt.co./23-2004 dt.30.04.2004)
Any such comments upon, or supplement to, the audit report shall be placed
before the Annual General Meeting of the Company at the same time and in the
same manner as the Audit Report.
While conducting the audit of Government Companies under Section 619 (3) (b)
of the Companies Act, 1956 the following shall be kept in view.
The Government Companies enjoy considerable autonomy in day to day working
subject to the relevant Memorandum and Articles of Association.
It is essential to have a clear idea of the responsibilities and powers of the
Statutory Auditors as well as the principles governing their audit and the details
of their techniques.
185
The Statutory Auditors work under a limitation. They have to admit all charges
covered by the sanction of competent authority so long as they are intra-vires the
Company Law. In other words their functions are not comparable to those of the
Comptroller and Auditor General of India who conducts what might be described
as an efficiency-cum-propriety audit.
Unless there is reason to believe that the Statutory Auditors have not carried out
their work properly, it should not be necessary for Government Audit to redo the
work done by them.
(CAG's Office Lr.No.98-CA/87-ROA/63 dt.2.7.1961 in F.NO.82/56-Vol.II
P.549).
During scrutiny of the Memorandum and Articles of Association it should be
seen that the Articles provide (i) for adequate direct control in the hands of
Government (ii) the Government Directors may require that certain resolutions
of the Board be reserved for the consideration of Government (iii) there are no
anomalies or discrepancies in the Articles of Association vis-à-vis the
Companies Act, (iv) the Articles invariably contain an over-riding provision for
the issue of directives by Government in regard to the working of the Company
which the Board will be bound to give effect to (v) the Articles contain provision
regarding the appointment of certain top management officials like Managing
Director, Chairman and Financial Adviser and Chief Accounts Officer by or with
the approval of the Government (vi) the Articles contain provision regarding the
maximum number of the Board of Directors and the majority of the Directors are
appointed with the approval of Government (vii) the Articles contain provision
regarding prior approval of Government in the following matters:-
a) Sale, lease or disposal otherwise of the whole or substantially the whole of
the undertaking of the Company,
b) Formation of a subsidiary company,
c) Winding up of the Company and
d) Any programme of capital expenditure exceeding a certain amount,
e) Borrowing any sum or sums of money for the purpose of the Company,
f) Investment in securities,
g) Any other matter which in the opinion of the Chairman be of such
importance as to be reserved for the approval of the Government.
As the 619 B Companies are not Government Companies as such no examination
of their Memorandum of Articles and Association for suggestion, alteration etc.,
186
as is done in the case of Government Companies need be made.(559-
CA>IV/106-75 dt.4.9.76 p.27/c of file No.IV-86/ 76-77 /Sl.No.166).
3.42 Organisational set-up
The Management of the affairs of the Company is entrusted to a Board of
Directors. It shall be seen whether
Full Board has generally been functioning and there are no delays in
reconstituting the Boards,
There are no frequent changes of the Managing Directors,
Headquarters of the Managing Director is located suitably,
There is proper feed back to the Board about action taken on its resolutions
etc.
The attendance of the Directors has been generally satisfactory,
The functions of the various disciplines have been clearly demarcated and
there is no overlapping,
The various disciplines have been delegated with powers to manage the
affairs and that the same are exercised by them judiciously.
There is proper reporting and follow-up of cases of exercise of power and
whether this is in excess of that delegated to various officers and bodies.
The agenda and Minutes of the Board meetings and proceedings of various sub-
committees formed to assist the Board shall be reviewed to know the activities
that had taken place during the period under audit and points of interest noted
down for detailed examination, to ascertain to what extent their powers have
been exercised in the best interest of the undertakings and in accordance with
accepted principles of financial propriety. Attention should be focussed on
major aspects of the set-up and working of the concern, the extent to which it has
been possible to attain the major objectives, lacunae, if any, in the procedure
followed. (CAG's Office Lr.No.2559-Admn.III/532-60 dt:27.12.1960 P.8c of
F.No.IV-38/60-61 Vol.I).
It may be seen that whenever the meetings of Board of Directors were held at
any place other than their Headquarters, such meetings were properly planned. It
may also be seen whether the public enterprises recorded reasons for doing so.
(GOI of Min. of Fin. BPE General Management Division OM.NO.BPE/G*-
124/78/MAN/2(70)/78-BPE dt:13.7.78 circulated in CAG's Office Lr.No.485-
CA.IV/7-77 dt:29.8.78 F.NO.OAD(Comml.)/IV-14/72-73 Circular No.163 dt:--
.2.1979).
Objectives
It shall be ensured that -
187
The activities undertaken by the Company are within one or the other of the
main objectives indicated in the Memorandum of Association,
The Company has not undertaken any other activities which do not strictly
fall in the scope of those main activities.
In case of deviation, the justification given by the Management shall be
examined. Those activities which are not covered by the objectives shall be
highlighted.
3.43 Review of Budgets
It should be seen that the Management had prepared capital and revenue budgets
for the period under audit well in time, as the budget is a standard with which the
actual achievements of various departments etc., can be measured, otherwise the
necessity to prepare the budget estimates should be brought to the notice of the
Management. Compare the actual results under various heads such as the actual
production, cost of production, sales etc., with the budget estimates and bring to
notice cases where large variations are found.
3.44 Borrowings
The transactions relating to borrowings shall be examined to ensure that:-
the borrowings are within the limits laid down by the Company in Annual
General Meeting from time to time,
the understandings between the Central and State Government in this regard
are honoured,
the borrowed funds are utilised for the purpose for which they were intended,
proper agreements have been entered into laying down the terms and
conditions of loans,
the Company is prompt in repayment of principal and payment of interest
due thereon. Cases of default in repayment need special attention. It shall be
seen whether the Company was required to pay penal interest for default in
payments.
Whether the guarantees of State Government have been obtained for the
borrowings and guarantee commission due was paid. The proportion between
long-term commitments, short-term commitments, temporary accommodation by
way of cash credit and over-draft facilities should also be examined.
3.45 Debt-equity ratio:
The debt equity ratio of the Company shall be examined in particular to ascertain
- how it stands with reference to any ideal ratio required to be maintained and
whether the position obtaining in the Company is comparable with the norms
188
fixed, if any, for the industry as a whole. If there is an imbalance in the ratio,
steps taken by the Company to correct the imbalance may be looked into.
3.46 Cash Management
Whether cash flow statements are prepared properly and regularly. Whether
short term deposits and borrowings exist side by side and if so, the avoidable
loss, if any, to the Company on this account.
Whether there is proper method of regulating payments at the unit level, if any,
which will ensure against locking up of funds?
The following general points should be looked into:-
Where a large block of share capital has been called up by the Government much
in excess of the actual requirements of the Company, there is a proper balance
between the amount of paid-up capital and long term loans obtained from the
Government.
The Company is taking advantage of the period of credit allowed in every case.
Where a loan has been sanctioned by the Government to the Company, the rate
of interest charged is not less than the borrowing rate of the Government.
Debts due from trade debtors are being realised regularly and evenly specially
from Government Departments.
In the case of a manufacturing concern involving initially a heavy capital outlay,
whether the construction work of the Company is proceeding according to the
time schedule and the expenditure during construction is being booked
systematically so that the cost of a particular unit of construction can be readily
ascertained.
The administrative charges and overheads are being correctly allocated during
the period of construction.
The Company is following the declared policies of the Government regarding
purchases, pricing and payment of its workers.
Whether the growth of expenditure of administration is reasonable in relation to
the turnover and total expenditure.
Whether the financial powers of various categories of officers have been clearly
delegated and whether they have been exceeded.
Whether any unusual concessions or extra amenities are being provided to the
staff or officers without sanction of competent authority.
189
The report of the professional auditors to the Board of Directors, if any, should
be obtained and scrutinised.
Whether an adequate accounting system exists for the realisation of revenue and
control of expenditure.
Adjustment journal entries should be scrutinised.
Whether there is proper allocation of expenditure between capital and revenue.
High value items of bad and doubtful debts which have been outstanding for a
long time should also be scrutinised.
A general review of the vouchers by conducting a test check shall be done.
Whether service regulations governing the conditions of services of employees
have been framed. (DCA's Lr.No.HA.23 (4)-61/165 dt:23.2.1962 P.285/c of
F.NO.82-56/55-56 Vol.II).
The field audit parties may see specifically whether or not the income tax returns
(including loss returns) are filed in time by the Government Undertakings.
3.47 General
(i) Payment of sitting fees to the auditor or his representative does not arise
as the auditor or his representative is not a member of the Board. The auditor or
his representative would also not be entitled to any remuneration for attending
the Board's meeting as his attendance was in connection with his audit report.
The auditor or his representative would of course, be entitled to reimbursement
of travelling expenses.(No.3(52) - CL.VI/59 of CLB P.34/C of File No.IV-
3860/61 Vol.I Sl.No.17).
(ii) Section 76(4A) of the Companies Act, 1956 puts a blanket ban on the
payment of commission to any person on shares or debentures which have not
been offered to public for subscription.(CAG's Office Lr.No.474-CA.IV/25-74
dt:26.7.76 F.NO.OAD(Comml)/U.I/76-77).
3.48 Computerised accounts
In order to conduct effective audit of undertakings where
computerising/mechanising the accounts is obtained, it is essential to maintain
audit trail (the documents, journals, ledgers, worksheets etc.) by which an
original transaction can be traced forward to a summarised total or a summarised
total can be traced backward to the original transactions. For this purpose, audit
staff have to familiarise themselves with the system of preparation of
`Programmes' `inputs' etc., of the computers. In addition, the extent of utilisation
of the computers vis-a-vis the capacity installed and the areas proposed to be
190
computerised at the time of their installation and the areas actually covered may
have to be looked into.
(iv) A Statutory Auditor of a company cannot also be its Internal Auditor.
(CAG's Office Lr.No.4097-CA.IV/33.74 dt.1.11.1976 p.761 of F.No.IV-17/72-
73/Vol.III).
3.49 Supplementary report of the Statutory Auditors under Section 619
(3) (a) of the Companies Act, 1956.
Under Section 619 (3) (a) of the Companies Act, 1956 the Comptroller and
Auditor General of India issues from time to time specific directions to the
Statutory Auditors of the Government Companies in the State sphere having a
paid-up capital of Rupees One Crore and above so as to make their audit more
fruitful and to furnish useful data for the correct appreciation of the financial
operations of these companies.
The Statutory Auditors, accordingly, are required to answer various points
specified in the directions in the form of a report, in addition to the report
furnished under Section 227 of the Companies Act, 1956. This report should be
submitted to the Company along with the certified copy of the Balance Sheet and
Profit and Loss account.
One copy of each such report is also required to be forwarded to the Comptroller
and Auditor General of India and another to the State Accountant General
concerned simultaneously by the Statutory Auditors. (No.1282/RCA/19/ Admn-
III/62/Vol.IV/ 5.4.62 of F.No.IV-38/60-61/Vol.I/ P.165/c).
Replies to the supplementary report of the Statutory Auditors under Section 619
(3) (a) of the Act, are to be furnished by the Management within a month to the
Comptroller and Auditor General of India, with copy to the Accountant General
from the date of receipt of the report by the Company.
The Headquarters Section of Commercial Audit Wing shall watch the receipt of
the supplementary report under Section 619 (3) (a) of the Companies Act, 1956.
If the copy of the report was not received within a stipulated period, reasons for
the delay shall be ascertained from the Statutory Auditors.
On receipt of the report in the Headquarters section of Commercial Audit Wing,
the same shall be reviewed with a view to ensure that the Statutory Auditors have
covered all the points specified in the direction issued by the Comptroller and
Auditor General of India.
Certain defects/shortcomings may appear year after year to the supplementary
reports submitted by Company Auditors and in certain cases these may persist
since the inception of the Companies.
191
It is possible that the Companies may have certain inherent difficulties in
introducing the systems of removing the shortcomings or it might be that the
introduction of requisite system are not commensurate with the advantages to be
gained. Such cases are to be examined with a view to see whether it is really
necessary to follow certain procedures of the system, as commented upon by the
Company Auditors in their reports, and if so, what are the consequences of the
failure of the Company to do so. (Hqrs. Lr.No.344/CA III 574-64 dt:8.3.1979
addressed to DCA, New Delhi).
The above referred report of the statutory auditors need not be put to the General
Meeting. (CAG's Lr.No.1050-CA/130-66/11.8.66 P.376 c of IV-38/60-61/Vol.I)
3.50 Audit of Cost accounts/records
In the present day scenario of competitive market, cost control and cost reduction
has assumed significance for survival of the industry. Therefore
audit/examination of costing information and cost accounting records of PSUs is
an important component of transaction and performance audit by the C&AG’s
Commercial Audit Wing.
The primary objective of the audit would be to verify the maintenance of cost
accounting records in accordance with the Cost Accounting Record Rules framed
by the Government of India. For this purpose, the audit reports of the Cost
Auditor appointed by the Government of India should be critically reviewed
especially with reference to qualifications in the audit reports, and action by
Management thereon. The review/audit of costing information and cost
accounting records should, as far as possible, not duplicate the work of the Cost
Auditor. Rather, the accounting review by the audit parties should generally be
of the nature of a supplementary or test audit, somewhat similar to the CAG’s
role under Section 619 (4) of the Companies Act vis-à-vis the report of the
statutory auditors on the financial statements. However, where significant risk
and weakness have been identified in the costing system, the coverage, scope and
extent of audit testing by the Commercial audit parties should be suitably
expanded.
Additional objectives of review/audit of cost accounts include:
Verifying whether costing information is appropriately incorporated in
Management Information system (MIS) reports, and actually facilitates
management decision making.
Verifying the effectiveness and efficiency of system for allocating and
apportioning direct and indirect costs to cost centres.
Reviewing cost estimates prepared for contract bidding product pricing etc.
and examine whether the underlying assumptions are reasonable/accurate’.
The guidelines, issued by Headquarters office vide Lr.No.135-CA-IV/66-2004
dated 3-5-2005 should be followed in conducting audit of cost accounts/records.
192
Under Section 209(1) (d) of the Companies Act, 1956, Companies engaged in
production, processing, manufacturing or mining activities shall keep proper
books of accounts relating to utilisation of material or labour or to other items of
cost as may be prescribed, if such class of companies is required by the Central
Government to include such particulars in the books of account. In respect of the
companies, engaged in manufacture of aluminium, cement, cotton textiles,
equipment etc., the Central Government, under the provisions of Section 233-B
of the Companies Act, 1956 may, by order, direct an audit of cost accounts of the
Company and such audit shall be conducted in such manner as may be specified
in the order by an auditor (who shall be a Cost Accountant within the meaning of
the Cost and Works Accountants Act, 1959) or a Chartered Accountant,
(possessing the prescribed qualifications) if Cost Accountants are not available.
The auditor shall be appointed by the Board of Directors of the Company with
the previous approval of the Central Government.
The auditor so appointed shall make his report to the Central Government in
such form and within such time as may be prescribed and shall also at the same
time forward a copy of the report to the Company. The Company shall, within
thirty days from the date of receipt of a copy of the report, furnish the Central
Government with full information and explanations on every reservation or
qualification contained in such report.
The Central Government may direct the Company to circulate to its members,
along with the notice of the Annual General Meeting to be held for the first time
after the submission of such report, the whole or such portion of the said report
as it may specify.
Further, the Statutory Auditors of the Companies are also required to furnish
their replies on the system of cost accounts, introduction of standard costing etc.,
in respect of Government Companies, under the directions issued by the
Comptroller and Auditor General of India under the provisions of Section 619
(3) (a) of the Companies Act, 1956. Under the Companies Auditors Report
Order, 2003 issued by the Central Government under the provisions of Section
227 (4A) of the Companies Act, 1956 the Statutory Auditors report shall include
a statement, among others, as to whether cost records were required to be
maintained under Section 209 (1) (d).
Under the jurisdiction of audit control of this Office, certain companies are
required to maintain cost accounts and records. In certain other cases which are
engaged in production/processing, though not prescribed under the Act, cost
accounts and records are also maintained.
193
During the audit of these companies under Section 619 (3) (b) and (4) of the
Companies Act, 1956 the requirement of the Cost Audit Rules as notified by the
Department of Company Affairs should be kept in view and go through and the
above mentioned reports of the Cost Auditors and Statutory Auditors should be
gone through.
In case it was decided to rectify the defective work, all costs of rework under
material, labour and overhead are charged to the jobs of manufactured good units
of products, provided the defective work is normal consequence of production
activity, whereas the expenditure on rectification is considered abnormal, it
should be excluded from product costs and charged to P&L account.
It should be examined whether a system exists to report to the Management on
abnormal defective work indicating reasons thereof for each department vis-à-vis
each individual job or production order and remedial action was taken.
See whether storage losses on account of shortage, shrinkage, evaporation,
cutting, weighing, unusable residues etc., were adjusted at frequent intervals or at
the time of physical stock taking as OH cost price of materials were inflated to
cover such possible losses.
Transit losses, if not borne by the suppliers, carriers or insurance companies and
if the cost involved is not much, shall be charged to OH, if the loss is abnormal,
it shall be charged to P&L account or costing P&L account.
3.51 Pricing
i) When transfer of materials, work-in-process, finished goods, or services
was made from one plant or factory to another belonging to the same
concern or from one division or sector of a plant to another, see the
correctness of valuation of such transfer, i.e. at cost or element of profit
was added depending upon the nature of the concerns.
ii) Where element of profit was included in respect of inter-process
operations, it has to be ensured that necessary adjustment was made in
regard to process stock, work-in-process and finished stock.
iii) In case of products of specialised or non-standard types, mostly to
consumers specifications for which no established market prices are
available, or products which are mass manufactured against stock orders in
anticipation of demands or where stiff competition from similar concerns,
see whether extreme care in regard to preparation of costing estimate was
taken; otherwise it may result in losses or reduced profits or even loss of
business.
194
iv) See whether proper co-ordination exists between cost, sales, planning and
production departments and the following points were taken into
consideration.
a) Modifications necessary for cost reduction.
b) Preparation of details of parts and components to be manufactured
or to be purchased.
c) Technical assessment of requirement of various raw materials and
allowances for normal wastage and losses.
d) Requirement of tools, jigs etc.
e) Preparation of operations schedule indicating operation
sequences, machine time, labour time, grade of workers required
etc.
f) Special considerations like increased quality costs, market
exploration etc., in regard to export market.
g) After sales service offered.
h) (a) In the case of a new product, see whether a `trial price' was fixed as
a sort of `feeler' to determine whether the market could bear it, if not the
price was suitably modified.
(b) Further, it may also be ensured that in order to get hold over the
market a low price known as `penetration price' was set in the beginning
deliberately.
v) `In fact, pricing involves more of judgement than computation', see
whether this aspect was taken care of.
vi) See whether primarily the top Management has exercised in profit
planning.
3.52 Recovery or Absorption of Overheads
After checking the correctness of classification and collection of information, it
shall be seen whether:-
i) For the purpose of recovery of overheads in costs of jobs, process or
products, overhead rates related to suitable factors or bases were
determined,
ii) Whatever the method was adopted for recovery of overheads, see whether
the basic procedure of dividing the amount of overhead expenditure by the
total number of units of the base selected, such as units of products, direct
195
labour cost, labour hours, machine hours or direct material cost was kept in
view.
It has to be satisfied that the method i.e., actual or predetermined or moving
average rate adopted and period of validity of rate applied are suitable to the
concern depending upon its nature and frequent changes in the pattern of
overhead expenses. It has also to be ensured that the methods for determination
of overhead rate like rate per unit of output of production, direct labour cost (or
direct wages), direct labour hours or production hours, machine hour, direct
material cost, prime cost, sale prices are also suitable to the concern.
The accounting treatment for disposing of supplementary rates, write off to
costing P&L account and absorption in the accounts of subsequent years shall
also be reviewed keeping in view the extent and circumstances leading to it.
3.53 Financial and service organisations
Companies were established to render services in various industrial sectors
namely large scale, medium and small scale etc., by way of aid, counsel,
assistance, finance, protection, promotion, etc., by participating in the share
capital of new industrial projects with or without a controlling interest acting as
holding Company for specific projects promoting industry directly, underwriting
of new issue of shares and securities, providing finance in the form of long and
medium term loans, giving guarantees for repayment of loans, repayment of
interest on loans from other financing institutions, acting as an agent for
disbursement of seed capital assistance from IDBI, marginal money, central
subsidy, State incentives etc., rendering technical and managerial assistance to
improve their methods of manufacture, marketing etc., creating industrial
infrastructure like providing developed plots and built-up shed with facilities like
roads, water, power etc. During the audit the following shall be seen:
a) The project reports were prepared, appraisals made and evaluation of
feasibility of projects by a competent expert was done effectively so that there
may not be (i) wrong project planning, (ii) establishment of industries without
adequate market survey and ensuring availability of raw materials, (iii) improper
location of industries, (iv) establishment of industries at a time of recession or of
unfavourable climate and without ensuring availability of financial assistance.
See whether any guidelines for examining the project reports received from the
consultants were framed and the same were followed scrupulously.
b) In the selection of projects, enough weightage was given to greater
employment opportunities and reasonable rate of return.
196
c) Aspects like area development, local entrepreneurs, exploitation of local
resources and indigenous technology were taken into consideration.
d) Selection of co-promoters was made after thorough scrutiny of qualifications,
experience, ability, aptitude, financial soundness etc.
e) After implementation whether the project has gone into production as
scheduled, if not analyse reasons for bringing out consequential effects.
f) Any projects were abandoned, if so, the circumstances leading to such decision
shall be looked into.
g) The initial expenditure borne by the Company on the promotion of a project is
recovered from the newly formed Company as and when the project is
implemented.
h) In cases where the Company had to resort to float a Company as its subsidiary
in the interest of industrial development or because Co-promoters show some
initial difference the project implementation should not be delayed, whether the
Company has been on the look-out for co-promoters to convert it into joint
venture/assisted unit as the case may be at an appropriate time.
i) Proper planning for participation of various financial institutions was made.
j) Channelisation of investment through its subsidiaries, joint ventures and
assisted units was made as per guidelines issued from time to time by various
authorities and the Board.
k) Financial assistance was given only for acquisition of capital assets like land,
buildings, machinery and working capital for the existing undertaking. In
exceptional cases, only assistance is granted for repayment of existing liabilities.
l) The basis for taking a decision to render financial assistance by way of
underwriting the issue of shares of new companies and its implication whether
the shares were sold at proper time to get profits. The basis for the decision to
invest in new companies or schemes and whether it received brokerage and
underwriting commission due to it.
m) Whether guarantees were provided in respect of bridge loans from the
financial institutions after studying financial position of the unit. The necessity
for resorting to bridge loans, the purpose thereof, the repayment conditions and
nominal commission, if any, due and received by the Company.
n) Whether the facility extended under IDBI refinance schemes was utilised to
the full extent by granting term loans.
197
o) Terms of repayment like period, number of installments fixed, execution of
agreements and whether the grounds for granting of extension of time, if any, are
justified.
p) If the gestation period for earning dividends from the investments was long,
whether the Company has taken steps to have a close watch over the construction
of the undertaking it promoted so that the date of commissioning was not unduly
postponed.
q) In order to safeguard the companies' financial interest in joint ventures and
assisted units, whether the agreements provide for appointment of its nominees
on their Board and whether the required number of directors were actually
nominated.
Whether any guidelines were issued by the Board from time to time to its
nominee directors as regards the points to be seen by them both in a project
under implementation and after it has gone into production.
Whether the nominated directors attended the meetings, followed the guidelines
and submitted their reports to the Management.
Whether follow-up action was taken on those reports from time to time and
whether the Board was appraised suitably for taking prompt decisions for
implementation.
r) Whether the Company has necessary monitoring technique and systems to
review periodically the operational efficiency of all subsidiaries, joint ventures
and assisted units and to diagnose the reasons for sickness of industries for
taking effective steps to rehabilitate at an appropriate stage without allowing the
sickness to overtake the industry for want of financial inputs or due to
managerial/technical problems and whether action plan was prepared, assistance
from all competent agencies was co-ordinated and follow-up action was taken
for their implementation.
s) The cases where it was decided not to rehabilitate a sick unit on the grounds
that the project was not found to be viable, shall be reviewed to trace the
loopholes in the project/feasibility report based on which the project was
implemented.
t) Whether the Company received return as contemplated from its units in which
it invested.
u) In order to mobilise adequate resources for promoting more new industries,
whether the Company launched the disinvestment scheme and took steps to
198
disinvest share capital in companies promoted by it by identifying the units
which have stabilised and/or capable of standing on their own legs.
2) Whether the evaluation of shares was done keeping in view the guidelines
issued by the various authorities.
3.54 Service
a) Whether the Company has assisted in selection and location of projects and
obtaining other clearances from Central and State Governments. System of
financing is to be examined.
b) As a promotional activity whether the Company was successful, wherever
necessary, in identifying suitable foreign collaborators for transfer of technical
know-how.
c) Whether the Company provided full consultancy services for preparation of
feasibility reports and profiles to the entrepreneurs who intend to start industries.
3.55 Hire Purchase Scheme
It shall be seen in audit whether:
i) sanction has been accorded as per the guidelines after satisfying the market
potentiality and capabilities of the prospective hirer,
ii) there is any inordinate or avoidable delays between sanctions and actual
supply of machinery,
iii) it was ensured that the machinery was commissioned by the hirer,
iv) prompt and proper pursuance was made to recover the instalments on due
dates, and
v) suitable action was taken if the hirer was in arrears to issue legal notice; to
seize the machinery, to dispose the seized machinery in time and to recover
the balance amount, if any, by invoking the provisions of R.R.Act.
3.56 Marketing Assistance Scheme
The scheme is operated to assist SSI Units of the State which are registered with
the Company in marketing their products to Government/Semi-
Government/Quasi-Government departments, State Government undertakings
Corporations etc. It shall be seen
i) whether the Corporation succeeded in getting more number of items
manufactured by SSI units reserved by the State Government so that the
units can thrive in their production activity without becoming sick,
199
ii) the Corporation has been ensuring that Government institutions place their
indents on SSI units through the Company,
iii) the Company has been properly co-ordinating with the users in assessing
their requirements
iv) a proper record was maintained indicating industry-wise the names of SSI
Units registered with the Company, their capacities, their performance in
execution of orders etc.
v) Quotations were called for from all the concerned units registered with the
Corporation and finalised the rates to be quoted to the indenting
department,
vi) after receipt of acceptance, the orders were placed in time on the units
taking into consideration all relevant aspects,
vii) Follow up action was taken till orders are executed,
viii) Reasons for non-execution of orders were analysed.
3.57 Raw Material Servicing Centre
To assist the existing small scale industries in the State scarce items are
procured, stocked and distributed through its various centres with an objective of
supporting the production of the SSI Units. It shall be seen whether an overall
assessment of the requirements was made in a scientific manner and material was
procured at the right time duly following the established procedures.
Whether (i) the allocation of materials among various centres was made with
reference to the needs of respective areas (ii) price fixation was done correctly
keeping in view the policy guidelines of the State Government/Corporation (iii)
prompt action was taken to dispose of non-moving items, if any, should also be
seen.
3.58 Infrastructure Facilities
It shall be seen in audit whether (1) The identification of areas was properly
made and the demand was assessed for establishing industrial estates and for
developing it into industrial areas before taking up the scheme and deciding the
extent so that the plots developed and sheds constructed are not unoccupied.
(2) Selection of area for establishing commercial complex was made after
studying the locality, market potentiality etc.,
(3) Site for construction of houses for industrial workers was selected keeping
in view the demand, the proximity, availability of transport facilities and
other basic infrastructure amenities.
200
(4) The established procedures were followed in payment of awards for land
acquisition; the possession of lands was taken in time in respect of cases
where the amount of award was deposited with L.A. officials and other
requisite formalities were fulfilled.
(5) Awarding of contracts in regard to civil works, like construction of sheds,
laying roads, pipelines for water supply, overhead tanks etc.
(6) The plots were developed/sheds were constructed and other infrastructure
facilities were provided within the time schedule; if not analyse the reasons
cause-wise.
(7) The rate for developed plot for outright sale and the rate for shed for out-
right sale, hire purchase, rental basis was fixed taking all incidentals into
account including the probable increase in cost of land etc.
(8) Calling for applications from the prospective entrepreneurs, allotment and
handing over possession etc., was done as per time schedule and no delay
occurred in any phase. If applications were not received in sufficient
number reasons for the same shall be traced to the survey made by the
Company based on which the scheme was taken up. If possession of the
plots/sheds was not taken over by the entrepreneurs the circumstances
leading to decline in demand was analysed by the Company and corrective
action taken in time.
(9) The criteria followed for allotment of houses constructed is fool-proof and
based on the guidelines laid down by the Board/State
Government/HUDCO.
(10) Cost of houses proposed to be recovered was correctly computed.
(11) The Company has availed fully the assistance offered by HUDCO and
other financial institutions in time; if not, reasons for failure shall be
traced.
12) The cost of developed plots, rent/hire purchase instalment in respect of
sheds, houses, etc., were being collected regularly; if amounts due fell in
arrears, whether the Company has taken suitable and prompt steps
including invoking of the provisions of R.R.Act, wherever necessary, to
recover the same.
(13) The Company has obtained lease deed in all cases.
(14) The Company ensured that all dues are recovered before the hirer vacates
the site.
(15) The tenants have insured the building in the name of the Company.
201
(16) The Corporation filed suits in Courts for recovery of loans, wherever
necessary, and filed execution petitions in all cases decreed.
(17) Analyse the cases of dues written off to bring out the failure of
Corporation, if any, in pursuance and in taking prompt steps for recovery
of loans.
(18) The V.L.C. amount paid by the Company to the APSEB on behalf of the
entrepreneurs for securing immediate power connections was refunded by
the Board with interest.
(19) Water charges were recovered from the entrepreneurs regularly.
(20) Bridge loans sanctioned against term loans given by financial institutions,
Central subsidy/State incentives were recovered.
3.59 Coal Mines
Capital structure
The capital structure of the Company shall be scrutinised with a view to ensure
that:
Provision of agreements, if any, between the Central and State Governments, as
regards the composition of the share holding and the ratios agreed to are being
followed.
The basis for increase in paid-up share capital from time to time and whether the
increase is justified with reference to development activities/programmes
planned and undertaken. Whether proper investment output ratio is maintained.
The investment ratio obtaining in the Company is comparable with the standard
fixed by the Board.
3.60 Production Performance
(a) Prospecting operations: The Company has a Prospecting Department for the
geological mapping and exploring, drilling through the State Geological
Department and detailed drilling by the Company. In this connection, it has to
be seen as to:
i) the role of the State Geological Department and where does the
responsibility of the Company start.
ii) who identified and proved the availability of coal reserves and
iii) the Company's decision on the area in which prospecting is to be done.
For the purpose of drilling, the Company have drills in its possession. The
drilling operations may be examined with a view to ascertain:
202
i) as to how many drills are owned by the Company; the basis for fixing the
number, how many of them are in use, what is the annual drilling capacity
(in metres), actual meter age drilled and the percentage of utilisation and
the number of men on roll at the end of each year.
ii) whether any drilling work was entrusted to any outside agency, the meter
age drilled by other agencies; how the cost of drilling by outside agencies
compares with the departmental drilling, whether this was unavoidable.
iii) whether any norms have been fixed for unit cost of drilling, if so, how the
actual cost compares with the norms.
iv) whether there was any large variation in cost per metre drilled, and year-
wise cost within the same division and whether the reasons for such large
variations have been analysed.
v) the details of drilling operations suspended/closed by the Company where
results were not found promising, should be examined.
vi) the details of expenditure incurred on these closed operations and the
manner in which such expenditure has been treated by the Company also
require examination.
(b) Planning
The working of the Planning Department shall be examined to see:
i) whether the approval of Government of India was obtained where such
approval is required.
ii) whether the Company has sufficient technical expertise for the purpose.
iii) the details of project reports prepared and the progress in the
implementation shall be analysed. In case some of the projects are not
taken up for implementation the reasons therefore should be analysed.
Cases of projects not taken up should be highlighted.
c) Developmental activities
The developmental programmes drawn by the Company shall be analysed to see:
i) whether the targets fixed are based on any overall targets fixed by the
Government of India for the entire country.
ii) does the Company propose to achieve the same by increased production in
existing mines, by exploiting mines in continuous areas where all
investigations have been completed, where further investigations were
203
required by developing mines in the new areas or by mining in new areas
to be taken up after they have been taken up for exploitation.
iv) if the targets are proposed to be achieved by mixture of all the above; what
were the annual targets fixed under each and how much increased
production is anticipated?
v) whether the Company was able to achieve the targets if not the reasons for
the shortfall?
vi) whether the Company had abandoned development of mines after they
have been taken up for exploitation.
In such cases, what was the estimated outlay, estimated life of mine, anticipated
extractable resources and what was the actual outlay and the actual production.
Whether in these cases, a detailed project report and a planned schedule of
progress was drawn up before the development programmes were taken up.
It shall also be examined to find out as to (i) what the total time from
investigation to development is and how the actual time taken compares with
estimate and what are the reasons for slippages if any.
(d) Coal production
The details of mines in production, their built up capacity (the minimum quantity
of coal that the Company can produce annually), the production target fixed
annually, the annual production, the short-fall in production, the percentage of
shortfall as compared to the targets should be analysed and the loss in the
production, due to avoidable causes like delays in development of mines, break-
down of machinery and absenteeism should be highlighted, steps taken to avoid
losses in production in future and the results of such action may be seen.
The operation in extracting coal from the mines involves development of coal
faces, blasting operations, filling and transportation to screening. For the above
operations coal cutters short firers and fitters besides other works entrusted with
the ancillary functions are employed. The output of coal as a result of all these
operations is reckoned as output per man shift (OMS) arrived on the basis of
total output divided by the total number of men in the shift of eight hours.
Output per man shift is also worked out separately for cutters and fillers who are
the main operators and also at various levels. The OMS has a direct bearing on
cost of production per tonne and the working results of the mines are influenced
by OMS. The Company fixes the overall annual targets to be achieved each
year. The actual OMS unit-wise of (a) production workers, viz., coal cutters and
fillers (b) mines including other categories of staff at the mine (c) the mine and
other departments of the Company, should be examined, with a view to see (i)
204
how far the targets fixed have been achieved, (ii) whether there has been a
decline in the OMS of direct workers, if so, in which mines, (iii) whether the
trend of decline continues and (iv) whether the causes for such decline have been
analysed by the Company and steps taken to arrest the same. Whether the
Company has taken action to identify the mines which are uneconomical for
exploitation and taken appropriate action in this regard.
(e) Open cast mining
It has to be verified in audit whether (i) the projects for Open cast mining which
have started production in recent years have been executed efficiently as per the
project estimates (ii) whether the revenue return envisaged therein has been
achieved, and (iii) whether the Plant & Machinery installed have been fully
utilised.
(f) Mechanised mining
If the Company introduced mechanised mining in any of the mines, the
economics of mechanisation shall be reviewed to ascertain as to:
(i) what was the annual total capacity of the units available and what was the
actual production, what was the short-fall, and what are the reasons for the
shortfall, (ii) whether any analysis was made to find out the reasons for poor
production performance, was the shortfall attributed to any defect in manufacture
of the unit, (iii) what was the cost per unit under machine mining and how does it
compare with the manual mining, (iv) whether there has been full utilisation of
the total units available, what are the reasons for the non/under utilisation, if any,
attributed, by the Company and to what extent are they justified.
(g) Industrial Engineering Departments (IED)
While the Company has its own Engineering Department to conduct detailed
studies and suggest schemes with a view to improve the working of the
Company and also to ensure the effective use of its men and machinery, it shall
be examined (i) whether the IED is functioning effectively, how far the
suggestions of IED have been accepted and implemented by the Company, (ii)
whether the IED had drawn up any incentive scheme to be introduced in the
Company in order to maximise production and minimise the expenditure by
effective and fuller utilisation of labour and if so, whether they have been
introduced and what is the results of implementation of such schemes.
(h) Civil Engineering Works
The examination shall be directed to find out (i) whether the works were
undertaken after financial concurrence and approval by the competent authority
(ii) whether the works were undertaken on the basis of the estimates prepared as
205
per approved standards, (iii) whether the works were entrusted to contractors on
the basis of competitive quotations and reasonableness of excesses over
estimates examined before the works were awarded, (iv) whether register of
capital work was maintained indicating the work wise expenditure and the
Company follows the system of preparing completion reports for works, (v)
whether asset registers indicating the details of commencement of work, cost of
construction, location and other details were maintained. Some of the works
completed should be subjected to detailed analysis with a view to find out
whether the works have been executed economically and efficiently as per
agreements and estimates. It shall also be examined whether there is adequate
workload on the civil engineering personnel and there is effective utilisation of
men and material and proper system of internal control over execution of works.
(i) Workshops
These are meant mainly for repairs and overhauling of plant and machinery.
Some items of spares are readily available in the market and some other items of
stores are also manufactured in the workshops.
The efficiency of performance of the workshops (in the matter of usage of
labour, material and facilities) has to be evaluated by examining how
economically and efficiently they attend to current repair work and also major
repairs/overhaul. It should be ascertained (i) Whether the workshops have been
maintaining accounts to indicate the value of work done, job executed etc., (ii)
whether job cards are maintained and cost of each job worked out, (iii) whether
cost estimates are prepared for items manufactured involving major repairs, if so,
how they compare with actual (v) whether repair works are entrusted to outside
agencies and how their cost compares with the cost in workshops, and (vi)
whether there is a system of reporting on the availability of facilities and their
full utilisation.
(j) Power houses
In addition to meeting the entire requirements of the collieries these power
houses also supply power to the townships and around the collieries at these
places. The details of installed capacity, firm generating capacity, and actual
units generated, and percentage of utilisation should be examined with a view to
find out the extent of utilisation of the capacities built up. The cost of generation
should be compared with a view to find out the extent of utilisation of the
capacities built up. The cost of generation should be compared to see how far
they are reasonable. It should also be ensured that the Company is prompt in
raising bills on the consumers and the realisation of dues is prompt and that there
are no accumulated arrears. Consumption of coal, furnace oil and utilisation of
206
manpower may be examined to see whether they are as per norms, if any. If
there are no norms it may be seen how they compare from year to year and
between one unit and another.
3.61 Major equipment and plant and machinery
3.61.1 Machine utilisation
It shall be examined to see whether the Company has fixed the standards for the
performance of heavy machinery like shovels, bulldozers, dumpers for use in
open cast mines. The details of total number of hours available, hours utilised,
idle hours and the percentage of utilisation of the equipment should also be seen
to assess how far these have been put to effective utilisation. In cases where the
utilisation has been far less, whether it was due to avoidable causes like
procurement of machinery in excess of requirements, equipment breakdowns,
shortage of spares, shortage of operators, power failures, rain and slushy
conditions etc., and the result of the remedial steps, if any, taken by the
Company. The reasons for under-utilisation, if any, need to be analysed.
Whether machine cost per hour of use is comparable with the estimate and
analyse the reasons for excesses, if any.
3.62 Manpower analysis
Whether norms have been fixed in regard to the manpower to be employed, if so,
how the staff employed compares with the standards. If there is an imbalance in
any particular category of staff whether reasons were assessed periodically with
reference to the targets of production fixed.
In order to neutralise the effect of heavy absenteeism of fillers owing to sick
leave, unauthorised absenteeism etc., a colliery Company generally engages staff
on `Badli System'. Under this system a batch of badli workers is maintained at
each mine. Persons in the badli lists who are not offered work are not given
wages or compensation. The employment of staff under this system should be
analysed in detail to see that such staff are not engaged unnecessarily.
The engagement of such staff may be examined to see that there is no tendency
to deploy such staff keeping the regular staff idle and with financial implications.
3.63 Sales performance and marketing
Coal produced is classified as round coal, separator, nut, run-of mine and slack.
It should be seen whether the classification done is scientific, the method
followed is sound and whether there is sufficient check to avoid
misclassification. The prices for various sizes of coal are fixed by the
207
Government of India. Credit facilities are allowed to selected customers only
and that too for limited period. The following points need examination.
(a) The targets for sales fixed in the original budget estimates category-wise;
reasons for the revision, if any, whether the Company was able to achieve the
targets, reasons for the short-fall, action taken to increase the sales, if it is due to
unsatisfactory wagon supply position has the matter been taken up with the
Railways properly and the results thereof.
(b) The extent of closing stocks held as at the end of each trading period need
review to ascertain (i) whether the stocks held are considered reasonable and
whether they were on the increase, (ii) whether the Company has the system of
physical verification of closing stocks and whether excesses and shortages
noticed as a result of physical verification were adjusted. What is the system
followed by the Company in determining the closing stock and what is its
percentage to the production. Is it considered adequate and reasonable? Railway
receipts form the basis for issue of bills to the customers. The issue of bills may
be reviewed with a view to ascertain (i) whether there is any time lag between
the despatches, (ii) whether the mechanism for the collection is adequate and the
recoveries are prompt. Cases of dispute regarding missing wagons, receipts of
material, quality of coal supplied etc., should be examined with a view to
ascertain how they have been settled. It should also be seen whether agreements
for sale have been executed and whether confirmation of balances from the
customers has been obtained.
3.64 Price Fixation
The Government of India fixes the sales price of coal taking into account the cost
of production. It should be seen whether cost data submitted to the Government
of India for this purpose was compiled correctly. The cost data should also be
examined to find out how the actual cost compares therewith. What are the areas
of difference? Whether the need for increase in price was brought to the notice of
Government of India so as to avoid losses. The reasons, if any, attributed by the
Government of India in turning down the request and the action proposed to be
taken thereon by the Company need examination.
3.65 Accounting Systems
i) If the Company introduced decentralised accounting at area level, it should be
examined whether the evaluation of capital expenditure proposals etc., by the
financial wing and the accounting wing are adequate at unit level.
ii) Budget: Does the Company prepare capital and revenue budgets,
incorporating the production targets with adequate details. The budgets should
208
be scrutinised to ascertain :(i) whether they are prepared and approved before the
commencement of the financial year, (ii) whether the progress of actual
expenditure/actual performance is watched against the Budget provision with a
view to take timely corrective action wherever necessary and (iii) whether
causes for variations are analysed.
iii) Capital investments: (i) whether there is proper mechanism for taking capital
investment decisions. (ii) Capital work-in-progress should be analysed with a
view to find out if the gestation period in the case of various works has been
unduly long? Physical achievement in regard to the construction works as
compared to the targets also needs examination. (iii) It should also be examined
(a) whether the Company has taken any decision to diversify its activities, to
invest in ancillary industries, (b) whether there was a necessity to diversify the
activity, the investments made by the company may be analysed with a view to
see whether this was within the scope and objectives of the Company.
3.66 Management Information System
It should be seen whether there is a system of evaluation of performance of the
Company and its units (production as well as service units) and how frequently is
this done. Whether these reports are considered by the Board and action is taken
on these reports promptly and whether the system is adequate may also be
examined.
The other aspects and activities that require examination would be:
3.67 Accidents
The total number of accidents and particularly major ones should be analysed to
see as to how far the safety measures introduced have been adequate and whether
the Management investigated promptly the reasons for such accidents and taken
remedial measures.
3.68 Hospitals
A colliery Company creates medical facilities for the benefit of the staff and
workers. It should be seen that engagement of the staff in these hospitals is in
accordance with the prescribed standards and the norms fixed by the State
Government for the hospitals are generally followed in regard to the scale of
treatment and special facilities and in case where the hospital undertakes
treatment of members of public, the charges, etc., collected are reasonable.
209
3.69 Sand stowing operations
These operations in the new areas are to be taken up by the Company with the
approval of the Coal Controller, Ministry of Energy, (Department of Coal) at
Calcutta, three months before commencement.
The actual stowing carried out is to be compared with that estimated and the ratio
of coal raised to sand stowed also examined. Wherever there is a ropeway
installed for bringing sand to the mines, utilisation thereof is to be examined
besides scrutinising the tender procedures, tendering and award of contracts for
transport of sand by other means like road, quantities of sand transported and
payments made there against.
3.70 Protective works
In addition to various protective and precautionary measures normally to be
undertaken by a Company (under Coal Mines Act, 1952 and Coal Mines
Regulations 1957) for the safety of the mine and the persons employed therein, a
Company is often compelled to take other protective works either on the
directive of DGMS of Central Government (Director General, Mines Safety)
under the provisions of Coal Mines (Conservation and Development) Act, 1974,
or on its own, in the interest of safety and conservation. Expenditure on those
works, carried out with the approval of Government of India for each year and
covered under the guidelines given by the Coal Conservation and Development
Advisory Committee, is allowed by the Government of India as subsidy.
Preference of claims in time and realisation of the said amounts require to be
examined.
The other areas to be examined are:
i) Free issue of coal to employees and officers,
ii) provision of housing to the employees,
iii) allotment of cars to officers for their exclusive use,
iv) Storage and utilisation of explosives and expenditure on dumping and
transport of coal by road,
v) Expenditure on schools and colleges set up in and around the collieries and
other social amenities and
vi) Cost of staff amenities
3.71 Sugar Industry
Where the industry is having farms of its own or taken on lease to cater to its
needs the plantation operations like, the total acreage attached to each unit, area
210
earmarked for development of seed cane, area proposed to be cultivated keeping
in view the anticipated irrigation facilities, actual area cultivated, yield per acre
as anticipated, reasons for low yield etc., expenditure incurred on tractor
operations, seed, manure and inter-culture; labour, irrigation, drainage,
harvesting, overheads is commensurate to the yield and is as per estimates; write-
off of expenditure incurred on crop perished due to severe drought conditions,
improvements required to be made periodically, the area developed in a planned
manner in order to make it suitable for raising crop, operational efficiency and
the overall operational cost from year to year with reference to the yield are
required to be reviewed.
It shall be seen/reviewed whether:-
(a) As per Andhra Pradesh Sugarcane (Regulation of Supply and Purchase)
Rules 1961, and as per agreements entered into by the industry with the cane
growers in the notified zones, the specified area was cultivated and the agreed
quantity of cane supplied during each season,
(b) Penalty was levied against the cane suppliers for short supply,
(c) Recording and reconciliation of receipt of cane from the suppliers and own
farms at the factory site with reference to weighment slips, cane growers'
individual ledger accounts, abstracts etc., is done periodically.
(d) The production performance - duration of season in terms of days, total
number of days of actual crushing, quantity of cane crushed, recovery of sugar,
operational costs etc.
(ii) The consumption of steam is fairly balanced by proper maintenance of
boilers, pipelines, pans, evaporators etc., so that it may not be necessary to buy
any extra fuel, as bagasse produced will meet the full requirement,
(iii) The incidence of consumption of process material like - lime, sulphur,
sulphur phosphate, caustic soda, etc., has been studied with a view to take
preventive measures if warranted,
(e) The payment for the supply of cane was made as per the rate fixed by the
GOI/State Government's directives/ agreements entered into and consequential
impact on cost of production,
(f) If the actual cost of transportation of sugarcane from collection centres to the
factory site was more than the charges recovered from the suppliers (as fixed by
the Government of India) action taken by the Company to compensate the loss,
(g) The reimbursement of transport charges to the suppliers is reasonable in all
cases,
211
(h) The percentage of recovery of by-products like molasses, filter cakes,
bagasse etc., is as per norms fixed and their disposal,
3.72 Irrigation
During the scrutiny of irrigation schemes, digging of tube wells etc., it shall be
seen whether -
(a) Investigation was made to ascertain the availability of water, assessed the
total acreage proposed to be served, number of beneficiaries involved and the
economics of the scheme studied,
(b) Agreements were entered into with the beneficiaries to ensure the viability of
the scheme proposed to be taken up,
(c) Schemes were taken up after they were cleared/ sanctioned by the financial
institutions,
(d) The Company had applied for loans in time so that the schemes can be
executed as scheduled without diverting funds from other schemes,
(e) (i) all the schemes proposed to be taken up were actually taken up and
executed; if not reasons for not taking up shall be analysed and resultant set-back
assessed, (ii) there was delay in land acquisition, supply of pump sets,
energisation, poor response from the contractors etc.,
(f) In case of the schemes commissioned, the ayacut potential was developed to
the estimated level and the same was fully utilised,
(g) The beneficiaries of the scheme (small and marginal farmers) could develop
their lands for usage of irrigation facility, if not, the Company was able to make
efforts to arrange loans for land development,
(h) Tube wells executed were working as anticipated, failures are to be analysed,
steps were taken to club them into a cluster to make them economically viable or
to dispose of the low yield wells to pattadars, local authorities etc., demands
were raised regularly and the uniform rate/economic rate/fixed charges being
recovered promptly as per agreement though the farmers do not utilise the water
made available for each crop season,
(j) The performance of the rigs was being reviewed periodically,
(k) The actual expenditure incurred on establishment which is ultimately to be
capitalised is as per the rates fixed by the Agricultural Refinance and
Development Corporation and in respect of deposit works as fixed by the
Company, if not the unabsorbed expenditure results in loss which has to be
reviewed.
212
3.73 Trading
The State Public Sector undertakes (i) the task of procurement, supply and
distribution of essential commodities and to ensure their availability in the
market at reasonable rates,
(ii) carrying out all such activities and trade as may ensure equitable price to
the primary producers of agricultural commodities,
(iii) exports and management of air cargo complex,
(iv) imports and distribution of imported items to actual users,
(v) clearing and forwarding work,
(vi) converting paper into note books for sale to the students at reasonable rates
etc.
It shall be seen whether -
a) The Corporation was able to plan to procure paddy, within the time and as
prescribed by the State Government for its own buffer stock under price
support operation,
b) The quantity of paddy required to be supplied to the F.C.I. was procured
and handed over within the time prescribed by the GOI if not handed over
in time, reasons leading to it shall be analysed as any delay results in
increase in inventory carrying costs by way of interest and storage etc., and
if the delay caused is attributable to the FCI, claims towards such extra
costs were preferred and money received,
c) The expenditure incurred by the Corporation on behalf of the Government
of India towards incidentals such as market fees, transport, and handling
charges, cost of gunnies, administration charges, carryover cost by way of
interest and storage etc., was within the rates prescribed by the
Government of India, if exceeded analyse the reasons,
d) Any stocks procured on behalf of the Food Corporation of India were
rejected, if so, the circumstances leading to procurement of such inferior
quality shall be analysed and loss sustained in disposal of the same in open
market pointed out,
e) The terms of the agreement entered into with the millers for conversion of
paddy into rice, grams and pulses etc., do not in any way put the
Corporation in loss and no undue terms were offered to the millers and
ensure that terms of the agreement were adhered to by the millers, (i) the
off-take of rice under the `Public Distribution System' was regular and did
213
not result in accumulation of stocks which in turn may cause deterioration
in quality, (ii) if the stocks were accumulated steps taken with prior
permission of the State Government to dispose of the same and loss
sustained, if any, was reimbursed by the Government,
f) Standing arrangements were made with the Central and State Warehousing
Corporations for reserving warehousing space for storage with reference to
trading activity and the space was utilised profitably,
g) The agreements with the foreign countries for the supply of various
commodities were entered into after the local market potentiality was
assessed scientifically,
h) There is proper correlation between the terms and conditions stipulated in
the agreement with the foreign buyers and that with local suppliers in
regard to period, quantity, quality, time, escalation etc.,
i) The profit was earned as anticipated,
j) The nursing programme undertaken by giving advances to industries that
have export market, yielded the desired results and
k) The objects like ensuring equitable price to the producers of agricultural
commodities, supply of various essential commodities at reasonable prices
etc., were achieved.
214
CHAPTER –4
APGENCO, APTRANSCO, DISCOMS AND APERC
4 Introductory
4.1 Constitutional provisions pertaining to Electricity
Entry 38 of List –III (Concurrent List) of 7th Schedule to the Constitution
enshrines the word “Electricity”. Hence, pursuant to Article 246(2), the
Parliament as well as the State Legislatures can enact law on the subject of
electricity.
4.2 Central Legislations dealing with electricity
Prior to our independence, the power generation and distribution of electricity
was mostly in the hands of Private Electricity Supply Corporations and was
limited to a few towns/ cities. After Independence, the State Boards were
constituted under Electricity Supply Act, 1948 and entrusted the responsibility of
generation, transmission and distribution, nationalizing the private electricity
corporations.
The following are the central legislations dealing with electricity prior to
enactment of the Electricity Act, 2003.
1. Indian Electricity Act, 1910
2. Electricity (Supply) Act, 1948
3. Indian Electricity Rules 1956
4. Electricity Regulatory Commissions Act, 1998.
4.3 Restructuring of APSEB
In terms of Section 5 of the Electricity (Supply) Act, 1948, the Government of
Andhra Pradesh constituted Andhra Pradesh State Electricity Board (APSEB) in
April 1959. As a sequel to the Government of India liberalising its power policy
in 1991, a high level committee under the Chairmanship of Sri Hiten Bhayya was
constituted by the Government of Andhra Pradesh in January 1995. In July 1995
the Committee recommended the restructuring of APSEB on functional basis as
Generation, Transmission and Zonal Distribution Companies which can
eventually be privatised and also the formation of a Regulatory Commission.
The recommendations were accepted by the State Government and accordingly
A.P. Electricity Reforms Act, 1998 was enacted.
As per the Act, the erstwhile APSEB was restructured as two new Companies
viz., A.P. Power Generation Corporation Ltd. (APGENCO) and Transmission
215
Corporation of A.P. Ltd. (APTRANSCO) which were incorporated on 29th
December 1998 under the Indian Companies Act, 1956.
APGENCO and APTRANSCO commenced their operations with
effect from 1st February 1999. With a view to separating the formulation of
policy from the Regulatory Functions, an autonomous Electricity Regulatory
Commission has been constituted on 31st March 1999. The APERC became
functional from April 1999.
Initially distribution functions were also kept under Transmission Corporation of
A.P. Ltd., in addition to Transmission system. However Government of A.P. in
G.O.Ms No.31, Energy (Power-III) Dept. dated 27.03.2000 constituted 4
Distribution Companies and with effect from 1st April 2000 four public limited
companies were incorporated as wholly owned subsidiaries of APTRANSCO
with the main object of carrying on business of distribution and supply of
electricity as follows:
Name of
Company
Eastern Power
Distribution
Company Ltd.,
(DISCOM-I)
Southern
Power
Distribution
Company
Ltd.,
(DISCOM-
II)
Central Power
Distribution
Company Ltd.,
(DISCOM-III)
Northern
Power
Distribution
Company
Ltd.,
(DISCOM-
IV)
Area of
operation
(Districts)
Visakhapatnam,
Srikakulam,
Vizianagaram,
East Godavari,
West Godavari
Krishna,
Guntur,
Nellore,
Prakasam,
Chittoor,
Cuddapah
Kurnool,
Anantapur,
Hyderabad,
Ranga Reddy,
Nalgonda,
Mahaboobnagar,
Medak
Adilabad,
Nizamabad,
Warangal,
Karimnagar,
Khammam
The above Distribution Companies are proposed to be privatised in future.
4.4 The Electricity Act, 2003
The electricity has become an essential part of life of every citizen. The old
legislation obviously has not kept abreast of the growing needs of the society.
There has been a lot of change in the growth of electricity and its applications.
The Electricity Bill, 2003 has been passed by the Lok Sabha on 09.04.2003 and
Rajya Sabha on 05.05.2003 and thus became “The Electricity Act, 2003”. This
is an Act to consolidate the laws relating to generation, transmission,
216
distribution, trading and use of electricity and generally for taking measures
conducive to the development of electricity industry, promoting competition
therein, protecting the interests of the consumers and supply of electricity to all
areas, rationalization of electricity tariff; ensuring transparent policies regarding
subsidies, promotion of efficient and environmentally benign policies,
constitution of Central Electricity Authority, Regulatory commissions and
establishment of Appellate Tribunal and for matters connected therewith or
incidental thereto. The salient features of the Electricity Act, 2003 are as
follows:
4.5 Repeal and saving
(1) Save as otherwise provided in this Act, the Indian Electricity Act, 1910 (9
of 1910), the Electricity (Supply) Act, 1948 (54 of 1948) and the
Electricity Regulatory Commissions Act, 1998 (14 of 1998) are hereby
repealed.
(2) Notwithstanding such repeal,-
a) anything done or any action taken or purported to have been done or
taken including any rule, notification, inspection, order or notice made or
issued or any appointment conformation or declaration made or licence,
permission, authorization or exemption granted or any document or
instrument executed or any direction given under the repealed laws shall,
in so far as it is not inconsistent with the provisions of this Act, be
deemed to have been done or taken under the corresponding provisions of
this Act;
b) the provisions contained in sections 12 to 18 of the Indian Electricity Act,
1910 (9 to 1910) and rules made there under shall have effect until the
rules under sections 67 to 69 of this Act are made;
c) the Indian Electricity Rules, 1956 made under section 37 of the Indian
Electricity Act, 1910 (9 of 1910) as it stood before such repeal shall
continue to be in force till the regulations under section 53 of this Act are
made
a. all rules made under sub-section (1) of section 69 of the Electricity
(Supply) Act, 1948 (54 of 1948) shall continue to have effect until
such rules are rescinded or modified, as the case may be;
d) all directives issued, before the commencement of this Act, by a State
Government under the enactments specified in the Schedule shall
continue to apply for the period for which such directions were issued by
the State Government.
e) The Electricity Reforms Acts passed by the various State Legislatures
shall apply to the concerned states provided they are not inconsistent with
the provisions of this Act. (Section 185.3)
f) The objectives enshrined in “The Electricity Act, 2003”, unlike the
objectives of earlier legislations, are inconsonance with the needs of the
217
society and to promote the healthy growth of the industry by encouraging
competitiveness in the industry, which ultimately ought to benefit the
consumer at large.
g) The Act provides for comprehensive definitions of various words and
recognizes the important words like captive generating plant, consumer,
transmission lines/ licensee and wheeling etc.,
h) National Electricity Policy, Tariff Policy and Plan: Hitherto, the Nation
lacks a comprehensive National Electricity Policy and Plan for optimal
utilization of natural resources like coal, natural gas, nuclear, hydro and
renewable sources of energy. Now this Act makes it obligatory on the
part of the Central Government to prepare from time to time, the National
Electricity Policy, Tariff Policy and Plan for optimal utilization of
sources of energy, in consultation with the State Governments.
i) Thrust to complete the rural electrification and provide for management
of rural distribution by Panchayats, Co-operative Societies, non-
Government organizations, franchisees etc.
j) The most significant feature of this Act is any generating Company may
establish, operate and maintain a generation station without obtaining a
Licence, if it complies with technical standards; Hydro Projects would,
however, need clearance from the Central Electricity Authority.
k) A person may construct, maintain or operate captive generating plant and
dedicated transmission lines. A generating company may supply
electricity to any licensee in accordance with this Act.
l) Only authorized persons can transmit, distribute and undertake trading in
electricity. But where a person intends to generate and distribute
electricity in a rural area shall not require any licence for such generation
and distribution of electricity.
m) For the purpose of inter-state transmission of electricity the Central
Government may establish at the National Level, to be known as the
National Load Despatch Centre and shall establish a Centre for each
region to be known as the Regional Load Despatch Centre.
n) For the purpose of inter-state transmission, the State Government shall
establish a centre to be known as State Load Despatch Centre.
o) Transmission Utility at the Central as well as State level, to be a
Government Company – with responsibility for planned and co-ordinated
development of transmission network.
p) It shall be the duty of a distribution licensee, to develop and maintain an
efficient coordinated and economical distribution system in his area of
supply. Every distribution licensee, shall on an application by the owner
or occupier of any premises, give supply of electricity to such premises,
within one month after receipt of the application.
q) The appropriate commission shall, subject to the provisions of the Act,
specify the terms and conditions for the determination of tariff. The
appropriate commission shall adopt the tariff, if such tariff has been
determined through transparent process of bidding in accordance with the
guidelines issued by the Central Government. The Act made a provision
218
of subsidy by State Government, but the State Government is required to
provide subsidy in advance.
r) Provision for vesting of property of Board in State Government. It is
proposed that the transfer value of assets of State Electricity Boards shall
be determined based on the revenue potential of such assets.
s) Provisions relating to the theft of Electricity made more stringent.
Provision also made for special course for the purpose of providing
speedy trial of offences.
t) Metering of al electricity supplied made mandatory.
u) Provision for Dispute Resolution
4.6 Various Committees, Authorities contemplated under this Act are
All India Based:
(i) Appellate Tribunal
(ii) Central Electricity Regulatory Commission
(iii) Central Advisory Committee
(iv) Central Electricity Authority
(v) Selection Committee for Appellate Tribunal and Central Commission
(vi) National Load Despatch Centre
(vii) Regional Load Despatch Centre
(viii) Regional Power Committee
(ix) Central Transmission Utility
State Level:
(i) State Commission
(ii) Selection Committee for State Commission
(iii) State Transmission Utility
Inter State:
(iv) Joint Commission
219
4.7 The Electricity Act, 2003, contain total 185 Sections divided in XVIII
Parts. The Act also contains One Schedule. The Scheme of the Act is
follows:
TABLE
Part No. Sections Theme
(1) (2) (3)
I 1-2 Preliminary
II 3-6 National Electricity and Plan
III 7-11 Generation of Electricity
IV 12-24 Licensee
V 25-41 Inter and Intra State Transmission of Electricity
VI 42-60 Distribution of Electricity including consumer
protection
VII 61-66 Tariff
VIII 67-69 Works of Licensees – Provisions relating to
overhead lines
IX 70-75 Central Electricity Authority – Constitution and
function of Authority – Certain powers and
directions
X 76-109 Regulatory Commissions – Constitution powers
and functions of Central Commission
XI 110-125 Appellate Tribunal for Electricity
XII 126-130 Investigation and enforcement
XIII 131-134 Reorganisation of Boards
XIV 135-152 Offences and penalties
XV 153-157 Special Courts
XVI 158-158 Dispute Resolution – Arbitration
XVII 159-165 Other Provisions – Protective Clauses – Protection
of railways, highways, airports, telegraphic and
electric signalling lines etc.
XVIII 166-185 Miscellaneous
4.8 Constitution of Resident Audit Office
Resident Audit Office, with headquarters at Vidyut Soudha, Hyderabad is
functioning to coordinate the audit and inspection of the accounts and records of
APTRANSCO, APGENCO, DISCOMs and APERC. Besides the Resident
Audit Officer, there are 15 Inspecting Officers supervising the work of the audit
220
parties. The duties of the staff posted at the Headquarters Office of the RAO and
field staff are as under:
1) To complete the quantum of audit of accounts as prescribed by the
Comptroller and Auditor General.
2) To submit the reports and returns to the Officers of Commercial Audit
Wing of this Office and other outside authorities as may be prescribed.
3) To conduct local audit of such units as may be prescribed by the Deputy
Accountant General (CAW) and the RAO.
4) To process factual notes leading to the draft paras and also to collect
suitable material for the Audit Reports, Finance Accounts etc., during the
course of concurrent and local audits.
5) To edit, issue and pursuing the audit objections contained in Inspection
Reports.
6) Scrutiny of Board Minutes, Agenda Notes, Board Resolutions and
pursuance thereof.
7) To maintain progress register of outstanding paras, calendar of returns and
other returns.
8) To conduct propriety audit of revenue and expenditure.
The sanctioned strength of the staff in the Resident Audit Office besides the
Resident Audit Officer as on 1.4.2001 is indicated below:
Sl.No. Category of Staff Sanctioned Strength
1. Asst. Audit Officers/Section Officers 4
2. Sr.Auditors/Auditors 22
3. Clerks 4
4. Group `D' 2
At present there are 15 local audit parties on inspection of Electricity units.
4.9 Scope and extent of Audit (AP TRANSCO, AP GENCO &
DISCOMs)
The audit checks are to be exercised as per quantum prescribed by the
Comptroller and Auditor General of India from time to time. The various
records, registers, ledgers etc., which are generally maintained in the offices of
APTRANSCO and APGENCO/DISCOMs are required to be checked during
local audit as per this quantum.
221
4.10 ANDHRA PRADESH ELECTRICITY REGULATORY
COMMISSION (APERC)
The Central Government passed the Electricity Regulatory Commission Act
1998 contemplating establishment of Central Electricity Regulatory Commission
and also a State Regulatory Commission for each state. This Act came into force
from 2nd July 1998. The subject “Electricity” is in the concurrent list of the
Constitution of India. The state governments were at liberty to pass respective
Acts on the same subject “Electricity” though the Central Government has
already passed the said Act viz the ERC Act, 1998. But such state Acts are valid
only if the President of India gave consent for the same under Article 254 of the
Constitution of India. The State of Andhra Pradesh passed “The Andhra Pradesh
Electricity Reforms Act 1998”. It received the assent of President of India on
21st October 1998 and was published in AP Gazette on 29th October 1998.
As per Section 185 (1) of the Electricity Act, 2003, the Electricity Regulatory
Commissions Act, 1998 (Central Act 14 of 1998) stands repealed, while the
provisions of the State enactment, viz., “The APERC Act, 1998,” not
inconsistent with the provisions of the Electricity Act 2003, shall continue to
exist for application in Andhra Pradesh state vide Sub-section (3) ibid.
(a) Scope of Audit of APERC
The Andhra Pradesh Regulatory Commission (APERC) which was constituted
under Andhra Pradesh Electricity Reforms Act, 1998 started functioning in
Andhra Pradesh State from 03.04.1999.
Section 34 of the Electricity Regulatory Commissions Act, 1998 prescribed for
audit of State ERCs by the CAG of India and laying of the Audit Reports in the
respective State legislature. Therefore, Headquarters office in their letter No.656
Audit 11/10B – 94 dated:21.05.1999 entrusted the audit of accounts of Andhra
Pradesh Electricity Regulatory Commission (APERC) to the Accountant General
(Audit) II, Andhra Pradesh to be conducted under Section 19(2) of the
CAG(DPC) Act, 1971.
(b) Extract of Section 104 of the Electricity Act 2003
104. Accounts and audit of State Commission: (1) The State Commission
shall maintain proper accounts and other relevant records and prepare annual
statement of accounts in such form as may be prescribed by the State
Government in consultation with the Comptroller and Auditor General of India.
(2) The accounts of the State Commission shall be audited by the
Comptroller and Auditor General of India at such intervals as may be specified
by him and any expenditure incurred in connection with such audit shall be
222
payable by the State Commission to the Comptroller and Auditor General of
India.
(3) The Comptroller and Auditor General and any person appointed by him
in connection with the audit of the accounts of the State commission under this
Act shall have the same rights and privileges and authority in connection with
such audit as the Comptroller and Auditor General of India generally has in
connection with the audit of Government accounts and, in particular, shall have
the right to demand the production of books, accounts, connected vouchers and
other documents and papers and to inspect any of the offices of the State
Commission.
(c) Propriety audit of APERC
Headquarters office in their letter No.748/CA-II/AP/SAO/APSERC/99-2000/77-
2002 dated:05.09.2002 issued directions to continue the audit of undisputed
areas/issues of APERC and to seek specific written approval of headquarters
office on debatable points such as APERC’s decisions on tariff fixation etc.
Under Section 94 of the Electricity Act, 2003, for the purpose of inquiry or
proceedings, the Commission shall have the powers as vested in a civil court
under Code of Civil Procedure 1908, in respect of specific matters indicated
under this section at (a) to (g) only, which deal with summoning of any person
for examination etc.
As per Section 95 ibid, all proceedings before the Commission shall be deemed
to be judicial proceedings within the meaning of Section 193 and 228 (only) of
Indian Penal Code, which deal with “Punishment for false evidence - Section
193 of IPC”, “Intentional insult or interruption to public servant sitting in judicial
proceedings – Section 228 of IPC”, and Section 345 of Cr.PC “Procedure in
certain cases of contempt and Section 346 of Cr.PC” Procedure where court
consider that the case should not be dealt with under Section 345.
In the light of the above, the proceedings issued by the Commission under
Sections 94, 95 and 96 of the Electricity Act, 2003 are subject to the limitations
of the specific provisions of IPC, CrPC, CPC referred to under those sections.
(d ) Annual Accounts Audit of APERC
Pending circulation of the Government of India approved final format of
accounts prepared by the committee of Experts on uniform format of accounts
for central autonomous bodies for adoption, the revised format as proposed by
the Accountant General (Audit) II, Andhra Pradesh has been approved by
Headquarters office vide HQrs office letter No.407.Audit-II/29-2001 dated
20.07.2001, viz., (1) AP ERC Receipts and Payments Account for the year ended
223
31st March…………, (2) APERC Income and Expenditure Account for the year
ended 31st March…………., and APERC Balance Sheet as at……..….
4.11 Extracts of Sections 102, 103, 104(4), 105, 106, 108 of the Electricity
Act, 2003
Section 102. Grants and loans by State Government: The State Government
may, after due appropriation made by Legislature of a State in this behalf, make
to the State Commission grants and loans of such sums of money as that
Government may consider necessary.
Section 103. Establishment of Fund by State Government: (1) there shall be
constituted a Fund to be called the State Electricity Regulatory Commission
Fund and there shall be credited thereto –
(a) any grants and loans made to the State Commission by the State
Government under section 102;
(b) all fees received by the State Commission under this Act;
( c) all sums received by the State Commission from such other sources as may
be decided upon by the State Government.
(2) The Fund shall be applied for meeting-
(a) the salary, allowances and other remuneration of Chairperson, Members,
Secretary, officers and other employees of the State Commission;
(b) the expenses of the State Commission in discharge of its functions under
section 86;
( c) the expenses on objects and for purposes authorized by this Act.
(3) The State Government may, in consultation with the Comptroller and
Auditor General of India, prescribe the manner of applying the Fund for meeting
the expenses specified in clause (b) or clause (c) of sub-section (2).
Section 104 Accounts and audit of State Commission
104(4) The accounts of the State Commission, as certified by the Comptroller
and Auditor General of India or any other person appointed by him in this behalf,
together with the audit report thereon shall be forwarded annually to the State
Government and that Government shall cause the same to be laid, as soon as may
be after it is received, before the State Legislature.
Section 105 Annual report of State Commission (1) The State Commission
shall prepare once every year in such form and at such time as may be
prescribed, an annual report giving a summary of its activities during the
224
previous year and copies of the report shall be forwarded to the State
Government.
(2) A copy of the report received under sub-section (1) shall be laid as soon
as may be after it is received, before the State Legislature.
Section 106 Budget of Appropriate Commission: The Appropriate
Commission shall prepare, in such form and at such time in each financial year
as may be prescribed, its budget for the next financial year, showing the
estimated receipts and expenditure of that Commission and forward the same to
the Appropriate Government.
Section 108 Directions of State Government (1) In the discharge of its
functions, the State Commission shall be guided by such directions in matters of
policy involving public interest as the State Government may give to it in
writing.
(2) If any question arises as to whether any such direction relates to a matter of
policy involving public interest, the decision of the State Government thereon
shall be final.
4.12 Delegation of Financial Powers
The financial powers delegated to the various authorities for expenditure,
purchase, administrative approval of estimates, sanction of estimates, work
orders, calling and acceptance of tenders, disposal of stores, miscellaneous
expenses fixing stock limits, writing off losses etc., are incorporated in the
various publications issued from time to time viz. Delegation of Powers,
Purchase regulations etc.,. The party members should make themselves
conversant with these publications for exercising audit checks.
4.13 Results of Inspection and Local audit
The main purpose of the inspection of Units is to help the executive as far as
possible in the accurate and efficient maintenance of accounts and to identify
deficiencies in the system of internal check and internal control.
4.14 Compilation of Inspection Reports of APTRANSCO, APGENCO,
DISCOMS & APERC
PART I - Introductory -Besides brief narration/description of the nature and
general working of the office inspected this part should make a mention of
records not put up for examination along with the reasons for non-production and
special steps taken by the Inspecting Officer to ensure their production indicating
particularly whether the matter was bought to the personal notice of the head of
the Office and if so, with what results. The Inspecting officer should also
225
indicate whether in his opinion there are any records or matters which should be
obtained centrally for audit scrutiny.
Part I -B - Outstanding Paras of Previous Inspection Report
Special mention should be made to the settlement of maximum number of
outstanding paras from previous reports after obtaining their replies and carrying
out local verification. With this end in view inspection staff should establish
close rapport with the concerned head office and his staff so that maximum
numbers of old objections are cleared after verification from the Inspection
Reports at the time of local audit.
ii) It should be seen that paras which have been taken up for processing are not
settled by the audit party. However, latest position along with recommendations
of the Inspecting Officer be recorded separately for being examined at
Headquarters Office.
iii) An abstract of outstanding paras to the date of audit is given.
Part I - C - Schedule of Persistent Irregularities
A list of all such objections which are repetitive type be included in this group
with details.
Part II A Major Irregularities
Major irregularities which are likely to materialise into draft paras for the audit
report should find place in this section. These cases should be drafted with due
care and diligence keeping a keen eye on the point sought to be established. It is
desirable that copies of all important references which have a bearing on the Para
to be included in this part are to be attached with the para besides sending a copy
of such para with all key documents to the group officers concerned for
processing to save time.
Part II - B - Other Irregularities
Irregularities, which though not major so as to merit notice of higher authorities,
are otherwise important to be mentioned and complied with the head of the
office inspected.
4.15 Instructions regarding writing and compiling the Inspection reports
The Inspection report should be written by the Inspecting officer himself who
should not leave this work to his sub-ordinates. He should apply his mind to
everything mentioned in the report and ensure the accuracy of the facts stated the
cogency of arguments and moderation and preciseness of the language used.
After the inspection is completed the report should be discussed with the officer-
in-charge of the office. If the Inspecting Officer, as a result of discussion deems
226
it necessary to make any modification he may do so and show the modified
report to the officer. In case of any difference of opinion between the Inspecting
Officer and the Officer regarding any position of the report, the inspecting
officer and the officer are allowed to record their views in the margin of the
report or on a separate sheet which may be appended to the report.
4.16 Issue of Inspecting Report at Headquarters
The Inspection report should be issued within four weeks from the last day of
completion of the Inspection. The following maximum periods are fixed for the
several stages involved in the examination and typing of these reports.
1. Submission of report by the IAO
AAO/SO and its receipt by the dealing auditor 7
(in the case of local office in Hyderabad within 3 days)
2. Editing of report in the section and its
submission to the DAG for approval 7
3. Time for getting the copies of the report typed 7
4. Issue of the typed copies 7
28 days
In order to guard against the avoidable delay in the issue of the Inspection
Report, a register should be maintained which should be put up to RAO monthly
along with arrear report for further action.
The AAO/SO Headquarters Section should ensure that all the draft paras
attempted by the Inspecting Officers and approved by DAG are passed on to DP
Section immediately for further action.
4.17 Audit of Receipts
4.17.1 General Principles (Transco, Genco and Discoms)
The instructions of the manual relating to audit of receipts are supplementary to
the general instructions contained in Chapter 4 under Section 11 of the
Comptroller and Auditor General’s manual of standing orders(Audit).
Government Rules laid down in the Public Works Account Code and the orders
and instructions, etc., of the Andhra Pradesh Electricity Department Manual and
circulars issued by the respective companies from time to time, should be
referred to while conducting audit of receipts.
The sale of power is the main source of Revenue. Besides, miscellaneous
revenues such as rental from property and meters, sale/hire purchase of apparatus
227
and wiring service connections, disconnection fees, public lighting maintenance,
sale of stores etc.
4.17.2 Source of Revenue
Distribution Companies: The Distribution companies namely APNPDCL,
APCPDCL, APEPDCL, APSPDCL purchase power from various generating
companies including APGENCO in the ratio as per the approvals made by
APERC in the Annual Revenue Requirement (ARR) and transmit the power
through APTRANSCO to DISCOMs for distribution to the consumers. The
DISCOMs file an ARR with APERC which approves the tariff. The gap
between the cost of power and sale is filled by way of subsidy by Government of
Andhra Pradesh.
The sale of power and subsidy received from Government of Andhra Pradesh is
the main source of revenue for DISCOMs.
APGENCO: Andhra Pradesh Power Generation Corporation Limited has
entered into a Power Purchase Agreement with DISCOMs for sale of power.
The Power Purchase Agreement is approved by APERC. The sale of power to
DISCOMs is the main source of income for APGENCO. The power to
DISCOMs is transmitted by APTRANSCO.
APTRANSCO: The main business of AP TRANSCO is transmission of power
from the power producers including AP GENCO and Private Power Producers to
the Distribution Companies i.e., DISCOMs. APTRANSCO files an ARR with
APERC for transmission charges. The transmission charges are the main source
of revenue for APTRANSCO.
In course of audit of receipts, it should be first seen that the procedures followed
are adequate to secure an effective check on the assessment, collection and
proper accounting of revenue. The various processes and stages of collection
and accounting should be examined in detail in order to ascertain the defects and
short comings, if any, of the system involving the risk of leakages or commission
of irregularities. Regarding fixation of tariffs, APERC is empowered to do so
subject to approval of the same by Government of A.P. from time to time.
4.17.3 Classification of consumer categories
The classification of consumers under different categories both under LT supply
and HT supply shall be specified by the Commission in the Tariff Orders issued
from time to time or by any other order of the commission (Clause 3.3 of
GTCS).
228
PART ‘A’ HT TARIFFS: Consumers having loads with a contracted
demand of 70 KVA and above and or having connected load
exceeding 75 HP/56 KW excepting LT III (B) Industrial
Category
HT Category-I This tariff is applicable for supply to all HT Industrial
consumers
HT Category-II Non-industrial - Tariff is applicable to all HT consumers
other than those covered under other HT Categories
HT Category-III Deleted
HT Category-
IV(A)
Government Lift Irrigation schemes
HT Category-
IV(B)
Agriculture
HT Category-V Railway Traction
HT Category-VI Townships and Residential Colonies
PART ‘B’ LT TARIFFS: Applicable to LT consumers with a connected
load of 56 KW/75 HP and below including LT-III (B)
Industrial Category
LT Category-I Domestic
LT Category-II Non-domestic and Commercial
LT Category-III
(A)
Industrial Normal Category
LT Category-III
(B)
Industrial
LT Category-IV Cottage Industries and Dhobighats
LT Category-V(A) Agricultural with DSM Measures and without DSM
Measures
LT Category-V
(B)
Agricultural - Out of turn allotment - Tatkal scheme with
DSM Measures
LT Category-VI Street Lighting, PWS Schemes
LT Category-VII General Purpose
LT Category-VIII Temporary Supply
4.18 Tariff Definitions
The following are the important definitions applicable for Tariff.
Contracted demand or Contracted Maximum Demand means the maximum
demand the consumer intends to put on the system as described in the supply
agreement between the parties.
Power Factor The power factor for the month shall be the ratio of Kilo-Watt-
Hours to Kilo-Watt-Ampere-Hours supplied to the consumer during the month.
The power factor shall be calculated upto two decimal places. The power factor
of the consumer’s installation shall not be less than 0.90. If the power factor
229
falls below 0.90 during any month, the consumer shall pay a surcharge as
detailed in General Conditions of HT supply of Tariff Order. For the purpose of
conversion of load from KW to KVA, KW is divided by 0.85 and vice-versa.
Similarly one KVA = 1.14 HP approximately. By using these ratios we can
convert one form of Load into another.
Demand Factor: It is defined as the ratio of the actual maximum demand by
load to the total connected load.
Demand Factor = Maximum demand
Connected Load
Load Factor: It is defined as the ratio of the average of the power requirements
during a particular period to the maximum demand. In other words, it denotes
the extent of utilisation of Electric Power. Load factor is improved by reduction
of maximum demand which is achieved by increasing the diversity for certain
installation.
Load Factor = Average Power
Maximum Power demand
CONNECTED LOAD means the aggregate of the manufacturer's rating of all
the apparatus including portable apparatus on the consumers’ premises which is
supplied with energy at the same rate. This shall be expressed in KW or H.P. If
the ratings are in KVA the same should be converted to KW by multiplying the
KVA with a power factor of 0.90. If some or any of the apparatus is rated by
manufacturers in HP, the HP ratings shall be converted into KW by multiplying
it by 0.746.
ENERGY CHARTS: Quantity of Electricity consumed per month shall be
worked out as under:
Industrial: Industries working in
One Shift : MD in KW x 8 hours x No. of working days between 25 and 30
Two Shifts : MD in KW x 16 hours x No. of working days between 25 and 30
Three Shifts: MD in KW x 24 hours x No. of working days between 25 and 30.
4.19 Non Industrial and Agricultural
MD in KW x 10 hours x No. of working days between 25 & 30 days.
Procedure to be followed when the meter is defective or ceased to function:
i) The No. of units to be billed during the period in which the meter ceased to
function or became defective, shall be determined by taking average of the
230
electricity supplied during the preceding three billing cycles to the billing
cycle in which the said meter ceased to function or became defective
provided that condition with regard to use of electricity during the said
three billing cycles were not different from those which prevailed during
the period in which the meter ceased to function or became defective.
(Clause 7.5.1.4.1 of General Terms & Conditions of Supply)
ii) If the conditions with regard to use of electricity during the periods as
mentioned above were different, assessment shall be made on the basis of
any (3) three consecutive billing cycles during the preceding 12 months
when the conditions of working were not different.
(Clause 7.5.1.4.2 of General Terms & Conditions of Supply)
iii) Where it is not possible to select any (3) three consecutive billing cycles
consumption as indicated in the clause 7.5.1.4.1 or 7.5.1.4.2 or if above
there is no meter installed the No. of units shall be assessed by the
ADE/DE of the area on the basis of Assessment Rules in Appendix-XII of
GTCS. However, in the case of industrial consumers due consideration
shall be given to the production figures and conditions of working in the
period under question.
(Clause 7.5.1.4.3 of General Terms & Conditions of Supply)
(iv) The assessment shall be made for the entire period during which the status
of defective meter can be clearly established subject to a maximum period
of 3 months prior to the date of inspection in the case of Domestic and
Agriculture and 6 months in the case of other categories.
(Clause of 7.5.1.4.4 of GTCS)
4.19.1 Service Connection Para 104 of APED Manual
Register of applications for service connections should be seen to ensure that:
a) The register is maintained properly and kept up to date and all columns of
the application form are properly filled in and complied with, including
deposit of security
b) The connections are given in the same order as the receipt of applications
and approval by the competent authority,
c) That the service connection register is closed every month and a detailed
abstract of service connection (Category-wise) is prepared showing the
number of connections released during the month and number of pending
231
applications. It should also be ensured that abstract is signed and approved
by the Asst. Divisional Engineer and
d) The load is sanctioned by the competent authority.
4.19.2 Detailed estimate for service connection
It should be seen that:
a) The estimate has been sanctioned by the competent authority and the
expenditure incurred on the service line is within the sanctioned estimate;
b) The AE/ADE as the case may be, has inspected the premises to fix the
point of supply, the situation of the meter board etc, before preparing the
estimate. He should also ensure that the service line is well designed and
so constructed that the proportionate cost chargeable to the consumer is
correctly debited initially,
c) That the cost of the estimate is charged to the consumer after deducting
free allowance,
d) The rates showing the estimate agree with the schedule of general service
and service charges approved by the APERC and approved by State
Government. In case of any difference the reasons for variations should be
investigated and got revised accordingly,
e) The material requisitioned agrees with that mentioned in the estimate and
that there is no excess drawal of materials and
f) That the material required to be dismantled from the premises has been
given credit in the estimate and labour charges for dismantlement have also
been incorporated in the estimate.
4.20 Consumer Ledger (Para 287 of APED)
The Consumers Ledger is a continuous and up to date record of all transactions
of a consumer on account of energy supplied and payment made therefore and is
maintained as per instructions of APED Manual.
It should be seen that:
a) the ledger is maintained in proper form and all the columns of the ledger
are filled in, viz., full particulars of consumer name, service connection
No., address of the consumer, contracted load and connected load, date of
connection, category applicable as per agreement,
b) the connected load/contracted demand recorded in the ledger is correct
with reference to the applications and corresponding test reports and is
attested by the Revenue Accountant,
232
c) the tariff and rates applied for are correct,
d) the consumption of energy is correctly recorded in the ledger from the
meter reading record,
e) the surcharge for belated payment was correctly levied in the ledger,
f) the meter rent and other fixed charges are correctly indicated in the ledger,
g) the collections have been correctly posted from the duplicate copies of
revenue receipts,
h) the monthly minimum charges or shortfall in AMG or special guarantee are
levied where ever necessary,
i) all the new service connections have been entered in the ledger
j) the balance of each item is struck and the outstanding amounts are carried
forward to the next month,
k) the amounts of the consumers whose service connections are disconnected
for non-payment of dues are received before they get time-bared,
l) the monthly debits in respect of individual consumers agree with those
shown in the bills analysis and the billing suspense ledger,
m) the ledger is periodically reviewed by the AAO and
n) the cases of old and heavy amounts of arrears are scrutinised to ascertain
whether necessary disconnection notices have been served.
4.21 Meter Registers
Para No.244 of APED Manual provides that an account of receipt and issue of
meters shall be maintained in each sub-division, all new meters received in stock
should first be tested and calibrated and then only issued for being put into
service.
It should be seen that:
i) all the meters received in the sub-division have been accounted for in the
register,
ii) all dismantled meters (burnt or defective) received from the premises of the
consumers have been entered in the register,
iii) the meters are issued on the basis of service connection order or meter
change order and the number and date of the same are recorded in the
meter register and
233
iv) an abstract of receipt and issue of meters is prepared every month and
approved by the Asst. Divisional Engineer. Physical verification of the
ground balance is conducted and tallied with the register and a certificate
of its correctness is recorded by the ADE.
4.22 Disconnection and Reconnection (para 203 and 205 of APED)
Every consumer is expected to make payment of his dues by the due date. In the
event of any bill not being paid fully on the due date, APTRANSCO reserves the
right to disconnect the service after giving 7 days notice. In the first instance the
disconnection is required to be made on temporary basis, but if the consumer
fails to get his premises reconnected within reasonable time (30 days) after
fulfilling requisite formalities the disconnection has to be effected on permanent
basis. In case the seals of the metering equipment have been tampered with by
the consumer, the service may be disconnected by the competent authority.
It should be verified in audit that:
i) the temporary disconnection order has been issued in time and carried out
by the line staff without fail and within the prescribed time,
ii) reconnection is allowed after recovery of necessary fee and ensuring
compliance of requirement and
iii) premises are permanently disconnected in the circumstances specified in
the APED Manual.
4.23 Register of Permanent Receipt Books :
It should be seen that:
a) the receipt books received through Divisional Engineer's office are duly
accounted for in the register;
b) the dated signatures have been obtained in the register while issuing the
receipt books to the authorised officials/cashier and return of the used
receipt books is properly watched;
c) the accounts of all the receipt books are maintained and the total number
of unused receipt books tallies with the physical balance of receipt books
in hand;
d) the pages count certificate has been recorded by the competent authority
on each receipt book;
e) ordinarily more than one receipt book should not be issued at a time and a
new book should be brought into use only when the old one is exhausted;
234
f) the P.Rs in respect of which amounts due are not collected, are properly
surrendered to the ERO by all the Bill collectors every month after
reconciliation;
g) all such P.Rs (uncollected) are cancelled under A.A.Os attestation after
entering in the Register, duly reconciling the debits and credits of that
month; and
h) the cancelled P.R is attached to the counter foil in the P.R. book.
4.24 Petty Cash Book (P.C.B.)
It should be seen that:
a) the PCB is written on the same date as the Bill collector’s remittance
challan (B.C.R.C.) is written;
b) the P.C.B. reference to BCRC Page number is given;
c) the daily total of the P.C.B. and B.C.R.C. agree;
d) the amount of P.C.B. is remitted into Bank promptly and that a reference
to the pay-in slip (Bank remittance challan No.) is given in the P.C.B;
e) any unremitted balance amount of the B.C.R.C. is remitted at least on the
next day and included in the pay-in-slip of the next day and a reference to
the pay-in-slip is given in the P.C.B;
f) the P.C.B. along with the B.C.R.C. and pay-in-slip is sent to the ERO
promptly and
g) the P.C.B. amount is taken into cash book promptly.
Cash Book (Revenue):
It should be seen that:
a)....Columnar Cash book is maintained;
b)....no pages or lines are left blank;
c)....strikings, and erasures are avoided and corrections, if any, are promptly
attested by the officer-in-charge;
d)....Cash book is closed daily and the closing attested by the officer-in-charge
4.25 High Tension Services
The audit of H.T. Billing should be conducted with reference to:
a) Tariff for H.T. Connection.
b) Terms and conditions of Supply.
235
c) Agreements with consumers
d) The restrictions and control orders, issued by Government on power cut
and Load Shedding.
e) Test reports
f) APED Manual Vol.I (Para 179 to 199)
4.26 While conducting the audit of H.T.Services, the following special points
should be seen:-
i) Surcharge for Low Power Factor - Power Factor for HT consumers (Clause
12.2.1.of GTCS)
During the audit of H.T.Service connections, it has to be examined that the
power factor recorded in the month does not fall below 0.90 and that in case of
poor power factor the consumer is liable to pay a surcharge as fixed in the Tariff
Order by the APERC from time to time. The implication of power factor in the
transmission system is outlined in Tariff.
ii) Additional charges for Maximum Demand in excess of the contracted
demand
It should be seen that where maximum demand recorded has exceeded the
contracted demand (with licensee), that portion of the demand in excess of the
contracted demand will be billed at twice the normal rate.
iii) Voltage Surcharge
HT consumers who are now getting supply at voltage different from the declared
voltage and who want to continue taking supply at the same voltage will have to
pay voltage surcharge at the rates prescribed in the Tariff Order.
iv) Restrictions and Controls
Consumption in excess of the quota prescribed (maximum demand and energy)
during the restriction and control period also attract penal charges. It has to be
examined in audit whether the penal charges are being enforced.
v) Consumption Pattern
It has to be seen in audit, whether the consumption pattern of H.T. Services has
been reviewed and abnormally low/excess consumption is investigated.
vi) Pursuance of Court Cases
In respect of Court cases, audit has to examine whether the interests are
sufficiently safeguarded by proper pursuance of the cases.
236
4.27 Revenue from L.T. Services : is assessed, collected and accounted by
the Electricity Revenue Office headed by an Assistant Accounts Officer and he is
responsible for the correct assessment and collection of revenues.
The main checks to be exercised in respect of some of the important records in
the Electricity Revenue Offices are mentioned below.
4.28 Meter Card
It should be seen in audit
a) that meter cards are being received every month in the Electricity Revenue
Offices (E.R.O.) from the Sub-Division/Section Office by the prescribed
dates.
b) that in the case of non-receipt of meter cards in respect of any consumer,
the matter is referred to the field officer concerned.
c) that the meter readings are being taken every month on the prescribed date.
d) that the consumption of energy arrived at in the meter card is correct
e) that in the case of abnormally low or high consumption reasons are called
for from the field officers and satisfactory explanation is obtained.
f) that in case of door locks consecutively for two months the service is billed
for the minimum charges and orders for disconnection of service are issued
after giving 24 hour notice to the consumer concerned.
g) that the stuck up meters are replaced promptly, during "meter stuck up
period" the consumption is billed on the basis of the 3 months average
consumption immediately preceding the period of meter stuck up, if the
meter is not replaced promptly there will be loss to APTRANSCO as the
tendency of the consumer would be to consume more energy as the stuck
up meter would not record the consumption and the billing would be on the
basis of average consumption; and
h) that whenever the meters are removed for periodical testing or for other
reasons, full particulars in respect of the substitute meters including the
initial readings are noted in the meter cards.
4.29 New Services
It should be seen
a) that the meter cards along with the Test reports indicating all the required
particulars are sent by the field office to the E.R.O. immediately a service
is released.
237
b) that agreements executed by the consumers are also sent promptly to the
ERO.
c) that a service connection No/Account No. is assigned to each new
consumer and accounts are opened in the consumer ledger for each service
and relevant particulars noted therein:
d) that the bill is issued in each case.
e) that all particulars are noted in the `Service Connections Register'.
f) that reconciliation has been done in respect of all new service connections
noted in the `Services Connection Register' and consumer ledger in a
month with those indicated in the field officers monthly "Return of New
Services released" during the month and
g) that the consumption deposit is obtained before release of a new service.
4.30 Register of Agreement
It should be seen
a) that in respect of all power services, agreements are received and all
particulars are noted in the register.
b) that all agreements are linked up with the consumers ledger.
c) that in case of non-receipt of agreements the matter is being pursued with
the field officer and.
d) that in case of unlinked agreements the matter is referred to the field
officers concerned to state whether and if so when the supply is released.
4.31 Register of Test Reports
It should be seen
a) that the Test Reports (T.R.) are received for all services released.
b) that the T.R.s received are entered in the Register with all the required
particulars.
c) that the T.R.s are distributed to various ledger clerk promptly and
acknowledgements obtained and necessary accounts opened in the
consumers ledgers.
4.32 Bill Book Abstract (B.B.A)
It should be seen
a) that the amount of each bill as shown in the BBA is correct as per the
amount indicated in the consumer ledger.
238
b) that the dates of collection of individual bills as indicated in the B.B.A are
the same as recorded in the BCRC (Bill Collector’s remittance challan).
c) that in case of uncollected amount of the bills issued the concerned
Permanent Receipts (P.Rs) are returned to the ERO by the Bill Collectors
on 15th and 21st of every month and
d) that the total amount of B.B.As in a month is tallied with that of the
monthly debits posted in the consumers ledgers and in Bills Analysis.
4.33 Bills Analysis
It should be seen
a) that the Bills analysis is prepared in respect of various consumers category-
wise and distribution-wise as per consumer ledger,
b) that the debits posted in the Bills Analysis agreed with the debits recorded
in the consumers Ledgers and B.B.A.
c) that the credits noted in the Bills Analysis agreed with those posted in the
consumers ledgers and also with those noted in the B.C.R.Cs and
d) that the monthly closing of balances of the consumers ledgers, Bills
Analysis are reconciled and tallied with Financial Ledger (Billing Suspense
Account Ledger)
4.34 Bill Collector’s Remittances Challan (B.C.R.Cs)
It should be seen
a) that the amounts noted in the B.C.R.C as having been collected with
amounts shown as due in the B.B.A and the consumer ledgers.
b) that the total amount collected each day as shown in the B.C.R.C. of each
distribution is remitted into the authorised Bank promptly and the Bank
remittance challan for that amount obtained.
c) that the amount noted in the P.C.B. (Petty Cash) for that day is the same as
that noted in the B.C.R.C. and in the pay in slip (Bank Remittance
Challan).
d) that the P.C.B., B.C.R.C. and pay in slip are sent to E.R.O promptly by the
field officer.
e) that the amounts noted in the B.C.R.C. are posted correctly and promptly
in the individual consumer ledgers and Bills Analysis and
f) that Permanent Receipts(P.R) numbers and amounts noted in the B.C.R.Cs.
are the same as noted in the B.B.A. and (Consumer Ledger)
239
4.35 Percentage Checks Register
It should be seen whether the percentage checks register is being maintained by
the Billing Superintendents, Accountants and AAO and whether there is
indication therein to the effect that the required percentage of check of bills etc.,
is being exercised
4.36 Register of Demand Drafts and Cheques
It should be seen:
a) that all DDs and cheques received are being taken into the register and
accounted for in the cash book promptly the next day or at least with in
three days.
b) that the DDs and cheques are remitted into the Bank promptly
c) that cash book folio numbers and Bank remittance voucher numbers are
linked in the Register.
d) the remittances of the DD and cheques into the Bank are verified to ensure
that there is no undue delay in depositing the amounts and cases of
inordinate delay should be pointed out any loss of interest due to
remittance of DD/Cheques with inordinate delay should also be brought to
the notice.
4.37 Consumption Deposit Register
It should be seen
a) that the Deposit amount indicated as collected from consumers agreed
with those recorded in the consumer ledger and with the P.C.Bs concerned
and PRs written.
b) that the closing balance in the Deposits register agreed with that of the
balance in the Deposits register agreed with that of the balance appearing
in the Financial Ledger (Consumption Deposits Ledger).
c) that adjustments made through Revenue Journal entries are properly
recorded in the Deposit Register as well as in the consumers ledgers and
financial ledgers.
d) that the adequacy of consumption deposits lying at the credit of individual
consumers is being reviewed annually and additional consumption deposits
collected wherever the deposits fell short of 3 months average consumption
of the preceding year.
240
e) that the adequacy of the existing Consumption deposits is being reviewed
in case of reconnection of services and additional deposits are collected
whenever necessary;
f) that in the case of unlinked items of consumption deposit register with the
consumer ledger, the matter is referred to the field officers and reasons for
not releasing the supply are ascertained; and
g) that the interest on the consumption deposits is correctly calculated and
adjusted in the month of May every year.
4.38 Register of Annual Minimum Guarantee (A.M.G.)
(Para 131(4) APED Manual)
It should be seen
a) that the calendar of A.M.G./special guarantee is being maintained and
reviewed up to date and
b) that the shortfall, if any, in A.M.G./special guarantee is being levied as per
the provisions of agreement and as per the orders of the Board issued from
time to time
c) that in case the agreement is terminated before expiry of the period or
A.M.G., it should be ensured that the balance amount of A.M.G. is
recovered from the consumer.
4.39 Register of Dishonoured cheques
It should be seen
a) that necessary intimation to the party is sent promptly demanding payment
in cash or by D.D. in view of the Dishonoured cheques
b) that necessary cancellation entries are made on the debit and credit sides of
the Cash Book
c) that the fact of dishonour is recorded in the consumer ledger and
d) that the Dishonoured cheque is returned to the party.
4.40 Inward Returns
It should be seen that calendar of returns is maintained in E.R.O. in respect of the
following returns and the receipt of these returns is watched and action is taken
to issue the bills wherever necessary e.g. Items (a) (c) (d) (h) (i) (l) (m) and in the
remaining cases necessary entries are to be made in the consumer ledger etc.
a) Monthly return of New Services released
241
b) Monthly return of Seals and Cut outs
c) Monthly return of consumption deposits collected
d) Monthly return of street light bulbs renewed
e) Monthly return of check reading
f) Monthly return of disconnections
g) Monthly return of street light connections
h) Monthly return of reconnections
i) Monthly return of temporary services released
j) Monthly return of replacement of single phase/three phase meters
k) Monthly return of replacement of stuck up meters
l) Monthly return of street light fixtures
m) Monthly return of street light points changes
n) Monthly return of dismantled of services
4.41 Register of theft of energy
It should be seen
a) that all cases of theft of energy as reported by the field officers are entered
in the Register with all relevant particulars
b) that necessary bills are issued for the amount of assessment and
c) that the amount are being collected and brought into account.
4.42 Register of cancelled Permanent Receipts
It should be seen that the P.Rs in respect of which amounts due are not collected,
are properly surrendered to the E.R.O. by all the Bill Collectors every month
after reconciliation;
a) that all such P.Rs (uncollected) are cancelled under A.A.Os attestation after
entering in the Register, duly reconciling the debits and credits of that
month; and
b) that the cancelled P.R. is attached to the counterfoil in the P.R.Book.
4.43 Installment Registers
At times where dues are heavy the consumer is permitted to pay a part of the
amount and the balance in instalments. In such cases, it should be seen,
a) that the number of instalments and the amount of each such instalment
sanctioned for payment of current consumption charges (C.C.charges) are
within the powers of the authority who sanctioned them;
b) that the consumer is paying regularly as per the instalment sanctioned.
c) that the interest is calculated correctly at the prescribed percentage and the
instalments are properly calculated;
d) that disconnection orders are issued in case of default in payment of any
instalment by the due dates sanctioned; and
242
e) that 18 per cent simple interest besides 2 per cent surcharge for belated
payment is levied on the instalments.
4.44 Outstanding Ledger (O.L.)
a) It should be seen that services disconnected for non-payment of dues are
closed in the consumer ledger and transferred to O.L.
b) that the ledger is being reviewed monthly and action taken for the early
recovery of the dues
c) that consumption deposit is adjusted against the dues;
d) that the monthly minimum charges/customer charges which is inclusive of
meter rent are being levied; and
e) that the assessment statement for such services brought into this ledger is
prepared separately.
f) that these cases are pursued effectively in order to collect the dues early
before they get time barred.
In the revised form of the consumer ledger, the accounts of disconnected services
are also indicated.
4.45 Debit and Credit Reconciliation
It must be seen whether the total monthly debits and credits posted in the
consumers ledgers and the Bills analysis agreed with the total monthly debits and
credits posted in the Billing suspense Account ledger and whether the closing
balances as arrived at in the Bills analysis agreed with the closing balance
appearing in the Financial Ledger and whether discrepancies, if any, are
reconciled promptly.
4.46 Defaulter lists
It should be seen
a) that the defaulters lists are prepared and issued to the field officers every
month promptly on the due dates in respect of all defaulters who did not
pay their bills of current consumption charges before the stipulated time
allowed to consumers
b) that the completed defaulters' list are received back within 3 days from the
field officers indicating the action taken thereon i.e., disconnecting the
defaulters service connection; and
c) that the completed list are reviewed in the E.R.O. and discrepancies, if any,
pointed out to the field officer.
243
4.47 Register of arrears outstanding for more than 2 years
It should be seen that all cases of arrears outstanding for more than 2 years are
noted in the Register to enable filing of suits in Civil Courts before the expiry of
the period of limitation.
4.48 Register of Suit notices and writ petitions
It should be verified whether Execution Petitions (E.Ps) are filed without any
avoidable delay in the decreed cases. All cases should be scrutinised to ensure
that there is no avoidable delay in taking action in time.
4.49 Interest calculation sheets
It should be seen
a) that interest on consumption deposit of consumer is being calculated every
year
b) that a journal entry is passed for the amount and incorporated in the
financial ledger.
c) that the credits for the interest accrued are posted in the consumers ledgers
and adjusted against bills.
4.50 Register of Permanent Receipts Books (PCBs)
It should be seen
a) that the receipts and issue of the permanent receipts books are properly
accounted for and acknowledgements of the concerned obtained; and
b) that the date of completion of the permanent receipt books issued is
notified in the register.
c) it should be seen that proper acknowledgement of the Bill collectors are
obtained for the P.Rs handed over to them in respect of the individual bills
to be collected by them.
4.51 Journal
It should be seen
a) that the monthly demand is properly journalised and posted in financial
ledgers
b) that the orders of the competent authority are obtained for the amounts
waived or written off or demands withdrawn
c) that the amounts written off/waived are properly journalised and
d) that the withdrawals or waivers are noted in the consumers Ledger, bills
analysis, and other relevant register like consumption deposit registers etc.
4.52 Financial Ledgers
It should be seen
244
a) that the following financial ledgers are being maintained properly up to
date and are being written with reference to Cash Book and Journal.
i) Billing Suspense Ledger or Sundry Debtors Ledgers
ii) Revenue Ledger
iii) Consumption Deposit Ledger and
iv) Remittance Ledger
b) that the Ledgers are being checked by the Accountant/A.A.O.
c) that the monthly totals of debits and credits passed in consumers ledgers
agree with the debits and credits to the Billing Suspense Account in the
Financial Ledgers
d) that closing balances of the following are reconciled promptly
i) billing suspense ledger
ii) D.C.B (Demand Collection and Balance)
iii) Bills analysis
tallied and differences, if any, reconciled promptly
e) that the amounts of the remittances shown in the monthly cash book
(branch wise) tallied with the monthly remittances shown in the
remittances ledger maintained.
f) that the closing balance as per the Deposit Register agreed with the closing
balance as per the Deposit Ledger and
g) that the monthly Trial Balance is drawn correctly from the financial
ledgers.
4.53 Annual verification of services
Annual verification of services to be conducted to verify the correctness of the
existing categorisation of the consumers and detect any unauthorised increase in
connected load so as to ensure the correctness of billing of services.
It should be seen
a) that a list of consumers in each distribution is being furnished annually by
the E.R.O. to the Assistant Divisional Engineers concerned for verification
and certification to the effect
i) that the list is complete
ii) that the connected load particulars are correct
245
iii) that the existing categorisation of the services is correct
b) that in case of any increase in the connected load, the increase does not
exceed the contracted load and where it so exceeds, the necessary
surcharge is levied till the unauthorised connected load in excess of the
contracted load is regularised
c) that in the case of change in the categorisation of an existing service, the
change is brought into account in the Consumer Ledger and bills issued
accordingly from the date of such change in category at the tariff rates
applicable to the changed category and
d) that in the case of non-return of lists by any Assistant Engineer in respect
of one or more of the distributions under his jurisdiction the matter is being
pursued vigorously for the return of the lists after due verification and
certification.
4.54 Billing & Payment (Clause 8.1., 8.2.):
The procedure for issue of electricity bills by the company to consumers and for
payment of electricity bills by consumers shall be in accordance with the
‘Electricity Supply Code’. Regulation, which contains interalia for billing,
contents of the bill, the procedure for normal and advance payment of bills,
various modes of payment of bills.
4.55 Advance collections
Where the consumers desire to pay in advance such advance collections will be
accepted in E.R.O. and necessary entries are made in the card to this effect.
Rebate is allowed to consumer making advance payments. Consumers making 3
months advance payment @ 2% rebate, 6 months advance payment @ 4% and
8% for 12 months.
4.56 Surcharge or Additional charges for belated payment of bills
The consumer shall pay an additional charge (surcharge) on the amount of the
bill for the period of delay if he does not pay the bill within the prescribed
period. The amount of additional charges shall be rounded off to nearest rupee.
The additional charges in this respect would be indicated in the Tariff.
The Revenue Cashier/Bank shall also receive the amounts beyond 14th but up to
21st of the month together with surcharge amount. The fact of surcharge
collection will be recorded by the Revenue Cashier/Bank on the card as well in
the B.C.R.C. distinctly, without there being any need for a bill in this regard or a
reference to E.R.O. after 21st of the month the payment relating to the month
will only be accepted at the E.R.O. with due surcharge.
246
4.57 Preparation of defaulter list
The revenue cashier shall attend E.R.O. on 15th of every month to reconcile his
amount. The defaulter lists shall be prepared by ledger clerk with reference to
uncollected cases (Blanks) as per consumer ledger. The list will be reconciled
with list of Revenue Cashier. The defaulter lists are sent to Section Officer on
the same day or next day by E.R.O. No disconnection will be effected if
evidence of payment is shown to the disconnecting authority.
4.58 Accounting
The consumers’ ledger relating to slab system consumers will be maintained
separately in a suitably devised form to facilitate the annual adjustment and
review. The consumers ledgers shall be category wise, Meter reading cycle-wise
and distribution-wise. This will make it easy both for the billing clerk and the
Supervisory staff to review the ledgers.
Credit postings will have to be made every month. The grouping register slab-
wise will facilitate totalling and also highlight the cases where recovery has not
been effected.
4.59 Operation and Maintenance branch
Operation and Maintenance Branch is the controlling section for formulating the
`Operation and Maintenance Budget' forming part of the budget. It also watches
the progress of expenditure relating to operation and maintenance items of work.
Besides controlling the O & M expenditure of the field offices through
continuous monitoring of the information, it is also responsible for operating the
Budget provision allotted in respect of the Headquarters office at Hyderabad.
Following items of work are also attended by the O & M Branch.
1) Cost of power generated;
2) Excise duty payable to the Central Government on the units of power
generated reduced by the unit consumed by auxiliaries.
3) Loans obtained from the Life Insurance Corporation of India - interest
calculation thereon;
4) Loans obtained from the State Government - Interest calculation thereon;
5) Any subsidy receivable from the Government under any directive issued by
the State Government;
6) Calculation of depreciation on assets;
247
7) Transfer of assets - this includes assets taken over by APTRANSCO and
APGENCO from any Electricity undertaking or transfer from erstwhile
Board’s assets
8) Raising of bills in respect of inter-state exchange of power;
9) Intangible assets;
10) Common research fund.
4.60 Certain of the above aspects are seen during the course of audit of
initial accounts and the remaining e.g.,
a) Subsidy receivable from State Government
b) Depreciation on assets
c) Transfer of assets and their considered value
d) Excise duty finally settled and paid
e) Final position of settlement of bills relating to inter-State exchange of power
f) Interest paid/payable on loans from LIC of India/State Government/Financial
institutions etc., are seen during course of audit of Final Accounts as the final
position would be known then only.
4.61 Cost of power available to State Government
Wherever power projects constructed by the Government have not been
transferred to the erstwhile Board, the cost of power drawn by the Systems of the
erstwhile Board is payable to the State Government e.g., Machkund Hydro
Electric Scheme, Tungabhadra Hydro Electric Scheme. The accuracy of
payments made and claims pending are to be checked with respect to the pro-
forma accounts prepared and credited separately.
4.62 Grants-in-aid received:
It should be seen whether each grant is separately accounted for indicating the
expenditure there against and the amount of grant has been utilised on the
specific subject for which it has been sanctioned.
4.63 Common establishment charges:
There are certain establishments which are common to the the State Government
as well as Chief Engineer Projects, Chief Engineer Generation and their office
staff, staff engaged on the work of Srisailam Hydro Electric Project of
APGENCO. The establishment charges are recoverable up to the agreed extent
from the State Government as the whole expenditure is borne by the APGENCO
initially.
248
It is to be seen that the recovery from the State Government is regularly made
and the amounts so claimed and recovered are correct as per agreed proportion,
and the expenditure as well as the recovery are correctly accounted for in the
books of the APGENCO.
4.64 Termination of agreement in respect of HT supply
B.P.Ms.No.215 dt.9.3.1990 (Clause 5.9.4.2)
The consumer is at liberty to seek reduction or termination of the agreement by
giving three months’ notice in writing expressing his intention to do so at any
time after the period of two years from the date of commencement of agreement.
The company can terminate the agreement, at any time giving 3 months notice if
the consumer violates the terms of the HT agreement or GTCS or provisions of
any law and including the Act and Rules made there under APER Act 1998.
4.65 Termination of LT agreement and HT agreement on account of
disconnection (5.9.4.3):
When any consumer whose supply is disconnected for non-payment of any
amount due to the Board on any account, fails to pay such dues and regularise his
account within three months from the date of disconnection, the company shall
after completion of 3 months period after issuing one month notice for
termination of Agreement, may terminate the agreement with effect from the
date of expiry of said one month notice. Such termination shall be without
prejudice to the rights and obligations incurred or accrued prior to such
termination. The amount due under any Special Guarantee shall be recoverable
not withstanding such termination as liquidated damages.
4.66 Billing Suspense Ledger
The energy sold is journalised and taken into account every month by debiting,
billing suspense account and crediting respective revenue accounts. The amount
collected is credited to the billing suspense account. The demand assessed
always tend to be more than the amount realised, this account shows a "Debit
Balance". This has to be maintained circle-wise/Billing superintendent-wise/
distribution-wise as is convenient to suit the requirement of the electricity
revenue office. Each circle or distribution of the billing suspense as the case
may be shall have the opening debit balance at the beginning of the month.
ii) Each distribution or circle will have to be posted with the debits
(assessment) in the debit column of the ledger. On the folio columns, the
journal voucher number in which the assessment has been journalised has
to be indicated.
249
ii) Credits in the billing suspense have to be posted in the credit column duly
indicating the cash book folio number in the folio column. The credit
postings should be done as per the seriatim in the cash book. The date on
which the receipts have been accounted for in the cash book has to be
indicated on the left hand side of the margin in the billing suspense ledger.
iv) Adjustment entries by way of withdrawal of assessment will have to be
posted on the credit side of the billing suspense duly indicating the journal
voucher number against each of the claims, corresponding debit postings
go to the revenue ledger account. Similarly, whenever arrears are adjusted
from consumption deposit the amount adjusted should be posted in the
credit side of the billing suspense ledger duly indicating the voucher
number in the folio column of the ledger.
All the debit postings have to begin with word to and all the credit postings shall
begin with word By. Similarly, inter-office transfers also have to be posted on
the debit or credit side as the case may be duly crediting or debiting the
particular office. At the end of the month, the monthly total as well as the
progressive totals have to be struck. The debit balance i.e., outstanding shall be
carried over to the next month as `To balance brought down'.
After completion of similar postings for all the Sections or circles as the case
may be abstract of distribution-wise/circle-wise opening balance, debit and credit
and closing balances, has to be struck in the front pages of the ledger. Monthly
abstract in the front pages of the ledger will be supported by detailed postings
circle-wise distribution wise.
4.67 Revenue ledger
For all the revenue accounts in the E.R.O., one revenue ledger has to be
maintained separately. The revenue ledger is for the financial year. The break-
up of the total assessment for the billing suspense will have to be exhibited under
different revenue heads on the credit side duly writing `By billing suspense
ledger'. In the folio column, the journal voucher number has to be indicated
whenever an assessment is withdrawn, the particular revenue head is debited to
billing suspense and credit is afforded to the concerned section or circle billing
suspense ledger entering by revenue account number in the progressive balance
has to be carried forward till the end of the financial year. An abstract of
Revenue ledger credits accounts head-wise has to be maintained in the front
pages of the revenue ledger one column containing figures during the month and
the other column containing figures to end of the month. This abstract should be
maintained in forms in the front pages. The total credit of the revenue ledger
250
agrees with the financial progress report total during the month and to end of the
month.
4.68 Internal Audit
An Internal Audit organisation was constituted by the erstwhile Board from 1st
April 1963 under Section 69(1) of the Act. The organisation functions under
the control of the General Manager (Internal Audit) in DISCOMs. The
scope and functions of Internal audit were laid down in a Memo dt:24.10.64 but
no Manual listing the duties and functions of the internal audit department has
been compiled.
The Internal Audit department is headed by Deputy Chief Controller of Accounts
(Audit) who is assisted by Regional Assistant Internal Audit officers stationed at
different parts of the State. The Regional Assistant Internal audit officers in
addition to post audit of accounts and vouchers received from the units conduct
the local inspections of the revenue offices and some of the Divisional offices.
The erstwhile Board also formed Inspection parties comprising Accounts
Officer, Accountant/UDC for each party to conduct expenditure audit in
connection with generation of electricity, construction of transmission and
distribution lines and sub-stations including its maintenance. The pre-check of
Pay Fixation Statements of the employees at Headquarters office, price variation
claims preferred by the supplier is centrally carried out in A.D.H. section offices
and some of the divisional offices. The Regional officers are required to pursue
the objectives with the unit officers and settle them. Serious and important
irregularities noticed are reported by Dy.C.C.A (Audit) at Head quarters for
further examination. The Internal audit wing is also entrusted with the
investigation of frauds and carry out surprise checks on engagement of labour,
verification of stores, cash etc.
The Internal Audit organisation as an effective tool of management should
normally exercise the following checks:
1) to review the soundness, adequacy and application of accounting, financial
and operational control
2) to ascertain the extent of compliance with the prescribed plans and
procedures and the accuracy of accounts and other data developed within the
organisation.
3) to make constructive suggestions for improvement
4) to review and report the action taken by the authorities on the points brought
out in previous audit reports, both internal and external.
251
During local audit, the internal audit reports may be scrutinised and any serious
irregularity referred to therein may be suitably commented in the Inspection
reports. The adequacy or otherwise of the follow up action taken in such cases
may also be commented upon wherever necessary.
4.69 Audit of Expenditure
4.69.1 General Principles
The general principles of audit defined in Section IV of Comptroller and Auditor
Generals MSO (Tech) Vol.I and relevant chapter of OAD Manual and Manual of
Instructions of Public Works Offices will apply for audit of expenditure.
The initial accounts of the erstwhile Board are maintained on monthly basis by
various units, viz., ERO Divisions, Circle and Project offices and the accounts
are subjected to local audit. The annual accounts based on trial balances relating
to the ERO/Division/Circle and Project offices are also checked by audit
annually in the circle offices.
While conducting the audit of expenditure, it should be seen whether the Rules,
Regulations and procedures framed by the erstwhile Board to secure an effective
check on the various items of expenditure are being observed. The specific audit
checks to be applied on various records connected with expenditure are outlined
below. These are being followed even after the Board has been restructured as
Companies.
4.69.2 Audit of vouchers
The selection of vouchers for audit is to be made based on the statement of
expenditure furnished by the unit and quantum of checks prescribed by C&AG
.The general principles of audit specified in MSO (T) Vol.I are taken into
account in the audit of vouchers. Before taking up the vouchers for audit it
would be necessary to check the vouchers with the monthly accounts to ensure
that all vouchers have been rendered to audit and that there are no missing
vouchers. If any missing vouchers are true they should be mentioned in the
inspection report.
The following instructions may also be borne in mind:
i) audit of establishment vouchers has to be conducted with reference to the
service book, leave account and salary register
ii) ex-gratia payments have to be audited with reference to the emoluments for
the year after adjusting excess pay recoveries, leave without allowance etc.
252
iii) pension and gratuity vouchers have to be verified with reference to
sanctions noted in the pension payment register
iv) audit of vouchers for purchases, work advances and contingencies may be
carried out with reference to purchase orders, agreements and sanctions
respectively.
4.70 Material management in APTRANSCO, APGENCO and
DISCOMs:
4.70.1 Introduction
The cost of materials is the largest single item of expenditure of the above said
organisations. Approximately 70 per cent of the expenditure is made up of
purchased materials. This puts a great responsibility upon those engaged in
purchasing who must wisely utilise funds on purchase of materials. Purchasing
has impact on quality of work, the size of inventory and the smooth progress of
works. These affect costs. These above said organisations have therefore
constituted “Purchasing and Materials Management” as a distinct functional area
essentially covering the procurement of materials and their flow into the field.
4.70.2 Purchase organisation
There are three Purchase organisations each for Operation stores, Project stores
and Civil works, there are two Purchase Committees (Labour Purchase
Committee, Stores Purchase Committee) constituted by the erstwhile Board to
scrutinise and process the tenders up to certain financial limits and recommend to
the Board for acceptance and placing of orders. The field Superintending
Engineers and Divisional Engineers have also been delegated powers for the
Purchase of Stores up to certain limits.
There is also a centralised system of purchases under the Material Management
Organisation headed by Chief Engineer (P.M.M.) who makes major purchases
required by Operation and Maintenance wing. Further, the purchases relating to
Thermal Projects (up to commissioning) are entrusted to Chief Engineer
(Thermal Projects) and stores required for construction, operation and
Maintenance have been entrusted to Chief Engineer (Generation), Chief
Engineer (Transmission).
4.70.3 Procedure
Para 396 of the A.P.E.D.Manual Vol.I lays down that the field officers should
send half yearly requirements for the stores to the Chief Engineers by first week
of January and July each year. The indents are scrutinised at the Chief
Engineer's office and after consolidation and due publicity the tenders received
are processed by the appropriate committees and purchase orders for a year's
253
requirement are placed on suppliers. The follow-up of supplies on these orders
is made by the officers in charge of Central Stores to which the materials are to
be supplied.
4.70.4 Key areas of Materials Management
Materials Management embraces almost all activities of electricity industry as
against the formal demarcation covering procurement of materials and their flow
into the field. The key figures in the area of materials management are those
involved in
i) materials budget
ii) purchasing of materials
iii) materials inflow and inventory control
(i)(a) Material Budget
It is essential to prepare a detailed budgets for materials linked with activity
plans and financial plans, as a part of annual planning and budgeting.
Material planning for distribution and rural electrification works calls for the
greatest ingenuity on the part of the Materials Manager.
Firstly, there are unforeseen demands to cope with. These arise mostly on
account of uncertainties in regard to availability of funds. Revision of budgetary
provisions during the course of the financial year is a common occurrence.
While a modest budget provisions is assumed to start with almost invariably
unforeseen demands arise at short notice. This is generally for a new programme
by way of intensive or extensive electrification of certain select areas arising out
of socio-economic and even political considerations. This is also due to sudden
demand that arises not infrequently for rectification of damaged lines and
equipment in natural calamities like floods and cyclones where distribution lines
are the most vulnerable.
Secondly, the supplier failure is on high side in this area. There are as many as
hundred and fifty items of major materials to be procured, most of them from
small scale manufacturers.
Now it is well known that Rural Electrification is a losing venture for State
Electricity Boards and that it is undertaken only as a socio-economic obligation.
Hence, it is imperative that maximum cost reduction should be aimed at by
efficient materials management.
Faced with the paucity of funds for providing the safety/reserve/buffer stocks,
the thought of providing these `cushions' in procurement planning instead of
254
`physical' stocks for the materials required for the distribution and rural
electrification works. Under this scheme provision is made to the extent of 25
per cent towards reserve stock and 50 per cent towards buffer stock. That is 200
per cent of the actual annual requirement is normally considered for procurement
(the provision of cushion towards safety stock may vary for individual items
depending upon market conditions). Tenders are invited and finalised for the
above requirement and orders are placed on this basis. Deliveries for 50 per cent
quantity towards buffer stock are so phased that in-flows of materials are spread
over the first six months of the next financial year. The inflows against 150 per
cent are so regulated that the cushion against unforeseen demand i.e., the reserve
stock is availed for only to the extent it materialises and also the cushion against
supplier failure in safety stocks.
Lately a "Quantity variation clause" is provided in purchase orders which gives
option to increase or decrease the ordered quantity by 25 per cent to take care of
the fluctuation in demand/supplies.
(b) In Board setup, the Vendor Registration Boards generally go in for open
tenders for procurement of their materials. In urgent cases they go in for limited
tenders for procurement of limited quantities. Global tenders are floated when
procurement is linked with foreign credits like I.D.A. and also when the
requirements cannot be procured from indigenous sources. Bearing in mind that
the right source of supply would take care of all our requirements with regard to
quality, quantity, price and delivery, Electricity Boards should switch to Vendor
Registration System and build up reliable sources of supply for supplies in time.
Reliability of source of supply is a major factor to minimise the lead time and
optimise the inventory holdings. Under this system, the officer in charge of
purchases will collect the information relating to the suppliers from the available
data, catalogues trade directories, and other State Electricity Boards. In addition,
advertisements should be issued in leading news papers, inviting applications
from Vendors for registration, with a view to giving wide publicity and covering
all potential suppliers in the list of vendors. A preliminary list of vendors
prepared thus, will be put up to an evaluation committee which may be called
Vendor Evaluation Committee. The Committee will go into all the data
including past performance and evaluate the suppliers in respect of value, quality
and other aspects. The committee may also, when found necessary, arrange
inspection of the supplier's manufacturing with a view to checking up the
production facilities, quality control facilities, skilled and supervisory man power
available, financial standing, raw material supply facilities and quality of raw
materials orders on hand and any other relevant aspects covering the competence
of the supplier. In general the policy shall be to deal with the manufacturers
255
directly. Manufacturer's agents and stockist come later in the order of priority.
Applications from new vendors should be screened promptly. Advertisement for
registration of vendors may be issued periodically.
The list of vendors will be reviewed by the Evaluation Committee at least every
year. If any vendor's performance is considered unsatisfactory with reference to
quality, delivery, and price or for any other reason to be recorded in writing the
Evaluation Committee can cancel the registration duly recording the defects in
the performance of the vendor. It needs no mention that for the Vendor
Evaluation Committee to be effective it should be free from all pressures and
free to use its discretion.
In this system the enquiries for the purchase of materials will be sent to the
registered vendors without resorting to the usual paper advertisements for each
and every material. A beginning can be made for this type of selective bidding
for major materials like Power Transformers, Distribution Transformers, and
Conductors etc.
Similarly, limited tenders may be invited from five or six vendors in case of
urgency to get them. The enquiries may be sent to the vendors who have quoted
the lowest and whose performance is good in the past.
Normally 30 to 40 days are allowed to the vendors for submitting the tender in
the open tender system and 21 days in the case of limited tender system.
(ii) Purchasing
The Six R’s covering the purchasing principles namely right quality, right
quantity, right time, right price, of delivery and right source of supply should
guide the procurement policy. The factor “Right Source of supply” plays a
dominant role in as much as the other five R’s are taken care of if the Boards
have succeeded in building up right sources of supply. Local sources of supply
should be preferred to avail of the maximum advantages resulting from
proximity.
Global tenders are invited where the indigenous sources are unable to meet the
requirements with regard to specification or delivery following the policies and
procedures laid down by Government of India from time to time. In regard to
materials procured under audit programmes like I.D.A. the relevant procedures
are followed. Normally, 60 days are allowed in the case of Global tenders for
submission of the tender. Publication of tender notice in "Indian Trade Journal"
is obligatory in the case of tenders invited from abroad.
The instability of prices of materials continues to affect material planning. With
a view to ensuring uninterrupted flow of materials as per schedule, price
256
variation in the agreements is now provided for supply of materials especially
where the lead time involved is 22 months or more. At present they adopt
practically the price variation formulae evolved by Indian Electrical
Manufacturer's Association. The price indicates of various aspects are
communicated periodically by IEMA based on which price variation is allowed
on the finished product.
A "Committee" approach is always to be preferred in making purchase decisions.
Advantages of bulk purchasing are availed of. A three tier arrangement
consisting of Board, Stores Purchase Committee and a lower level Stores
Purchase Committee depending on the value of purchases in vogue for
centralised purchases. The Chief Engineers have limited powers which are
required to be used rarely in respect of Head quarters organisation. The Zonal
Chief Engineers, Field Superintending Engineers also exercise purchase powers
in respect of decentralised purchases.
Quality control is exercised by the Inspecting Officers deputed to supplier's
works who will ensure that the "Products" for supply conform to the
requirements of the specification.
(iii) Materials inflow and Inventory Control
The objective is to maintain a balance between a stock holding cost and stock out
cost. The Purchasing Executive has a great obligation to both the Works
Executive and Finance Executives. He has to synchronise the delivery of
purchased goods with the works programme and at minimum inventory levels.
Computerisation is also introduced in the following areas of materials
management:
i) purchase order processing and control
ii) vendor rating
iii) receipts, issues and stock-level of district stores
iv) Stores accounting
The other important areas, viz., standardisation, variety reduction, value analysis
and introduction of new and innovative techniques in the construction methods
which are also part of Material Management are given due importance.
4.71 Stores Accounts
4.71.1 Organisation
The Stores organisation comprises Central stores, Divisional stores and Imp rest
stores (Sub-divisional stores) which are under the control of Superintending
Engineer, Divisional Engineers and Additional Divisional Engineers
257
respectively. Orders for the purchase of material placed by the Chief Engineer
stipulate the supply of material to various stores direct as per the requirement of
each circle. The Divisional Engineer draws the material from the stores based on
their requirements and stock them in the Division stores and the ADE's draw
from the Divisional stores and keep the materials in the Sub-divisional stores for
ultimate use on works.
The stores have been kept under the control of the Engineers who are
empowered to purchase, draw and utilise the stores.
In conducting the audit of stores the normal check to be exercised over the
receipt, custody, transfer, issue and verification of stores has to be conducted
with particular reference to the provisions contained in Stores accounts Manual.
4.71.2 Reserve Stock limit
According to para 458 of APED Manual Vol.I the Board should prescribe
annually the maximum reserve stock limit for each Central stores so as to ensure
that stores are not over stocked beyond the limit of requirements. It should be
seen that normally stocks do not exist more than 3 months’ requirement.
It should be seen that maximum and minimum levels for each item of stores are
noted in the respective bin card and that the overall reserve stock limit has not
exceeded each stores item.
4.71.3 Verification of stores
Procedure for physical verification of stores:
It should be seen that provision laid down in para 459 of APED Manual
regarding Physical verification of stores have been compiled with. Stock
verification reports issued by stock verifying officers for the period under audit
may also be scrutinised and suitable comments made.
It should also be seen that:
i) progress is made in regularisation of shortages and excesses;
ii) proposals for write-off and survey report are submitted to the Chief
Engineer promptly and final orders communicated to the Superintending
Engineer for carrying out final adjustment in the accounts;
iii) follow-up action in calling for explanations from the physical custodians or
obtaining information from the concerned officers to finalise the action on
receipt of the explanation is adequate and prompt; and
iv) cases pending in the courts are being closely followed up to get the stay
orders vacated.
258
4.71.4 Stock found Surplus or Deficit
It should be seen that stock found surplus has been taken as receipt both in
quantity and value accounts and valuation of the same has been made at the
current market rate of the book value whichever is less.
The value of surplus stores has been credited as revenue receipt or capital receipt
as the case may be. In case of shortage of stores, it should be seen that shortage
has been adjusted both in quantity and value as per priced store ledger and the
value thereof has been debited to the personal account of the official(s).
4.71.5 Unserviceable stores
When stores including tools and spares become unserviceable, a report is made
at once on discovery of the fact together with a Survey report. The report
indicates the period during which the articles were held in stores or remained in
use and cause of deterioration and contains the proposal for their disposal. It
should be seen that proper account of receipt and disposal in a proper form and
their disposal has been made after observing requisite formalities.
4.71.6 Loss of stores
Any loss of stores and equipment due to theft, loss or destruction by fire or
otherwise is to be reported to the higher authorities/police. It should be seen that
necessary intimation to this effect is also given to the Resident Audit Officers.
4.71.7 Deficiencies in the maintenance of stores
While conducting the audit of stores records, the following aspects have to be
examined.
(i) Non-fixation of maximum and minimum stock levels for various items,
non/improper maintenance of bin cards and other Stores ledgers, non-
maintenance of registers for rejected materials so as to facilitate correspondence
with the suppliers for speedy settlement of claims, non-accountal of samples
returnable to suppliers, non-conducting delay in conducting of check
measurement for the materials received, non-conducting of inspection of stores
by various officers, incorrect pricing of stores by various officers, incorrect
pricing of stores resulting in existence of stocks with minus values, NIL
quantities with values, etc. in the priced ledger, non-maintenance gate passes and
numerical abstracts, in adequate security arrangements and weighing facilities,
non-standardisation of stores items etc.
ii) Keeping materials in stores un-accounted for, non-conducting of quantity
reconciliation be twin numerical and priced ledger, delay in sending S.R.Bs and
259
S.I.Bs to accounts officers for accounting, want of adequate accommodation and
proper storage facilities at a central place;
4.71.8 Receipt of stores
The first step in receipt of stores is the clearing of packages at destination. While
examining it should be seen that the packages have been cleared promptly on
their receipt at the Railway station and no demurrage/wharfage are paid and there
is no avoidable expenditure in handling. Any discrepancies in weight or
description noticed should be brought to the notice of Railway authorities, and
necessary entries made in Railway Receipt Register/Defective goods Receipts
Register. The causes of any damage or loss have to be taken up with the
consignor after obtaining a certificate of damage and loss from Railways
authorities.
It should be seen in audit that:
i) the stores received have been counted, measured and physically verified as
to quality and quantity before entering in the Goods Receipt Note;
ii) the responsibility has been fixed for any loss consequent to the failure or
delay to report shortages/damages;
iii) the quantity ledger is posted regularly as and when any transaction occurs
and that quantity tallies with the invoice/challan S.R.B. as the case may be;
iv) the maximum and minimum limits have been recorded on the ledger folio
and these are adhered to;
v) the stores ledger has been balanced at the close of an accounting month and
balances correctly worked;
vi) the discrepancies pointed out by the stock verification ADE or other Stores
Officer are investigated by the competent authority and action taken to
make good the losses.
4.72 Audit of Purchase of stores
4.72.1 Procedure
It has to be ensured in audit that the orders issued in regard to purchase and
custody of stores is implemented in all cases.
Material is received through contractors appointed for each purpose/time for the
construction of power generation stations and Transmission and Distribution
Schemes etc., including its maintenance thereof. In order to execute the works
economically, each time contractors are appointed by inviting tenders either in
press or on selective basis. Contract or agreements are entered into with the
260
contractors and orders are placed on the suppliers by the Board and its sub-
ordinate officers in accordance with the powers delegated to them for purchase
of material or for rendering services. These Contracts/Agreements/Orders
envisage terms and conditions of supply of material/services.
It is an important function of Audit to examine the contracts or agreements
entered into by the Board and its officers. The audit should comment on the
inaction of the concerned departmental officers or adoption of wrong
systems/procedure resulting in loss or extra or wasteful expenditure.
While examining purchases, the following points should be seen in audit:
a) there are proper indents for stores under purchase and the indents are based
on consumption pattern, planned targets of activities and construction
programme, after taking into account the pending orders and stock
availability.
b) the indents have been consolidated and detailed specification is laid down
before inviting tenders;
c) for all items except for items for which the Company, may otherwise
decide open tenders are invited through advertisements in the news
papers/journals allowing adequate time to the tenderers for submission of
tenders;
d) all the tenders are opened on the due dates, at the place and time specified
in the notice inviting tenders in the presence of tenderers and all the tenders
along with the requisite particulars are entered in the Register of Tenders
received. It should also be ensured that all the over-writings, cuttings etc.,
have been attested under the dated initials of the officer opening the
tenders;
e) while accepting the tenders, the financial status of the tenderers, their
capability, EMD received, security offered, their previous record,
guarantees etc., have to be taken into account. In cases where the lowest
tender is not accepted detailed reasons thereof should be recorded. In
audit, the reasons may be analysed in depth so as to ensure that the same
are valid, genuine and do not transgress the financial principles;
f) no tender received after the due date has been considered and entered in the
comparative statement;
g) while reviewing the purchase order in audit it should be seen that it clearly
specifies the rates payable to the supplier, quantity ordered, detailed
261
specification if any, place of delivery, date of delivery, schedule of
delivery, penalties for late delivery etc;
h) the purchase orders were not split up to avoid the sanction of higher
authorities with reference to the total amount of the order;
i) wherever purchases are effected by deviating from general procedure, the
sanction of the competent authority had been obtained beforehand. The
reasons put forth for such purchases should be reviewed and their
bonafides adjusted;
j) in cases where the material has not been received according to the
stipulated delivery schedules, necessary action as per terms of the purchase
orders, has been taken by the concerned purchase agency;
k) amounts paid on account of demurrage and wharf age may be reviewed
and reasons traced to see that these were paid only under valid reasons.
Where demurrage was occasional due to fault on the part of the supplier,
the same should be adjusted against suppliers account and not charged to
the Company’s account;
l) wherever escalation clause has been agreed to with the supplier, the
escalation allowed should be examined and it may be seen that it is allowed
only for the genuine increase in the cost of material consumed on the
product and that no undue benefit on this account has accrued to the
supplier. It should also be examined whether variation clause covers
decrease in costs, etc;
m) when a contract has been placed for stores which are obtained from countries
outside India no payment on account of Customs duty or increase in
customs duty made except under the provisions of the contract or under
orders of competent authority;
n) the provisions for payment of Sales Tax, Excise duty etc., should be
checked with reference to the instructions issued by the Government from
time to time;
o) unusual or peculiar items incorporated in the agreements or contracts
should be scrutinised diligently;
p) there is no omission of important clauses like inspection of stores,
particulars of delivery, despatch instructions, name of the consignee etc;
q) in respect of belated supplies it should be ensured that penalty is recovered
on delayed supply or waival is regularised by the competent authority.
262
Utmost care has to be exercised in the audit of contracts and agreements with a
view to bring out salient points like impropriety in award of contracts for supply
of material resulting in unnecessary avoidable expenditure, extension of undue
concessions beyond contractual terms, acceptance of sub-standard
material/works and other peculiar items, etc.
4.72.2 Delegation of Powers
The Divisional Engineer/Superintending Engineer is vested with limited powers
for purchase of stores, while the Chief Engineers at Head quarters make major
purchases required. Orders delegating powers to various officers of the Board in
regard to purchases have been issued (vide Table below). It has to be ensured in
audit that the purchases are as per delegation of powers and within the Budget
provisions.
C.E S.E D.E.
Rate contract
Full powers
Rs.1,00,000 - -
Open tenders 5,00,000 2,00,000 10,000
Short tender system
(notice of not less
than 7 days should be
given)
50,000 25,000 -
Limited tender system 50,000 20,000 i) 5,000/- for
stores material
subject to list of
registered
suppliers should
be kept.
ii) 2,500/- for
tools and plants
Single tender system 15,000/- (for
CE generation
only)
SE(O) shall
exercise the above
powers in case of
emergency when
the supplies are not
expected for
Central Stores and
the rate agreed to
the rate of Central
procurement.
Proprietary spares
(Subject to
availability of Budget
5,00,000 - -
263
provision)
Tools & Plants Small
T & P
Full 10,000 5,000
Office furniture 25,000
(per annum)
10,000 1,000 (per
annum)
Lower Purchase Committee
Consisting of concerned
Chief Engineer, concerned
Technical Member and
Member (Accounts)
Purchases - 25,00,000/-
Contracts -
25,00,000/-
Stores Purchase Committee
Consisting of all full time
Members of the Board and
Director of Industries
a) Purchases
b) Contracts
i) Tender up to the
value of Rs.100.00
lakhs.
ii) In case exceeding
the value of Rs.100
lakhs the S.P.C. may
authorise the
concerned to take
action as per its
recommendations and
ratification of the
Board
sought for the urgent
cases with reasons to
be recorded in writing.
4.73 Audit of Establishment records
For the audit of these claims, the Principles of Audit enunciated in MSO
Technical be kept in view, besides specific orders issued by the Management.
4.74 Audit of Central Pay Rolls Section
This section deals with the preparation of pay bills of all sections in the Head
Office of the Board except Gazetted officers. The pay bills etc., of Gazetted
officers are dealt in pay office.
It should be seen that:
264
1. Budget allotment has not been exceeded by way of incurring more
expenditure; necessary revised budget sanctions have been obtained
whenever unforeseen expenditure has to be met, eg., increased percentage of
ex-gratia, extra payment on account of revision of pay scales etc.
2. Cash Book:
(i) the receipts and expenditures should be checked with reference to cheque
books, remittance challan, vouchers etc.
ii) to verify whether the cash book is closed daily and the physical balance of
cash agreed with the book balance and the closing is attested by the officer-
in-charge of the Section.
3. Bill books of all Sections: to ensure that the claims have been prepared
correctly on the basis of the data recorded in the bill books.
4. The pay bills are prepared correctly including arithmetical accuracy and
the increments, Special Pay and allowances require the sanction of the
competent authority and all the accomplishments to the bills are available
for scrutiny.
5. Travelling allowance bills are based on approved tour programmes and the
tour diaries should also be checked wherever necessary.
6. Medical bills of all staff members: As a full fledged dispensary is available
at Hyderabad, it should be seen whether a certificate is given by the
Medical Officer referring the case to any specialist and the medicines
purchased outside are not available in the dispensary. The relevant receipts
for consultation fees, cash memos for purchase of medicines outside should
be enclosed to the bill along with the Certificate of the Medical officer of
the dispensary.
7. Contingent bills Register: it should be checked with the contingent bills to
see that the respective budget grants under each head did not exceed and
the expenditure has been incurred by the competent authority. It should
also be seen that other expenditure which should have been debited to
other head of account was not met out of contingencies provision;
8. Register of advances: is meant for recording the various advances given to
the employees eg., House Building, Motorcycle/Marriage advance, Festival
advance, Provident Fund temporary withdrawals, Temporary
advances/Travelling allowance advances etc. It should be ensured that
these advances are noted in the advances register and recoveries made
regularly within the stipulated period and number of instalments, as per the
265
sanction and rules in force. In case of employees against whom advances
are pending recovery and transferred to other places it should be ensured
that they have been mentioned in their LPCs at the time of transfer.
9. In respect of officers engaged by the Board on contract basis and officers
taken on deputation, the terms and conditions of their appointment should
be seen to ensure that they are not paid anything in excess over and above
their contractual terms and conditions.
10. In respect of re-employed officials, it should be ensured that they are paid
as per the terms and conditions of re-employment and whether necessary
deductions are made from the pension to see that pay on reemployment
plus pension do not exceed the last pay drawn by the employees
immediately before their retirement.
11. Register of expenditure on telephones: It should be seen that the
expenditure incurred on telephone bills is within the Budget provision and
necessary recoveries have been made wherever personal calls were made
by individual officials.
12. It should also be seen that Account head wise registers of expenditure are
maintained so as to exercise the check that the progressive expenditure is
within the budget grants.
4.75. Audit of Provident Fund Section
Provident Fund accounting is centralised at Head Office. The individual
accounts are compiled on the basis of the Schedules received from various units.
During Provident Fund Audit it should be seen that;
1) the recoveries are made at the prescribed rates;
2) the P.F.Schedules are received regularly so as to keep postings correct;
3) necessary action has been taken to call for the relevant schedules wherever
they are not received from the units;
4) G.P.F. and E.D.P.F. ledgers are maintained properly and the postings made
up to date;
5) the Minutes of Trustees should also be seen;
6) temporary advances of P.F.:- the debit as well as the recovery thereof
should be scrutinised
7) in respect of part final withdrawals the eligibility of the incumbent should
be seen
266
8) in respect of final withdrawals, it should be seen that all the debits and
credits have been posted and reconciled; the interest allowed has been
correctly calculated as per rules and all formalities have been completed
before the payment was arranged.
9) the annual interest calculations are made at prescribed rates regularly,
correctly and credited to the account Register of interest allowed for the
year may be seen.
10) account numbers have been allotted in respect of all applications so as to
enable the Drawing Officer to deduct the PF/EDPF amount from the salary
bills;
11) it may be seen whether a register of account numbers allotted to EDPF
subscribers is maintained;
12) it should be seen that the nominations have been received from all the
EDPF subscribers;
13) there are no unposted debits/credits in the schedules;
14) there are no minus balances in individual accounts. If any item of minus
balance is seen, it should be thoroughly investigated to find out the period
from which the minus balance has been indicated and the action taken
there against;
15) the register of missing debits and missing credits should be scrutinised to
see whether effective action has been taken to get the missing debits/credits
and settle the accounts. If there are any credits the same should be
commented after ascertaining the exact difficulty in settling those items.
These items should be correlated to the item of unadjusted debits and
credits and the possibility of pairing off should be considered;
16) it should also be seen whether reconciliation between the total debits and
credits posted with the total debits and credits indicated in the schedules
has been effected.
4.76. Audit of Interest payment on Bonds
The interest payment on Board Bonds is checked at State Bank of Hyderabad, as
it has been appointed as the Registrar for the purpose of selling of the Bonds and
accountal of sale proceeds, calculation of interest, payment of interest and
redemption of the Bonds. Towards these services rendered the Bank is paid
remuneration as per the terms of the agreement entered into and the management
reimburses the postal charges to the Bank. The Bank reimburses to the treasuries
267
the amount of interest paid by the latter and charges to the management’s
account. The following should be checked.
1) the agreement entered into by the management with the State Bank of
Hyderabad.
2) total number of Bonds sold and the amount credited to management's
account
3) accuracy of amount of interest paid by the Bank as disclosed by interest
payment registers
4) redemption of bonds as disclosed by the Bonds redemption registers
5) unclaimed interest and
6) number of undelivered bonds together with action taken by the Bank.
4.76.1 Audit of Voluntary Loan contribution
Voluntary Loan contribution is collected by the company from prospective
consumers to meet the capital expenditure to lay the line from the pole to the
consumers’ premises. In some cases it involves to lay special lines including
fixing some poles. Certain amount based on the approved estimate cost of the
work is collected after received the application from the consumer. The amounts
thus collected are kept under separate deposit account for which a permanent
receipt is issued as having received from the consumer. Individual consumer-
wise ledger accounts are maintained in the voluntary contributions section under
the F.A. & C.C.A. These contributions are refunded to the concerned consumer
after a lapse of 5 years. Annual interest is calculated by the VLC section and
payments are arranged every year.
It should be seen that
i) the ledgers are maintained correctly in respect of all V.L.C. deposits and
the entries are attested by the competent authority
ii) the interest is calculated correctly at the prescribed rate for the year;
iii) if the deposit is received during the course of the year the interest for the
year is calculated from the date of receipt of the deposit to the end of the
year but no for the whole year
iv) on completion of 5 years period the amount of voluntary loan contribution
is refunded to the consumer concerned against the return, by the consumer
of the original permanent receipt;
268
v) Besides checking the calculation of interest amount on the live accounts
the documents relating to the accounts which are finally closed on payment
of the deposit amount should also be checked.
4.77 Audit of Pension payments
It should be generally seen that;
1) The pension papers and proposals in respect of retiring officials are sent to
the sanctioning authority 18 months before the date of retirement;
2) the payment of gratuity and pension are made promptly based on correct
particulars;
3) where there is likely delay to arrive at the final amount of pension,
anticipatory pension has been sanctioned and that the amount is correctly
calculated;
4) a) interest at the rate of 5 per cent per annum has been paid on delayed
payments of retirement gratuity for the period beyond three months after
the gratuity become due which would be payable till the end of the month
preceding the month in which the payment is actually made;
b) the interest is to be allowed only where it is clearly established that the
payment of retirement gratuity was delayed on account of administrative
lapse or reasons beyond the control of the employee concerned;
c) the sanction of the government in the administrative department concerned
should be obtained with the concurrence of the Finance & Planning (Fin.
Wing) Department for payment of interest in every case, explaining
reasons for delay in payment of the gratuity;
d) where disciplinary or judicial proceedings against an official are pending
on the date of his retirement provisional pension is authorised under article
351 B of A.P.Pension Code No. gratuity is paid in such cases till the
conclusion the proceedings and issue of final orders thereon. The gratuity,
if allowed to be drawn by the competent authority on conclusion of the
proceedings, will be deemed to have fallen due on the date of issue of
orders by the competent authority.
e) the above orders shall not apply to arrears of gratuity which may become
due as a result of enhancement of the emoluments after retirement or
liberalisation in the pension rules from the date prior to the date of
retirement of the employee;
269
f) the above orders take effect from 7th April 1980 and the cases of
employees who retired or died while in service before the date of issue of
these orders will also be covered if the retirement gratuity has not been
paid on the date of issue of these orders and there has been delay in the
payment beyond three months of the date of retirement/death. But the
interest will be payable in such cases only from the date of issue of these
orders or three months from the date of retirement/death whichever is later.
(Fin & Plg. (Fin.Wing-Penl) Dept's. G.O.Ms.116 dt:7.4.1980 and
B.P.Ms.No.769 dt:12.9.80).
5. In the case of Government servants, who were holding substantive posts
under Government and had joined the posts under the Board at the time of
formation or subsequently, they will draw their pension from the
Government. The pension will be calculated by the Company on the total
length of their service including their service prior to their starting of
service under the Board and will be reported to the Accountant General
who will work out the pension admissible to the Government servant with
reference to the post held by him in Government. The difference between
the pension worked out by the Board and the Accountant General and any
other liability that may be decided by the Government will be paid by the
Board to the Government on capitalised basis.
In the case of those Government servants, who do not hold substantive
posts under the Government the management will be responsible for
settling their pension claim and pay them, subject to the Government
bearing any liability that may be decided upon later on the basis of the
general decisions (vide proceedings of the meetings held on 4.9.71 in the
chamber of Secretary to Government Public Works Dept., regarding
interim arrangement for payment of pension before a final decision is taken
by the State Government vide above proceedings communicated to the
Accountant General by Public Works Department Lr.No.1393-B1/69
dt:5.10.1971).
6) subject to the foregoing principles, the qualifying service of the officials is
to be checked up with the service book, leave account (regarding
encashment of leave), any demands pending against the officials. To this
effect demands certificates are to be obtained from various Accounts
Officers in respect of advances of Pay, T.A., House Building, Motor
vehicle, site purchase advance etc.
7) the official is correctly eligible for the quantum of amount of retirement
gratuity, anticipatory pension or final pension
270
8) the amount of anticipatory pension has been correctly adjusted from the
amount of final pension
9) all the amounts calculated have received the sanction of the competent
authority for payment
10) all relevant records are maintained in the pension branch reflecting the
correct position of the work.
4.78. Works Accounts
4.78.1 In the execution of works the operations are primarily divided into (i)
Capital works (ii) Revenue Works (Operational, maintenance and repairs). The
principles governing the classification of expenditure as Capital and Revenue
have been laid down in paragraph 60 of the Central Public Works Department
Code and Article 30 (A) of the Account Code Volume I. All estimates for works
to be done for private individuals, local bodies and other Departments shall be
treated as deposit works and shall be executed out of funds deposited by the
beneficiaries.
All Capital works are executed by construction Divisions/Sub-divisions, eg.,
T.L.C. divisions. Works relating to services to the consumers are executed by
the Operation Divisions. In the case of Civil works division and other projects
the work is carried out departmentally as well as through contractors. When
work is executed through contractors the main emphasis should be on the close
scrutiny of the terms and conditions of the contracts entered into, so as to see that
rules/orders in force have not been violated. Any payments made or expenditure
incurred beyond the scope of contract has to be examined, analysed and
justification ascertained.
In the audit of the operation and maintenance divisions the following aspects
may be specifically seen;
i) Maintenance of transformers; transformers damaged within warranty
period; missing parts of the damaged transformers;
ii) Losses/thefts
iii) Excess expenditure on maintenance works
iv) Accident cases (fatal/non fatal)
v) Any expenditure of abnormal/doubtful nature
vi) Expenditure on redundant sub-stations or redundant lines and non-
dismantlement thereof.
271
4.78.2 Administrative approval
The proposal for incurring any expenditure in the department on a work initiated
is formally accepted by the relevant Administrative authority and is called
Administrative approval. This approval is accorded by the Government/Board of
directors of the company or the officers of the Department to whom powers have
been delegated. After receipt of administrative approval for each work, a
detailed estimate must be prepared for the Technical sanction of the competent
authority.
4.78.3 Technical sanction
The order of the competent authority sanctioning a properly detailed estimate of
the cost of the construction, repair or maintenance proposed to be carried out in
the department must be obtained before execution of the work. To ensure that
the estimates are accurately calculated based on actual data, it should be
examined that the estimate should exhibit the cost of labour and materials
separately. Establishment and general charges should be provided in the
estimate. No item showing lump sum provision should be made.
At the end of the fixed period, the estimates should be regarded as lapsed and
any outlay incurred thereon should be regularised by renewal of sanction of a
fresh estimate.
The sanction to an ordinary operation and maintenance estimate lapses on the
last day of the official year.
4.79 Audit checks to be exercised in the execution of work
In the execution of a work or a scheme it should be seen that:
i) it carries the administrative approval of a competent authority as per
delegation of powers under para 2.7 PWD Code.
ii) there is technical sanction for the works from competent authority as also
for material and structural alterations
iii) provisions of para 2 of the PWD Code are observed;
iv) proper estimates and detailed designs have been prepared and approved by
competent authority.
The estimates for works are to be examined to ensure that:
i) the rates applied and sanctioned do not exceed the approved schedule of
rates of PWD;
ii) that while working out the rates, the tenders accepted for works during the
twelve preceding months have been studied and the rise or fall in prices has
272
been taken into account. For non scheduled items, detailed analysis of the
rates allowed, be examined to ensure that they are correct and reasonable;
iii) that the cost of labour and material along with quantity is exhibited
separately in the estimate irrespective of the mode of execution of work,
i.e., departmentally or by contract;
iv) that in case of replacement and renewal estimates credit has been allowed
for the dismantled material (original cost less depreciation). Establishment
charges and overhead expenses incurred on the original work are not to be
credited to the estimates but should be debited to revenue;
v) that the provisions have been made in estimates for establishment and other
charges at prescribed rates; and
vi) that expenditure incurred in excess over estimates has been scrutinised,
analysed, justified and covered by proper sanction.
4.80 Work orders - Issue of work orders - Maintenance of Initial
Accounts - Closing of work orders - Completion Reports
(a) Work order: Work order is an order which contains a description and an
estimate of the cost of a proposed work. It conveys executive approval to
proceed with the work. It is issued from Central office/Divisional office as the
case may be at the instance of an officer not below the rank of Asst. Divisional
Engineer.
(b) Currency of work order
1. Capital works:
a) works costing less than Rs.40,000/- 6 months from the date of commencement
of work i.e., issue of work orders.
b) Works costing Rs.40,000/- and above up to 31st March.
2. Service connection works up to 31st March.
3. O & M works up to 31st March
(c) Object of work order
As the primary object of the accounts of work is to exhibit accurately, the actual
cost of works, the rules require the upkeep of separate accounts for the several
component jobs. This is done by means of work order for each construction,
operation account or maintenance account.
(d) Procedure of issue and closing of work order and maintenance of initial
accounts in respect of Capital works
273
The work order application should cover expenditure to be incurred
within a period of one month beyond the target date fixed for completion of
work. All work orders lapse by 31st March. In respect of work below Rs.40,
000/- the work order may be issued for full amount. It will not lapse by 31st
March; but it should be closed within 6 months of issue of work order. In
Central office/Division office, an authorised Accountant will issue the work
order if there is a sanctioned estimate and provision in budgets.
(e) Initial Accounts: In order to facilitate closing of work order promptly, the
field officer should maintain initial account for each work order. The account
provides for estimated quantity of materials and labour Requisition should be
posted in respect of material giving reference to number and date and the
quantity drawn. Devolution should be posted as minus. Only quantity will be
posted initially and values will be posted as per the triplicate copy of the
requisition returned from Central Office/ Division office (in pricing section).
(f) Closing of work order: The closed work order, initial accounts and final
schedule of field measurements and completion reports should be sent to Central
office/Division office through A.D.E.
4.81 Provisional work orders
(a) Issue of work order
It must be seen that commencement of execution of any work shall not be
authorised unless a work order is obtained. However, in cases of emergency
where works are to be started without sanction of estimate and provision of
funds, shall be reported to the authority competent to accord technical sanction
and to authorise provision of funds. A provisional work order may be issued in
such cases. The officer giving such authorisation is personally responsible to see
that the estimate is sanctioned at the earliest opportunity but not later than a
month.
All work orders lapse on 31st March. In the case of capital work, the estimated
cost of which is less than Rs.40, 000/- the work order may be issued for full
value of the estimate for a period of six months.
(b) Drawal of materials against work orders:
It should be seen that:
i) materials are drawn by field officers only when required and strictly in
accordance with the quantities in the sanctioned estimate and the material
card sent with the work order application.
274
ii) the field officers maintained the material account till they finally account for
the material drawn by them.
iii) that the Accounting Officer is sending every quarter, a statement of
materials drawn against each work order to the concerned field officers;
iv) the field officers are returning the statement thus, received, after check with
their material account, certifying that the quantity of material drawn and
taken in the ledger is correct.
(c) Surrender and closure of work orders:
The work should be completed before the date specified in the order. In the
month of April, all work orders whether of maintenance or construction would
be closed, whether the concerned works are completed or in progress and
forwarded to the Central Division Office. In the case of capital works in
progress for the next, fresh works orders should be applied for and obtained.
However, in the case of works costing less than Rs.40,000/- no fresh work orders
need be issued provided that period of six months from the date of issue of work
orders has not elapsed.
When the work if completed, the work order should be closed and surrendered to
the accounting office and all surplus materials and scrap devoluted to the stores
along with the devolution notes.
It should be seen that the work is check measured either by the Asst. Divisional
Engineer or Divisional Engineer, Executive Engineer depending on the value of
finished work. It should also be seen that where the finished work is
transmission and distribution lines, the material account submitted to the
Accounting Office is duly supported by the pole schedule.
When the initial accounts are received from the field officers who executed the
works, it would be seen that:
i) in the accounting office, the expenditure as recorded in the initial accounts is
checked with the entries in the "Construction Accounts Ledger" or other
ledgers and discrepancies, if any, are taken up with the field officers
concerned and rectified.
ii) the fact of closing the accounts of the work order is noted in the ledger and
in the register of work orders;
iii) the fact of having closed the work order in the accounts office and the value
of the work for which it is closed, is intimated to the officer concerned who
operated the work-order.
275
4.82 Completion Report
(a) When a work is completed in all respects, a completion report should be sent
to the accounting office by section officer through the Assistant Divisional
Engineer/Divisional Engineer.
(b) The completion Report is intended to set right any irregularities that might
have come up during execution and to control the proper utilisation of
materials drawn for the work and devolution of any materials found surplus.
It helps regularisation of any excess both in quantities and values as well as
deviations occurred sanctioned by the Superintending Engineer/Chief
Engineer depending on the excess over the sanctioned estimate.
(c) The completion report should be scrutinised with reference to the estimates
and availability of funds with a view to ascertain the reasons for
increase/decrease in the actual cost of the project/capital work and for its
non-completion by the target date originally envisaged.
It should be seen that:
i) there is an administrative approval to the execution of the project;
ii) based on the administrative approval, technical sanction is obtained;
iii) working estimates are sanctioned and works executed in accordance with
working estimates;
iv) work orders issued against these working estimates for each year of operation
and the estimates closed with certificates of check measurements for the
completed work and the certificate of proper utilisation of materials drawn
indicating the devolution of materials found surplus;
v) posting of Fixed Capital Ledger is completed;
vi) acceptance by the Superintending Engineer in all cases where there are no
excesses or excesses below 5 per cent of the sanctioned estimate, or
acceptance by the Chief Engineer or Company’s Board (When the
percentage of excess is over 5 per cent) is obtained;
vii) all surplus balances are cleared;
viii) surplus stores are disposed either by diversion to other projects or by public
auction, etc.
ix) for all obsolete stock, orders of the competent authority for write-off of
losses on stock are obtained;
x) liabilities on all contracts are ascertained and provided in the accounts;
276
xi) financial completion report with the supporting schedules is prepared; and
xii) the technical completion report is also prepared.
4.83 Measurement Book
Measurement books is a book to record measurement of work done, material
supplied or services rendered. Measurements should be taken as soon as the
work is completed or at a stage when it can be billed for. The payments made
should be checked with reference to entries in the Measurement Books and
agreements. Use of material on works such as cement, fly ash, iron rods, etc.
should be worked out on the basis of the requirements furnished by the technical
branch/Circle division/Sub-division so as to ensure that recovery from the
contractors has been made for short use.
It should be seen that:
i) measurement books have been made use of when the work done or supplies
made is susceptible of detailed measurement or counting;
ii) the measurements have been promptly taken and delays in recording
measurements have been avoided and the quantum of check measurement by
S.D.O. has also been followed without any delay;
iii) general instructions for writing of measurement book have been complied
with and the genuineness of the entries in the measurement book should be
test checked.
iv) the genuineness of the entries in the measurement book should be test
checked with reference to dates and other particulars in T.A. journals.
v) the cases of measurements taken in the first instance by subordinate but
subsequently reduced by the SDO on account of check measurement should
be scrutinised.
vi) measurements once recorded but subsequently cancelled are adequately
justified.
4.84 Works account and analysis of work-selection of Major and Minor
works
The Comptroller and Auditor General of India in letter No.139/O&M(RC) 46-81
dt.15.10.81 directed that one major and minor work are to be analysed during the
audit of the accounts of a Division incurring works expenditure.
During audit of divisions, selected works are analysed in detail. For this analysis
it should be seen that:
277
i) the estimate of the work has been sanctioned by the competent authority and
that all charges constituting the estimate are within the scope of sanction;
ii) the quantities of work actually executed are not at variance with the
quantities of work theoretically worked out in the approved estimate. In
case of variation detailed scrutiny be made and results together with
financial implications pointed out;
iii) all payments and supplies of materials are strictly in accordance with the
terms of contract/agreements corresponding with those provided in the
sanctioned estimate vis-a-vis the schedule of rates; all conditions of the
contracts regarding issue of materials, supplemental items, authorised extras
and others are adhered to;
iv) any surplus materials at site of the completed works material due to or from
contractors, etc., have been properly accounted for in the accounts/stocks;
v) in case of work susceptible of measurement the payment is in accordance
with measurements and the rates and quantities of work executed are as per
the sanctioned estimate and no financial irregularity or serious accounting
error is involved;
vi) the expenditure incurred on the work is not in excess of the sanctioned
estimate;
vii) that charges on account of work charged establishment are in order;
viii) the measurements recorded in the measurement book for the material
supplied and used on work are as per stores issued records and indents and
no fictitious claims for labour or materials are involved;
ix) that the expenditure has been correctly booked against the work and check
measurement;
x) that the material account of the works be examined so that it may be seen
that without sufficient reason materials are not collected in excess of the
requirements of works, that charges debitable to contractors are not shown in
material accounts, that rules relating to the verification of material are
observed and differences are adjusted in accordance with rules;
xi) that in case of completed work quantities of work executed and paid may be
compared with the quantities of work sanctioned in the estimates and rates
approved to verify that there are no variations involving serious financial
irregularities.
278
While analysing the work the following records may be called for:
Register of
1) Register of sanctioned estimate
2) revised estimate, if any
3) LS K2 agreement register with agreements
4) work files
5) measurement books
6) soil testing reports
7) trial pits/analysing reports
8) route survey/preliminary survey reports
9) work orders
10) stores requisitions/devolutions
11) statement indicating up to date expenditure on the work (Work abstract)
12) material at site account
13) L.F.books
14) completion reports, if any
15) location-wise volume statements for
i) excavation
ii) revetment
iii) RR masonry
16) T&P registers
17) U.S.R.
18) register of bills
4.85 Register of works
It should be seen that:
a) The register has been prepared in accordance with the instructions printed
on the forms;
b) The posting in the register is correct as per the work abstract;
c) The accounts of the works have been closed immediately after their
completion. It should be seen in particular that further charges are not
279
incurred without the permission of the divisional officer, which should also
be reviewed to adjudge their bonafide; and
d) The suspense account "Material" be reviewed and its adjustment verified
with the connected records.
4.86 Works abstract
An account of all transactions relating to work during a month, whether in
respect of cash, stock or other charges is known as works abstract?
It should be seen that:
a) the outlay is posted sub-head wise according to the sanctioned estimate;
b) expenditure during a month and up to date progress of expenditure should be
reviewed with reference to estimate/ progress of work and reasons for
variation analysed; and
c) old outstanding under the sub-head "Contractors" "Material" and "Labour"
be reviewed and their genuineness adjudged.
4.87 Register of Plant and Machinery
A register of Plant and Machinery is to be maintained in all divisions to show the
description, dates of purchase, price paid and the work on which used. When
any plant is transferred to another division an extract from the register is to be
forwarded to that division. A column is also to be opened in the register in
which reference to the authority under which an article has been written off or
transferred to another division is recorded.
It should be seen in audit that:
a) the registers of fixed assets and plant and machinery are properly
maintained with all details and have been kept up to date for working of
depreciation charges;
b) the machinery on loan is given after the approval of the competent
authority;
c) plants and equipments have been duly insured and in case of damage/loss
to these equipments necessary claims have been lodged with the insurance
company and the same has been pursued vigorously. It should also be seen
that the expenditure on the replacement/repairs do not exceed the amount
of such claim and where heavy amounts have been spent on repairs the
cause thereof be scrutinised.
280
4.88 Log book and maintenance register of vehicles
The record of movement of vehicle is recorded in the log book of the vehicle and
the entries regarding repairs, purchase of lubricants are also recorded there in
besides "maintenance register of vehicles".
It should be seen that:
a) the vehicle log books are maintained in the prescribed proforma;
b) the authority using the vehicle is prominently stated in the log book and
record the journey as "private" or "official", in case of private journeys hire
charges are recovered
c) monthly abstract is prepared at the close of every month bringing out the
M.P.L. (Mileage per litre). The MPL should be compared from month to
month and with standards of MPL prescribed.
4.89 Register of Tools & Plant
Each subordinate (including store-keeper) having the charge of tools and plant is
to maintain a register of daily receipts and issues of articles in PWA-No.4.
A consolidated account of receipts and issues and balance of tools and plant is to
be kept in the sub-divisional office in form PWA - Register of tools and plant.
In case of loss or damage each subordinate should report to his sub-divisional
officer.
A survey report has to be prepared in Form PW of all tools and plant articles
which have become unserviceable due to wear and tear. These articles should
not be written off from the books and disposed of until and unless survey report
is prepared by the SDO and approved by the competent authority.
It should be seen in audit that:
a) closing balances are correct;
b) the sub-divisional register of tools & plant is posted up to date and monthly
accounts of receipts and issues are received from the SDO on due dates;
c) the items of T&P are not charged off as final issue to a particular work. All
items will be accounted for only in the T&P Register;
d) the repairable items are repaired and brought to use instead of purchasing
new, unless their repairs prove to be un-economical;
e) there is a certificate by a responsible official, not below the rank of sub-
divisional officer, that the balances in part II actually represent articles lent or
sent out for repairs;
281
f) all un-serviceable/lost/short items are depicted in numerical balances of T&P
register till these are written off;
g) office furniture is not issued for use at the residence of officials/officers who
are not entitled to this privilege;
h) the annual stock taking has been done by a responsible officer. The result of
this may be scrutinised in audit to see that no irregularities of serious nature
are involved;
i) physical verification is made by the competent authority as per the instruction
and a dated certificate recorded on the register and
j) all the items found surplus are taken into account as receipt and no adjustment
for value is made.
4.90 Deposit works
When the management takes up works relating to consumers, private parties,
etc., with a view to ensure sound technical execution of such works and to
accelerate the use of electricity, such works are considered as deposit works.
When a deposit work is carried out, it should be seen that:
a) the estimated cost of work is collected from the party in advance in one lump
sum or in instalments and by such dates as may be specifically authorised;
b) the deposit received is credited to the deposit account and expenditure
incurred on the work debited to that account only;
c) at the end of every month, the cost of establishment, T&P and audit charges at
the rates prescribed by the management from time to time debited to the
deposit account and closing balance is arrived at; and
d) if the expenditure incurred is found to be more than the deposit collected,
additional deposit is collected before execution of further work.
4.91 Audit of Power Generating Stations
There are Hydro Power Stations at Machkund, Tunghabhadra, Srisailam, Upper
Sileru, Lower Sileru, Nagrajunasagar and Thermal Stations at Kothagudem,
Vijayawada, Nellore, Muddanur and Ramagundam.
4.92 Thermal Power Stations
A detailed knowledge of the Thermal Station is essential for the conduct of audit
of the Thermal Power Station. It should be ensured during audit that rules,
regulation, manual and procedure framed and instructions issued from time to
time are adhered to by the project authorities.
282
4.92.1 Audit Checks
i) Inputs: Coal, furnace oil and water are the major requirements for Thermal
Generation. The cost of these materials and the economy in the usage affect the
cost of Generation. It is essential to study as to what extent the inputs are
economically used.
ii) Coal allotment: Government of India (Ministry of energy) approves in
advance for each quarter, the monthly linkage of mine from which coal is to be
supplied to each thermal power station in the country.
Quality of coal: In view of the limited availability of high grade coal, which is
required for metallurgical purpose only low grade coal with low calorific value
and middling from washeries are at present made available for Thermal Power
Stations. As the transportation cost is the same for high grade coal or low grade
coal, the supply of low grade would boost up the cost of generation besides,
reduction in the calorific value of coal necessitating increase in the consumption
of coal. It has to be ensured in audit as to how far quality control is exercised by
the Board over receipt of coal. Receipt of inferior quality of Coal and its effect
on production of power shall be commented.
iii) Consumption of coal: It should be seen that the consumption of coal and
furnace oil is in accordance with the scale provided in the project report/as per
norms fixed by the Board from time to time and provided for in the annual
estimates. Excess consumption, if any, should be commented upon.
4.92.2 Payment of coal bills
Advance payments to the supplier for coal allotments are made on the basis of
bills. It should be seen that payments are made in accordance with the ratio fixed
by the Ministry of Energy, Government of India, for different quality/Grades of
coal. In respect of the advance payments made for coal, their eventual
adjustment has to be seen with reference to coal receipts records maintained.
Incidental to this is the scrutiny of contracts for transport and handling of coal
and the contract for collection of fly ash and its disposal. Short deliveries,
pilferages are to be highlighted.
iv) Coal stock yard Records: The record of coal/oil stock yard mainly consists of
the following:
a) Register of daily coal wagons received at sidings;
b) Register of claims for missing coal wagons;
c) Register of credit notes issued to Railways;
d) Daily coal trip Register;
283
e) Register of liquidated damages for inferior quality of coal;
f) Coal bin cards and coal consumption book;
g) Register of Railway receipts of coal;
h) Miscellaneous Railway receipt register; and
i) Register of delivery challan of oil and oil stock register.
The above records should be scrutinised in detail and adequacy of action taken
for the regularisation of shortages in Coal stock examined.
The demurrages paid by the management have to be checked to find out whether
the payments are justifiable.
In ordinate detentions of Railway wagons due to delay in manual unloading or
contractors delay in handling coal have to be quantified and highlighted in
financial terms.
v) Furnace oil: Furnace oil is normally to be used as a secondary fuel starting up
the boiler and later for flame stabilisation. However, in practice, the
management is using Furnace oil as support fuel on the plea of poor quality of
coal supplied and for non- supply of coal. The justification for the use of furnace
oil and input instead of coal has to be examined. It should also be examined
whether the average consumption of oil per KWH of Energy generated compares
favourably with the estimated consumption given in the project report and as per
the norms fixed by the Board.
vi) Thermal efficiency: The thermal efficiency is determined by the percentage
of total energy equivalent to the electricity sent out to the amount of heat energy
of the fuel consumed in generation. Improvement in thermal efficiency makes a
valuable contribution to save coal whereas reduction in the percentage of thermal
efficiency leads to the increase in consumption of fuel.
It should be seen that the reasons for any abnormal decrease in the percentage of
thermal efficiency are investigated thoroughly and effective steps taken to
achieve utmost economy in the consumption of coal.
vii) Boiler efficiency and Turbine efficiency: The thermal efficiency of a plant is
also controlled by boiler efficiency and turbine efficiency. The efficiency of
boiler is determined with reference to the delivery of the designed steam with the
designed heat content for the rotation of the turbine while the efficiency of the
turbine is determined with reference to the generation of power. Turbine
efficiency is contributed by the condenser which limits the exhaust pressure of
the turbine to the minimum.
284
(viii) The working of the ancillary equipments like coal handling, ash handling,
cooling water system, etc., have to be studied in detail so as to bring out the
avoidable idle time and under-utilisation. The reasons for creation of vacuum or
partial vacuum resulting in loss of steam, if any, may be ascertained. Cases of
failure of condenser, if any, have to be examined.
4.93 Cost of generation
The cost statements compiled in the Thermal Generation Stations have to be
scrutinised to see:
a) that the cost per unit has not increased for want of adequate
stock of coal or oil due to failure of the supply of the contractors;
b) that the efficiency of the power houses is maintained by comparison of the
figures for the months of the current year with those of the corresponding
months of the previous years and those of other thermal stations/NTPC.
c) that the addition of indirect charges has been made as per approved
percentage of the rates fixed by the competent authority;
d) that in case of significant variations in the cost, suitable explanations have
been given and these explanations have been duly examined by the
management;
While auditing the cost statements, the principles of cost accounting should be
borne in mind. Collection of cost data from the accounts records instead of
collecting the same from the originating sources may not be considered adequate.
Cost analysis is required to be checked up with the details available from
origination station. The details may also be compared with the cost analysis of
other Thermal power stations. Analysis of Thermal efficiency is a very
important factor in scrutinising the cost of generation. The "Thermal efficiency"
of generation is the ratio expressed as percentage
(a) of the amount of heat energy equivalent to the electricity sent out from the
power station.
(b) to the amount of heat energy contained in generation. The Thermal
Efficiency of a plant in any period may be checked with reference to the
following formula - Actual K.Cal consumed for producing one KWH (Unit) of
electricity be determined (One KWH = 860 K.Cal.)
860 x 100 x KWH
-------------------------
K.Cal. of fuel used
285
Improvement in Thermal efficiency makes a valuable contribution to coal saving
whereas reduction in the percentage of thermal efficiency leads to the increase in
cost of fuel. It should be seen that the reasons for any abnormal decrease in the
percentage have been investigated thoroughly and effective steps taken to
achieve utmost economy in the consumption of coal.
Water treatment plant -
Demineralisation and usage of chemicals
In Power Stations, the steam after usage in the turbine is condensed back to
water in the condenser and then pumped to the boiler, thus forming a closed
circuit. To compensate inevitable losses, additional quantity of raw
demineralised water (feed water) has to be pressed into use. The
demineralisation is achieved by using resin which absorb the impurities in the
water and reactivated after each cycle of operation by using caustic soda and
hydrochloric acid.
It should be seen that the consumption of chemicals in water treatment plant
compares favourably with the estimated requirement indicated in the detailed
project report.
4.94 Outages
There are two types of outages viz., Planned Outages and forced. The outages
can be broadly attributed to want of coal, defective components, punctures in
super heater tubes or economiser tube or water wall tube and due to heavy
slagging in furnace which are forced outages. In all these cases, the reasons for
the outages have to be analysed to see whether they are due to avoidable or
unavoidable reasons. The periodical overhaul and capital maintenance would
also necessitate the outages (Planned outages). As the outages result in the
station operating below the prescribed norms, affecting the output of power, the
reasons for outages deserve critical analysis. The losses due to all outages
should be quantified separately and commented in audit.
4.95 Annual maintenance
Annual maintenance of a boiler is a statutory obligation. The Southern Regional
Grid has prescribed a schedule of maintenance of the generation systems during
monsoon season so that the plant is available for operation during summer and
winter seasons. The adherence or otherwise of the schedules has to be looked
into in audit. The cost of this operation has also to be checked.
286
4.96 Auxiliary consumption
One of the factors that contribute to the cost of power of a generation station is
its auxiliary consumption. It has to be ensured in audit that the auxiliary
consumption is within reasonable limits and is justifiable, with reference to the
gross power generated. In the project report the norms for auxiliary consumption
are usually prescribed. Excessive auxiliary consumption is normally attributable
to lower generation of power in the units, longer time taken by the unit to get
operating parameters for raising loads, etc. Audit has to examine how far the
excessive consumption is justified.
4.97 Hydel power stations
Hydel Electric Stations are ideal from the point of view of quick operation and
adjustment to bring in more power on to the grid at short notice to meet peak
loads. The utilisation of Hydel station is regulated with reference to (i) grid
requirement (ii) availability of water in the reservoirs, (iii) conserving water in
reservoirs for lean months (iv) conditions of the equipment and (v) needs of
irrigation.
In the hydro generation circles, the scope of audit is to ensure that: (i) the water
which is the source of generation is economically and skilfully utilised as per the
standards fixed in project reports to ensure optimum generation;(ii) surplusing of
water, wherever has occurred, was inevitable and (iii) the desilting of reservoirs
by opening the gates are carried out regularly during monsoon, as absence of
desilting operations might result in the accumulation of silt, reducing the
effective storage capacity which may lead to avoidable surplus sing of water.
Audit checks to be exercised during the audit of Hydel Generation Units.
In regard to cost of generation worked out in the circle it may be seen whether
the costs compare favourably with those of previous months and in case of
excess, whether they are due to lesser number of generators functioning due to
decrease in water level in reservoirs or due to decrease in water level in
reservoirs or due to shut down for overhauling purpose or due to other reasons
beyond the control of the unit.
Drop in the units generated caused by station shut down as a result of poor
maintenance, want of spares, comes under the category of controllable factors.
Any increase in cost of generation due to the above factors has to be commented
in audit.
The Hydel generation stations are at present utilised for peaking operations
depending on grid requirements. Any unusual feature in the maintenance and
repairs of equipments has to be commented.
287
4.98 Daily performance reports and monthly reports on outages
It should be seen that:
i) the daily performance report on the power station does not reveal any
abnormality in the working of the plants,
(ii) the plants designed to be operated by coal are not separated on oil beyond
normal requirement leading to the increase in the cost of Generation e.g.,
using of L.S.diesel/ furnace oil for a longer time to attain the flame
stability,
(iii) the cooling system and super heaters are not proved to be defective
resulting in uneconomic operation of the plants
(iv) shortfall in generation of units is not due to faulty operation of the power
plants or non-observance of operational instructions or on account of
inferior quality of coal and fuel or shortage of coal, fuel and gas etc
(v) the outages are not due to use of non-designed coal and fuel or shortage of
coal, fuel and gas etc
(vi) the work for maintenance of a unit is done and completed with utmost
promptitude for bringing the same into operation;
(vii) frequent shut down of the units is not on account of unsatisfactory
maintenance of the plants;
(viii) a schedule of programme and estimate is framed for the capital
maintenance of a unit and the same is adhered to.
4.99 Break down/shut down of Thermal and Hydro electric units
The break down/shut down of thermal and hydro electric generating units has to
be analysed in sufficient detail.
The power generation at the hydro and thermal stations may fall due to various
reasons such as breakdowns/shutdown improper maintenance, etc. The
shutdown in respect of Hydro stations may also be due to non-availability of
sufficient water in the reservoirs on account of failure of monsoon and due to
non-release of water from upper reaches of the source by the neighbouring States
as against the stipulation in the inter-State agreements, etc. While the fall in
generation for reasons attributed to failure of monsoon, strikes etc. is self-
explanatory, the other reasons given by the management may be of interest to
audit which are to be probed into and loss, if any, to be quantified.
The low power generation may be due to frequent `break down' of the generating
units. This may be due to defective supplies of machinery and material which go
288
into generation of power, defective maintenance, etc. As regards thermal
stations low power generation may be due to low calorific value of coal, higher
percentage of ash content in the coal supplies, non-availability of sufficient coal
stocks due to non-placement of supply orders in time or due to strike in
Railways, etc. The breakdown may also occur due to non-replacement of worn
out parts or on account of non-availability/non-receipt of parts of machinery
which are in turn due to non-ordering in time due to non-initiation of action for
procurement of materials sufficiently in advance, or due to labour trouble. The
time taken to set right the fault due to avoidable reasons as well as unavoidable
reasons should be scrutinised to see whether it is within the norms, if any, fixed
by the management and loss of revenue due to fall in generation and avoidable
expenditure if any, should be analysed and high-lighted in the Inspection reports.
Regarding shut down for maintenance etc., it should be seen whether it is done at
regular intervals and the time taken is within the norms, if any, prescribed and
the period of shutdown is not prolonged for want of required materials, tools etc.,
as the requirements of maintenance are supposed to be planned in advance. It
may so happen that more than one unit are shut down for want of different of
spare parts in which case at least one set can be operated by replacing the failed
part by the one removed from the other set which has also failed for want of
some other parts/part instead of keeping both the sets under shutdown. If they
have not had recourse to the above, this can suitably be commented as avoidable
loss. If there is any lapse in planning the programme and procurement of
necessary material resulting in prolonged maintenance, shutdown, purchase of
materials locally at higher cost in hurry, loss of generation, the financial
implications of such inaction should be quantified and commented in the
Inspection reports in sufficient detail.
It is, therefore, imperative that the reasons for break-down, shut-down and low
power generation are invariably analysed in sufficient depth and relevant points
are highlighted in the Inspection reports.
4.100 System losses and thefts
4.100. 1 System losses
The Central Water and Power Commission has recommended (1967) for
acceptance and adoption 4 per cent for extra transmission losses (220 KV, 132
KV, 66 KV) and 11 per cent for sub-transmission and distribution losses (a total
of 15 per cent losses in the system as a whole). The Commission has also
stressed that efforts should be made to reduce the percentage of system losses to
less than 10 per cent. The erstwhile Board ordered in November 1967, that all
efforts should be made to bring down losses at least to 20 per cent. The State
289
Level Technical Committee appointed by the erstwhile Board in June 1968
suggested that steps should be taken to reduce the transmission, sub-transmission
and distribution losses to the norms of 4 per cent and 11 per cent respectively
fixed by the Central Water and Power Commission.
4.100. 2 Analysis of reasons for losses
4.100. 2.1 EHT losses
The high percentage of EHT losses is attributed to location of the generation
station at the periphery of the State, far away from the load centres, requiring
long transmission net work. As power is being transmitted over long distances
higher losses are reported to be the result.
4.100. 2.2 Sub-transmission and distribution losses
Most of the energy in the State is being sold at 11 KV and LT terminals. This
involved transmission and transformation of power through number of voltages
before it ultimately reaches the consumers which are contributing to high losses;
Major factors which contribute to the excessive line losses are (i) overloading of
lines (ii) excessive length of lines (iii) supply at low power factor.
The following improvements works are considered necessary to bring down the
line losses;
a) construction of more 33 KV/11 KV sub-stations to limit the length of lines
b) replacement of existing 7/0.74 copper conductor by 7/0.144 ACSR conductor
on 33 KV lines and replacement of lower size conductor by higher size one on
11 KV lines
c) installation of 11 KV capacitors at 33 KV/11KV sub-stations to improve
power factor
d) installation of LT capacitors on the LT side of distribution transformers.
e) replacement of under loaded transformer by suitable lower capacity and
f) increasing the number of distribution transformers by splitting the existing LT
lines and by covering 1 to 3 lines
g) arresting pilferage of energy in various low tension distributions.
During audit it should be seen whether adequate remedial measures have been
initiated to reduce the line losses by reducing the load on the lines, increasing the
capacity of the conductors, regulating the length of lines and by providing
capacitor banks at the sub-stations. The maximum length of 11 KV feeders shall
not exceed 10 Kms.
290
Maintenance of frequency: The most important requirement of the grid is that
frequency of the cycle is maintained at 49.5 HZ cycles per second throughout the
grid under normal conditions and at 49 HZ under emergencies. During Audit it
should be necessary to examine whether any investigation was conducted to
assess the extent of pilferage, unusual losses, etc. The various works undertaken
and steps taken to reduce system losses may also be reviewed.
4.101 Theft of energy
Under the general terms and conditions for supply of energy framed under
Section 49 of the Act the erstwhile Board was authorised to compute and recover
the value of the energy estimated to have been dishonestly abstracted, consumed,
used or wasted by the consumers.
The erstwhile Board has appointed two Superintending Engineers (assessments)
and two Divisional Engineers (assessments) for the State to finalise all cases of
theft of energy and malpractices committed by the consumers. Pilferage cases
under LT category-I/II are finalised by the D.E.(assessment) of the area. All
other cases are finalised by the S.E.(assessment) of the area.
Each D.E. (assessment) will maintain register of theft of energy indicating the
number of cases of theft of energy reported by the surprise squad, details of spot
inspection carried out by the D.E., initial assessment of penalty levied, final
assessment made and the cases where further action is pending. The audit party
should scrutinise the register and point out delay in recovery/non-recovery of the
initial assessment, final assessed charges and delay in issuing final assessment
notices. Our examination should be aimed at bring out the modus operandi of
the theft, whether it was due to lack of field inspection/staff collusion/inadequate
action/failure of internal controls or lack of corrective steps. It has been decided
that as the nature of the assessment ordered by Superintending Engineer, is not in
the nature of an appeal, the records pertaining to pilferage and malpractices
assessments may be produced to Accountant General’s audit party when required
by them during audit. (APSEB’s Memo No.AC/AZF/F.535/88-93 dt:24.11.88)
4.102 Annual accounts
In view of Corporate section of the erstwhile APSEB into viz. APGENCO,
APTRANSCO and DISCOMs, the accounts of these companies are to be
compiled in accordance with the provisions of schedule VI of the Companies Act
1956. Audit of the accounts of these companies is to be done as per Section
619(3)(b) & 619(4) of the Companies Act 1956.
The audit checks to be exercised with reference to the accounts audit of these
companies would be the same as that of those exercised in case of other
291
Government Companies in AP. However in exercise of power conferred by
Sec.69(1) of the Electricity (Supply) Act 1948, the Central Government in
consultation with the Comptroller and Auditor General of India and State
Governments made Rules called "The Electricity (supply) Annual Accounts
Rules 1985".
These Rules prescribed the forms and contents of Annual statement of Accounts
w.e.f.1985-86. However, the APSEB implemented these rules w.e.f.1988-89.
After restructuring of the Board, the newly formed companies comply with these
rules also.
(1) Compilation and Submission of Annual Accounts
The Companies shall at the end of each financial year compile its annual
accounts for that year and within six months from the end of such financial year,
submit the said Annual accounts and auditor’s report thereon to the Central
Electricity Authority and to the concerned State Government.
(2) Adoption of Annual Accounts
Annual accounts of companies should be adopted by the Board of Directors of
the company before their submission for audit by Statutory Auditors. After
Boards approval and certification of Statutory Auditors it is submitted for
supplementary Audit under Section 619(4) of the Act ibid.
Initial accounts are maintained at the units. They compile the monthly accounts,
classifying the expenditure and revenue under the heads/sub-heads prescribed
from time to time. These monthly accounts prepared in the form of Trial
Balance are sent to the Head Office along with supportive schedules.
Immediately on receipt of authenticated accounts programme is drawn up for the
field parties for conducting the audit of the initial accounts at different offices.
Guidelines for the conduct of audit are issued by the Resident Audit Section
before the commencement of audit every year. The audit comments arising as a
result of audit by the field parties are consolidated at EBRA Head Quarters and
the provisional comments are issued to the Companies. The Companies may,
taking into account the provisional comments either, revise the accounts or give
replies. In the event of the Companies choosing to revise the authenticated
accounts on the basis of Provisional comments, certification will be done only
after submission of revised accounts duly approved by the Board of Directors of
the company & Statutory Auditors.
292
4.103 Instructions for checking the accounts of the circles and divisions for
purpose of audit of Annual Accounts
1. In the case of Circles/Divisions/EROs the initial accounts of which have not
been audited for the year checking of classification and compilation of
accounts for two months including general review may be conducted.
2. Check adequacy of provision for outstanding liabilities and ensure that a
uniform procedure is followed in assessing the provisions.
3. Check correctness of credits for accrued income, interest on consumer's
security deposits, interest on voluntary loan contributions and Bill Collector's
security deposit.
4. Verify the register of securities and correctness of cash balances mentioned in
the Trial Balance with reference to the Cash book.
5. In the case of temporary advances/imp rests outstanding for a long time, year-
wise details may be furnished.
6. Stores and Stock
i) It should be examined whether physical verification was conducted for the
year and year of latest physical verification together with results thereof
should invariably be furnished to the Headquarters.
ii) It is also to be examined whether reconciliation between financial ledgers and
priced stores ledgers was completed in respect of all the stores. Any
differences noticed have to be commented upon.
iii) Values of surplus, obsolete and unserviceable stores should be obtained with
year-wise break up and commented.
iv) Details regarding loss of stores by theft, etc., have to be collected and ensure
their proper accountal.
v) Year-wise break-up of unadjusted shortages and excesses in respect of each
Central/Divisional Stores has to be obtained.
vi) Adjustments in respect of sale of surplus, obsolete and unserviceable stores
have to be examined.
vii)Adjustments of shortages and excesses made during the year have to be
scrutinised.
7. Year-wise details of number of work orders and values may also be furnished
in respect of outstanding work orders, category-wise. Reasons for non-
closure of the work orders may be indicated. Special mention should be made
about the temporary work orders.
293
8. Analyse debits to personal account to cost of vehicles and equipment etc.,
issued to field officers and staff and the period of their pendency.
9. The accounts of donations, if any, received at the time of floatation of Bonds
may be checked.
10.Check reconciliation of balances as per subsidiary records eg.,
Schedules/Registers of Misc. advances with the General ledger.
11.Position regarding the cases of theft of energy outstanding till the end of the
year may be indicated with year-wise details and amount. Reasons for their
pendency may be ascertained and indicated. In respect of cases where money
value is brought to accounts it should be seen that the accountal is as per the
standing instructions issued by the Company.
12.Inter departmental transfers: number and value of transfer debit advices and
transfer credit advices pending adjustments, if any, may be obtained and
given. Detailed scrutiny of pending TDA & TCA is to be made as to ensure
that capital values of items are lying for a long time without acceptance and
not brought to final head of accounts.
13.Year-wise break up of sundry debtors and provisions for reserve for bad and
doubtful debts. It should be seen in each and every unit that they invariably
prepare a year-wise break up of debtors, classify them as good, bad and
doubtful and make adequate provision in the accounts for bad and doubtful
debts.
14.Power purchases: While scrutinising the bills on the purchases of power from
Government of Andhra Pradesh the correctness of cost of generation arrived
at should be examined carefully.
15.The loans raised, should be examined and it should be seen whether the loans
raised under this Section are in accordance with the limits prescribed.
16.Clearance of suspense account: The extent of clearance of all suspense
accounts in all Divisions/Circles/Units should be checked with reference to
the adjustments made in the accounts together with the supporting documents.
Year-wise balances of the suspense accounts should be obtained and a general
review of all suspense accounts and special mention made about minus
balances.
294
4.104 Miscellaneous
4.104.1 Performance, repairs and maintenance of transformers
Electricity generated at Power generating stations, usually at 11 KV is stepped
up to higher voltages (132 KV/220 KV/400 KV) through "step up" Transformers
for being fed into "Transmission system". Electricity at high voltages in the
transmission system is supplied to the consumers through a network of
distribution lines by reducing the voltage up to 220/Volts through "step-down"
transformers installed at Sub-stations/Feeder Points.
The transformers used at generating stations and high voltage step down Sub-
stations in the "transmission system" are known as "Power Transformers" while
those used in the distribution system with low voltages (below 11 KV) are called
distribution transformers.
4.104 .2 Performance
The prescribed normal life of transformers having rating of 100 KV is 25 years.
4.104.3 Maintenance
The erstwhile Board had fixed the periodicity for overhaul at 10 years for power
transformer of over 3000 KVA capacity, 7 years for 3000 KVA and less and 5
years for distribution transformers.
There is a monitoring cell at the erstwhile Board’s headquarters office of
erstwhile Board under the Chief Engineer (Operation) who controls and monitors
transformers used in the distribution net work. Zonal Chief Engineers are
required to send monthly progress reports to the monitoring cell regarding the
number of transformers existing, failed, repaired, etc., after collecting
information from the Divisional Engineer (field units). The field units are also
required to maintain such statistics.
4.105 SPM Centres: The order to strengthen effecting savings in distance and
time from and to the locations of failure and the repairing centre, the Board had
established Special Maintenance Centres one for each district and will be
functioning under the control of respective MRT divisions.
Functions and duties at SPM Centres
1) Rectification of sick distribution transformers at an average rate 30 Nos.
per month.
2) Overhauling of distribution transformer 10 numbers per month.
3) Rectification and overhauling of metering cubicles at an average of 5 Nos.
per month.
295
4) Rectification and overhauling of power transformers and CTs 2 Nos. per
month.
5) Filtering of transformer oil received from field from time to time.
6) Testing of new distribution transformer and equipment received in stores
from time to time.
4.106 Meter and Relay Testing (MRT Division)
The division undertakes the testing of meters and relays, pressure on the supply
lines, instruments and other components of power stations. In as much as the
correct functioning of meters and relays have a direct bearing on the revenues of
the Board, it is essential to see whether the man power and facilities available
therein are adequate and whether the targets fixed are being achieved.
While auditing the MRT Divisions the following points are kept in view.
1) Reasons for premature failures and delay in test report.
2) Periodical overhauling of power transformers was being done at regular
intervals.
3) Shortage of Transformer oil in the failed distribution transformers received
for repairs at various repairing centres.
4) Belated return of transformers after repairs by suppliers.
5) Rate contract executed from time to time by the Superintending Engineer
(operation) with various private agencies for repairs of distribution
transformers.
6) Targets fixed for the workshop/special maintenance centres have been
achieved.
7) As per erstwhile Board orders the distribution transformers failed during
the guarantee period should be replaced/repaired by the suppliers within 15
days of receipt of intimation from the management.
8) Shortage of oil noticed in Distribution transformers in excess of 2 per cent
of capacity of sick distribution transformers in which oil was found short
shall be informed to the operation division every month for taking
necessary action. The audit should analyse the reasons for shortage and
see that action was initiated against the defaulters.
296
4.107 Failure of distribution transformers
Some instructions
The erstwhile Board has come out with certain measures in connection with
O&M lines and transformers in order to minimise the problems.
4.107.1 Failure of Distribution Transformers
Failures of distribution transformers and low voltages have become serious
irritants to the consumers. This problem can be overcome by ensuring that all
the agricultural and other power connections in future are released with proper
and adequate capacitors. Also, necessary immediate action to be taken wherever
the capacitors in the existing services are found not working and or inadequate.
Serious disciplinary action will have to be initiated against the officers
responsible for release of agricultural and industrial services without installation
and connecting up of the approved capacity capacitors. The SEs and CEs are
responsible for this course of action and they are answerable to the Board, if
found necessary.
The failure of distribution transformers has been abnormally high resulting in a
State average of 23 per cent. The standing instructions of rectifying the
distribution transformers structures and lines before replacing failed transformers
should be strictly implemented. In cases where the failed transformers are found
to be short of oil (Handing over to SPM) severe action has to be initiated since
this might have been the main cause of failure. Proper peak load readings of the
feeder save to be taken and monitored to avoid failures due to overload. The
erection of a replacement transformer must be done only after the inspection and
rectification of T.S. and L.T. lines. This should be strictly adhered to. Though
the erstwhile Board has supplied 1000 nos. of 600 KVAR switched capacitors to
the field, it is noticed that none of the officers’ in charge of operation appear
concerned about their correct location and functioning. The Senior Officers
should create awareness in the Section Officers and Asst. Divisional Engineers
about the importance of the proper usage and functioning of this equipment.
This is possible only when Senior Officers realise it and impart to the
subordinates.
4.107.2 Breakdown and Interruptions
The Board feels that the grave importance of improving the situation in the area
of breakdowns and interruptions has not been realised by the officers concerned.
They have not handled with necessary sincerity at any level, as could be seen
from the casual way they are sending the returns, without understanding the
gravity of the situation. The intention of the returns is to make the field officers
297
realise the situation and make them act so as to bring under control these
problems. This objective has not been realised due to ineffectiveness of the
officers.
4.107.3 Voltage monitoring
In the case of voltage monitoring, the Senior Officers of the cadre of Divisional
Engineers and above must make initial analysis of the voltage conditions and
come with suggestions to improve the voltages. Optimum utilisation of feeders
and equipment like transformer with a little bit of reshuffling wherever necessary
may improve the voltage conditions. Changing the conductors with higher size
etc., have to be examined critically and action initiated. The ADEs have a key
role in this area and they are responsible for keeping the condition of the lines
and distributions in perfect conditions.
4.108 Energy Audit
Energy audit is being done for the last one year. It is necessary to assess the
losses at least on 33 KVs. In case of 11 KV feeders, it is necessary to arrive at
the losses at least once in a quarter, if not every month. The following norms
have to be observed in monitoring and making critical analysis on all the above
issues.
1) Distribution transformer failures - Not more than 10 per cent
2) 33 KV interruptions - 1 per month
3) 11 KV interruptions - 1 per day
4) 33 KV breakdowns - 1 per circle/month
5) 11 KV breakdowns - 1 per section/month
The management desires to achieve near total consumer satisfaction by sincerely
and effectively ensuring the proper implementation of these instructions.
During audit it is necessary to examine whether the field officers have followed
the instructions issued by the management from time to time. Steps taken to
reduce the failures may also be reviewed.
4.109 Rural electrification
The Rural Electrification Schemes executed from 1969-70 onwards are financed
mainly by loan assistance from Rural Electrification Corporation (REC). The
REC provides 100 per cent of the estimated cost in respect of first schemes and
up to 60 per cent in respect of the subsequent schemes in a district, the balance
being met from the Board's own funds. Special projects - Agricultural schemes
298
are also eligible for financial assistance either by REC alone or by the
participating commercial banks.
Rural electrification in the State has been receiving high priority to meet the
needs not only of agriculture but also of rural industries. Specific allocations are
made for the benefit of scheduled castes under Special castes under Special
Component Plan covering electrification of Harijana wadas and weaker section
housing colonies and release of agricultural and other services to scheduled
castes. The following schemes are covered under the REC Schemes.
a) Electrification of villages (b) Electrification of Hamlets (c) Electrification of
Harijanawadas (d) Erection of 33/11 KV sub-stations (e) Energisation of
pump sets.
While auditing the rural electrification division/schemes, it should be seen that;
a) Separate estimates are prepared for works relating to schemes covered
under "Ordinary Advanced Areas" and ordinary backward areas and the
expenditure is also booked accordingly.
b) The records are maintained in systematic and methodical manner and
depict physical/financial progress;
c) The reports are prepared on the basis of initial records maintained in the
sub-division/divisional offices.
d) The completion reports of each scheme is prepared and checked by the
concerned authorities.
e) The expenditure incurred on each scheme is within the limit sanctioned by
the REC;
f) The adjustment of cost is made at the earliest;
g) The works are taken in hand in time and handed over to operation
organisation of the company after completion without undue delay.
h) The loss incurred on the schemes sanctioned under normal development
schemes either out of managements own funds or from loan sanctioned by
State Government is reimbursed to the management by Government.
i) All adjustment of stores are carried out before preparation of completion
reports of the concerned schemes and unused material transferred to other
works (after necessary credits/ debits to the concerned works) and
j) The results of implementation are reviewed and suitably commented up on
in the Inspection Report.
299
4.110 Plant Load Factor
Attendency has grown in recent years to treat PLF (Plant Load Factor) as a
general Index of Electricity and Pay persons seem to think that it was a sole
indicator of the performance of the whole system. Such use of Technical
Parameter is having a perceptible effect in distortion of priorities of the different
elements which together constitute the power generation and supply system.
This, in turn, leads to aggravation of its unreliable and uneconomic working and
imbalance in its growth.
The PLF is no doubt a very useful Index in its own field of relevance but the pre-
occupation with this sole numerical values leads to neglect of all other aspects of
Power Sector which also have comparable importance. Such as the actual
weaknesses of generation, power system and power demand which hamper
integrated optional operation, the optional pattern of power demand from the
view point of economic activity rather than merely of high PLF are the best way
to meet it. PLF is important but in its own correct frame work, not as a measure
of performance of whole power generation and supply. Power generation and
supply is meant the needs of society which has vastness of para meters of
variation. It is consequently a very complex technical issue and is supposed
condensation into a single number like PLF leads to harmful distortions. Thus,
for example the annual PLF in India is significantly higher than in advanced
countries, in spite of much greater failure proneness of the equipment here.
Power planning in India is done to effect maximum investment economy as well
as operational economy by providing for a maximum of Thermal plant
maintenance scheduling in river flow on high irrigation seasons, with
simultaneous provision for maximum absorption of unregulated hydro energy.
4.111 Power factor
This means the ratio of kilowatt hours consumed in the month to the kilovolt
ampere hours registered during the month or KWMD/KVAMD. In other words
it is the ratio of actual power to apparent power. A good power factor means less
load on the feeder, better plant voltage and reduction in monthly consumption
bill. For a fixed voltage, a reduced power factor requires a larger current for a
given power. Low power factor are produced by apparatus such as induction
motors, especially at low loads, and the tallest units of discharge lighting which
need a magnetising reactive current for their action. The magnetic field of such
apparatus necessitates a current for their action. The magnetic field of such
apparatus necessitates a current which does no useful work and does not result in
head or mechanical power but is simply required to build up the field. A poor
power factor causes the voltage and current to be out of phase so that their
300
product does not produce power in watts but volt amperes. The basic principle
of power factor improvement is to inject a loading current into the circuit so as to
neutralise the effects of the lagging magnetising current. Under these conditions
the energy required by the magnetic field circulates between the correction
apparatus and the corrected installation instead of between the installation and
the supply.
As per the Tariff Order the Power Factor of the consumer’s installation shall not
be less than 0.90. Should the Power Factor drop below 0.75 and so recurring for
a period of 2 consecutive months it must be brought upto 0.90 with in a period of
6 months by methods approved by the licensee.
4.111.1 Disadvantage of low power factor
a) Cost of station and distribution equipment is more for a given load at low
power factor;
b) Low power factor makes voltage regulation post so that trouble is
experienced in maintaining voltage within specified limits.
c) For the transmission of a given power, low power factor means more
energy losses for the same size of conductor or for the same energy losses
a bigger size of conductor. Extensive use of induction motors, arc lamps,
arc welders result in low power factor. Low power factor, whenever exists,
has to be improved by the use of static capacitors, synchronous
compensators or phase modifiers.
4.112 Glossary
Auxiliary equipment: Accessory equipment necessary for the operation of a
generating station. This would include fans, pumps, mills, conveyors, crushers,
pipes, feeders, etc.
Generation: This term refers to the act or process of transforming the form of
energy into electric energy or to the amount of electric energy so produced,
expressed in Kilowatt hours.
Megawatt or MW: One Megawatt (MW) is equal to 1000 Kilowatts. One
kilowatt (KW) is equal to 1000 watts. Watt is the electrical unit of power or rate
of doing work. It is the rate of energy transfer equivalent to one ampere flowing
under a pressure of one volt at unit power factor. It is analogous to horse power
or foot pounds per minute of mechanical power. One horsepower is equivalent
to approximately 746 watts.
Million units (MU) or Gwh are one million units of electrical energy of 10
Kilowatt hour. Kilowatt hour is the basic unit of electric energy equal to one
301
kilowatt of power supplied to or taken from an electric circuit steadily for one
hour. It is the unit which is generally referred to in the domestic consumption of
electricity.
Forced Outages Rate (FOR): It is the ratio of megawatt hours under forced
shutdown in the reference period to the total megawatt hours that the power plant
is capable of generating at full load during the entire period under reference. It is
expressed in percentage and is calculated as under:
FOR = Forced outage hours in the x Generation
reference period capacity x 100
Total hours in the reference
period x Generation capacity
Planned outages rate (POR): It is the ratio of the megawatt hours under planned
shutdown in the reference period to the maximum megawatt hours that the unit is
capable of generating at the same period. It is expressed in percentage and
calculated as under:
POR = Planned outage hours in the reference
period x Generation capacity ___________________ x 100
Total hours in the reference period x Generation capacity
Availability Rate (AR): It is the ratio of available megawatt hours in the
reference period to the total megawatt hours that the plant is capable of
generating at full load during the reference period. It is expressed in percentage
and is calculated as under:
AR = Operating hours over the reference period x Generation capacity x100
Total hours in the reference period x Generation capacity
Partial Unavailability Rate (PUR): It reflects the failure of a generation unit to
meet the demand during various hours of a day. It is expressed in percentage and
is calculated as under:
PUR = Energy lost due to equipment constraints
during the reference period x 100
Total energy that could have been produced if demanded during the reference
period
Unutilised Power/Low Load (UUPR): It is that portion of the electrical energy
during a given period which could not be produced since the maximum peak
reached could not be maintained throughout the period due to having no demand
302
or load although the unit was capable of producing of the peak level had there
been a demand. It depends on the systems load factor or other external
constraints over which the power plant management has no control. It is
expressed in percentage and is calculated as under:
UUPR = Energy lost due to systems constraint or
Non-availability of load x 100
Total energy that could have been produced in the reference period
Capacity Utilisation or Plant Load Factor (PLF): Capacity utilisation or Plant
load factor is the ratio of the electrical energy produced in the reference period to
the maximum possible energy that could have been produced had the generating
capacity been operating continuously at its maximum level during the reference
period. It is expressed in percentage and is calculated as under:
PLF = Gross hourly generation over the reference period x 100
Generation capacity x Total hours in the reference period
Partial Loading (PR): The extent of loading the unit below its capacity due to
equipment/demand constraints during the period when the plant is generating
electricity.
It is the difference between the electric energy produced during the plant
operating hours and the maximum possible energy that could have been
produced had the generating capacity been operating continuously at its
maximum level during the plant operating hours. It is expressed in percentage
and is calculated as under:
PL = 1 - Gross generation during operating period x 100
Plant capacity x Total operating hours
Maximum Peak (MW): It is the maximum generation (expressed in MW) by the
Unit to meet the greatest of all demands of the load under consideration which
have occurred during the month.
Net Output: It is the total electricity generated during the month divided by the
number of operating hours during the month when the unit was producing
electricity. It is calculated as:
Net output = Generation in a month (MWH)
No. of operating hours in a month (hrs)
303
Tripping: The occurrence of a component failure or other conditions which
requires the unit to be removed from service either manually or automatically on
protections.
Auxiliary consumption: Electricity consumed by the unit/station/auxiliary
system for startups or running the unit or auxiliary systems.
Operating Hours: Time in hours during which a generating unit is generating
electricity.
Oil consumption: The total oil consumption of High Speed Diesel (HSD) and
Furnace Oil (FO) by a generating unit during the reporting period, expressed in
Kilo litres.
Specific Oil Consumption: Total oil consumption (in KL) divided by Generation
(in MU) by the unit during the reporting period and is expressed in kilolitres per
MU or Millilitres per Kwh. Coal consumption: Total quantity of coal consumed
(or bunkered) by the unit during the reporting period, expressed in Metric
Tonnes (MT).
Specific Coal Consumption: Total coal consumption divided by the generation
of the unit during the reporting month expressed as MT/Gwh or Kg/Kwh.
Gross Heat Rate: The ratio of total heat input divided by energy generation by
the unit during the reporting period and is calculated as under:
K.Cal/Kwh = Heat input (Million kilo calories)
Generation (Million Kwh)
Where
Heat Input= Total coal consumption x calorific value of coal(K.cal/Kg)
Total oil consumption x calorific value(K.Cal/KL)of oil = Million Kilo calories
Financial Year: It is considered from April to March
Air Preheater: Since the entire heat of the flue gases cannot be extracted through
the economisers, air pre heaters are employed to recover some of the heat in
these gases.
Ampere: The unit of measure for Specific quantity of electrons.
Capacitance: The property of a capacitor which enables it to store an electric
charge.
Capacitive Reactance: The opposition which a capacitor presents to alternating
current or to a direct current that is changing in value. It is measured in ohms.
304
Capacitor: The device capable of storing electric energy.
Cold reserve: Cold reserve is that reserve generating capacity which is available
for service, but is not in operation.
Current: The movement of electrons through a conductor material.Current
(alternating): The movement of electrons through a conductor first in one
direction and then in the opposite direction.
Economisers: The purpose of economiser is to heat feed water so as to recover a
part of heat which would otherwise be lost through flue gases. The gaseous
products of combustion give most of their heat to the water in the tubes of boiler.
In order to make use of the remaining heat the gases are made to pass through an
economiser thereby heating the feed water in the economiser tubes. The gases
then pass through an air heater arrangement thus providing initial heat to the air
before they are admitted to the furnace.
Electromotive Motive force: The electrical force which causes electrons to move
through a conductor. This force is commonly known as voltage.
Evaporators: These are used for supplying pure water to make up feed water in
the boilers. In the evaporator raw water is evaporated by using extracted steam.
It is then condensed to give distilled pure feed water.
Firm Power: Firm power is the power intended to be always available even
under emergency conditions.
Hot reserve: Hot reserve is that reserve generating capacity which is in operation
but is not in service.
Impedance: The total opposition of a current to alternating current.
Ohm: The unit of electrical resistance. A circuit has a resistance of one ohm
when one volt of voltage applied to it produces a current of one ampere in the
circuit.
Planned Outages Rate (POR): It is the ratio of the megawatt hours under
planned shut down in the reference period to the maximum megawatt hours that
the unit is capable of generating at the same period.
Conversion of H.P. to K.W, KVA TO HP, KVA TO KW
KW TO HP = KW X 1000
746
1 KW = 1.1764705 KVA
1 HP = 0.746 KW
305
1 HP = 0.877647 KVA
1 KVA = 1.13941 HP
1 KVA = 0.85 KW
1 KW = 1.3404825 HP
Polarity: An electrical condition which determines the direction of current. In a
circuit, electrons move from a point of negative polarity to a point of positive
polarity.
Resistance: The tendency of a device of a circuit to oppose the movement of
current through it. The unit of resistance is ohm.
Resonance: The condition of a tuning circuit when the capacitive reactance of
the circuit capacitor is equal to the inductive reactance of the coil in the circuit.
Spinning reserve: S15,6916,70 pinning reserve is that generating capacity which
is connected to the Bus and is ready to take the load.
Super heaters and Re-heaters: Their function is to superheat steam to the desired
temperature by removing the last traces of moisture, as too much of condensation
in the last stages of the turbine would cause blade corrosion.
Switchgear: Switchgear has the important function of localising the effect of
faults on the system and isolating faulty parts from the remaining (healthy
system).
Synchronous Generators: The above generators are used to generate or absorb
reactive power. An oven excited machine generates reactive power and an under
excited machine absorbs it.
Transformer: A device which transfers electric energy from one coil to another
by means of electro magnetic induction.
Volt: The unit of electromotive force of voltage.
Voltage: The electromotive force which causes electrons to move through a
circuit.
Watt: The unit of electric power.
Current: The movement of electrons through a conductor in one direction only.
Dielectric: An insulation material.
Deaerator: The condensate (condensed feed water) leaving the condenser is first
heated in a closed feed water heater through steam extracted from the lowest
306
pressure extraction point of turbine. This water then passes through deaerator,
where the air particles in the water are separated.
Multiplying factor: Every meter is designed for specific current x and voltage
ratings. The meter itself has a constant with which the reading is to be multiplied
to arrive at the actual consumption.
When ever CTs & PTs are used the overall multiplying factor will be
MF due to x MF due to x Meta = Overall
CT ratio PT ratio constant Multiplying Factor
This multiplying factor is to be permanently displayed at the service meter, meter
cards, ledgers, bills etc.
-ooOOoo-
307
CHAPTER - 5
ANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION
5.1 Introduction
The Andhra Pradesh State Road Transport Corporation (APSRTC) was
established on 11 January 1958 under the Road Transport Corporations Act,
1950. The Act, as also the Andhra Pradesh State Road Transport Corporation
Rules, 1958 define the powers, duties and responsibilities of the Corporation.
These powers are subject to such directions as the State Government may under
Section 34 of the said Act issue from time to time.
Section 18 of the Road Transport Corporations Act, 1950 prescribes the general
duty of the Corporation to exercise its powers progressively to provide or secure
or promote an efficient, adequate, economical and properly co-ordinated system
of Road Transport services in the State or part of the State for which it is
established and in any extended area.
The Corporation is run on commercial lines. The capital agreed to be provided
by the State and Central Governments under Section 23(1) of the Act was in the
ratio of 2:1. The working of the Corporation is supervised by a Board consisting
of Official and non-official members, including the Chairman, Vice-Chairman
and Managing Director appointed by the State Government.
The Corporation has its Administrative Office at Hyderabad. It operates through
7 Zones, 23 Regions, 202 Depots, 15 civil Engineering Divisions, 7
Zonal/Regional stores, 7 Zonal/Regional Workshops, 7 Tyre Retreading Shops,
8 Zonal Staff Training Colleges.
The Corporation follows a three-tier accounts system viz., at Units (Depots and
Engineering Divisions etc.,), Regions/Zones and the Head Office. The accounts,
as compiled by the units are consolidated at the Regions/Zones including the
accounts originating at the concerned Regional office/Zonal Office. The
Regional/Zonal accounts are consolidated in the Head office along with the
accounting transactions of the Head office Units.
Acts, Rules etc. to be referred to:
1. The Motor Vehicles Act, 1988 (Act 59 of 1988) and the Andhra Pradesh
Motor Vehicles Rules, 1989.
2. The Andhra Pradesh Motor Vehicles Taxation Act & Rules 1963.
3. The Road Transport Corporations Act, 1950.
4. The Andhra Pradesh State Road Transport Corporation Rules, 1958.
5. Motor Transport Workers Act, 1961 and A.P.Motor Transport Workers
Rules, 1963.
308
6. APSRTC Regulations and various internal Manuals as compiled by the
Corporation on accounts and audit, purchases and stores, Operations tyres,
Workshops, depot maintenance, bus body fabrication and civil engineering.
7. Mechanical Engineering Department Circulars.
8. Provident Fund Regulations, 1971.
9. Delegation of Powers and
10. Various circulars issued by the Corporation from time to time.
5.2 Scope of Audit
Efficiency-cum-propriety audit of various transactions and accounts records of
the Corporation is conducted in accordance with (i) the quantum of checks
prescribed by the Comptroller and Auditor General of India (C&AG) as decided
by the Accountant General from time to time and (ii) the usual Commercial
audit principles and guidelines hereafter given.
The audit comments on Annual Accounts are included in the Audit Report and
forwarded to the State Government for being placed before the Legislature in
accordance with Section 33(4) of the Road Transport Corporations Act, 1950.
Financial irregularities and results of review, if any, carried out in respect of the
activities of any Section or whole of the Corporation are, however incorporated
in the State Audit Report (Commercial).
5.3 Resident Audit Section
The Resident Audit Section is located in the Corporation's Head Office at
Hyderabad. It is under the control of a Senior Audit Officer/Audit Officer and is
under the supervisory charge of the Senior Deputy Accountant General/Deputy
Accountant General (Commercial). The main functions of the Resident Audit
Section are:
1. Scrutiny of agenda notes, minutes, resolutions etc., of the Board and the
sub-committees.
2. Editing, issue and pursuance of Inspection Reports on the audit of various
units of the Corporation and also conducting Audit committee meetings for
settlement of paras.
3. Consolidation of draft provisional comments received from the field parties
on the annual accounts of the Corporation.
4. Periodical review of Inspection Reports and processing of Factual Notes.
5. Finalisation and issue of Separate Audit Report on Annual Accounts.
6. Issue of instructions to local audit parties.
7. Calculation of audit fees recoverable from the Corporation.
8. Preparation of staff proposals, forecast and audit plan for arranging audits
by the Commercial Audit Headquarters Section.
309
9. Audit of high value contracts.
5.4 Local Audit
Local audit of the units of the Corporation is arranged by the Commercial Audit
Headquarters based on the forecast submitted by the Resident Audit Section.
The Commercial Audit Headquarters earmarks certain Commercial audit parties
for carrying out audit of various units of the Corporation. Before deputing the
local audit parties, Commercial Audit Headquarters sends an intimation of audit
to the Head of the Office/Unit to be inspected, with the probable date of visit of
the party. During the audit of accounts and records of units, Commercial audit
parties may exercise such checks, which are generally exercised by Commercial
auditors in dealing with similar accounts. The instructions contained in this
manual and further instructions, if any, issued by Resident Audit Section
regarding quantum of checks, including special points, to be exercised and other
matters should be followed in the conduct of local audit. After completion of
inspection, the Draft Inspection Report is to be forwarded to the Resident Audit
Section. Test Audit Notes should be issued locally to the Head of the office of
the unit inspected and a copy of the same be forwarded to the Resident Audit
Section. Care should be taken by local audit parties to see that the
omissions/commissions pointed out in earlier Test Audit Notes are rectified by
the unit.
5.5 Inspection Reports
Draft Inspection Reports received from the local audit parties are edited at
Resident Audit Section and issued to the Head of the Office of the Unit
inspected with copies to immediate Controlling Officer and the Chief Auditor.
Important points, which are fit for comment in the State Audit Report are
forwarded to Reports Section of the Commercial Audit Headquarters after issue
of factual note by Resident Audit section for further processing.
5.6 Some Important Instructions/Guidelines for Audit
1. Immediately after taking up of the audit of any unit/office, it may be ensured
by test checkover the period of audit (a) whether the prescribed internal
checks/controls are properly being exercised at various levels of supervision; (b)
whether the maintenance of records/files was proper and/or in the prescribed
formats.
2. Know the scope and extent of Internal Audit and ensure its adequacy with
reference to the Internal Audit Report on the Unit under audit.
3. Exercise scrupulously the quantum of checks prescribed by C&AG of India.
4. Review the physical verification Reports and include necessary points of
interest like cases of embezzlement/mis-appropriation of cash, heavy
shortages etc., involving considerable amounts in the local audit reports.
310
5. See that the following canons of financial propriety were definitely observed
by every officer who incurred or authorised incurring of expenditure from
the Corporation fund:
i) The expenditure should not be prima facie more than the occasion demands.
Every member of the staff is expected to exercise the same diligence and
care in respect of all expenditure from Corporation funds under his control
as a person of ordinary prudence would exercise in respect of expenditure of
his own money.
ii) No Corporation employee should exercise his powers of sanctioning
expenditure so as to pass an order directly or indirectly to his own
advantage.
iii) Corporation monies should not be utilised for the benefit of a particular
person or a section of the community unless (a) the amount of expenditure
involved is insignificant or (b) a claim for the amount would be enforced in
a Court of Law or (c) the expenditure is in pursuance of a recognised policy
or custom.
iv) The amount of any allowance such as T.A granted to meet expenditure of a
particular type should be so regulated that it is not, on the whole, a source of
profit to the recipient.
6) Issue Test Audit Notes on the spot to the head of the office/unit for the
points of minor importance, or of routine and statistical nature, or for the
instances where the management promised to carry out improvements or
take corrective measures during the current year.
7) The guidelines given in the subsequent pages are for audit of offices/units
and for audit of records/transactions. Under each unit/office/officer, its or
his brief functions are indicated, and similarly under each record/transaction
its nature, wherever necessary is also indicated. Guidelines are given
separately (at the end) in respect of certain common records/transactions i.e.,
records/ transactions dealt with in two or more units/offices.
5.7 Head office wings/units
5.7.1 Finance wing
The Financial Adviser (FA) is the head of the Finance Wing. He is assisted by
Dy.Chief Accounts Officer (F & A), Dy.Chief Accounts Officer (C & B) at Head
Office. The functions of the Financial Adviser are as follows:
i) Giving financial advice to the Management so as to ensure proper resource
utilisation and greater profitability.
ii) Review of monthly production in the body building unit, printing press,
tyre retreading shops and workshops.
311
iii) Preparation of budget and exercising budgetary control by keeping a close
watch on the progress of expenditure by monitoring through monthly
expenditure returns.
iv) Resource mobilisation and financial planning.
v) Organising an effective Internal Audit Department for close scrutiny of all
financial transactions and for processing of the audit reports.
vi) Annual physical verification of all assets and periodical review of
inventory holdings and
vii) Pre-auditing of all expenditure.
5.7.2 Accounts Wing
The Chief Accounts Officer is the head of the Accounts wing. He is assisted by
one Chief Auditor, Dy.Chief Accounts Officer (Stores, Pay and allowances) and
one Accounts officer (Main accounts and Income Tax), Dy.Chief Accounts
Officer (Test Audit Inspections) and Dy.Chief Accounts Officer (Provident Fund
Trust) at Head Office. At Zonal and Regional levels, the Chief Accounts officer
is assisted by Zonal and Regional Dy.Chief Accounts officers/Accounts Officers.
The Chief Accounts Officer is responsible for compilation and maintenance of
proper books of accounts and monthly and annual statements of accounts like
profit and loss account, balance sheet etc.,
5.8 Budget, Budgetary Control and Financial Planning Fund of the
Corporation
Under Section 27 of the Act, the Corporation has a fund of its own and all
receipts of the Corporation are carried thereto and all payments by the
Corporation are made therefrom. The Corporation is carrying on all its
transactions in Current Account with Nationalised Banks and private banks.
5.9 Budget Estimates
In accordance with Section 32 of RTC Act, 1950 and Rules 12&13 of the
APSRTC Rules, 1958, budget estimates of the Corporation giving the anticipated
receipts and expenditure for the financial year to which they pertain are prepared
in the prescribed format and submitted to the Board on are before the 1st January
of the year and to Government after approval by the Board on before 15th
January for the approval. The budget as amended or altered and approved shall
constitute the budget of the Corporation for the ensuing financial year and
authenticated copies of the budget shall be forwarded to the Central and State
Governments on or before 15th March.
5.10 Form of Budget (Rule 12 of the APSRTC Rules, 1958)
The budget estimates of the Corporation shall consist of seven parts viz.,
312
Part-I: A detailed estimate of expenditure on capital account;
Part II: A detailed estimate of (a) Receipts
(b) Expenditure on revenue account;
Part III: A detailed estimate of contribution from the State and Central
Governments and other receipts on capital account to be exhibited
under various heads to show the nature of the receipts and
summary of amounts due to and by the Central and State
Governments;
Part IV: Expenditure statements/ regarding funds, deposits and advances;
Part V: A detailed statement of appropriation of net profits;
Part VI: Cash account of the APSRTC fund;
Part VII: Summary of the Financial Results of the working of the
Corporation.
All Contributions towards capital received from the Central Government and
State Government constitute the capital receipts and will be shown separately
(Rule 22).
It should be generally seen in audit that estimates prepared for both receipt and
expenditure, either capital or revenue account, are to the extent possible,
realistic and are based on certain definite data worked out after taking into
account the approved policies of the Corporation/ Government. The estimate
shall also take into consideration the increase/decrease in various items of
expenditure under all heads. It should be ensured that all anticipated items of
expenditure and revenue are covered in the estimates. In regard to revenues, it
should be specially seen that the estimates based on augmentation, expansion
etc., of services are, as far as possible, correct. The principles of audit against
propriety and audit against sanction should also be borne in mind. The revised
estimates of current year need a closer scrutiny as they are required to be
prepared with greater care and accuracy with reference to actuals for the first six
months of the year. Finally, the fact whether proper control is exercised by the
Financial Adviser over expenditure against the Budget Grants for each
department head-wise with reference to the procedure laid down should also be
checked in audit.
The Corporation has full powers to reappropriate funds within the revenue
account so long as the funds earmarked specifically or contribution to reserve
funds and statutory liabilities (such as interest, income-tax) are not diverted for
other purposes.
The Corporation has powers to reappropriate funds within the capital account.
The Corporation is not competent to divert funds from Capital account to
Revenue account or vice-versa. Any excess expenditure over the Revenue
313
budget or Capital budget as a whole should not be incurred by the Corporation
except with the prior sanction of the State Government.
5.11 Financial Planning
Financial Planning is an important function of Finance Department and is
essential to maintain a sound financial position by regulating the expenditure
and optimising financial liquidity for further utility and maximising profits. For
this purpose, it may be seen whether proper controls have been exercised at
appropriate times.
5.12 Capital Contributions
Capital contributions are obtained from the State and Central Governments and
the same have been converted into equity (March 1996).
5.13 Investment of Surplus Funds
After meeting the expenditure at main office like payments to Chassis suppliers,
fabricators, oil companies, payment of Motor Vehicles Tax etc., surplus funds
shall be invested in short term deposits. Investments are made with the
Nationalised Banks and institution as directed by the Government. Before
investing surplus funds, future requirements of cash to meet bulk expenditure are
estimated. It may be seen in audit whether investments are in accordance with
approved practices/policies of the Corporation/Government and if there is any
inconsistency or financial loss, on account of change in investment pattern it may
be commented. It may also be seen that interest return on investments is realised
as per agreed terms.
5.14 Borrowings
If the commitments are heavy and the resources are less as assessed from the
monthly cash flow statement, borrowings are made from banks or any other
financial institution with which financial tie-up is made by the Corporation.
For the loans raised from Central/State Governments and various other agencies
like Industrial Development Bank of India, Staff Benefit cum Thrift Scheme,
Life Insurance Corporation, Staff Retirement Benefit Scheme etc., loan
agreements may be scrutinised and financial loss, if any, sustained due to non-
fulfilment of any of the conditions of agreement may be assessed and
commented upon. It may be ensured in audit whether the loan was utilised for
the purpose for which it was taken and interest calculated and paid/payable is
correct.
5.15 General Review in Audit
General review in respect of the following records/transactions may be done and
points of interest, if any, noticed during such review may be commented upon.
5.15.1 Records of F.A. & C.A.O'S Offices
1. Funds transferred/received to/from regions/zones to/from HO (AH 2703,
2704, 2706, 2723, 2724, 2726, 2727).
314
2. Cash-in-transit (AH.NO 2713, 2715, 2717, 2725).
3. Registers indicating daily funds position with State Bank of India, State
Bank of Hyderabad, Central Bank of India, and State Bank of Hyderabad
Extension Counter.
4. Summary register of the above banks.
5. Revenue Suspense Register (AH 2801 to 2861).
6. Miscellaneous Deposits Register (AH 0601 to 0636).
7. Demands Payable Accounts (AH 0901 to 0909,1101 to 1163 & 1201 to
1217).
8. Surplus Funds Register.
9. Capital Contribution Register indicating the contribution of State and
Central Governments.
10. Debit/credit analysis - Book accounts.
5.15.2 Pay and Cash Section
(a) Records
1. Cash Books - MTA 51B, PWD 4
2. Postal Stamp Account Register (MTD 450/Gen.46).
3. Details of Remittances of unpaid wages into the Bank (Form 269).
4. Summary of details of Cash paid into the Bank (A.258).
5. Book balance of various accounts and specifications of cash/cheque
balances (Form A 264).
6. Book intimation of the unpaid amounts remitted into the Bank (Form A
428).
7. Reminder Register.
8. Daily Unpaid Register.
9. Memorandum Register.
In respect of items 1 and 2 above, detailed check for one month (as prescribed
by the Comptroller and Auditor General of India) may also be done.
(b) Transaction
1. Realisation of Advertisement charges with reference to the
Agreements concluded with the parties.
315
2. Receipt of various deposits and other miscellaneous receipts.
3. Payments to staff and officers working at Head office and its units.
4. Payments to Oil companies, chassis suppliers, fabricators, stores suppliers
etc.
5. Any other payments which are directly made from Head office.
6. Any other receipts which are directly received at Head office.
5.16 Remittances of Daily Earnings and Transfer of Surplus Funds
Daily remittances of depots shall be made into the State Bank of India/State
Bank of Hyderabad or any other bank, as the case may be, with the Challan
forms. Demand Draft shall be obtained in favour of the Current Account of the
Region to which the Depot has been attached and the Demand Draft shall be
sent to the Dy.Chief Accounts Officer/Accounts Officer (Dy.CAO/A.O.) of the
concerned Region so as to reach him on the following day. The Dy.CAO/A.O.
of the Region shall pool the remittances of all the depots under the jurisdiction
of the Region, and deposit in the bank account of the Corporation styled as
`Regional Current Account'. The Dy.CAO/A.O. Dy.CAO/A.O. of the Region
shall meet the funds required for disbursement at the Regional Headquarters and
Depots under the jurisdiction of the Region from the Regional Current Account
and transfer daily the surplus funds to Head Office to avoid locking up or idling
of funds at the regional level. Funds required by the depots/units will be
arranged by the concerned Dy.CAO/A.O. of the Region, based on the
requisitions received from the Depot Managers/Unit officers.
Abnormal delays, if any, in remittance of funds from Depots/Units to Regions
and from Regions to Head office may be commented upon in the Inspection
Reports.
5.17 Opening of Current Account of a New Depot
On receipt of information from the Regional Manager/Dy.C.A.O./A.O. of the
Region about opening of a new Depot, the Finance Section at Head office shall
take action to open a current account of the new depot in an authorised bank.
Under the Reserve Bank of India Remittance Facility Scheme, the funds of the
Corporation are classified as `Local Funds' and the banks are required to provide
free remittance facilities for the transfer of funds from the Head Office of the
Corporation to the Unit offices and vice-versa.
If there is any failure or delay in taking prompt action, the amounts incurred
towards service charges may be assessed and brought out in the Draft Inspection
Report.
316
5.18 Internal Audit Wing
The Chief Auditor is the Head of the Internal Audit Wing. He shall report to the
Chief Accounts Officer directly. He is a part of the Management team. His
important functions are as follows:
i) He shall assist the Chief Accounts Officer in formulation and
implementation of audit policies, provide specialised services in respect
of audit functions and advise the Management in all audit and allied
matters to achieve the Corporate objectives.
ii) He shall also assist the Chief Accounts Officer in (a) Internal audit
functions to ensure its adequacy for maintenance of records of assets,
T&P and equipment and thereby to ensure maximum safety, efficiency
and economy in all operating units (b) Physical verification of assets,
T&P and stores.
iii) He shall organise an effective internal audit department and process
internal audit reports through CAO to the Management.
iv) He shall inspect Depots, workshops, other units and offices.
v) He shall be responsible for (a) the internal audit function in respect of
Revenue and Expenditure (both Revenue and Capital nature) (b) smooth
functioning of P.F.Trust, F.P.Scheme, EDLIF Scheme (c) preparing
suitable replies to Committee on Public Undertakings and Public
Accounts Committee (d) analysis and scrutiny of objections in
consultation with heads of departments to reply the Government and the
Accountant General on periodical inspection and annual accounts.
5.19 General Guidelines for Audit
General review may be done about (i) the overall functioning of the wing i.e.,
how best the wing has discharged its functions (ii) files on cases of
misappropriation/embezzlement etc.
5.19.1 Operations Department
This department is manned by three Chief Traffic Managers, one for
commercial, one for traffic activities and one for Marketing, alongwith their sub-
ordinate officers and staff. These Managers should report to the Executive
Director (Operations).
5.20 Chief Traffic Manager (Commercial)
He is responsible for
i) monitoring construction of bus stations and shelters, arranging payment of
bus stand fees and toll gate fees and evolving staff norms for bus station
317
management, cleanliness of Bus stations and finalisation of contracts for
cleanliness.
ii) realisation of commercial revenues like rent of shops, stalls, canteens etc.,
revenue from parcel services and carriage of parcel mail and all matters
connected therewith.
iii) advertisement revenue and other matters connected thereto like finalisation
of terms and conditions of the agreement with advertisement agents,
identification of space for advertisement etc.
iv) effective functioning of ticket checking squads to ensure realisation of
optimum revenue and to arrest leakage of revenue.
v) monitoring and taking corrective action with regard to accidents and
claims.
vi) organising special hire buses to private parties/ Government Departments,
allotment of vehicles on special occasions and supply of vehicles at
concessional rates to educational institutions and sports events etc.
vii) monitoring the reservation system, seats to Legislators, Members of
Parliament, refund of fares to claimants in case of cancellations.
viii) review of crew and bus links and provision of crew rest rooms.
5.20.1 General Guidelines for Audit
Scrutiny of all the files on the decisions taken in respect of all the above subjects
may be done and points of interest noticed included in the Draft Inspection
Report.
5.21 CHIEF TRAFFIC MANAGER (OPERATIONS)
He is responsible for
a. Monitoring performance of long distance services, introduction of new
services on intra and inter regional routes, augmentation, complaints, ABC
classification of routes, action for infringement of monopoly etc.
b. Deciding the operational procedures and policies for curtailment of
services in slack season, fixation of bus stops, printing of pre-printed and
destinations oriented tickets, printing of time tables, allotment/transfer of
staff cars, fairs and festivals, tour diaries, CMP cases, agitations,
strikes/assaults etc.
c. assisting in formulation of policies for various bus pass concessions to
students, physically handicapped, NGOs and other facilities extended to
MLAs and fixation of rates for concessional and bus passes.
d. hiring of buses from private operators.
e. Follow-up action for audit paras.
318
f. Disposal of matters relating to representations of MLAs/MPs/Ministers,
Passengers and Commuter Associations.
g. Legislature work including replies to questions, call attentions, preparation
of budget speech, Finance Minister's speech. etc.
h. Work connected to Public Undertakings Committee/Public Accounts
Committee/Legislature Committees.
i. Identifying the routes and action to operate services in respect of village
link transport services/Mandal transport.
j. nationalisation of routes, suits relating to nationalisation, obtaining permits
in pursuance of draft and approved schemes and attending timings
conference etc.
k. subjects on amendments to M.V.Act, M.V.T.Act, and M.V.Rules,
attending meetings of STA/RTA on taxation demand cases and for opening
of new routes by STA/RTA.
l. dealing with Inter-State routes, Inter-State agreements, Inter-State permits,
matters relating to other State Transport Undertakings, State Transport
Development Council, Transport Commissioners of Southern States.
m. Preparation of projections for Five Year Plans.
n. revision of fares and their implementation.
o. location of Depots/Divisions etc.
5.21.1 General Guidelines for Audit
Same as given in respect of the Chief Traffic Manager (Commercial).
5.22 Chief Traffic Manager (marketing)
The Office of the Chief Traffic Manager (Research and Development) was re-
organised and renamed as Chief Traffic Manager (Marketing) in the year 2002.
The Chief Traffic Manager (Marketing) reports to ED(O). The CTM
(Marketing) is assisted by Dy.CTM (Marketing), Dy.CTM (R&D).
The Marketing wing is responsible for introduction of new schemes for
passengers such as CAT Cards, JET Cards etc.
The R & D Wing is responsible for monitoring performance of Volvo and AC
buses, preparation of cost data for fixation of fares, establishment of new Depots
etc. The R&D Wing identifies problems for evolving solutions/recommendations
and is also actively involved in implementing its recommendations. The VC &
MD entrust projects to the R&D.
5.22.1 General Guidelines for audit
1. Scrutiny of all the files on the decisions taken in respect of the
schemes/projects.
319
2. General review may be done about the overall functioning of the wing as
to how best the wing has discharged its functions.
Procedures, rules and regulations governing motor vehicle tax payments
Hitherto, the Motor Vehicle Taxes in respect of Corporation Vehicles were paid
as per the scheduled Kilometers permitted while granting the permits by the
transport authorities, at the rates applicable from time to time. However the
Government of Andhra Pradesh vide G.O.Ms.No.131 - TR & B (TR.II)
Department dated 2-8-1995, changed the basis of levying the Motor Vehicle
taxes, in respect of vehicles of a registered owner who owns or keeps in his
possession or control more than 2000 vehicles. As per the revised procedure,
the Corporation is required to pay 13 percent of its gross traffic earnings towards
M.V.Taxes with effect from 2-8-1995. This rate of M.V.Tax was, increased to
15 percent of the gross traffic earnings with effect from 13-1-1996 vide GOMs
No.9 TR & B(TR-II) Department dated:13-1-1996.
The payment of M.V.taxes has undergone one more revision from 1 December
2001 according to which the Corporation is required to pay 10 (Ten) percent of
gross traffic earnings in respect of Town (Urban) services and 12.5 (Twelve and
half) percent of gross traffic earnings in respect of other services as Motor
Vehicles Tax.
The gross traffic earnings means the revenue realised towards fares and freights
including luggage charges and any amount collected towards hire or reward by
or on behalf of registered owner either directly or indirectly in respect of motor
vehicles as may be determined in the manner prescribed.
5.22.2 Levy of penalities
For non-payment of tax in time the M.V. owner shall, in addition to tax due, be
liable to a penalty up to twice the amount of tax.
5.23 Rotation of Vehicles
As per the APMV Rules, the owner of the stage carriage having more than one
route is eligible for rotating the vehicles on other routes on which permits have
been granted, subject to granting of permission by the State Transport Authority.
5.24 Vehicles Plying On Inter-State Route Permits
Double point tax is liable to be paid on these vehicles if not covered by an Inter-
State agreement. The total fare in respect of tickets issued for the journey to a
destination in the outside State comprises the fare as per APSRTC fare structure
upto the border of the Andhra Pradesh State and fare as per the outside State’s
Transport Corporation rules from the border point to the destination for the
purpose of calculation of passenger revenue tax.
320
5.25 Guidelines For Audit
To examine whether bilateral agreements with neighbouring states are executed
to avoid double fixation.
5.26 Payment through D.D.
Every amount due under M.V. Tax Act should be paid through a Demand Draft.
5.27 Mechanical Engineering Department
5.27.1 Chief Mechanical Engineer (CHASSIS & BODY)
He is the Head of the Department of Chassis and Body and reports to the
Executive Director (Engineering). He is assisted by one Dy.CME (C&B), Works
Manager (BBU), Works Manager (P&S) and Controller of stores (BBU). He is
mainly entrusted with the following duties and responsibilities:
i) Assessing the requirement of chassis towards the expansion, augmentation
and replacement needs consistent with the Corporation policy and in close
co-ordination with the Operations Department.
ii) Procuring chassis as per the Budget Plan.
iii) Developing, designing different types of bus bodies keeping in vew
technological changes and developments and aiming at
(a) Cost reduction in bus bodies,
(b) Fuel efficiency and
(c) Seats layout for comfortable travel
iv) Modernisation of Body Building Unit resulting in higher productivity.
v) Finalisation of contracts with outside Body builders and fabrication thereof
in conformity with designs and specifications supplied, ensuring delivery
schedule and quality through regular inspections and regulating timely
payment of bills.
vi) Optimisation of production and productivity in the Body Building Unit and
modernisation of printing press.
6. Bus body fabricators rating and identification of new sources for Bus
body fabrication.
7. Control, supervision, monitoring and review of production activity in
Body Building Unit and Printing Press resulting in savings.
ix) Preparation of plans for production units, implementation of welfare
schemes.
x) Guidance from and assistance to the Executive Director (Engineering).
321
General Guidelines for Audit
It may be examined as to how best the above functions were discharged with
reference to the files on plans and policies of the Corporation, procurement of
chassis from the manufacturers and execution of fabrication work through
private fabricators. For this purpose agreements entered into with the parties
may be scrutinised and deviations, if any, from the agreemental provisions
together with financial losses, if any, suffered on account of such deviations
may be brought out. The nature of items of expenditure met may be known by
general review of pay orders issued in this wing and a scrutiny of all the
important files in connection with the pay orders may be done.
5.28 Works Manager (Body Building Unit)
The Bus Bodies are fabricated by the Corporation in its own Bus Body Building
Unit and also by outside agencies at their Works. The Works Manager (BBU) is
the controlling officer of the Body Building Unit. Taking into account the
previous production performance of the Unit, the number of chassis to be allotted
to the Unit is decided. The Works Manager, BBU, will then assess the
requirement of stores and intimate the Controller of Stores for taking
procurement action. The Works Manager, BBU, assesses by 15th of every month
the requirement of stores for the ensuing month and draws the material on
indent-cum-issue note. For drawal of material the quantity of chassis for which a
particular job order is issued and the standards prescribed for consumption on
each body is the criterion.
Bills in respect of wages/salaries and other claims of staff are prepared by a
separate personnel wing situated in the unit. Checking, accounting and payments
in respect of these bills is done by an Accounts Officer who reports to Dy.CAO
at Headquarters.
Guidelines for Audit
In addition to the prescribed quantum of checks of the Comptroller and Auditor
General of India, the following guidelines may be followed.
i) Review the production capacity and utilisation and see that there are no
abnormal wastages in utilisation of materials nor any abnormal delays in
the execution of work.
ii) Review utilisation of men and machinery by analysis of reasons for
keeping the machinery idle and absenteeism of workers/staff etc., if any.
iii) See that the production incentive bonus payments are in conformity with
the approved scheme and, if not, financial losses, if any, sustained due to
violation of the scheme conditions may be commented upon.
iv) Analyse in detail the transactions like overtime payments, non-recurring
payments etc.
322
v) Check the various returns sent to Statistical Branch or higher authorities
with the original books of entry to ensure that there are no mistakes in the
data fed to Management.
vi) Comparison of the cost of fabrication with the cost data of outside
fabricators.
5.29 Works Manager (Printing And Stationery)
The Printing press is headed by a Works Manager (P&S). The forms required
by the Corporation and bus passenger and luggage tickets of all denominations
are printed in the RTC Printing Press. The press comprises of Composing
Machine, Binding and Printing Sections. The production, when passed on to
stores, is treated as sales from the printing press and the rates of printing for
each form/ticket (in units of 1000) are arrived at taking the cost of labour,
material and other overheads. As in the case of Body Building Unit the material
required for printing is drawn from the stores on Indent-cum-Issue Note taking
the criterian of quantity and denominations of a work order.
Guidelines for Audit
Same as given for Body Building Unit.
5.30 Controller of Stores - (BBU)
The main functions of the Controller of Stores are:
(i) to develop satisfactory supply of stores,
(ii) to select suppliers with a view to buy economically,
(iii) to negotiate with the suppliers after analysing quality,
(iv) to issue purchase orders and follow up till delivery of materials and
(iv) to maintain information about marketing, their source of supply,
specifications, prices etc.,
Guidelines for Audit
Same guide lines as mentioned under Chief Controller of Stores.
5.31 Chief Mechanical Engineer (Operation)
He reports to the Executive Director (Engineering) and is assisted by three
Dy.Chief Mechanical Engineers, for production, operation and electrical. The
Dy.Chief Mechanical Engineers of Regional Workshops are functionally
responsible to him.
Functions
He shall be responsible for -
i) maintenance of vehicles, staff cars, departmental vehicles, oil tankers and
DGTs etc.
323
ii) all Regional Workshops and all Tyre Retreading shops,
iii) rendering technical advice on matters pertaining to essential consumables,
implementation of various incentive schemes for Regional Workshops and
Tyre Retreading Shops, reviewing the demand for different items of
production and plan for additional production of Regional Workshops and
Tyre Retreading Shops,
iv) identifying premature failures of overhauled units, to rectify the same by
inspection and corresponding with vehicle manufacturers,
v) preparing make-wise performance of tyres and materials,
vi) providing tools, machinery, and equipemnt to Regional Workshops and
Tyre Shops and
vii) planning, organising, erecting, coordinating, staffing and controlling the
entire personnel working in Regional Workshops and Tyre Retreading
Shops.
Guidelines for Audit
It may be examined as to how best the above functions were discharged with
reference to the file study, review of production returns and various circulars
issued based on the decisions taken during Monthly Production Review
Meetings, Limits Fixation Committee Meetings, Meetings of Heads of
Departments/Regional Managers. Failures/delays for taking follow-up action on
various meetings may be analysed and adverse results thereof in monetary terms
may be highlighted.
5.32 Personnel Department
This is headed by the Executive Director (Administration) and is assisted by
Chief Personnel Manager. He is the controlling officer for Staff Benevolent
cum Thrift Fund, Staff Retirement cum Benevolent Scheme and Transport
Academy. He is responsible for:
i) formulating and controlling man power planning and human resource
development and human productivity including recruitment,
ii) recruitment policies and regulations.
iii) organisation planning and review,
iv) review of delegation of powers,
v) welfare schemes including Medical Department,
vi) wage administration including job evaluation,
vii) monitoring and guiding the performance of the Region assigned.
324
Guidelines for Audit
The above functions may be examined with reference to the various circulars
issued, files on formulation of Welfare Schemes, Pay orders issued, water
charges, electricity and staff payments etc. Analysis of financial impact as a
result of various decisions taken/policies framed/implemented in consultation
with the staff and officers' unions, may be made and points of interest, if any,
noticed during such analysis may be included in the draft Inspection Report.
5.33 Chief Controller of Stores
He reports to the Executive Director (Operations) and is assisted by two
Controllers of Stores who are incharge of Contract Cell-I and Contract Cell-II
and assisted by Stores Officers and Purchase Officers. He makes bulk purchases
of all items of high value and certain items of medium value. His functions are
(i) to finalise material contracts subject to adhering to the delegation of powers,
(ii) to have an overall control on inventories so as to maintain optimum levels,
(iii) to ensure overall vendor vendee relations, (iv) to guide Controller of Stores
of each Zone in source selection, (v) to have close liaison with Zonal Managers
to divert excess stocks from one Zone to another in case of emergencies and vi)
to ensure optimum level of supply of stores.
The main functions of Purchase Sections under the control of Controller of
Stores are (i) to develop satisfactory supply of stores, (ii) to select suppliers with
a view to buy economically, (iii) to negotiate with suppliers after analysing
quality, (iv) to issue purchase orders and follow-up till delivery of materials and
(v) to maintain information about materials, their source of supply,
specifications, prices etc.
Guidelines for Audit
1) Scrutinise rate contracts finalised and communicated by the Secretary,
Association of State Road Transport Undertakings and analyse the delays,
if any, with the reasons thereof in finalising purchase orders on rate
contract firms and the deviations, if any, from the contractual provisions,
together with financial losses suffered on account of such delays and
deviations.
2) Analyse reasons critically for going in for spares from propriety sources
i.e., items decided to be procured from the vehicle manufacturers and/or
their dealers and Original Equipment (OE) suppliers as the proprietary
spares are costlier but would be safer and superior in quality.
3) In respect of purchase against competitive quotation (public/limited/single
tender) examine whether the procedure followed for procurement of any
item is in conformity with the approved purchase policies of the
Corporation right from the receipt of Recoupment Memo/Indent/Purchase
requisition till the issue of Purchase order. If there is any deviation and the
325
reasons thereof are not satisfactory work out and comment the financial
losses sustained on account of such deviation.
4) See whether the purchasing authority has made reasonable efforts to derive
the benefits of bulk purchases wherever possible but without resulting in
unnecessary high inventories.
5) See that the advance payments are adjusted in accordance with the terms of
purchase order, and if there are inordinate delays, analyse reasons thereof
and that the interest/penalties leviable are collected.
6) Concentrate on the failures of the unit Management in follow-up action and
thereby resulting in losses with reference to some important case files.
5.34 Chief Engineer (IT & MS)
He reports to the Executive Director (IT & MS). He is assisted by a Dy.Chief
Mechanical Engineer (Industrial Engineering), Dy.Chief Mechanical Engineer
(IT), Dy.CAO (IT), COS (IT) and Chief Statistical Officer. He is entrusted with:
i) fixation of norms for various categories of staff after Scientific studies,
ii) development of efficient and economical methods of carrying out work
after necessary study,
iii) designing, reviewing, modification of various incentive schemes,
iv) job evaluation studies and development of rationale for wage structure and
evaluation for locating areas of savings,
v) preparation of feasibility reports on various projects, diversification
activities, cost benefit analysis etc,
vi) development of suitable information systems for Management control,
vii) inter-area comparison and intra-area comparison to locate possible areas of
savings,
v) carrying out studies for location of Depots/Workshops on scientific lines,
carrying out O&M studies for staff requirements, flow of paper work,
office equipment and office procedures,
ix) carrying out projects relating to economic types of vehicles, equipment,
bus body specifications and other norms, and
x) periodical performance, audit of performance incentive schemes to suggest
remedial action for the irregularities.
Guidelines for Audit
Scrutiny of various files on the above functions and relevant returns received
from the units of the Corporation may be made. Adverse results, if any, due to
implementation of decisions as a result of studies, formulation of schemes,
fixation of norms may be brought out.
326
5.35 Civil Engineering Department
This department is headed by two Chief Civil Engineers. They are responsible
for all Civil engineering matters, construction activities and accounting of works,
selection of sites for establishment of Depots/Workshops/Offices, budget
estimates, liaison with architects and consultants. These Chief Civil Engineers
are assisted by five Executive Engineers viz., Executive Engineer (Commercial),
Executive Engineer (Projects), Executive Engineer(Quality Control), Executive
Engineer(Hqrs), Executive Engineer(Planning & Designs) at Head Quarters and
by Executive Engineers (Civil) at Zonal/Regional Level. Chief Civil Engineers
are mainly responsible for:
i) preparation of Project Reports, Master Plans, architectural drawings,
papers for administrative approval, Notes to Corporation and Finance
Works and Purchase Committee (FWPC), detailed drawings, designs etc.,
detailed estimates for water supply, electrification, air conditioning and
other allied works,
ii) according technical sanctions, calling for tenders and the relevant
activities, giving clarifications to the Tender Committees, issuing of work
orders, entering into agreement for all works coming within their financial
powers,
iii) working out the requirement of construction materials and procurement
thereof,
iv) preparation of progress reports, PERT charts, budget and expenditure
statements,
v) working out requirement of man power, obtaining approvals of the
drawings, pursuing the tenders, administrative sanction etc., and
vi) maintenance and allotment of Kalyanamandapam and Kala Bhavan.
vii) maintenance of all buildings and residential quarters.
Guidelines for Audit
The working of the Civil Engineering Department including the Engineering
Divisions of APSRTC is exactly on the lines of Public Works Department on
Government side and the basic principles and procedures followed for the
working and accounting of the Civil Engineering Works are also in line with
those of Public Works Department. The following are some of the guidelines
for audit.
i) Examine files containing the tenders, evaluation of tenders, awarding of
work etc.
ii) Analyse the working of estimates and reports accompanying the estimates
with reference to the standard specification, rules, codes, etc.
327
ii) Critically examine the financial impact, if any, as a result of allowing the
deviations from the contracts.
iv) Analyse the reasons for delays in according approvals/sanctions and in
taking follow-up action for various subjects resulting in financial
losses/extra expenditure.
v) Study the ratifications given for the delays in execution of works.
5.36 Board Secretariat
This is headed by a Secretary who is assisted by Public Relations Officer.
The Board Secretariat deals in:
i) scheduling and conducting of Board meetings,
ii) preparation of Agenda notes and Board regulations and communication
thereof,
iii) controlling the staff cars/jeeps/vans of Headquarters Depot and
iv) payment of sitting fees and other connected matters of the Board of
Directors.
The Public Relations Officer deals with press and commercial advertisements
and settlement of bills, issue of bus passes to journalists, distribution of
diaries/calendars/greeting cards, printing and circulation of publicity literature,
"Prasthanam", quarterly magazine, making arrangements for meetings,
conferences and functions for laying foundation stones/inaugurations, reception
to visitors to the Corporation, providing lodging and boarding, sight-seeing tours
etc., control and allotment of official guest houses press clippings, complaints
and notes, exhibitions, implementation of Telugu language, subscriptions to
news papers/magazines etc.
Guidelines for Audit
1. Examine whether the decisions taken by the Board are in the interests of the
Corporation.
2. The follow up action on the decisions taken by the Board.
3. The other records of Secretariat may be generally reviewed in addition to the
prescribed checks of the Comptroller and Auditor General of India.
4. Check and ensure correctness of advertisement and magazine bills etc. paid
and other expenses incurred for conducting various functions, sight-seeing
tours, printing of literature and magazines, correct and proper distribution of
diaries, calendars etc., prompt and appropriate action for press complaints
and notes.
328
5.37 Director-Vigilance and Security (V & S)
He shall organise and control the vigilance staff of the Regions and is
responsible for security arrangements at Depots, Workshops, training of security
staff, maintaining liaison with Police Department and looking after the matters
connected with vigilance and security. He shall coordinate and advise on the
work regarding security and discipline in the Corporation and shall thus
maintain integrity in the services of the
Corporation and security in respect of its properties. The Director (V&S) is
assisted by one Dy.Director (V&S) at Head Quarters and Vigilance and Security
Officers at Zonal/Regional levels.
The vigilance cell deals with and enquires into the cases relating to corruption,
pilferages, thefts, misuse of vehicles, mis-appropriation of Corporation funds,
any dishonest transactions with regard to purchases, disposals, auctions and
sales of Corporation materials, false claims like T.A. and overtime claims by the
employees, improper stocking of stores leading to avoidable losses, transactions
with fictitious firms and other irregularities relating to tenders, quotations etc.,
receipt of sub-standard materials, fake ticket rackets and enquiry into other types
of misconduct as may come to light from time to time.
General Guidelines for Audit
i) Scrutinise the cases involving high amounts of loss and the follow up
action taken thereon together with the steps initiated for non-recurrence of
such losses in future.
ii) Analyse the cases pending for long time and comment in the draft
Inspection Report.
iii) Ensure proper follow-up action on the findings of the departmental
enquiry.
5.38 Land Acquisition Officer
He directly reports to the Executive Director (Operation). He deals with all land
acquisition matters like filing of proceedings, arrangement of payments as per
the awards after necessary scrutiny, advising and obtaining approvals of Vice-
Chairman and Managing Director for acquisitions and either to pursue or drop
the proceedings, watching the cases pending in courts for compensation,
submission of monthly progress reports indicating the position of land etc. He
maintains inventories of lands and prepares their budget and expenditure
programmes.
Guidelines for Audit
Scrutinise the files on land acquisitions in progress and settled during the year
under audit and the reasonableness of compensation, if any, paid to the
claimants and ensure prompt settlement of compensations deposited in the
courts.
329
See that the register of inventory of land is brought up to date and analyse
failures in respect of acquisition together with financial implications.
5.39 Chief Law Officer
He deals with all legal matters of the Corporation like cases filed by or against
the Corporation, filing of counters, taking appropriate action for speedy and
proper disposal of legal cases etc.
Guidelines for Audit
Review generally the files in respect of the cases filed by or against the
Corporation and also scrutinise the files in respect of cases settled during the
year under audit with specific attention to the cases in which ex parte decrees
have been passed. Analyse critically the causes for delays before or after filing
the counters like loss of original cases in depots, failures to produce documents
or documentary evidence and departmental witnesses, improper and irregular
pursuance of the cases resulting in loss of cases and thereby financial
commitments etc.
5.40 Provident Fund Trust
This Trust (or Board of Trustees constituted by equal number of representatives
from the employer and the employees) was formed (w.e.f.1.10.1971) under
Section 17(1) of the Employees' Provident Fund and Misc. Provisions Act, 1952
to administer an `APSRTC Employees Provident Fund' to which all the P.F.
contributions by the Corporation and the Corporation employees are transferred.
All surplus moneys of the Fund shall be invested in accordance with the
provisions under Para 52 of Employees' Provident Fund Scheme,1952: The
`APSRTC Employees' Provident Fund and Trust Regulations' were framed in
tune with the provisions of Employees' Provident Fund and Miscellaneous
Provisions Act, 1952 and Employees Provident Fund Scheme, 1952, to carry out
the administration of the Fund. Under Regulations 18, 24, 26 and 28 to 33
certain withdrawals/non-refundable advances from the fund are allowed to the
subscribers, subject to certain conditions and limitations specified therein. Final
settlements are made in respect of the subscribers retired on superannuation,
voluntary basis, medical grounds etc., or died while in service, or in other
specified circumstances.
Guidelines for Audit
i) Conduct detailed check of 8.33 per cent of individual provident fund
accounts, along with check of interest calculations on the Provident fund
balances allowed in, or for the period under audit; and scrutiny of all
settlement cases;
ii) See that -
330
a) APSRTC EPF Regulations and the decisions taken (through minutes) from
time to time by the Board of Trustees are not in contravention of any of the
provisions of EPF and Misc. Provisions Act, 1952 and EPF Scheme, 1952;
b) conditions specified in the EPF and Misc. Provisions Act, 1952 and EPF
Scheme 1952 were scrupulously observed so as to watch correct and
proper withdrawals/non-refundable advances and their utilisation thereof,
and
c) surplus funds invested from time to time are as per the provisions of Para
52 of the EPF Scheme, 1952 read with investment pattern, if any,
prescribed by the Central Government, especially with a view to deriving
maximum benefit within its framework and without keeping the funds idle.
iii) Identify the instances, if any, where the employer's shares of subscription
were in excess of the prescribed percentages of pay plus D.A.(i.e., 8 per
cent up to 31.7.88 and 8.33 per cent and 10 per cent w.e.f., 1.8.88 and
1.6.89 respectively).
iv) ensure correct and proper payment of settlement claims and point out the
excess payments, if any, together with failures in action for recovery of
such excess payments, etc.
v) For check of other records like cash books and imprests, service books and
leave accounts, main and subsidiary ledgers etc., the guidelines as given
separately under may be referred to.
5.41 APSRTC EDLIF Scheme
The APSRTC Employees Deposit Linked Insurance Fund Scheme, 1985 was
framed pursuant to the provisions of Section 6(C) of the EPF & Misc. Provisions
Act, 1952 and brought into force from 1.1.1985. Under this scheme, in the event
of death of a member while in service the nominee of the deceased will be
payable an assured quantum of benefit (presently Rs.38,000/- to Rs.63,000/-
depending on the balance in PF Account). For this purpose, there shall be
established a Fund, viz., `APSRTC Employees Deposit Linked Insurance Fund'
to which the APSRTC shall make in respect of each member a contribution at
such percentage (presently 0.4 per cent) of the salary (Pay+DA) as may be
prescribed by the Central Government under EPF & Misc. Provisions Act, 1952.
The Fund shall vest in and be administered by a Board of Trustees (consisting
members between 4 and 8) nominated by the Managing Director, APSRTC. For
carrying out the EDLIF Scheme, the required Rules were framed. The
investment of the fund shall be made in such manner as prescribed by the Central
Government from time to time.
331
Guidelines for Audit
Check and ensure correctness of payments made in respect of each individual
case. See that the investment of fund from time to time was in strict compliance
with the manner prescribed by the Government. For check of records like cash
books and imprests, service books and leave accounts, main and subsidiary
ledgers, the guidelines for audit are indicated separately.
5.42 Zonal Office
Executive Director is the head of the Zonal Office. This is the controlling office
for the Regions, Zonal Stores, Zonal Workshop, Civil Engineering Divisions,
Tyre Retreading Shop and Zonal Staff Training College within its jurisdiction.
The Executive Director is assisted by Dy.Chief Personal Managers, Dy.Chief
Accounts Officers, Dy.Chief Traffic Managers (M&C), Works Manager,
statistical Officers, Vigilance and security Officers and Personal Officers.
5.43 Regional Office
This is the controlling office for the offices, depots etc, within its jurisdiction i.e.,
one District. Regional Manager is the head of the Region and is assisted in the
discharge of his duties by the Divisional Managers, Dy.Chief Mechanical
Engineers, Dy.Chief personal Managers, Dy.Chief Accounts Officers/Accounts
Officers, Dy.Chief Traffic Managers (M&C) and Personnel Officers.
Regional Office has to record and consolidate the information periodically with
reference to various prescribed returns received from every unit daily, weekly,
fortnightly, quarterly and annually relating to transactions for cash, men,
material, production, stores, scrapping of materials, disposals etc. Regional
Manager coordinates on the matters like allotment of adequate working capital
for the Region, physical verification of assets and stores in the Region, periodical
review of budgets, internal and statutory matters of the region, disbursement of
salary, provision of various kinds of imprest at depots, various operational
problems. Pre-audit of depot salary bills, personal claims of the staff of
depots/units at Regional Managers office and audit of way bills, family pension
schemes, police warrants, inspection of earnings, expenditure, T&P, stock
verification etc., are some of the functions discharged by the Regional Managers.
The expenditure in respect of the stores issued to Regional/Zonal workshops,
Tyre retreading shops, depots in the year is directly booked in the accounts based
on Form `A' large and Form `A' small.
Guidelines for Audit
i) The quantum of checks prescribed by C&AG for `Divisions' may be
applied for the records of the Regional Office as the Divisions' functions
are now dealt by the Region.
ii) Review the monthly operational performance reports as compiled by the
Statistical Officer of the Region duly incorporating results of all units in
the Region so as to comment on the working results.
332
iii) General review of staff position and staff strength with reference to the
requirements fixed may be done.
5.44 Zonal/Regional Stores
Purchase, receipt, stocking and distribution of stores and maintenance of
inventory levels are the main functions of the Zonal/Regional stores.
Zonal/Regional stores cater to the stores needs of workshop, tyre retreading shop
and all depots/units within its jurisdiction. Controller of Stores is the controlling
officer of the Zonal/Regional stores.
Guidelines for Audit
i) Ensure by test check (a) proper accountal of receipts and issues of stores
(b) pre-audit before issue of each purchase order (c) follow-up of
prescribed purchase policies and adherence to delegation of powers.
ii) Analyse reasons for the delays in clearance or non-clearance of advance
payments vis-a-vis the delays in supplies.
iii) If the annual physical verification is done, review the reports thereof,
analyse the reasons for huge shortages, if any, and identify the shortages
due to Management/individual failures, insufficient security
arrangements etc. and include the same in the Report of C&A.G., if
necessary.
iv) Review and analyse (a) the cases on waival/non-recovery of
penalties/interests leviable as per the terms of purchase order (b) the
cases on supply of defective/rejected materials and follow-up action
thereof (c) the cases of demurrage charges to transport agencies/Railways
etc. and bank interests/commissions, any penalties paid to any other
agencies and identify the management failures for incurring such
expenses.
v) Review Kardex cards in respect of items of high value (`A' Class) and
identify these items where the inventories are far in excess of prescribed
limits resulting in unnecessary blocking up of capital. Reasonableness of
inventory levels fixed may be examined with reference to the average
consumption and supply trends of the stores.
vi) Identify the cases of procurement of stores after or just before the stores
became obsolete and establish irregularities, if any, in processing and
finalisation of such purchases with reference to the actual lead time taken
as against the required.
vii) Review the auction files in respect of sales of scrap vehicles and scrap
materials.
viii) Review the statements on surplus, obsolete and non-moving items of
stores and the action taken for their disposal.
333
5.45 Zonal/Regional Workshops
Works Manager is the controlling officer of the Regional/Zonal workshop and is
assisted by Assistant Works Managers. The Regional/Zonal workshop
undertakes overhauls of vehicles and major assemblies like engine, gear box,
front and rear axles etc., besides repairs which cannot be attended to at depot
level. The vehicles are drawn to the workshop for periodical overhauls as and
when due or according to the exigencies as per the monthly programme given by
the Works Manager in consultation with the Dy.CME (O). The
overhauled/repaired/converted vehicles/repaired engines etc., are delivered back
to the same or some other depot along with relevant logbook/history card. The
accounts of the workshop are maintained by the Dy.CAOs/AOs of the respective
regions/zones. The workshop comprises of chassis shop, engine shop,
repair/overhaul shop for gear boxes, front and rear axles etc., electrical repair
shop, fuel injection equipment shop, machine shop, body shop etc.
Guidelines for Audit
i) Examine utilisation of men and machinery with reference to norms fixed
for production, installed capacity of machines etc.
ii) See that there are no abnormal wastages in the use/ consumption of
materials and various oils.
iii) Ensure proper accountal of expenditure on labour, material and overheads.
iv) Examine the payments of production incentive bonus and overtime
payments, if any, with reference to time cards and actual production
brought out.
v) Analyse critically reasons for backlog of production and the procedure
followed for award of works/repairs, if any, to outsiders.
vi) Analyse reasons for high incidence, if any, of local purchase of stores.
vii) Study economics of items decided to be manufactured departmentally as
compared to the direct procurement.
5.46 Tyre Retreading Shop
This is headed by the Assistant Mechanical Engineer (Tyres) who is under the
control of Regional/Zonal Manager. The Regional/Zonal Stores receives the
damaged tyres from the depots. The Dy.CME of the Region and the AME
(Tyres) will inspect these tyres and segregate them for retreading, re-capping and
scrapping. The tyre retreading shop draws these tyres for re-treading/re-capping
from the stores through Form 68B (Material Transfer Voucher) as per the
production programme. The cost of re-treading/re-capping as worked out and
intimated by the Dy.CME is incorporated in the accounts by the Accounts
Officer (F&S) of the Zone for valuing the issues.
Guidelines for Audit
Same as given for Regional/Zonal workshop, except guideline number (vii).
334
5.47 Regional/Zonal Staff Training College
A. This is headed by the Principal who is under the control of Zonal Executive
Director concerned. Various training programmes, whether theoretical or
practical are designed to meet the requirements of Road Transport
Corporation.
B. i) It may be examined whether the training programmes are carried
out as per the schedule.
ii) As regards the check of records connected with mess for trainees
it may be seen whether the prescribed purchase procedure in
respect of purchase of materials has been followed and purchases
are made based on certain norms fixed per trainee.
iii) It may be ensured in case of absentee trainees whether the
prescribed recoveries as recoverable from them have been
effected.
5.48 Hospitals/Dispensaries
The hospital at Tarnaka, Hyderabad is headed by two Superintendent & Chief
Medical Officers who are assisted by Senior and Junior Medical Officers. There
is also another Regional Hospital at Karimnagar established in October 2004
with 12 beds. Despensaries located at each Region are headed by Medical
Officers. The head of the Hospital/Dispensary is provided with a cash imprest to
make, in cases of emergency, direct purchase and incur the cost of medicines
within the financial powers delegated. The Corporation has also entered into an
agreement with Nizams Institute of Medical Sciences for treatment of its
employees for speciality services on payment basis.
Guidelines for Audit
i) Correct utilisation of costly drugs, injections, with reference to the check of
stock registers, indents/requisitions etc.
ii) Follow-up of correct procedure for medical re-imbursement.
iii) that the bills preferred by NIMS for speciality/super-speciality services are
as per the terms of the agreement.
iv) Follow-up of correct purchase policies in respect of local purchases for
stock and non-stock items of medicines.
v) Analyse reasons for the medicines becoming obsolete/ outdated.
5.49 Civil Engineering Division (at each Zonal Level)
This is headed by an Executive Engineer (Civil) who is assisted by Deputy
Executive Engineers (Civil) and Asst. Engineers (Civil). He is responsible to the
335
Chief Civil Engineers in administration and for execution of all works within his
jurisdiction and deals with all matters connected with Civil Engineering works of
the division like preparation of abstract/detailed estimates/ supervision of works,
taking check-measurements, maintenance of all required statements, books of
accounts etc. He can exercise the following powers within the financial limits
prescribed in `Delegation of powers'.
a) To accord administrative approvals, technical sanctions, and sanction of
excess over estimates both for works whether capital, maintenance or
repairs nature or for purchase of or manufacture of T&P.
b) To appropriate funds provided in the budget for Civil Engineering Works.
c) To accept tenders for all original works.
d) To entrust work on nomination basis.
e) To verify and assess rent of buildings taken on lease.
f) To pay construction fee to municipalities
g) To waive penalties imposed in terms of contract and
h) To make purchases of materials required for drawing and designing etc.
Guidelines for Audit
i) Identify the incidence of high payments, or payments of recurring nature
through general review of cash book and examine the relevant case files on
propriety lines and to ensure coverage of such payments by proper
sanction/order/ rule.
ii) See that the procedure followed in finalisation of tenders and award of
work thereof to the contractors is in conformity with the approved policies
of the Corporation.
iii) As regards execution of works, examine the necessity or reasonableness for
supplemental items of works or deviations from contractual provisions
through a critical analysis of original estimates and reports accompanying
the estimates with reference to the SSRs, standard specifications,
P.W.Codes etc.
iv) While examining the measurement books, see that prompt recoveries are
made from the contractors' bills for the advances made or the cost of
materials issued to the contractors, penalties leviable in terms of contract,
hire charges recoverable for the T&P, if any, given to the contractor etc.
Identify the undue advantage given to any contractor i.e., by waival of
penalty in one case, and by rejecting waival in another similar case.
5.50 Depot
This is a basic unit of operation and is headed by the Depot Manager. The
Depot Manager is assisted by five wings viz., traffic and public relations,
336
maintenance, stores, personnel and accounts wings. The Depot Manager is fully
responsible for the working of the Depot in all its aspects and maintaining all
records relating to the personnel working in his unit as well as other
administrative and financial matters including earnings and expenditure. The
following are the guidelines for check of records/ transactions which are
exclusively dealt in the Depot.
1. Traffic side
i) Depot clerk's cash book
This is maintained by the Depot clerk (earnings) and used to record all
receipts of cash towards passenger earnings, and other sources of income like
luggage earnings, sale of time-tables and route maps, students - NGO general
monthly passes, lost properties storage charges, special hire bills, contract
services bills, etc. The accountal of these receipts as recorded in this cash book
shall be through Traffic Revenue Register.
Conduct a test check and ensure correctness of entry with reference to the
conductors way bills, ticket trays, statistical returns etc and prompt remittance of
daily earnings into bank.
ii) Traffic Revenue Register
This is a primary book of entry showing classification of traffic earnings as per
cash remittance note and incorporated into monthly account of Depot. Ensure
correctness of entries or classifications thereof.
iii) Crew links and bus links
See that there is optimum utilisation of crew as well as buses by analysing
number of hours of duty performed by crew and maximum number of
kilometres operated for each bus as against norms fixed etc and that there should
not be any excess crew nor idling of buses for want of crew.
5.51 Way bills (MTD-5)
Conductor's way bill is a serially numbered proforma wherein various columns
are provided especially for recording block-wise as well as denomination-wise
sales of tickets by a conductor during his spell of duty. For every service one
conductor's ticket tray is provided to hold in the tray various denominations of
tickets. The new ticket blocks (generally of 100 tickets each) of various
denominations replenished to the conductor's ticket tray are recorded in the
Ticket Stock Books (MTD-4) of Depot as issues. The starting numbers of these
new blocks are entered in the way bill allotted to the conductor as opening
numbers. Similarly, in respect of tickets which remained unsold at the end of
previous spell of duty of the conductor, the lowest numbers of such series of
tickets are recorded from the previous way bill as opening numbers in the way
bill for current spell of duty. After completion of current spell of duty by the
conductor, the closing (or lowest) numbers of series of tickets held in the tray
are checked with those closing numbers of statistical return (SR) of the
337
conductor and are entered in the way bill as closing numbers. Cash, including
conductors imprest received from the conductor, is recorded in the Depot clerk's
cash book with tray number, way bill number etc. The cash so received is
remitted into the bank immediately on the following working day and a cash
remittance note thereafter prepared and sent to Accounts wing alongwith the
way bills, bank challans etc.
Check the correctness of opening and closing numbers of series of tickets
entered in the way bills for the prescribed dates and ensure correct accountal of
cash received with reference to the issue entries in the Ticket Stock Book,
closing numbers of way bills for previous spells of duties, statistical returns of
the conductors, depot clerk's cash books etc. Pay special attention to the way
bills of black-listed/mischievous conductors
Cancellations
Review cancellations and see that the cancellations of certain trips of buses
wherever inevitable should not be due to avoidable causes like delay in
maintenance, absence of crew etc.
Dead Kilometres
This is the distance between a bus depot and a bus stand where the passengers
actually board the bus or is the distance covered for trial/test run after
maintenance etc., for which no revenue is realised.
Analyse with reference to log sheets and norms fixed from time to time whether
the dead kilometerage is reasonable and whether rescheduling of route is
necessary.
Route-wise earnings register
Break-even of the earnings of a route is that where the earnings realised per
kilometer is equal to the cost of operation per kilometer.
Examine whether the depot management has been regularly making the break-
even analysis of route-wise earnings i.e., A,B,C,D, classification of routes and
whether any corrective measures are being taken either for improvement of
route earnings or for curtailment/dropping of low earning routes.
Fare fixations and Fare revisions
Examine whether (a) the route is actually surveyed by the competent authority
and the findings are recorded (on log sheets) and attested (b) the stages have
been properly fixed and the fares correctly calculated
Lost property register
The details of properties/cash as left over by passengers and handed over
thereafter by the conductor or Driver to the Depot clerk are entered in this
register. Ensure the prescribed action either for handing over back to the
338
concerned passengers, or for disposal of lost properties and realisation of sale
proceeds and storage charges from the passengers, when returned.
Travel coupons for MLAs and MLCs
Ensure the correctness of the tickets issued on surrender of travel coupon and
proper accountal.
Depot ticket stock books - MTD.4
Ensure the correct and proper accountal of receipts, issues of tickets of each
denomination and there is no mis-utilisation of tickets at all levels.
5.52 Maintenance and Stores Wing
i) Oil Issue Register
Conduct test check and ensure the correct accountal of receipts and issues
for HSD oil for topping up of the buses and for miscellaneous purposes
of maintenance.
ii) Vehicle-wise KMPL Register}
iii) Driver-wise KMPL Register}
Analyse and study the corrective measures taken by the Management in respect
of a vehicle giving low KMPL due to bad/old maintenance and bad driving
habits of the Driver etc.
iv) Maintenance schedules for overhauls/repairs
See whether the prescribed time schedules of maintenance are being followed
and whether engine and gear oil changes are made in respect of every vehicle
immediately after the prescribed kilometerage run. Analyse and compare the
actual breakdown rate to the standard one and study the corrective measures
taken thereof.
v) Standards for consumption of oils, grease, cost control items etc
Analyse and review the corrective measures taken by the Management for
excess consumption of engine oil, gear oil and other oils, grease and cost control
items with reference to the norms fixed. Also, analyse and comment the
circumstances where the costly oils are used in lieu of cheaper ones for carrying
out maintenance.
vi) Replacement of vehicles
Identify the circumstances where no prompt action was taken by the
Management for replacement of overaged vehicles and the vehicles after
a stipulated kilometerage life.
vii) Register of empties and scrap
339
Conduct a test check and ensure the correct accountal and prompt sending of
empties and scrap to Regional/Zonal stores for disposal by auction.
viii) Register of uniforms
Ensure correct accountal of receipts and issues of the uniforms to various
categories of staff.
ix) Register of history of vehicles
This register provides full information about each vehicle, its performance,
maintenance and repairs done, the materials used and their cost etc.
See that the expenditure incurred on repairs and replacements is not on high side
and that periodical maintenance is carried out.
x) Consumption of batteries and major spares
See that these items are giving stipulated life and the consumption of them is not
on high side as compared to the norms fixed.
xi) Log books of departmental vehicles
See that the recovery of the cost at the prescribed rate is effected when the
vehicle is used for unofficial purpose. Ensure that all columns of the logbook
are properly filled in and repairs and replacements are got done economically.
xii) Tyre cards
Review the performance reports to know efficiency of each type of tyre and
identify pre-mature failures i.e., before the run of prescribed kilometerage. See
that the recoveries at prescribed rates are effected where the drivers having bad
driving habits are responsible for failures, with reference to remarks of the
Assistant Mechanical Engineer (Tyres).
5.53 Accounts and Personnel Wing
i) Register of rents for canteens and stalls etc., let out
Review the agreements entered into with canteen/stall contractors and ensure
correct and prompt realisation of rents as per the agreed terms of payment.
ii) Postal bills register
See that the correct and prompt bills are raised on the postal authorities for
carrying mail and ensure early realisation of revenues.
iii) Police warrant bills
Ensure timely pursuance and early realisation.
iv) Payment of hire charges to private vehicle owners
Scrutinise agreements entered with the private vehicle owners and see that all
provisions are complied with and ensure proper payments.
340
v) Missing tickets
See that appropriate action is taken against the conductor/depot clerk who was
responsible for missing tickets.
vi) Depot incentive payments
Study the circulars issued from time to time on the Depot incentive payments
and ensure, by test check, correctness of payments in respect of incentives on
various parameters.
vii) Conductors cash deficiencies/excesses
Examine the corrective steps taken by the depot management in respect of
conductors who are getting cash deficiencies very frequently or repeatedly.
5.54 Payment of compounding fees/M.V. fines
These are levied by the RTA for the violation/infringement of provisions of
M.V.Act and Rules, like overloading of passengers, non-carrying of permits,
driver's licence and other important documents, non-wearing of uniforms etc.
Guidelines
Analyse the departmental action and the circumstances under which provisions
of Act and Rules were violated; identify the persons, if any, responsible for such
irregularities and insist for making good the amounts of penalty through
recovery from such persons etc.
5.55 Operation of Services on Special Hire
At the request of any party, buses will be operated for hire for various functions
like marriages, conferences, etc., at the prescribed rate per kilometre, subject to
certain terms and conditions.
Guidelines
Check and ensure the correctness of the hire charges realised vis-a-vis the rates
and conditions specified in the circular of the Corporation.
Common Registers/Records maintained in two or more Offices/Units of the
Corporation
5.56 CASH BOOKS
i. Main Cash Book (M.T.A.51B)
This is a book of primary entry and is used to record all receipts of
cash/cheques/demand drafts towards employees security deposits, special hire
charges from the hirers (BHEL, DRDL, HAL etc.), unpaid wages and funds
transferred by Head Office to Regional Offices to meet day to day requirements
of units, services rendered by the Corporation to Postal and Police Departments,
other institutions etc., deposits payable by contractors in respect of
canteens/stalls etc.
341
Entries to be recorded on the payments side of this cash book are (i) Cheques,
drafts and cash remitted into Bank through pay-in-slips and (ii) any payment to
be made out of the balance as decided by the controlling officer. Main cash
book should not be used for accountal of bus cash, or any cash receivable in
traffic side of the depot.
Audit checks
Ensure -
i) Prompt and correct accountal of each transaction and its correct
classification.
ii) Each entry to be supported by a proper voucher.
iii) Every payment to be covered by proper sanction of the competent
authority.
iv) Daily closing of cash book and attestation of responsible officer.
v) Prompt remittance into Bank by pay-in-slips.
ii. Subsidiary cash book (PWD-4)
This is to be maintained to record and watch the disposal of all the cheques
issued through cheques issue register i.e., cheques issued for making
disbursements whether in cash or by cheque are entered on the receipts side and
the amounts disbursed on the payments side.
Audit Checks
Some checks as for the cash book except check No.v
iii. Cheques issue register (CIR)
This is a book of primary entry to record all transactions of withdrawals from
Bank through cheques and classification of expenditure thereof.
Audit Guidelines
Each payment for which cheque issued may be verified with reference to the
individual case/sanction file.
iv. Imprest books/accounts
a) Cash imprest
This is meant for meeting urgent petty purchases to bring off road vehicles on
road and other expenses like loading, unloading, decanting of HSD oil,
transportation of material where departmental facilities are not provided.
b) Squad imprest
This is provided to Checking Squad officials to meet, while proceeding on line,
the expenses like train fare, toll tax, telephone/trunk call charges, fare charges of
private bus, hire charges for conveyance, petty emergent expenditure.
342
The above imprests are subject to certain monetary limits granted by the
competent authorities. These imprests are to be maintained in PWD Form 4
(subsidiary cash book). Ensure that the imprests are spent for the prescribed
purposes, that the expenses are correctly classified and that there is no mis-
utilisation.
c) Postal imprest account
This is meant to meet the day to day expenditure on postal stamps and is subject
to certain monetary limits granted for each office/unit of the Corporation. See
that internal checks/controls are exercised to ensure correct utilisation.
d) Conductors imprest
This is handed over to the conductor before he proceeds on his spell of duty, to
enable him, while on duty, to hand over change to passengers. This is a fixed
amount. This is to be returned by the conductor after the spell of his duty.
Ensure proper follow up of the prescribed procedure.
e) Other imprest
This is created for a specific purpose like Jathra, petrol imprest, special traffic
arrangements etc.
Same checks as given for cash and squad imprests.
v) Register of security deposits from staff
vi) Register of earnest money deposits
vii) Register of tender applications
Ensure collection of correct amounts and the proper accountal thereof.
viii) Scale audit register
Ensure correctness of entries of all sanctions to various categories of
establishments relating to the office/unit under audit and proper attestation of the
competent authority.
ix) Pay bills
It may be ensured whether every amount claimed in this bill has been covered
by an appropriate order/sanction of the competent authority, with specific
attention to overtime and any other non-recurring payments.
x) Contingent bills
The amounts claimed in these bills shall relate to the expenditure of unforeseen
nature and should be covered by the sanction of the competent authority.
xi) T.A.bills
See that the claim was correct as per the rules of the Corporation and as per the
tour programme approved by the Competent authority.
343
xii) Register of type numbered books
A few examples of type numbered books are money receipt books, way bill
books in case of Depots.
Check the register to ensure, in audit, the safe custody, the correct receipt/issue
and the periodical physical verification of all the type numbered books.
xiii) Suspense balances
Review the suspense balances and analyse reasons for non-clearance/non-
pursuance for clearance, especially in respect of old balances. Ensure prompt
production of paid vouchers in respect of the temporary advances given to
various staff/officers for purchase of any item or for making various other
payments etc.
xiv) Register of fixed and periodical charges
See that the register is maintained properly and all the relevant vouchers are
posted with sufficient details.
xv) Main and subsidiary ledgers
See that the ledgers are brought upto date duly indicating references and that the
totals of subsidiary ledgers are tallied with the total of each account in the main
ledger.
xvi) Stamp account
Conduct test check and ensure the proper accountal of receipt and issues of
stamps of various denominations and the daily closings thereof.
xvii) Files on property taxes, non-agricultural land assessment taxes etc.
Review the files and ensure the points of interest, if any, noticed are brought out.
xviii) Bank pass book and bank reconciliation
See that bank reconciliation is done up to date and that prompt action is taken
for reconciliation of very old discrepancies, if any, with reference to the bank
scrolls, pass book etc.
xix) Advances and recovery register
Ensure correct entries of the advances and recoveries thereof.
xx) Service books and leave accounts
Conduct test check and ensure correct maintenance of leave accounts and correct
entries in the service registers indicating all the facts about release of increments,
declaration of probation, availment of LTC, if any, promotions etc.
xxi) Suspense cases, O2 cases, accident cases etc.
344
Review the case files and analyse the reasons for the delay in finalisation of the
cases resulting in unnecessary payments like suspension allowance etc., without
work. As regards accident cases see that proper and prompt pursuance is made
in respect of accidents and claims thereof.
xxii) Register of staff quarters
See that there is optimum occupancy of quarters as well as strict compliance of
the rules for effecting recoveries towards standard licence fees, water and
electricity charges etc.
xxiii) Local purchases register
Ensure strict compliance of the prescribed procedures for making local
purchases and observance of the financial limits fixed for various authorities
indicated in the delegation of powers.
xxiv) Register of losses written off
Examine the competency of the authority who has written off the losses and
analyse the circumstances under which the losses are decided irrecoverable.
xxv) Register of cheques/DD's received
All the cheques/DD's received in the unit towards stall rents, auction sales etc.,
are first entered in this register and then in the Main Cash Book.
Ensure proper accountal of all the DD's/cheques received in the unit and proper
remittance into bank for collection.
5.57 Annual Accounts
According to Section 33(1) of the Road Transport Corporations Act, 1950, the
annual accounts of the Corporation are to be prepared in such form as may be
prescribed by the State Government in consultation with the Comptroller and
Auditor General of India. The Comptroller and Auditor General of India is the
sole auditor of the Corporation.
As per Rule 29(1) of the APSRTC Rules, 1958, the Annual Accounts of the
Corporation shall be drawn up within six months of the close of each financial
year showing the financial results of the Corporation. The Annual accounts
shall consist of:
a) Profit and Loss account showing seperately under the headings "Operating"
and "Non-operating", the gross earnings, direct and indirect charges,
administration expenses, interest, debt charges and the like and net revenue.
b) Net Revenue Appropriation Account showing Income-tax and such other
taxes and the appropriation of the net revenue after meeting the charges to such
of the funds as are not provided for under "Working expenses".
c) Balance sheet showing the financial position of the Corporation as on the
last day of the financial year.
345
Guidelines for Audit
1. Detailed guidelines/instructions for audit of annual accounts of APSRTC
are to be followed.
2. The questionnaire is to be answered by field parties conducting the
annual accounts audit of APSRTC.
346
CHAPTER – 6
6.1 A.P. State Financial Corporation
The Corporation was established on 1st November 1956 under the State
Financial Corporations Act, 1951 by amalgamation of the Financial Corporations
of the erstwhile States of Andhra and Hyderabad.
6.2 Objectives of the Corporation
The objectives of establishing the Corporation are to carry on and transact the
following business, among others, subject to the provisions of the Act:-
(a) Guaranteeing (i) loans raised by industrial concerns which are floated in the
public markets; from schedule banks or State Co-operative banks (ii) deferred
payments due from any industrial concerns in connection with its purchase of
capital goods within India.
(b) Undertaking the issue of the stock, shares, bonds or debentures by industrial
concerns.
(c) Acting as an agent of Central Government, State Government Development
bank, etc, in respect of any matter with or arising out of the grant of loans and
advances to an industrial concern etc.,
(d) Subscribing to the stocks, shares, bonds or debentures of an industrial
concern.
(e) Granting loans or advances to industrial concerns.
6.3 Share Capital
The authorised capital of the Corporation shall be such sum as may be fixed by
the State Government but it shall in no case be less than Rs.50 lakh or exceed
500 lakh.
A portion of the unissued capital or such part as the State Government may
decide in consultation with the Development Bank specified from time to time
shall be allocated for the issue of a special class of shares.
The share capital of the Corporation shall be guaranteed by the State
Government as to the repayment of principal and the payment of annual dividend
at such minimum rate as the State Government may, with the approval of the
Central Government, fix at the time of issuing the shares.
347
6.4 Power to give instructions to the Corporation
Under the provisions of Section 38(1) of the Act, the State Government shall
have the power to give instructions, on the question of policy, to the Corporation
for guidance in the discharge of its functions after obtaining the advice of the
Reserve Bank of India.
6.5 Furnishing of returns
(a) The Corporation shall furnish to the State Government and Development
Bank, within four months of the close of each financial year, a statement in the
prescribed form of its assets and liabilities as at the close of that year, together
with a profit and loss account for the year, the auditor's report and a report on the
working of the Corporation. They shall be laid before the Legislature of the
State.
(b) The Corporation shall also send a copy of every report of auditors to the
Comptroller and Auditor General of India at least one month before it is placed
before the share-holders
6.6 Appointment of Auditor
The affairs of the Corporation shall be audited by auditors duly qualified to act as
auditors of companies under sub-section (1) of Section 226 of the Companies
Act, 1956, who shall be appointed by the State Government in consultation with
the Comptroller and Auditor General of India.
6.7 Issue of directions to the auditors
The State Government may, in consultation with the Comptroller and Auditor
General of India, at any time issue directions to the auditors requiring them to
report to it upon the adequacy of measures taken by the Corporation for
protection of the interests of its shareholders and creditors or upon the
sufficiency of their procedure in auditing the affairs of the Corporation and may
enlarge or extend the scope of the audit or direct that different procedures in
audit be adopted or direct that any other examination be made by the auditors if
in its opinion public interest so requires.
6.8 Audit by the Comptroller and Auditor General of India
The Comptroller and Auditor General of India may either on his own volition or
on a request received from the State Government undertake such audit and at
such times as he may consider necessary. The separate audit report of
Comptroller and Auditor General of India shall be forwarded to the State
Government and the State Government shall cause the same to be laid before the
Legislature of the State. This will not, however, affect in any way the inclusion
of comments on important items in the conventional audit report.
348
(CAG's Lr.No.364-Admn/III/523-61/27.2.62, P.157/c of file No.IV-13/60-
61/Vol.I.Sl.No.4).
Even though there may not be important points to mention under "Other topics of
interest" separate audit report shall be issued to Government in the proforma
prescribed. (No.332-CA/102-68/10-3-68 of CAG.35/cof IV-74/67 Vol.IV).
In consultation with the State Government and the Corporation, the following
schedule of programme is drawn up to ensure that there may not be any delay at
any stage.
1. Receipt of accounts 1st June
2. Completion of audit and issue before end of August
of draft comments to the
Management / To State Government.
3. Receipt of replies to comments By 21st September
from the Management / State
Government on the Draft Audit Report.
6.9 Form of communication of Audit Report
Audit Report on the accounts of ---- (Name of the Corporation and place where
located) ----- for the year ended ----- (date)------.(CAG Office
Lr.No.344/CA.IV/31-90(No.CA.IV/Tech. 2/90) dt:17.8.1990 CAW/1-3/88-89
P.332/c).
6.10 Internal Audit
The internal audit is expected to discharge the following functions:
1) To furnish objective analysis, appraisal, recommendations and comments in
respect of the activities reviewed by it.
2) To ensure that the corporate objectives on policies are correctly interpreted
and strictly adhered to.
3) To ascertain the extent of compliance with the established policies and
procedures.
4) To ascertain the extent to which the institutional assets are accounted for
and safeguarded from losses of all kinds.
5) To review the soundness, adequacy and application of accounting,
financial and operational controls.
349
6) To verify whether sufficient internal controls and checks which are
essential for preventing irregularities and frauds actually exist in the
operating departments.
7) To ensure whether the affairs of the Corporation are conducted in such a
way as to economise expenditure and labour.
8) To conduct investigations in certain specified areas as may be desired by
the management.
9) To see whether the books of accounts are properly maintained, checked and
balanced periodically and all transactions are properly accounted for.
10) To ensure that the cash, securities and other valuables as per books exist
physically and the arrangement for their custody is adequate.
11) To ensure whether the documents obtained from borrowers are complete
and enforceable; securities are acquired and advances are safe.
Since no quantum of checks to be exercised by the internal audit was prescribed,
the extent and areas covered by the internal audit shall be seen before taking up
audit.
The Corporation sanctions financial assistance (by way of term loans, bridge
loans, mini-loans, soft loans/special capital assistance besides underwriting of
shares/debentures etc., as enunciated in the first chapter) to eligible units (small
scale/medium scale).
The following shall be kept in mind while auditing the accounts of the
Corporation.
1) Whether the assisted unit was eligible for the loan has to be checked with
reference to the approved list communicated by IDBI and in the case of
special schemes with reference to the orders issued by the Government of
Andhra Pradesh from time to time initiating such schemes.
2) Whether the technical appraisals as well as financial appraisal were
conducted efficiently by the Corporation and in cases of applications
referred for technical advice to outside authorities including professionals,
the suggestions made by such authorities are complied with before the
assistance was sanctioned.
3) Whether the assistance was sanctioned by the competent authorities duly
observing the margins on land, building and plant and machinery as
prescribed by the Board from time to time.
350
4) Whether the pre-disbursement loan conditions such as
hypothecation/mortgage of assets in favour of the Corporation, bringing in
the investment by the promoters as per sanction order and especially the
sanction orders by the banks towards the working capital etc., were
fulfilled.
5) After disbursement of loans whether periodical technical inspections were
conducted with a view to ensure whether the assets
mortgaged/hypothecated to the Corporation physically exist and their
utilisation as envisaged in the project report and financial inspection to
review the working results of the units.
6) Whether the follow-up action on technical/financial inspection reports was
taken up by the Branch/Head Office as the case may be.
7) Whether the Corporation has appointed its nominees on the Board of
assisted units and whether there is a system to watch the receipt of reports
from the nominee directors and follow up action taken thereon.
8) In case of reschedule of loans the circumstances in which the Corporation
has acceded to the request of the loanees shall be reviewed.
9) Whether the rates of interest as revised from time to time were charged.
10) Whether the demand notices for payment of principal/ interest/other
expenditure were despatched in time.
11) In case of default in repayment, whether prompt action was initiated for
recovery of outstanding balance by issue of recall-cum-sale notice
followed by seizure and sale of the assets and by filing suits in a Court of
law/proceeding under R.R. Act for recovery of balance amount, if any, by
invoking the personal guarantees furnished by the promoters.
12) In case of units reported sick due to various reasons such as lack of
working capital, problems faced in procurement of raw materials, in selling
finished stocks etc., as disclosed by the inspection reports, whether prompt
action was initiated by the Corporation in co-ordination with other
financial institutions involved.
13) In case of closed units whether prompt action was initiated for their revival
in co-ordination with other financial institutions involved, if any, by
scanning the suitable buyers on inter se basis.
6.11 Provision for Wealth Tax
During the course of audit of the Statutory Corporations established under
Central, Provincial or State Acts, which are liable to be assessed for wealth tax
351
and where provision had not been made in the accounts, suitable comments may
be made in the separate Audit Reports on the accounts of such Corporations/
Board.(CAG's Office Lr.no.304-CA.II/41-71 dt:16.8.71 F.No.IV-26/61-
62/Vol.II).
If interest in excess of a certain percentage receivable from the loanees against
whom suits have been filed by the Corporation (but not yet decreed) is credited
to the interest suspense account instead of the revenue account, on the ground
that the Courts have not been allowing interest in excess of that percentage in
their decrees in respect of the cases decided by them, even though a higher rate
of interest is mentioned in the agreements, no objection need be taken provided
full disclosure about facts of the case and the amount not taken credit of is made
in the accounts.(No.CA.IV/Tech/1/78/35-72/Vol.II/19.9.78 P.No.5 of IV-74/54
Vol.IV).
Only those dividends are to be treated as Interest on securities which are paid out
of the subventions by Government made to meet the guaranteed amounts.
Dividends paid by the Corporation from its own sources are to be treated as
dividends and not as "Interest on securities".
Any payment made by the Financial Corporation out of these subventions is not
to be allowed as expenditure in the Corporation of its income in terms of the first
proviso to Section 43. (CAG's Lr.No.3196-Rev.A/202-69 V dt:21.8.72 P.54/c of
F.No.IV-26/72-73).
The corporation has been following the Cash System of Accounts (except for
depreciation on fixed assets, provision for taxation, bad debts written off and
provision for erosion in value of investment) since 01.04.1978, and the interest
actually collected on the loans and advances is only accounted for in the books of
account.
As per the guidelines of IDBI on asset classification, the Corporation has
classified all loans and advances into standard, sub-standard, doubtful and loss
assets (NPAs) and provision is made accordingly in respect of these assets.
6.12 General
In view of the substantial financial stake of a State Government in a State
Financial Corporation, the accounts of the Corporations should be audited
annually irrespective of the fact whether only payment on account of guarantees
given by State Government under Sections 6, 7 and 8 of the State Financial
Corporations Act is made by them or not.(CAG's Lr.No.67-CA/6-69 dt:13.1.69
P.403 of No.IV/74/54 Vol.II).
352
The format of the report prescribed is intended to be a guide. Keeping in view
the circumstances as prevailing in the Corporation, the format could be suitably
modified, enlarged so as to make the audit report as meaningful as possible.
(No.1472-CA/IV/99-78/16-80 dt:26.11.1980 of the CAG P.41/C of IV-74/54
Vol.IV).
Where State Government makes any payment to meet the guaranteed
dividend/interest, the amount so received should be applied only to that purpose,
for instance subvention for the purpose of dividend (Sec.6) should not be used
for payment of interest etc. Similarly, subvention for payment of interest on
guaranteed debentures/bonds should not be used for meeting interest obligations
on other bonds etc.
The figures to be included under the column "amount of default during the year"
would be the total amount of instalments of principal and interest of which
default was made at any time during the year. (CAG's Lr.No.315-CA.II/17-69
dt:7.8.1970 P.16/c F.No.IV-74/54 Vol.III).
To have an idea of the efficiency of the loan operations, the comparison should
be made between the amount of instalments falling due for repayment during the
year and the defaults made at any time in respect of such instalments during the
year, so as to express the latter as a percentage of the former. Accordingly, the
figures to be included under the column default during the year would be the
total amount of instalment of principal and interest of which default was made at
any time during the year. (CAG's Office Lr.no.315-CA.II/16-69 dt:7.8.1979
F.No.IV/74-54/III).
Return on capital in the case of financial institutions and State Financial
Corporations shall be calculated on the capital employed in earning the revenue
as disclosed in the accounts. Capital employed for this purpose should be taken
as the aggregate of:
1) Paid-up capital,
2) Bonds and debentures,
3) Reserves (other than those which have to be furnished specially and backed
by investments outside),
4) Borrowings including refinance and
5) Deposits.
For the purpose of working out the capital employed as above, mean figures for
the year (i.e., aggregate of opening and closing balances divided by two) may be
taken and if necessary a suitable remark may be given in the remarks column of
353
the synoptic statement (in the conventional Audit Report) to indicate that the
mean figures have been taken.
The return may be taken as the net profit before charging interest and tax
provisions. (CAG's Lr.No.CA.IV/26-75/74 dt:27.9.1975 F.No.IV-19/72-73).
Most of the autonomous bodies whose reports are approved by the Comptroller
and Auditor General of India are financially dependent on Governments. The
separate Audit Reports can contain the extent of utilisation of Government
assistance in the form of grants, loans, share capital etc., irregularities in their
utilization which are considered fit for bringing to the notice of
Parliament/Legislature accumulation of unutilised balances for long periods,
receipt of funds far in advance of needs, diversion of funds, investment thereof
etc.
Some of the organisations under audit disburse grants, loans etc., to other bodies.
The control exercised over such releases, extent of unutilised balances with them
etc., shall be examined for a comment.
There is really no restriction on the points which can be included in the Separate
Audit Reports, but it is desirable that comments in such reports should be
confined to a brief factual mention of accounting or other irregularities, the facts
of which are beyond dispute and in regard to which, apart from giving any
explanation, the administration is not likely to raise a controversy over the view
expressed in Audit. Any important matter in regard to which Audit considers it
necessary to express a view which will amount to a criticism of the
Administration should be reserved for the conventional Audit Report.
Audit is not precluded from including in the Separate Audit Reports any
comments relating to the accounts of previous years if there is any important
point on which adequate action has not been taken.(No.2154/REP/399-61
dt:1.10.1961 of F.No.IV-13, 60-61 Vol.I.I-Sl.No.4 P.III/c).
It is essential that in all cases the replies of the organisation, particularly in
respect of items included in the report where the Management do not see eye to
eye with Audit, are duly incorporated even if the Accountant General do not
agree with the replies/reviews of the Management. In such cases, Accountant
General can further clarify why the views of the organisation are not acceptable.
For proper presentation of the material, special attention may be paid to the
drafting of the Report so that it gives a clear and balanced picture as in the cases
of paras for conventional Audit Report. (No.126/REP/C/203-79 P.84 C OF
F.NO.IV-124/78-79 Vol.I.I. Sl.No.128).
354
An opportunity should be given to the State Government to offer comments
before the Reports are finalised and presented to the Legislature and hence, while
issuing the draft Report to the Management, it should also be issued
simultaneously to the State Government to give their comments within the time
limit which has to be settled in consultation with the Government. If no reply is
received from the State Government within the time allowed the Report may be
finalised indicating clearly that the comments of the State Government have not
been received. (No.262-CA.II/157-70 dt:16.7.71 P.223/c S.No.5).
Consequent upon passing of the CAG's (DPC) Act, 1971, the concerned
principal Audit Officer of the State Financial Corporation, Port Trusts, Dock
Labour Board, etc., may authenticate and issue the Audit Reports to the State
Government/ Central Government. The Audit Reports should, however, be
submitted to the Headquarters Office at the draft stage for approval.
(No.343/CA.IV/35-72 dt.:1.6.72 (P.13/c Sl.No.6)).
Report on the performance of auditors of the State Financial Corporation may be
sent to Headquarters Office (as in the case of other Public Sector Undertakings)
irrespective of whether the performance of the auditors is satisfactory or not, as
soon as the audit of accounts of a particular year of the Corporation is completed.
(CAG's Lr.No.10293-CA.V/249-69 dt.13.7.1988 File CAW/V-30/87-88, Page
112/c).
While forwarding the certified annual accounts along with Audit Report thereon
to the Departments of the State Government for presentation to the State
Legislature, they may be requested to intimate the date of presentation of the
accounts and the Audit Report to State Legislature and to forward a copy of these
documents as prescribed to the Office of the Comptroller and Auditor General of
India and this office simultaneously. The date on which the documents are
forwarded to the State Government for presentation to Legislature may also be
intimated to the office of the C&AG of India.
If information on placing of the certified accounts with the Audit Report for the
previous year before Parliament/Legislature has not been received, the Principal
Audit Officer should specifically call for this information from Government
while forwarding the Audit Report with the certified accounts of the current year.
(No.625/Rep.c/300.77 dt:18.4.79 P.78/c of File No.IV-124/Vol.I Sl.No.128).
Copy of Audit Report and certified accounts would have to be endorsed to the
Corporation/Board, if it is so provided for or implied in the relevant Act. But, it
will have to be advised that it should be treated as "SECRET" till they are
presented to the Legislature as required under the Act.(P/74/c
CA.IV/Tech.5/81/660/16-79 dt:18.7.1981 of IV-124/78-79 Vol.III).
355
As soon as a copy of the Report as placed before Parliament/ Legislature is
received from the Ministry/Department concerned, it has to be ensured whether
the audited accounts as presented is complete in all respects including the Audit
Certificate and the report appended thereto and are the same as issued to
Government by Audit. Discrepancies, if any, should be specifically brought to
the notice of the concerned Ministry/Department under intimation to the
Headquarters Office. (No.634/Rep/480-61 dt:7.4.62 of CAG Office F.No.IV-
61/62/Vol.I (Sl.No.3)P.38/c).
Printed annual reports of the Companies and Corporations may be sent to the
office of the Comptroller and Auditor General of India regularly every year.
6.13 Revision of Accounts
On completion of the process prescribed under the Act for the finalisation of
accounts, audit by Statutory Auditors, consideration of the accounts along with
the report of the Statutory Auditors in the annual general meeting and their
presentation to the State Legislature, the accounts of the Corporation shall not be
revised under the State Financial Corporations Act, 1951. It would not be proper
on the part of Audit to issue any para supplementing the audit reports if already
issued to the Government. (No.593-CA.II/74-741/dt:23.5.1979 of the CAG's
Office P.552/c of IV-5/74-75/Vol.II AR of SFC for 1973-74).
356
CHAPTER-7
7.1 ANDHRA PRADESH STATE WAREHOUSING CORPORATION
The functions of the Corporation are to:
a) Acquire and build godowns and Warehouses at such places within the State
as it may, with the previous approval of the Central Warehousing
Corporation, determine,
b) run warehouses in the State for the storage of agricultural produce, seeds,
manures, fertilisers, agricultural implements and notified commodities,
c) Arrange facilities for the transport of agricultural produce, seeds, manures,
fertilisers, and agricultural implements and notified commodities to and
from Warehouses,
d) act as an agent of the Central Warehousing Corporation or of the
Government for the purpose of the purchase, sale, storage and distribution
of agricultural produce, seeds, manures, fertilisers, agricultural produce as
mentioned at ( C) above and
e) carry out any other functions as may be prescribed.
7.2 Share capital
Such number of shares as may be determined by the Corporation in consultation
with the State Government shall be issued in the first instance and the remaining
shares may be issued from time to time as and when the Corporation may deem
fit after consultation with the Central Warehousing Corporation and with the
sanction of the State Government.
Of the share capital issued in the first instance and of any subsequent issue of
such capital, the Central Warehousing Corporation shall in any case, where the
State Government has subscribed for fifty per cent of such capital, subscribe for
the remaining fifty per cent of the capital.
The general superintendence and management of the affairs of the Corporation
vest in a Board of Directors, of which five Directors each are nominated by the
Central Warehousing Corporation and State Government. The Managing
Director is appointed by the State Government in consultation with the Directors
and with the previous approval of the Central Warehousing Corporation. The
Chairman of the Board is appointed by the State Government from among the
Directors of the Corporation with the previous approval of the Central
Warehousing Corporation.
357
The Board of Directors shall be guided by such instructions on question of policy
as may be given to them by the State Government or the Central Warehousing
Corporation. If any doubt arises as to whether a question is or is not a question
of policy, or if the State Government and the Central Warehousing Corporation
give conflicting instructions, the matter shall be referred to the Central
Government, whose decision thereon shall be final.
No official Director shall be entitled to receive any remuneration other than any
allowance admissible to him under the rules regulating his conditions of service.
The Corporation shall prepare before the commencement of each year a
Statement of programme of its activities during the forthcoming year as well as a
financial estimate which shall be submitted to the State Government for
approval.
7.3 Borrowing powers
The Corporation may, in consultation with the Reserve Bank of India and with
the previous approval of the State Government, issue and sell bonds and
debentures carrying interest for the purpose of raising funds, provided the
amount so raised and outstanding shall not exceed the limits of the amount of
paid-up capital and Reserves of the Corporation.
The Corporation may, for the purpose of carrying out its functions, borrow
money from the Reserve Bank of India or State Bank.
7.4 Accounts and Audit
The Corporation shall maintain proper accounts and other relevant records and
prepare an annual statement of accounts including the profit and loss account and
Balance Sheet in such a form as may be prescribed.
The accounts shall be audited by an auditor duly qualified to act as an auditor of
companies under Section 226(1) of the Companies Act, 1956. The auditor shall
be appointed by the State Government on the advice of the Comptroller and
Auditor General of India.
The State Government may, after consultation with the Comptroller and Auditor
General of India, at any time issue directions to the auditor requesting him to
report to the Government upon the adequacy of measures taken by the
Corporation for protecting the interests of its shareholders and creditors.
The Corporation shall send a copy of every report of the auditor to the
Comptroller and Auditor General of India at least one month before it is placed
before the share-holders.
358
The Comptroller and Auditor General of India may, either on his own motion or
on a request received from the State Government undertake such audit at such
time as he may consider necessary.
The Comptroller and Auditor General of India or any person authorised by him
in connection with the audit of the accounts of the Corporation shall have the
same rights, privileges and authority in connection with such audit as the
Comptroller and Auditor General of India has in connection with the audit of
Government accounts and, in particular, shall have the right to demand the
production of the books, accounts, connected vouchers and other documents and
papers and to inspect the office of the Corporation.
The Accountants General (Audit) are required to frame the time schedule in
consultation with the Management/State Government having Warehousing
Corporations in such a way that the report on the account of the Warehousing
Corporations is issued by 15th August each year so that the time limit prescribed
in the Act may be adhered to.(Lr.No.2-CA.II/State Commercial Audit/II-84
No.1284-CA.II/202-81 dt:30.7.1984, File.IV-124/83-84 Vol.II).
The annual accounts of the Corporation together with the audit report thereon
shall be placed before the Annual General Meeting of the Corporation within six
months of the closure of the financial year.
What has been referred to in Section 31(10) of the Warehousing Corporations
Act, 1962 is an Audit Report and not comments upon or supplement to the
Auditors' Report as mentioned in Section 619 of the Companies Act, 1956. The
comments, if any, on the accounts of the Corporations in terms of Section 31(10)
should be called as a report on the accounts of the Corporation and not as
comments.
Where such a report has been issued and the Corporation does not comply with
the requirement of placing it in the Annual General Meeting, the matter could be
referred to the Administrative Ministry/appropriate Government and a comment
could also be included in this regard in Conventional Audit Report.
(Lr.No.CA.IV/Tech-1/83-46 CA.IV/29-80 Vol.II dt.15.12.1983, File.III-25/82-
83).
7.5 Form of communication of Audit report
Audit Report on the accounts of ________ (Name of Corporation and place
where located) _____________ for the year ended _____________ (date)
____________.(CAG Office Lr. No.344/CA.IV/31-90 (No.CA.IV/Tech 2/90)
dt.17.8.1990, File CAW/1-3/88-89, Page 332/c).
359
Accountant General and Director of Audit (Food), New Delhi, may issue `Nil'
Report on the accounts of State Warehousing Corporations and Central
Warehousing Corporation respectively without obtaining approval of
Headquarters Office.(Lr.No.141-CA.IV/29-80 Vol.II-CA.IV/Tech.2/85
dt.12.2.1985, File.IV-124/83-84 Vol.II).
The Accountants General are directed to furnish the aide-me moiré containing
the replies of the Management and Statutory Auditors along with the draft Audit
Report on the accounts of State Warehousing Corporations while forwarding the
draft Audit Report for approval to the Headquarters Office. (Lr.No.1843-
CA.II/259-81 (Circular No.12-CA.II/State Commercial Audit.II/85
dt:18.9.1985).
Reserves for self indemnification created by the State Warehousing Corporation
and cumulative loss are to be taken into account while working out the capital
invested. (No.360-CA.II/349-85 (Circular No.1-CA.II/State Commercial Audit
II/86) dt:25.2.1986 . File VII-19/85-86). The audit report shall be forwarded to
the appropriate Government within a month of its being placed before the
Annual General Meeting and that Government shall as soon thereafter as may be
cause the same to be laid before both Houses of Legislature of the State.
On receipt of annual accounts, audit shall be conducted every year and Report
thereof issued to the Corporation after they are approved by the Head Quarters
office, for placement before the Annual General Meeting and for taking further
action in line with the provisions of Section 31(10) and (11) of the Act.
As the Act stipulates the time limit within which the certified accounts and audit
report are to be placed before the Annual General Meeting it would be necessary
to complete the audit expeditiously after the certified accounts are made
available. (No.355-CA.IV/29-80/2-CA.IV/Tech.29-90/13.4.82)
(No.507/CA.IV/29-80/Tech.7/82/25.6.82). of file No.IV-124/78-79/Vol.II.
7.6 Audit of accounts of State Warehousing Corporation
The Accountants General were directed that no review of accounts need be
prepared along with the Report on the accounts of State Warehousing
Corporations. (No.1048-CA.II/265-84 (Circular No.7-CA.II/State Commercial
Audit - II/85) dt.31st May 1985.
7.7 General
For the purpose of Income Tax Act, 1961, the Corporation shall be deemed to be
a Company within the meaning of that Act and shall be liable to income tax and
super tax accordingly on its income, profits and gains. Any sum paid by the
Central or State Government and any guarantee given in pursuance of sub-
360
section 4 of Section 27 shall not be treated as income, profits and gains of the
Corporation and any interest on the debentures or bonds issued by the
Corporation out of the sums shall not be treated as expenditure incurred by it.
No provision of law relating to the winding up of the Companies or Corporations
shall apply to a Warehousing Corporation save by order of the State Government
and in such manner as it may direct.
During the scrutiny of records at unit level, the following shall be kept in view.
1 (a) Number of own/hired godowns under the jurisdiction of the unit, its
capacity vis-à-vis utilisation.
(b) Whether there is any time lag between taking possession of the
newly constructed godowns and date of putting them to use.
(c) Demand at the time of construction of godowns/taking on hire.
(d) Under-utilisation, if any, reasons therefore and steps taken to fully
utilise the godowns.
2. Whether the rent fixed in respect of godowns hired is in accordance with
the guidelines issued by the Corporation and is reasonable.
3(a) whether the hired godowns are in accordance with the specifications and
the stocks were not got damaged because of their bad conditions.
(b) Whether the godowns were maintained properly as otherwise the stocks
might be got damaged.
4. Whether the payment of license fee and license renewals were made in
time.
5. Whether the storage charges fixed are in accordance with the guidelines
issued by the Corporation and there is no delay in implementing the
revised rates from time to time.
6. Review the godowns register to ensure that storage charges bills are raised
in all cases.
7. Whether the storage charges have been collected regularly and effective
pursuance is made in case of defaulters.
8. Ensure that stocks were not kept beyond the preservation period.
9. Review the cases of storage losses/damages and claims if any, from
depositors thereof.
10. Check the stock/warehouse registers to ensure that the receipts and issues
are posted correctly.
361
11. Ensure that the physical verification of the stock was conducted
periodically and proper and adequate action taken on the results thereof.
12. Review the inspection reports of various officials with a view to ensure
that the units were inspected by the officials at intervals prescribed by the
Corporation and corrective action was taken on the omissions, if any,
pointed out.
13. Scrutinise the agreements entered into with transport contractors.
14. Whether the claims towards transit losses were preferred with the railways
in time under intimation to the concerned depositors.
15. Whether demands were raised against the depositors towards railway
freight and transport charges and collected promptly.
16. Whether the godowns/stocks were insured and premium paid in time.
17. Whether insurance charges paid by the Corporation were collected from
the Depositors.
7.8 Head Office
1. Review the agenda and minutes of the Board and other
Committees/Meetings.
2. Review the policy of the construction of new godowns with reference to
the demand.
3. Scrutinise the award of contracts for construction of godowns.
4. Whether the depositors preferred claims towards storage losses over and
above the normal percentage, if so, the circumstances in which the losses
have occurred and whether the claims were admitted by the Corporation
shall be looked into.
362
CHAPTER - 8
Departmental Undertakings
8.1 Nature and importance
Commercial departments or undertakings are Government departments (or
branches of departments) which perform manufacturing or trading functions and
which have been recognised by Government to be commercial departments as
distinct from service departments. These are maintained mainly for the purpose
of rendering services, or providing supplies of certain special kinds on payment
for the services rendered or for the articles supplied (Article 59 of Account Code,
Volume-I)(Annexure I). Such undertakings are required to work to a financial
result determined through a few distinctions maintained in commercial
principles, the most important of which, from the point of view of Audit, are
given below:
(1) Commercial departments maintain a set of proforma commercial accounts
in addition to and outside the usual system of Government accounts (Rule
299 of GFRs and Article 49 of Account Code, Volume-I) (Annexure II).
(2) The Commercial departments charge, and are charged by the other
departments for services rendered or supplies made by them with certain
exceptions (Article 61 of Account code Volume-I and Articles 59 to 67
ibid generally).
(3) Recoveries made by Commercial departments from other departments of
the same Government are treated as receipts of the department and not as
deductions from gross expenditure as in the case of recoveries by Service
departments (Article 75 ibid).
(4) Some Commercial departments are allowed to draw cheques on the
treasury for specific purposes although not normally for pay and
allowances of regular staff (Rule 580 of the Central Treasury Rules). A
separate Personal Ledger Account is opened in the Treasury into which
their receipts are credited and on which cheques are drawn.
(5) Some Commercial departments may be authorised to maintain the balance
of their depreciation reserve, renewal reserve as personal deposits at the
Treasury and to draw upon it by means of cheques (Rules 623, 647 and 648
of Central Treasury Rules).
363
Apart from these main exceptions (Article 50 of Account Code Vol.I and Paras
293, 297 and 298 of the General Financial Rules, 1963), these undertakings are
governed by all general rules and orders of Government departments viz., the
Fundamental and Supplementary Rules in the matter of pay and allowances,
leave, travelling allowance, etc. of staff, the Central Treasury Rules and the
General Financial Rules on the procedure for drawing, holding and spending of
funds of Government, the Account Code (together with the list of major and
minor heads of receipts and expenditure) in the matter of accounts.
Detailed regulations are drawn up by the undertakings or departments to deal
with their special need in the light of these basic rules and regulations and other
important general orders issued by Government from time to time. However, all
departmental regulations, in so far as they embody orders or instructions of a
financial character, or have an important financial bearing, should be made by or
with the approval of the Finance Ministry/Department.
8.2 Procedure for receipts and payments
The receipts of a departmental undertaking are, as a general rule, taken into
Consolidated Fund and are not allowed to be spent by the concern (exceptions
are listed in sub rules (2) and (3) of Rule 7 of the Central Treasury Rules).
Therefore, all expenditure is, in general, met by drawals from the Treasury,
usually on bills; some departmental concerns are allowed to make specified
classes of payments by means of cheques on the Treasury. Even in such
undertakings, pay and allowances and contingencies are met by drawal on the
usual pay and establishment bills and on contingent bills (abstract or detailed).
Capital expenditure is met by drawals on contingent bills or establishment bills
(as may be appropriate). In respect of capital expenditure, the classification to
the relevant head of account shall be given in the contingent bill. Such drawal
would generally be classified under a capital head of account but may also be
under revenue head of account where capital expenditure is financed out of
working capital.
8.3 Accounts
These undertakings maintain their initial accounts on the usual Government lines
based on the general principles and methods set out in the Account Code,
Volume I which embodies the main directives issued by the Comptroller and
Auditor General of India with the approval of the President of India under
Article 150 of the Constitution of India. A list of major and minor heads of
accounts of Central and State receipts and disbursements which forms an
Appendix to Volume I of the Account Code, lays down the system of
classification to be followed.
364
Departmental undertakings maintain Proforma Accounts on commercial lines
and prepare annual profit and loss account and balance sheet. These are in
addition to and outside the regular Government accounts.
Government accounting differs from commercial accounting in some important
aspects. The main differences are (i) Government accounts are on a single entry
system while commercial accounts are on double entry system (ii) Government
accounts are on 'cash basis' as distinct from the 'accrual' basis of commercial
accounting; the former takes into account only the receipts and payments falling
within the accounting period and ignores the claims and liabilities accrued during
the period (iii) Government accounts do not bring out the book balances of the
stores and other classes of assets and liabilities and (iv) in several cases,
Government accounts do not incorporate the results of Government inter-
departmental transactions or indirect charges.
8.4 Audit Arrangement
The accounts of the Andhra Pradesh Government Life Insurance and
Government Central Press are audited annually.
Audit of Proforma Accounts shall be arranged on receipt of the same. The State
Government exempt certain departmental units from preparation of Proforma
Accounts for a specified period. These orders shall be kept in view while
making audit arrangements.
8.5 General Audit Principles
The following audit procedure is common to all departmental undertakings:
Except where otherwise prescribed, the detailed accounts of a month in an year
shall ordinarily be test audited in addition to a general review of the whole year's
accounts. A general review of various registers connected with accounts shall
also be conducted.
The month to which audit is to be applied shall be selected at the time of audit
and the registers, counterfoils, vouchers etc., collected. The audit shall ordinarily
commence with the receipts which shall, if possible, be finished before the audit
of the expenditure is taken up. The audit of receipts shall ordinarily commence
with the cash book and the credit entries shall be traced from the various
registers; each kind of receipt being completely checked for the selected month
before the check of the receipts under another head is taken up. It shall be the
duty of the auditor to see that not only all receipts have been duly credited but
also that each of them is in every case authorised. It shall also be ensured that
the levies/demands materialised punctually and fully and remissions, if any, are
supported by proper sanction.
365
The audit of expenditure shall similarly commence with the cash book and all
payment vouchers shall be traced into it. Each voucher shall then be audited and
when necessary shall be traced into the various subsidiary registers.
In dealing with the payment vouchers it shall be seen that:
1. The charge is admissible.
2. The expenditure is covered by the requisite sanction, where necessary.
3. The sanctioning authority possesses the necessary powers to accord the
sanction.
4. There is provision in the budget estimate to meet the charge or that re
appropriations have been duly sanctioned.
5. Every payment is proper, is supported by a voucher and is checked by the
Accountant.
6. The vouchers are numbered consecutively, arithmetically correct and
supported by proper receipt.
7. The vouchers are correctly classified and entered in the respective
registers.
8. The expenditure is for legitimate objects as provided in the relevant
sanctions etc.,
9. All vouchers are properly passed for payment and that the payment order is
expressed in words as well as in figures.
10. Orders concerning the sanctioning powers of the Department and its
several officers are complied with.
11. If a charge recurs at fixed intervals, it is recorded in the establishment
check register.
12. There are no erasures and overwriting and that all corrections are attested
in ink.
13. Cheques are drawn in favour of ultimate payees except for;
(a) Salaries of establishment,
(b) Recouping permanent advances,
(c) Payment by money orders.
14. The month's opening and closing balances are correct and agree with the
treasury or sub-treasury pass books after accounting for unaccredited
challan and unpaid cheques.
366
15. The rules in the Civil Service Regulations and the Fundamental Rules are
followed in all cases to which they apply.
16. The rules and forms prescribed are carefully followed.
17. Payment vouchers are stamped "paid".
18. Stamps are affixed to all vouchers for sums over Rs.20 and that they are
cancelled.
19. The details work up to the total and the totals are entered in words as well
as in figures.
All sanctions to expenditure as audited are ticked off; the aquittance rolls in
support of all payments entered in the establishment bills shall be called for and
checked. The opening balance shall be checked with the closing balance of the
previous month, the entries on both sides shall be examined from the tick marks
of check, the total of both sides of the accounts shall be arithmetically checked,
the closing balance arrived at shall be compared with the Treasury Pass book and
any difference between the two due to uncredited challan or unpaid cheques shall
be traced.
8.6 Establishment Bills
The bills for one month shall be checked with the sanctioned scale, and it shall
be seen that the establishment and fixed recurring charges are duly sanctioned
and drawn according to the sanctioned scale. The calculations shall be checked
generally. It shall also be seen that-
1. An absentee statement is furnished wherever necessary.
2. A last pay certificate is attached when an officer is transferred from
another office.
3. Income-tax and provident fund deductions are made wherever necessary
and properly accounted for.
4. Amounts drawn on supplementary bills are actually due and the number of
the original bill, if any, from which the amount was withheld, is quoted.
5. Temporary establishments are billed for separately; the claims being
supported by sanctions.
6. Pay and acting allowances are separately shown and the names of all
persons on leave, on other duty or under suspension are shown in the
absentee statement.
7. The leave allowances drawn are according to the rules in force.
367
8. The dates of handing over and receiving charge are noted in the bill and
joining time is calculated according to the rules in force.
9. The thumb impressions, if any, are duly attested by the disbursing officer.
8.7 Travelling Allowance bills
1. The allowance is admissible and is in accordance with the Rules in force.
2. The distance for which mileage is claimed/paid is correct as far as can be
ascertained and the railway fare is properly calculated.
3. The amount of travelling allowance drawn does not exceed that admissible
to Government servants of a similar standing, except where special rates
have been sanctioned.
8.8 Contingencies
1. All items are supported by sub-vouchers which are cancelled.
2. All unusual and special charges are supported by sanctions.
3. For petty sums up to Rs.5, a certificate from a responsible officer that the
money has been actually disbursed to the rightful payee is in existence, if
the payee's acknowledgement was not obtained. (This order is not,
however, applicable to the acquittance rolls of establishment)
Note :- V.P.P. covers showing the amounts paid to the post office may be
accepted in audit as payees' receipts, provided they are certified by the
paying officer and are presented in addition to the regular invoice or bill of
the firm showing the details of the items paid for.
4. All sub-vouchers above Rs.10 are checked in detail and 5 per cent of those
for sums not exceeding Rs.10.
5. Charges on account of refund are duly connected with the original credits
and the date of refund being noted against the original sums.
8.9 General Cash Book
1. he cash book is closed and balanced according to Rules and is duly signed
by the officer responsible for cash.
2. The closing balance is given in words as well as in figures and the bank
balance as per cash book agrees with that of the pass book after
reconciliation.
3. The receipt side of the cash book is checked with the challan, counterfoils
of receipts, etc., and the payment side with the vouchers. On the payment
side, advances, deposits, purchases of stock articles, stationery, postage
368
and revenue stamps shall be traced into their respective registers. All
totals, subsidiary totals, amounts carried over and brought forward shall be
checked and balance shall be compared with that shown in the Treasury
pass book.
The classified abstract shall then be taken up and the following procedure
followed:
a) Budget figures shall be compared with the figures in the sanctioned
estimates.
b) Postings in the Cash Book shall be traced into the Classified Abstract, item
by item, for one selected month.
c) Totals should be arithmetically checked.
d) All expenditure in excess of budget grant should be noted.
8.10 Cheques
In dealing with payments by cheques it shall be seen that-
1. the counterfoils of cheques issued bear the initials of the drawing officer,
2. the amounts as shown in the counterfoils of cheques issued agree with the
entries on the payment side of the cash book,
3. the pass book is sent to the Treasury, written up regularly and the entries
made therein by the Treasury Officer agree with the amounts as shown in
the counterfoils of cheques,
4. the difference between the amount of cheques issued as recorded on the
payment side of the cash book and the amount of cheques shown as paid in
the pass book, represents the amount of cheques remaining unencashed at
the end of each month,
5. all cancelled cheques are stamped "cancelled" under initials of the drawing
Officer,
6. the instructions regarding cheques not cashed within three months are
properly observed,
7. cheques are not ordinarily drawn for a sum below Rs.10/-,
8. cheque books are kept in the personal custody of the drawing officer and
that each of them bears an endorsement that it contains the correct number
of cheques over the signature of the drawing officer and
369
9. An intimation of the number of the cheque book and of the number of
cheques it contains is sent to the Treasury Officer as each cheque book is
brought into use.
8.11 Imprest or Permanent Advance Accounts
1. An acknowledgement is obtained from the officer concerned who first
received the charge and also on the first working day of each year
thereafter and that these acknowledgements are filed in a general file.
2. The permanent advance register is maintained according to Rules, the sub-
vouchers are numbered consecutively and the advance is recouped on
proper form.
3. The advance is recouped whenever it runs short and in any case once a
month.
4. The word "pay" is endorsed over the initials of the disbursing officer on all
sub-vouchers.
5. No unnecessary payments are made out of the advances
6. The permanent advances are not multiplied unnecessarily and the amount
of permanent advance is kept as low as possible.
8.12 Stock and Store Books
i) All purchases should be traced into this register from vouchers.
ii) The credit for sale proceeds of articles shown as sold should be traced into
the cash book.
iii) If any article is shown as otherwise disposed of, the authority for such a
disposal should be called for and examined. It should also be seen that the
register is properly maintained.
(iv) Each issue should be supported by an acknowledgement.
(v) The stock should be verified periodically by some responsible officer.
8.13 Advance Ledger
The quarterly list of advances should be checked with the amount shown as
outstanding in the quarterly statements and the balances should be proved. It
should be further seen that (1) every advance has been sanctioned by the
competent authority and a separate entry has been made in each case and (2) the
ledger is balanced quarterly and signed by the responsible officer duly authorised
to do so.
370
8.14 Register of Movable and Immovable Properties
This register should be checked and all purchases traced into it. It should be seen
that the stock is verified by some responsible officer.
8.15 Register of Loans
1. The amount of interest is correctly calculated.
2. Instalments are regularly paid and other conditions of loans fulfilled.
3. Entries in the register are correctly made.
8.16 Security Register
The entries in this register should be checked with the original bonds in the case
of personal securities. In other cases the entries should be checked with the
savings bank pass books and cash book.
8.17 Service Books and Leave Accounts
1. service book with a leave account is maintained for every permanent
employee whose pay is charged to "establishment".
2. All leave (except casual leave) and particulars of officiating appointments
etc., are noted in the book.
3. All books are kept up to date and duly attested by the head of the office.
4. Entries on the first page of the service book are attested once in five years
by the competent authority.
In order to ensure that the leave account and service books are kept in a
satisfactory manner, a small percentage, say 5 to 10 percent of all leave accounts,
should be checked. The leave accounts of such persons who are likely to retire
before the next inspection takes place shall be checked carefully.
8.18 Government Press
The accounts of the following presses are audited by this Office.
a) Government Central Press, Hyderabad.
b) Government Regional press, Kurnool.
c) Government Regional press, Vijayawada.
d) Andhra Pradesh Text Book Press, Hyderabad.
8.19 Scope of Audit
In addition to the general scrutiny of all aspects of working of the presses the
local audit shall test audit the initial records connected with expenditure,
receipts, cost, out turn, stores and stock etc., for the selected month.
371
Except where otherwise stated, the entries in the various registers, accounts etc.,
for the month selected for test audit shall be checked in detail.
8.20 Process of Audit
(A) It shall be seen that whether
i) Monthly or annual targets of production are achieved,
ii) Review of production by each machine is conducted,
iii) Idle hours of men and machines cause-wise are analysed critically,
iv) Task enforcement section prepared statements of potential and actual output,
minus hours etc., and they are reviewed at the Management level,
v) details of actual time spent on each job are entered in task sheets to ascertain
the excess time utilised for recovery of cost correctly wherever necessary,
vi) the task of each worker was reviewed monthly to take action against those
who give minus out-turn.
The rates fixed from time to time by the costing department for recoverable jobs
shall be examined to ensure their correctness.
It should also be seen that the system existing in the press, in the matter of
preparation of bills, obtaining and disbursement of cash, check of bills for
ordinary and overtime payments, departmental supervision regarding overtime
etc., is sufficient and is not likely to lead to irregularities.
(B) Attendance and overtime
It shall be seen that-
i) the number of days for which each worker has been paid tallies with the
attendance record including late timings and check the pay bill with the
attendance record,
ii) leave including short leave and hour permission has been granted properly
with reference to rules laid down by competent authority,
iii) the penalties for late attendance and absence prescribed have been properly
enforced and that relaxations, if any, are made only under the orders of
competent authority,
iv) the control for checking attendance, is adequate,
v) there are requisitions for overtime work and that they specify the work on
which the workers are required to put in overtime. The overtime payments
to supervising, store keeping and auxiliary staff for whom no record of
372
outturn is or can be kept are to be checked with the requisitions and with
attendance records and signed lists.
In case of persons for whose work a record of out turn is kept the overtime
payments are to be checked with O.T. attendance and task sheets.
vi) the work for which overtime was resorted to was actually required to be
done at the time with reference to dates of receipt and despatch of work as
recorded in printing order of work order registers,
vii) The extra percentage allowed for work beyond a certain hour is correctly
computed,
viii) The members of administrative, clerical, menial establishment have not
been paid any overtime and
ix) Overtime is not booked in respect of employees who are giving
consistently 'Nil' outturn or minus outturn.
(C) Out Turn
It should be seen that-
i) a record of outturn is kept for all establishments for which it is possible to
keep such a record and that a scale of outturn is prescribed for each
category of workers,
ii) the actual outturn is compared with that of pre-determined standards,
iii) adequate action is taken against personnel giving minus out-turn or `Nil'
outturn and where deductions are prescribed for shortfall in outturn such
deductions are properly made,
iv) Outturn is properly recorded for overtime period,
NOTE:- The record of outturn should be checked with the attendance records
both regular and overtime to see that no outturn is shown for days of
absence, and that there is outturn for all the days attended; and
v) The productive employees have not been engaged on unproductive work.
(D) Stationery, Paper, Binding Material and Stores
It should be seen that-
i) the issues of paper and binding materials are restricted to the quantity
required to print or bind, with special reference to the various work dockets
concerned or with the specimen and it should be seen, in particular that the
percentage of wastage included therein does not exceed the prescribed
limit and
373
ii) the value of stores, papers and binding materials issued for work of private
parties, if any, is recovered and credited to Government and that the
valuation has been correctly made.
(E) Gazette Accounts
It should be seen that the free distribution list is received and revised annually
and any additions and alterations thereto as well as requisitions, if any, for
additional copies or back numbers are sanctioned by Government.
Subscriptions realised should be checked with reference to sanctioned rates and
the amount traced in the cash book.
The balance brought forward as outstanding in the previous year shall be verified
with the previous year's records.
The correctness of the number of copies, shown as printed in the Gazette stock
books, shall be checked with-
i) the number shown in the printing order book (work book)
ii) the number shown in the pressmen's and binders outturn books and
iii) the number shown in the print order (strike orders)
(F) Periodical Publications
The list of periodical publications during the year under audit. i.e. Quarterly civil
list, history of services etc., shall be checked in the same manner as gazetted
accounts.
(G) Advertisements in Gazettes and other Publications
Check the advertisements appearing in the gazette etc., by going through them
and see that charges at sanctioned rates have been realised.
(H) Work Orders
It shall be seen that-
i) a work order register is maintained in proper form showing separately the
offices entitled for free printing, offices entitled to printing on credit and
offices entitled to printing on cash payment,
ii) all work done is supported by standing orders or by special orders of
Government and
iii) the billing for work done has been properly done indicating separately the
cost of work done for offices entitled for free printing, offices entitled to
printing on credit and offices entitled to printing on cash payment basis.
374
8.21 Forms control and Despatch Section
The following shall be checked:
a) The indents for one month with reference to the instructions on the back of
the forms to see that they are based on average consumption or two
preceding years.
b) The consolidated lists in respect of 10% of the forms issued to see that the
totals are correct. The numbers acknowledged in slip books shall be
checked in a few cases with the invoices or covering letter from the
printing department.
c) The acknowledgements received for issues in respect of one month with
the quantities.
d) The coolie charges or cartage paid in one month with the rates fixed.
e) The issues for one month to paying departments to see that the cost has
been assessed according to the sanctioned rate.
f) The stock of forms is verified periodically.
8.22 Printing at Private Presses
It shall be ensured that there is a system of comparing the cost of printing in the
Government press with that of ruling market rates and/or approved schedule of
rates in entrustment to private presses.
The bills for printing and binding work done by certain departments at private
presses on account of pressure of work in the Government press are to be
scrutinised before effecting payment. Sometimes the work is entrusted by
Government press itself to private presses.
It shall be seen that the selection of private presses has been made only after
calling for tenders and that when the rates prevailing in adjoining districts are
considerably lower, the feasibility of getting the work done at the lower rates has
been duly considered. The bill register and copies of the bills shall generally be
scrutinised to see that necessary details and certificates are furnished in the bills.
The private printer should account for all the paper and other materials supplied
to him.
8.23 Andhra Pradesh Government Text Book Press
The object of establishing the press is to supply text books at a reasonable price
to pupils in schools.
375
During the audit, apart from applying the checks as above in the case of Central
Press, the following shall also be seen
i) Whether the manuscripts were received in time i.e., one year before the
academic year from which the books were to be introduced in schools,
from the Director of School Education, and if there is any delay, the
consequences thereof shall be analysed critically.
ii) Whether the existing capacity of the presses is sufficient to meet the
demand, if not whether timely steps were taken to expand the capacity.
iii) While reviewing the efficiency of the machines, number of books got
printed in other Government presses and private presses shall be analysed
and the time factor and financial implications brought out.
iv) System / sale policy of books shall be reviewed to ensure that the books
reached the students in time and the object of avoiding middlemen was
achieved and the sale value was realised within a reasonable period.
8.24 Translations and Printing Department
(i) Scope of audit
The receipts of this Department comprise of the collections made from parties
for preparation and printing of records. The translation and printing department
levies charges at the scheduled rates from the parties to the suits towards
translation and printing work done by the Department. In the first instance, an
estimated amount of the charges is collected from the parties and when the
documents are printed, the charges are calculated finally and the balance amount
recovered from the parties or refunded to the parties as the case may be.
The object of test-audit of these receipts is mainly to see that -
i) all translations and printing work for which charges are recoverable have
actually been charged for and
ii) the amount billed for is correct according to the scale of charges laid down
in the Rules framed by the Government. The following important registers
and documents maintained in this connection shall be checked in local
audit:
(a) Accounts Section
1. Day book of receipts and counterfoils of receipts.
2. Remittance register and challans.
3. T & P Department bills.
376
4. Office copies of refund bills and refund orders.
5. Acquittances relating to refund bills.
6. Statement of cash balance.
(b) Translation and Printing Section
7. File registers.
8. Sales registers.
9. Dockets for printing and translation charges.
8.25 Process of Audit
(a) Day book of receipts
i) The collections according to the counterfoils of receipts have been brought
on to this register on the day of collection.
ii) The daily and progressive totals are correct.
iii) The collections are remitted to the bank on the day on which they are
received, unless they are received too late for remittance on the same day.
(b) Remittances register and challans
It shall be seen that-
i) the amount of each remittance has been entered in this register and
ii) each entry is susceptible of check with reference to the bank challan.
(c) Refund bills and acquittance
The office copies of refund bills shall be checked to see that each refund is based
on an order of the Registrar. It shall also be seen that the original amounts paid
by the parties for printing are properly adjusted with reference to the bills and
that only the correct balances are refunded. While checking the aquittances of
refund bills, it shall be seen that the amounts are paid to the parties concerned or
to their advocates without delay.
(d) Statement of cash balances.
It shall be seen that-
i) the cash balance with the Accountant on each day does not normally
exceed the amount of security furnished by him;
ii) the balance is verified at least once a month by the Assistant Registrar and
iii) Necessary certificates of verification are recorded by him.
377
(e) File registers
As the file registers constitute the initial record for the sums deposited and the
printing charges payable, it shall be seen that they are properly maintained and
that the rates charged are according to the rates laid down in the "Appellate side
Rules".
8.26 Proforma Accounts
(i) Government Presses
Statement No. I Analysis of cost
Statement No.II Cost of work done for Government Departments etc.,
Statement No.III Proforma Accounts showing -
(a) Capital account of Plant and Machinery
(b) Capital account of buildings
(c) Mechanical branch
(d) Type foundry
(e) Paper
(f) Stores including binding materials
(g) Publication stores
(h) Depreciation fund
In addition a regular Manufacturing, Trading and Profit and Loss Account and
Balance Sheet are also prepared at the end of each year.
(ii) Translation and Printing Department
As the intention of these accounts is to ascertain the true financial results of
working of the T&P Department and also to have a reliable basis for judging the
adequacy of the rate at which printing work is charged for, the accounts shall be
prepared in the form of an Income and Expenditure Account on an "actual basis"
i.e., these accounts shall take into account only the actual revenue items of
receipt and expenditure pertaining to the period under consideration. The
balance of the items representing eg., deposits received but work for which has
not been done shall be exhibited separately in the form of a "Statement of Assets
and Liabilities" as at the close of the year. Further the accounts shall show
deposits received during the year, the value of work done in that year and the
extent to which the work remains to be done for the deposits already received.
378
8.27 Special points to be Seen
8.27.1 Press
The following detailed checks shall be exercised during local audit of the
Proforma Accounts of this Department.
1) Receipts The receipts and values as recorded under
i. Records supplied to law officers.
ii. Court fee stamps affixed for extension of time and
iii. Stock of printed papers in the Proforma accounts shall be checked to see that
they agree with those booked in the original records and that they are
prepared on an "actual basis".
8.27.2 Charges
(A) Pay of establishment
It shall be seen whether
i) The total figure booked under this head agrees with the monthly details and
ii) All charges pertaining to pay of establishment for the year under review
have correctly been incorporated so as to represent the correct state of
affairs.
(B) Allocation of the pay of certain officials and contingent expenditure of
the office
The percentages for the above are fixed on the basis of time devoted by each
official for work connected with T&P Department. Only 4/5th of the pay of the
counter clerk and 1/30th of the pay of the Registrar and Deputy Registrar shall be
debited to T&P Department. The proportionate property tax of the building
occupied by the T&P Department shall be debited to T & P
Department.(Lr.No.ROC No.180/55-44 dt.19.1.1959 from High Court and G.O.
Ms.No.1090 Home (Courts-A) dt.9.5.1959)
(C) Supreme Court Charges
It shall be seen whether the charges under this head are correctly allocable to it.
8.28 Comments on Proforma Accounts
Inspecting Audit Officers while drafting audit comments shall pay particular
attention to the matter proposed to be included therein. Only comments of
sufficient interest and importance shall be forwarded to Headquarters. The audit
379
comments shall be prepared keeping in view the orders/instructions issued from
time to time.
The comments shall generally be confined to such matters of real and practical
value to the administration and Legislature as may help in the correct reading of
the proforma accounts or elucidate the Financial Review.
Among other matters, the following may with advantage be mentioned in the
audit comments.
i) Whether the figures as shown under Government outlay account in the
Balance Sheet in case of Government Undertakings, agree with those
booked during that year.
ii) Whether the amount shown under sundry creditors and debtors are inflated
and whether any steps were taken to reduce them;
iii) Whether the amount charged to profit and loss account by way of
depreciation, shortages, extraordinary or unnecessary payments, etc.,
during the year appears to be abnormally high; and
iv) Whether the minimum and maximum limits for stocks have been fixed; if
not whether the closing balance appears to be excessive. Further, whether
the verification of stock valuation has been done by proper authority.
Vague, trivial and un-important comments of the following nature shall be
avoided.
a) Details showing as to how the adjustments were arrived at could not be
verified by audit.
b) Though some saving is effected, the actual economy affected is not
considered adequate. Audit stressed need for more vigorous efforts in this
direction.
c) No physical verification of the stores was carried out.
d) Nominal ledger of creditors has not been maintained. A statement showing
the details of creditors outstanding for more than three years is being
prepared by the organisation.
The audit comments shall invariably be accompanied by copies or extracts of
relevant correspondence (notes/ correspondence).
380
8.29 Certification of Annual Accounts of Bodies whose audited accounts are
placed before the Parliament/Legislature - Revision of accounts by the
Organisation in the light of Audit Comments
It has been decided that in all cases where the accounts are revised by the
autonomous bodies/(departmental undertakings), as a result of audit, there should
be an indication to this effect either in the Audit Report or in the accounts by
way of a "Note" by the organisation concerned. Further, if the impact of revision
is substantial, a suitable mention thereof should be made in the Audit Report
accompanying the Audit Certificate.(C&AG of India's Lr.No.66-106-
Rep(AB)k/26-92, dt:21.2.1992 communicated to all Accountants General
(Audit))
381
ANNEXURE-I
TITLE SHEET OF THE INSPECTION REPORT
(TO BE SUBMITTED WITH EVERY INSPECTION REPORT)
(PART 'A')
CAP No:
GENERAL
1. Name of concern audited :
2. Name of Party Personnel
i) Local audit officer/dates of supervision :
ii) AAO/SO :
iii) Sr.Auditors /Auditors :
3. Period of audit/Year of accounts :
4 Months selected for audit :
5. Duration of audit (Extension granted should be shown
separately)
:
6. Whether any change in the time allotted is necessary for
future audit.
If so justification therefore?
:
7. No. of potential draft paras included in Part-I of 'B' of the
Inspection Report.
:
8. Paragraphs if any, to be reported to higher authorities in
advance and/or to be brought to the special notice of the
Headquarters.
:
9. Whether all items required to be checked as per manual
of commercial audit (Part-II) relating to this
Company/Corporation or codified else where have been
checked? The items, if, any left unchecked may be
enumerated with reasons therefor. Whether these items
can wait for the next audit or should special audit party
be sent?
:
10. General remarks, if any :
11. Actual date of submission of report / comments :
PART - B
1. Whether Part-I (A&B) and II of the Inspection Report
have been discussed with the Head of the
Undertaking/office inspected?
:
2. Whether statement-I showing allocation of duties among
the members of the party has been enclosed?
:
3. Whether the quantum prescribed for audit was
completed? Are there any points which could not be
fully investigated during the current audit and which
requires investigation in next audit? If so, these should
be listed out with reasons for not checking them during
the course of current audit indicating the records from
which these were checked during this audit and also the
records from which these should be checked in next
audit.
:
4. Whether a daily dairy indicating the documents records :
382
checked by AO/AAO/SO/Sr. Ar/Ar., has been maintained
& submitted to Hqrs?
5. Whether a statement of persistent irregularities has been
attached?
:
6. Whether Introductory paras and the chapter for the
technical manual has been prepared? If the manual has
been prepared? If the manual has already been prepared,
whether any change therein is required? If so, whether
the same has been indicated?
:
7. Whether there has been delay on the part of Management
in reply to the audit queries for more than 7 days in case
of resident audit, 3 days in case of other audit? If so, in
how many cases?
:
8. Whether all the points indicated in the Register of
Important points and points marked for next audit by the
Head quarters section have been reviewed and action
taken there on?
:
9. Indicate the position of outstanding paras in respect of
audit report Part-II as under:
Period of Audit
Report
No. of Paras
outstanding
No. of paras settled Reasons for the paras remaining
outstanding
1. 2. 3. 4.
(PART - C)
1. List out the important items test checked and indicated
there against, if any comment has been proposed
(Yes/No.)
:
2. Whether the points raised in the Draft comments have
been discussed personally by the IAO with the Head of
the undertaking the whether the facts mentioned therein
have also been verified by him
:
3. Whether the draft comments propose on the accounts of
earlier years but dropped by the audit party or head
quarters office on the assurance of the Management to
take suitable action, have been verified to see the action,
as promised, has been taken?
:
4. Points of Importance, if any to be issued to Statutory
auditors as sub-directions under Section 619 (3) (b) of the
Companies Act, 1956
:
Signature of the Local Audit Officer
383
REPORT ON THE PERFORMANCE OF AUDITORS OF GOVERNMENT
COMPANIES & CORPORATION To be sent to the Comptroller and Auditor General's office with the endorsement
copy of issue of Comments/Nil comments/Non review certificate on the accounts of
a Company. A Basic Data
(i) Name of the Company/Corporation
(ii) Name of the Branch/ Unit of the
Company/Corporation audited
(iii) Year of Account
(iv) Name of Statutory Auditors and Branch
Auditors
(v) Name of the Partners, Chartered Accountant Employees and other employees who actually
audited the Company/Unit and the man days deployed/spent by the Partners/CA
employees/other employees on the audit.
Name Man days/hours
spent in Audit
TA/DA paid/payable (Rs.) Out of Pocket
expenses
paid/payable
(Rs.)
(a) Partners
(b) CA Employees
(c) (c) Other
employees
(vi) Audit fee and other remuneration paid/payable to the Auditors by the Company (please give
separate entries for each Audit firm and each type of remuneration).
Name of the
Statutory
auditor/ branch
auditor
Audit fees
mentioned in
the annexure II
attached with
the appointment
letter
Audit fees
actually
paid by the
Company
Details of other remuneration/ fee paid/payable to
the auditor alongwith amount thereof for the year
of account:
i)Tax audit --
(ii)VAT Audit -
(iii) Half yearly
Financial Reviews/
Quarterly Financial --
Reviews
(iv) Others (specifying the
nature of services rendered) -
-
TOTAL
B Audit Reporting
(i) Has the Statutory Auditors reported on all the assertions as specified in
Sections 227(2) and (3) of the Companies Act 1956?
(ii) Whether the Statutory Auditors’ Report on the Financial Statements
complied with the requirement of AAS 28 both in letter and spirit.
384
(iii) Has the Statutory Auditors failed to report any non-compliance of
Accounting Standard by the Company management?
(iv) Whether the Statutory Auditors failed to report on any matter specified in
Companies Auditors Report Order, 2003.
(v) Whether the Statutory Auditors failed to report non compliance of any of
the provisions of Part I and Part II of Schedule VI- of the Companies Act
1956 regarding preparation of Balance Sheet and Profit and Loss Account?
(vi) Whether the Statutory Auditors failed to report non-compliance of any of
the requirements prescribed by any Regulatory authorities viz The
Securities and Exchange Board of India, Insurance Regulatory
Development Authority, Reserve Bank of India, Department of Public
Enterprises, National Housing Board and Administrative Ministry etc.
regarding preparation of financial statements?
(vii) Whether the Statutory Auditors failed to state (wherever possible) the effect
of individual qualification and total effect of all the qualifications on profit
or loss or state of affairs.
(viii) Were any of Statutory Auditors’ qualifications found to be incorrect
/immaterial?
(ix) Whether the Statutory Auditors has inadequately commented on an issue in
his report which was further elaborated in CAG’s comments to bring out
the full impact of the issue.?
C General
(i) Whether the Statutory Auditors failed to offer his comments on the
provisional comments issued by the DG/PAG/AG/MAB office within time
stipulated by the DG/PAG/AG/MAB.
(ii) Whether the Statutory Auditors failed to submit Report under section
619(3) of the Companies Act 1956 simultaneously with the statutory
auditors report.
(iii) Whether the Statutory Auditors attended all the meetings convened by the
DG/MAB/PAG/AG.
D Assessment
1. Penalty point
if reply is in
affirmative
Points
Scored
(i) Has the Auditor failed to report non-compliance of any
Accounting Standard by the Company management? No
(ii) Has the statutory failed to report on any assertions as
specified in Sections 227(2) and (3) of the Companies Act
1956? No
(iii) Whether the Auditor failed to report on any matter specified
in CARO 2003. No
(iv) Whether the Auditor failed to report non compliance of any of
the provisions of Part I and Part II of Schedule VI- of the
Companies Act 1956 regarding preparation of Balance Sheet
and Profit and Loss Account? No
(v) Whether the auditor failed to report non-compliance of any of
the requirements prescribed by any Regulatory authorities viz
SEBI, IRDA, RBI, BPE, NHB and Administrative Ministry
etc. regarding preparation of financial statements? No
(vi) Has the Auditor revised the Audit Report at the instance of
385
DG/MAB/PAG/AG to correct inaccuracies in the Audit
Report for which only the Auditor was responsible? NA
(vii) Whether the Auditor failed to offer his comments on the
provisional comments issued by the DG/PAG/AG/MAB
office within time stipulated by the DG/PAG/AG/MAB. Yes
(viii) Whether the Auditor failed to submit Report under section
619(3)(a) of the Companies Act 1956 simultaneously with the
statutory auditors report.
(ix) Whether the Auditor failed to attend the meetings convened
by the DG/MAB/PAG/AG as and when convened by the
DG/MAB/PAG/AG. NA
(x) Whether the auditor delayed the audit and submission of
Audit Report without proper justification? NO
(xi) Has the Auditor failed to state the full information about the
subject matter of qualifications alongwith reasons. No.
(xii) Has the auditor failed to state all the qualifications in their
report itself and also without referring to a report made in
earlier years.
(xiii) Whether the auditor failed to state the full subject matter of
the note which is a subject matter of qualification, instead of
making a reference to the note? No.
(xiv) Whether the auditor failed to state (wherever possible) the
effect of individual qualification and total effect of all the
qualifications on profit or loss or state of affairs. No.
(xiv) Is there any material evidence regarding non-compliance with
any Auditing and Assurance Standards by the Auditor noticed
during Test Check? No
Total
2.
(i) Assessment of DG/PAG/MAB/AG on the performance of Statutory Auditor(s). If penalty
point is ess than 15 Statutory /Branch auditor may be graded as ‘A’ - Very Good, if penalty
point is between 15 and 35 the Statutory and Branch Auditors may be graded as ‘B’- Good
and the Statutory Auditor/Branch Auditor may be graded as ‘C’ –Unsatisfactory, if penalty
point is more than 35. ‘A’ – Very Good
(ii) If the performance is assessed as Unsatisfactory, then whether any special memo issued to
statutory auditors on his failures and asking for his reasons in overlooking points raised by
DG/PAG/MAB/AG under Section 619(4)?
(iii) Date of issue of special memo to the auditor.
(iv) Date of reply of the auditor to the special memo
(v) The following documents are to be enclosed
A copy of the special memo
A copy of Auditor’s reply to the special memo (or the fact of his failure to reply within a
reasonable time)
Remarks of the DG/PAG/MAB/AG on the reply of the auditor in aide-memoirs form
Findings of the DG/PAG/MAB/AG in the form of speaking order.
ACCOUNTANT GENERAL (C&RA)
386
ANNEXURE-III
Statement indicating distribution of work among the headquarters and field audit parties
(a) Headquarters
Items Senior Audit Officer Assistant Audit/Section Officer Senior Auditor/Auditor
Minutes and agenda papers Review Detailed scrutiny -
Co-ordination and overall supervision from Central office of the work of
local audit parties
Review Detailed scrutiny -
Scrutiny of contracts/agreements for purchase/works Scrutiny of purchases to the
value of Rs.10 Lakh and
above
Detailed scrutiny of purchases
above Rs;1 Lakh but below
Rs.0.10 lakh
Scrutiny up to Rs.1 lakh
Review of tariff structure each time Review Detailed scrutiny -
Review of purchase procedure/policy inventory control General review Detailed review -
Review of loans raised and credit control General review Detailed review -
Review of budget Review Detailed scrutiny -
Edition, issue and pursuance of Inspection Reports Finalisation of reports and
closure of IRs on the basis
of replies received
Review and supervision Applying AA checking, initial
scrutiny of paras with AEs and
editions. Prompt comparison and
issue of fair copies of reports.
Pursuance till reply is received and
paras were cleared.
DP cases, finalization for each audit report Review and finalization Finalisation of DPs Assist SAO/AAO in taking copies
of key papers, comparison of FCs
Annual accounts certification and issue of comments Review and finalization Detailed scrutiny Initial scrutiny of draft comments
Matters of general importance pertaining to power sector Review and finalization of
disposal of each case
Detailed scrutiny Limited scrutiny and putting up
notes and drafts.
Forwarding of IRs of previous years and intimations in time of all points - Review All connected works to be
387
marked for local verification during each time audit is arranged and
examination and disposal of the reviews reports received from the party
executed promptly and in time
Investment of fund Detailed review
Internal check/control/measures in actual operation Detailed review
B Field parties
Audit of pay slips, salary bills, medical bills etc/. of officers General review of and
checking as per the quantum
of checks pres cribbed.
Review and checking as per the
quantum prescribed.
Detailed check as per the quantum
prescribed
Audit of bills, for establishment and TA and medical bills of other
establishment s
General review of and
checking as per the quantum
of checks prescribed.
Review and checking as per the
quantum prescribed
Detailed check as per the quantum
prescribed
Audit of contingent vouchers General review of and
checking as per the
quantum of checks
prescribed.
Review and checking as per the
quantum prescribed
Detailed check as per the quantum
prescribed
Audit of pension cases General review of the
checking as per the quantum
of checks prescribed.
Review and checking as per the
quantum prescribed
Detailed check as per the quantum
prescribed
Audit of pension vouchers and interest payment General review of the
checking as per the quantum
of checks prescribed.
Review and checking as per the
quantum prescribed.
Detailed check as per the quantum
prescribed
Review of Broad sheets and objection books maintained by FA CAO General review Review Detailed review
Audit of PF accounts including vouchers relating to temporary advances
part and final bills tracing credits and calculation of interest payable to
subscribers.
General review Review Detailed review
Audit of sanctions for purchases and scrutiny of contracts for purchases General review and scrutiny
as per the quantum of
checks prescribed.
Review and scrutiny as per the
quantum of checks prescribed
Detailed check
Audit of monthly accounts received from accounts rendering units General review Review Detailed check of the vouchers as
per the quantum prescribed
388
Audit of vouchers relating to works General review and scrutiny
as per the quantum of
checks prescribed
Review and scrutiny as per the
quantum of checks prescribed
Detailed checks of all vouchers as
per the quantum prescribed
C Divisions/circles/projects
Cash book and all connected records - Detailed scrutiny Assist the AAO/SO
Stores accounts and all connected records General review Review Detailed check
Records relating to the misappropriation of cash/stores etc. General review Check -
Physical verification reports and their final disposal under orders of
competent authority
General review Check and review Detailed checks
Disposal of unserviceable/obsolete/dead stock General review Check and review Detailed checks
Review of show moving /non –moving items General review Review
Files relating to loss in transit/demurrages paid insurance claim General review Review
Registers/records relating to write off of losses/recovery `- Check and review Detailed checks
Register of tenders/tender forms - Check and review Detailed checks
Register of sanctions for estimates/works - Check and review Detailed checks
Register of agreements for works and agreements General review Detailed check
Analysis of major works,scrutiny of tenders and agreements for works
and work execution(both account branch and technical branch files are
to be scrutinized)
Scrutiny of contracts for
works of Rs,10 lakh and
above
Scrutiny of contracts for works
of Rs.1 lakh and above but
below Rs.10 lakh.
Scrutiny of contracts for works
uptp Rs.1 lakh.
Register of purchases General Review Review and check Check
Scrutiny of purchase files (Purchase orders given by higher authorities)
and local purchases and related matters till supply order is completed.
Scrutiny of purchases of
Rs.10 lakh and above
Scrutiny of purchase of Rs.1
lakh and above but below Rs.10
lakh
Scrutiny of purchases upto Rs.1
lakh.
Construction account ledger General Review Review Check
Contractors ledger General Review Review Detailed Check
Register of tools and plants General Review Review Detailed Check
Monthly/annual return of tools and plants General Review Review Detailed Check
Register of security deposits General Review Review Detailed Check
Register of earnest money deposits General Review Review Detailed Check
Register of advances made to contractors/suppliers, levy of interest if General Review Review Detailed Check
389
any and their prompt adjustment
Register of vehicles/log book of vehicles General Review Review Detailed Check
Register of outgoing/ incoming invoices General Review Review Detailed Check
Register of RS advances General Review Review Detailed Check
Register of suspense items, stores handling suspense, material suspense,
workshop suspense etc.
General Review Review Detailed Check
Register of measurement books and their scrutiny General Review Review Detailed Check
Checking of General Ledger, subsidiary ledgers, journal and vouchers
for selected month
- Review Detailed Check
Register of sundry debtors/ sundry creditors and records connected with
follow up action
- Review Detailed Check
Register of fixed charges Review Detailed Check
Register of rent received in respect building let out or let in on hire,
recovery of rent etc
Review Detailed Check
Review of closure of accounts of projects which have been completed
years back
General Review Detailed Check
Review of investigation of ……………. General Review Detailed Check
Compensation payments in respect of land acquisition, tree cutting etc.,
if any
General Review Detailed Check
(d) Main stores/ Regional stores( electrical/civil etc)
Records relating to damages caused to property and their recovery - Review Scrutiny
Files/records relating to losses in transit Review Scrutiny
Register of write offs Review Scrutiny
RR/LR register Review Scrutiny
Stores imp rest register Review Scrutiny
Review of excess stock held and fixation of maximum limit etc General Review Review Scrutiny
Scrutiny of payments made for supplies effected by contractors in
respect of escalation claims
General Review Review Scrutiny
Scrutiny of important of penalty, recovery of demurrages, loss due to
shortages, insurance claims etc
General Review Review Scrutiny
390
Arrangement of pumping cement to silos, their efficiency, demurrage
payment to railways etc
General Review Review Scrutiny
(e) Transformer workshop divisions/ other workshops
Transformer testing register General Review Review Detailed Check
Meter testing register General Review Review Detailed Check
Settlement in respect of shortages/damages sustained in transit in receipt
of meters and transformers from suppliers and their follow up action
General Review Review Detailed Check
Scrap register and disposal General Review Review Detailed Check
Arrangement of repairs of meters/transformers with private parties General Review Review Detailed Check
Review of MRT suspense General Review Review Detailed Check
(f)Transmission Divisions/Circles
Records relating to damages caused to property and their recovery General Review Review Detailed Check
Compensation in respect land acquisition, tree cutting to private parties
and forest department and losses caused to private parties.
General Review Review Detailed Check
Review of schemes for construction of high tension lines General Review Review Detailed Check
Delay in installation and commissioning of substations General Review Review Detailed Check
Transformers after their receipt and performance during their guarantee
period.
General Review Review Detailed Check
(g) Generation division/circles
Log books of generation and review performance and utilization
capacity
General Review Review Detailed Check
Forced outages, preventive maintenance of generation review General Review Review Detailed Check
(h) Electrical divisions/circles
Records relating to damages caused to property and their recovery - General Review Detailed Check
Implementation of RE schemes General Review Review and scrutiny Detailed Check
Execution of minimum guarantee works General Review Review and scrutiny Detailed Check
Selection of teakwood saplings from forest ranges and their payments General Review Review and scrutiny Detailed Check
Arrangement made for transportation to treatment yard to
sections/workshops
General Review Review and scrutiny Detailed Check
Arrangement made for chemical treatment of TW saplings General Review Review and scrutiny Detailed Check
391
Arrangement made for transportation to treatment yard to
sections/workshops
Contracts for casting of RCC/PCC poles and their transportation to
sections/workshops
(As in the case of work files
scrutiny)
(As in the case of works files
scrutiny)
(As in the case of works files
scrutiny)
(i) Chief Engineer (Electrical/Civil)
Review of overall performance of Generation General Review Review
Review of new HE and investigation and transmissions schemes General Review Review
Review of distribution system losses General Review Review
Review of final disposal of physical verification reports Review Detailed scrutiny Initial scrutiny
Review of disciplinary cases involving monetary loss on account of
misappropriation/theft of cash or stores
Review Detailed scrutiny Initial scrutiny
Sanction/contracts for review of purchases Scrutiny of all purchases
above Rs.10 lakh
Scrutiny of all purchases above
Rs.10 lakh and more than Rs.1
lakh
Scrutiny of all purchases of Rs.1
lakh
Review of sanction/award of civil works Scrutiny of all purchases
above Rs.10 lakh
Scrutiny of all purchases above
Rs.10 lakh and more than Rs.1
lakh
Scrutiny of all purchases of Rs.1
lakh
Review of utilization of loans/subventions received for specific projects
from outside agencies like Government, World Bank etc
General Review Review Check
Review of survey reports sanctioned and disposal General Review Review Check
(j) Billing and revenue
Review of agreement of extra state bulk supply of power and review of
outstanding
Detailed audit
Agreement for HT and bulk supply Review Detailed check
Tariff structure Review Detailed check
HT/EHT monthly bills, energy charges, duty etc. General Review Detailed audit and review of
auditors work
Detailed audit of those consumers
selected
LT monthly bills, energy charges, duty etc General Review General Review
Consumers ledger Detailed check of bills
(EHT/HT) and credit
Detailed check of duty/LT billing
and credit outstanding
392
outstanding
Consumers report Review
Cash book and connected records Detailed Check
Bank reconciliation statements Detailed Check
Reports of inspection of meters/faulty meters/replacement time Review Detailed Check
Collection of electricity duty in respect of self generating sets/licenses - Detailed Check
Review of RR proceedings Review
Minimum guarantee register Detailed check, review of
outstanding
New consumer register Detailed check
Monthly trial balance Review
Category wise unit realization Review
Board Secretariat
General scrutiny of Agenda papers/minute book General Review Detailed scrutiny
Review of legal cases instituted by or against the Company General Review Review
Review of disciplinary cases initiated against the officials of the
Company
General Review Scrutiny
Review of misappropriation of cash/theft of stores cases reported Scrutiny Scrutiny
Review of arbitration cases Review Detailed Scrutiny
Reviews of performance/achievements of technical wing in all respects
for the year
General Review Review
Cash book and connected records General Review Detailed check Detailed check
Review of general and subsidiary ledgers General Review Detailed check
Agreements on take over of licenses and payment of compensation etc Scrutiny and review Scrutiny
FA&CAO
Fixed deposit register - Review Check
Register of payment of Government dues - Review Check
393
Assignment register - Review Check
Issue of redemption of bonds and connected files General Review Scrutiny Check
Raising of loans from Government financial institutions and their
repayment etc
General Review Scrutiny Check
Payment of guarantee commission and matters connected there with General Review Scrutiny Check
Aids from foreign agencies/Government and their utilization/repayment,
payment of interest
General Review Scrutiny Check
Cash management and all related aspects Detailed
Review
Scrutiny Check
Miscellaneous income General Review Review Check
Deferred/contingent liabilities General Review Review Check
Borrowings for capital purposes in relation to borrowing powers General Review Review Check
Creation of reserve for redemption of loan
Creation of other reserves
Fixed assets
Current assets
Creation of reserve for bad and doubtful/debts, policy matters
Policy on accounting matters Review Scrutiny
Review of all current accounts and Central Collection accounts with
various banks at head office operated by FA&CAO
Review Detailed Review
Payment of Government dues on electricity duty and inspection fee General Review Detailed Review
Payment of import of energy agreements scrutiny General Review Detailed Review
Examination of records relating to opening of L/C, release of payments
for foreign exchange in relation to imports/visits of Company officials to
foreign countries
General Review Scrutiny
Annual accounts audit
Checking of postings of monthly trail balances in the
classified/consolidated register/abstract
General Review Detailed Review Check
Checking of journal and journal voucher General Review Detailed Review Check
Trial balance for the year General Review Detailed Review Check
394
Fixed assets depreciation and related matters General Review Detailed Review Check
Cash balance/treasury balances, reconciliation and related matters General Review Detailed Review Check
Interest calculation and related matters in respect of all loans, bonds
raised/issued
General Review Detailed Review Check
Provision of other items of outstanding liabilities/contingent/deferred
liabilities
General Review Detailed Review Check
Checking of accounting policies and notes on accounts General Review Detailed Review Check
Subventions from Government Review Checking
Checking of working sheets for arriving at stores balances and all
adjustment/entries passes centrally.
General Review Detailed check check
Scrutiny of files relating to income tax Review Detailed scrutiny
Checking of correctness of accounts and supporting schedules in
accordance with the provisions of companies act, generally accepted
accounting principles, Accounting standards prescribed by Institute of
Chartered Accountants of India etc.
Review Detailed scrutiny
Test check of units trial balances in accordance with the above
allocation of duties