presentation on pre-audit of payment

8/13/2019 Presentation on Pre-Audit of Payment

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PRESENTATION

ON

PRE-AUDIT OF PAYMENT

AREAS OF CONCERN

DIRECTED BY: CGDA

PRODUCED BY : SAVITUR PRASAD


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WHY AUDIT IS REQUIRED?

Whenever the advance of civilizationbrought about the necessity of oneman being entrusted to some extentwith the property of another, the

advisability of some kind of checkupon the fidelity of the former wouldbecome apparent.

Richard Brown, The History o f Account ing andAccountants, 1905


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WHAT IS AUDIT?

Audit is the independent objective

assessment by the Governance on the

assessment of Governmentssystemsand practices, against criteria.


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?


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CAG ACT 1971

In pursuance of Section 23 of the Comptrollerand Auditor Generals (Duties, Powers andConditions of Service) Act, 1971, the CAG ofIndia, has defined

Audit means examination of accounts,transactions of records in performance of dutiesand exercise of powers of the CAG asprescribed in the Constitution of India andincludes performance audit or any other type of

audit determined by the CAG of India.

When used as a noun, it refers to AuditDepartment as a whole or any part thereof asper context.

.continued


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CONSTITUTIONAL PROVISION

Audit report of the ComptrollerGeneral of India means a report of

the CAG of India underArticle 151ofthe Constitution of India.


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As per the CAG Act 1971, the broad

objective of the audit are to ensure

legality, regularity, economy, efficiency

and effectiveness of financial

management and public administration

mainly through assessment as to:


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1. Whether the financial statementsare properly prepared, arecomplete in all respects and are

presented with adequatedisclosures(financial audit);


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2. Whether the provisions of the

Constitution, the applicable laws,

rules and regulations made

thereunder and various orders and

instructions issued by competent

authority are being complied with

(compliance audit); and


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3. The extent to which an activity,programme or organizationoperates economically, efficiently

and effectively (performance audit).


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As per the CAG Actallaudits undertaken

by the CAG, or on his behalf, shall be as

per the Constitution of India and the Act.

These regulations, standing orders,guidelines and practice notes issued by

the CAG shall guide the conduct of such

audits.


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WHAT IS PRE-AUDIT?


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WHAT IS PRE-AUDIT?

Pre-audit is an upfront auditing

procedure and the examination of

documents supporting a transactionor series of transactions before

these are paid for and recorded.

.Continued


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WHAT IS PRE-AUDIT?

Pre-audit operates to:-

- determine that the proposed expenditure

is in compliance with appropriation lawand other specific statutory authority andregulations

- assure that sufficient funds are available

.. continued


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WHAT IS PRE-AUDIT?

- initially determine that the transaction is

not illegal, irregular, extravagant,

excessive, unconscionable or

unnecessary

- determine that the transaction is approved

by proper authority and supported byauthentic underlying evidences.


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PROCEDURES PRESCRIPTION

FOR PRE-AUDIT :


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FOR PRE-AUDIT :

As per CAG Act, 1971, Audit of expenditureincurred from the Consolidated fund examinesand verifies whether adequate, proper and

sound systems and procedures are in place andare being complied with, both in letter and spirit.

Whether the Authority is competent to authorize

the payment.

continued


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FOR PRE-AUDIT :

Compliance with the requirement of the applicablelaws, rules, regulations, orders and instructions inactual disbursement;

Evidence by way of vouchers, payeesacknowledgement etc;

Accounting in the books of the Government ; and

Monitoring, control and reporting as prescribed inGovernment rules.

. continued


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FOR PRE-AUDIT :

As per CAG Act, Audit shall bring to light not

only significant cases of irregularity and breach

of rules, regulations and orders but also every

matter which,

in the judgement of audit officer, appears to

involve significant unnecessary, excessive,

extravagant or wasteful expenditure of publicmoney and resources despite compliance with

the rules, regulations and orders.


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FOR PRE-AUDIT :

Copies of all orders sanctioning

expenditure issued by the SanctioningAuthority shall be endorsed to audit officeas soon as these are issued.

The orders shall cite reference to theauthority by way of rules, regulations etc.


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CONFUSION GALORE


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CONFUSION GALORE - ISSUES

All revenue expenditure are incurred after

concurrence by the IFAs.

Audit of Sanction still a weak area.

Absence of periodicity / validity of IFAs

concurrence Period for placement of

order not binding on executive.


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PRE-AUDIT OF PAYMENTS

AREAS OF CONCERN

Before making a payment the audit has to satisfyitself about the admissibility of the paymentunder reference.

The rule 18 of Defence Audit Code allows theaudit to call for any documents in relation thepayment and ask the authorities necessary

explanation as it may consider necessary.

..continued


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AREAS OF CONCERN

However since the introduction of IFA system at

command/unit level and Defence Purchase

Manual the method of incurring expenditure and

concurrence of sanction has undergone achange.

Under IFA system the IFA is concurrently

associated with purchase procedures from RFPonwards till issue of sanction and placing of

Supply Order...continued


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AREAS OF CONCERN

The DPM vide Para No. 7.8.4(b) has given thedocuments to be submitted for payment.

This suggest that if expenditure / sanction isconcurred by IFA and documents as per abovePara is submitted, the PCDA is bound to releasethe payment.

The question here is whether a sanctionconcurred by IFA can be objected in audit byPCDA

..continued


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AREAS OF CONCERN

The contractual obligations are statutory. The

question here is whether Audit can reject a bill of

payment which has created liability for the

Government through sanction order issued by

an Authority, who is not competent to do so.

Whether any mechanism exist to redress thegrievance of third party, who is put to financial

loss, though no irregularity can be ascribed to

him.


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AREAS OF CONCERN-CONTD

Broadly, payments can be categorised as

under:

- Payment related to personal claims.

- Payment related to stores etc.

- Payment related to imprest accounts.

Further, payments can be from revenue

head or capital head


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Some Case References

INMARAST Bills.

Communication system provided to ships,submarines during sailing.

INMARAST leased line facility provided byTATA TELE Services for 77 terminals for24 X 7 usage on global beam 64 E.


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Facility provided for IN Ships for

communication between command

headquarters and ships on sailing through

satellite.

The rate charged by the service provider is

on higher side compared with normallandline and mobiles ( Pulse rate for each

second is Rs.5.10)


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It is observed from the bills that majority ofcalls (90%) are on account of private callsto mobiles, residential phones etc.

It is also observed that calls are also beingmade to foreign countries to private

numbers. The monthly expenditure forsome of the months is as under:

.


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AREAS OF CONCERN-CONTDMar 2012 ---------- Rs. 36.67 cr.

Apr 2012 ---------- Rs. 22.20 cr.May 2012 ---------- Rs. 32.60 cr.

June 2012 ----------- Rs. 34.32 cr.

July 2012 ---------- Rs. 28.84 cr.Aug. 2012 ---------- Rs. 17.16 cr.

Sep. 2012 ----------- Rs. 16.59 cr.

Oct. 2012 ----------- Rs. 11.56 cr.Nov 2012 ----------- Rs. 9.57 cr.

Dec. 2012 ----------- Rs. 11.02 cr.

Total ----------- Rs. 220 cr.


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Payment of Overtime to industrial employees

The practice of paying unlimited overtime toindustrial employees of Naval Dockyard and otherestablishment has been successfully stopped byinsisting on observance of allowance inaccordance with Factories Act, 1948.

Matter was raised up to Secretary (Ministry ofDefense) but the stand taken by PCDA, Navy wasaccepted ultimately, resulting in saving of crores ofRupees.


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Payment of Overtime to industrial employees

The anomalous situation of wrongly interpreting therule for years has been corrected but it is a matterof concern that such wrong practices continue intotal violation of laid down provisions despite theDraft Para raised by Test Audit Authorities.

Open violation of rules and regulations shall not beallowed under any pretext. Either the rule bemodified or practice should not be allowed tocontinue.


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Payment recommended for PSU like HSL/GRSEwhere case of extension for delivery periodpending with MoD

Repair and Refit bills received from PSUs forpayment and recommended by units without validdelivery period extension for the contractconcluded by the Ministry creates confusingsituation where payments are insisted though casefor approval of extension pending with Ministriesfor months/years.


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Various critical components including main engineof interceptor boat differ from the Maker namementioned in the Contract. 4 Boats since havebeen supplied. Whether to agree for release offurther payment as and then next 4 boats aredelivered in another few months time.


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Main Engine of Interceptor Boat

Contract for construction of 36 Interceptor Boats ata cost of Rs.976.95 crores was concluded betweenGovt. of India (Ministry of Defence) and M/s Larsen& Toubro Ltd., Mumbai.

The build specifications were laid down for

important and critical equipments and the Makersname and Module number are specified inAppendix III of the Contract.


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Procurement of 4 KA 31 Helicopter Engine for22.61 crores

Views of the participants are solicited on course of

action to be adopted for 4 Helicopter Engines forKA 31 have been received by Navy.

The copy of the Government of Sanction dated 25th

of March 2011 is in next slide.


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CONTD

Sanction appears to be in order.

Yet the payment has not been released so

far.

Reason: Procurement has been through

Highseas Sales. Under which Clause of

DPM, the payment can be released.

CBI has asked for the papers and details.


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DHARTI DREDGING


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Innumerable examples of irregularities of

nature brought out above.

Another case, in which sovriegn function ofcarrying out inspection test of submarine has

been outsourced to private vendor by

submarine overseas team (SOT) in

prestigious P-75 Project (Scorpion

Submarine).


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Outsourced vendor is also supplier of stores

item to MDL, who is constructing the

submarine. Conflict of Interest.

Case Concurred by IFA.

Whether payment can be released ?

NON LINKED FOREIGN STORES


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NON LINKED FOREIGN STORES


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RESTRAINT AND AFFLUENCE


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RESTRAINT AND AFFLUENCE


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WAY FORWARD

Defense Audit Tribunal

- To cater to the matters involving litigation

pertaining to payments of all types which are

objected in Audit.

Whistleblower programmes on the lines of

Practice Followed in the Department of

Defence (US)


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DESPITE TURBULENCE


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DESPITE TURBULENCE,

PCDA (NAVY) ENSURES

DISCIPLINED PAYMENT

presentation on pre-audit of payment

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