Audit Manual

Government of Karnataka

OFFICE OF THE PRINCIPAL DIRECTOR,KARNATAKA STATE AUDIT & ACCOUNTS DEPARTMENT

3rd Floor, ‘A’ Block, TTMC Building, BMTC,Shanthinagar, Bangalore-560 027.

AUDIT MANUAL

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KARNATAKA STATE AUDIT & ACCOUNTS DEPARTMENT Audit Manual

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Audit Manual KARNATAKA STATE AUDIT & ACCOUNTS DEPARTMENT

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Consequent to the Federal FinancialIntegration in 1950, the office of theComptroller of princely state of Mysore wasabolished. Since the Comptroller andAuditor General was responsible for auditof the accounts of the State Governmentunder the Constitution of India, the officersand staff were bifurcated and allocated tothe office of the Accountant General, Mysoreand the newly created Office of theExaminer, Local Fund Audit, who wasmade responsible for audit of Local Bodiesin the State as per Government order No:FL (B) 6175-90 LFA 92-51-6 dated: 08-03-1952. Subsequently, a decision was takento place the accounts staff working invarious Departments of Government undera single agency in the State, resulting in there-designation of the Examiner, Local FundAudit as Controller, State AccountsDepartment in the year 1952.

The name of the Department waschanged to “KARNATAKA STATE AUDIT& ACCOUNTS DEPARTMENT” vide G.O.No. FD/224/SAD/2012 dated 2.3.2015 &Controller, State Accounts Department wasre-designated as “Director (Audit),KARNATAKA STATE AUDIT &ACCOUNTS DEPARTMENT” vide GO No.FD/331/SAD/2014 dated 18.5.2015.

The responsibility for the audit of theaccounts of the local bodies viz. MunicipalCouncils and Municipal Corporations,Gram Panchayats and other institutions inthe State i.e., Universities, Command AreaDevelopment Authorities, UrbanDevelopment Authorities and MuzraiFunds, etc., vests with the Director (Audit),Karnataka State Audit & AccountsDepartment.

Audit is not merely a routine checkingof transactions against preset criteria. Foraudit to be effective and to provide therequired assurance, it must follownationally and internationally recognizedstandards. The understanding of theunderlying theoretical concepts has animportant bearing on the quality of audit.

A set of instructions is required forguidance to the officers and staff whoperform the duty of conducting audit of theinstitutions on behalf of the Director(Audit), Karnataka State Audit & AccountsDepartment. The audit by State Audit andAccounts Department has so far beenguided by the Mysore Local Fund AuditManual, 1967, the University AuditManual, 1984 and instructions issued fromtime to time.

For any manual to be continuouslyrelevant, it needs constant updation.Therefore, it is felt necessary to issue revisedinstructions in view of the amendments torelevant Acts and Rules, etc. There havebeen major changes in the system ofaccounting of many of the entities that areaudited by the State Audit and AccountsDepartment. The Urban Local Bodies, GramPanchayats and the Universities haveswitched over to computerised double entryaccrual based accounting system. Further,the expectation that the State Audit andAccounts Department would play a moresignificant role in providing sound PublicFinancial Management system hasnecessitated a thorough revision of theAudit Manual by updating the existingmanuals with latest knowledge andpractices.

Preface

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Government of Karnataka (FinanceDepartment) through the World Bankassisted IDF project took up the task ofpreparing an Audit manual for KarnatakaState Audit and Accounts Department. Aspart of the project, a draft Audit manualwas prepared by engaging the services ofSri. Srinivas Kumar, IA&AS, PrincipalAccountant General (Retd.) as Consultant.The draft audit manual was reviewed by ateam constituted for the purpose. TheController, SAD at that time, Sri RS Phondesubmitted the reviewed audit manual to theGovernment on 30/11/2014.

This report was further referred to theAdditional Secretary (Fiscal Reforms), FD,GoK where many changes wereincorporated to the draft manual afterseveral rounds of discussions with theKSA&AD officers. The audit manual hasbeen approved by the Additional ChiefSecretary, Finance Department, GoK, videfile No. FD 96 PMU 2013. The departmentnow believes that the updated guidelineshave been brought out successfully in theform of the Revised Audit Manual.

This manual devotes a significantportion to explain the principles and auditconcepts in Part 1 while providing detailedguidance for actual audit practice in Part 2.Part 3 is devoted to detailed checklists whichhave been divided into the generic andInstitution specific checklists forconvenience. Through this manual, theauditors would be able to quote relevantprovisions of the Acts, Rules, Codes,Regulations and Government Orders whiledrafting the Audit Reports. It is hoped thatthis Audit manual would improve thequality of audit carried out by the auditorsof the State Audit and AccountsDepartment.

I would like to express my sincere thanksto Sri Srinivas Kumar, IA&AS, PrincipalAccountant General (Retd.),

Sri. R.S.Phonde, Controller (Retd.), SAD,Sri. B.V.Srikanth, Principal Director (Retd.),KSA&AD, Sri.M.Mahadevaswamy, Retd.Addl. Controller, SAD,Smt.Vasanthakumari.M.N, Retd. Addl.Director, KSA&AD, Smt. Prachi Pandey,Addl. Secretary (Fiscal Reforms), FD, GoK,Sri.Mallikarjunaiah, Senior Audit Officer(Retd), Sri Shivarudrappa,N.B,Addl. Director, KSA&AD,Smt. Siddarajamma.B.S, Addl. Director,KSA&AD, Smt. M.V.Vijayalakshmi, JointController, Dr.Sunitha M, Senior DeputyDirector, Smt.Archana B.Kamalanabhan,Senior Deputy Director,Smt. Shobha.T.R, Senior Deputy Director,Smt.Zohra Jabeen, Senior Deputy Director,Sri. B.S.Murali, Audit Officer, Sri. KodiMallesh, Audit Officer, Smt.B.S.Suma,Accounts Assistant, Sri.Gangadhar andSmt. Latha, Stenographers,Ku.Nagarathna.P and Ku.Gouthami,Data Entry Operators for their dedicatedservice and support in the preparation ofthis manual.

Date: 23 August, 2016.

(Syed Abdulla Razvi)Principal Director,

KSA&AD, Bangalore.

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PART – 1 PRINCIPLES ANDCONCEPTS OF AUDIT

1 CHAPTER–1: Introduction

General Principles of Audit 1

Auditing Standards 3

Audit Mandate 3

2 CHAPTER-2: Audit concepts

Internal Control Framework 5

Audit Assertions 9

Audit Evidence 11

Relation between managementassertions, audit objective andaudit evidence 14

Materiality and levels ofassurance 14

3 CHAPTER-3: Types of Audit

Receipt Audit 16

Expenditure Audit 18

Audit against Regularity 19

Audit against Propriety 21

Financial Audit 22

Performance Audit 23

Systems Audit 24

Forensic Audit 25

Fraud and Audit 25

4 CHAPTER – 4 : Risk basedauditing and use of statisticalsampling

Risk based audit 28

Compliance and substantivetesting 29

Contents

Use of statistical samplingin audit 29

Judgmental or non-statisticalsampling 29-30

Statistical Sampling 30

Statistical Sampling Techniques 30

Sample Size 31

5 CHAPTER – 5: Audit Procedures

Analytical Procedures 34

Comparisons involving a single ormultiple components 34-35

System Based Approach 36

Direct Substantive Testing 36

Computer Assisted AuditTechniques 37

Using the work of externalparties 37

Synergy with internal auditors 37

Using the work of otherspecialists 39

PART – 2 AUDIT PRACTICE

6 CHAPTER – 6: Audit Planning

Annual Audit Planning 43

Manpower allocation/Man-Days 44

Staffing Pattern 47

Monitoring of compliance tothe annual plan 47-48

Entity level planning and auditplanning memorandum 48

Creation of Permanent Audit File(PAF) 49

Audit programmes 50

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7 CHAPTER 7: Audit Execution

Commencement of audit 51

Entry Conference 51-52

Audit Process 52

Audit Working Papers 52-53

Raising of preliminary auditobjections 53-56

Supervision and Review 56-57

Audit conclusion and auditreporting 57-58

Exit Conference 58

8 CHAPTER – 8: Audit Report

Format and Content of AuditReport 59

Audit Reports - Financial Audit 60

Audit opinion 60-61

Different types of opinions 61-63

Management Letters 63

Audit Reports - Propriety andRegularity 63-68

Submission of audit reports 69

Consolidated AnnualAudit Report 70

Follow up of audit report 71

Levy of Surcharges 71

Powers to drop/foregorecoveries 71-73

9 ANNEXURES

ANNEXURE 1- Audit officesand coverage 74

ANNEXURE 2 –FORMAT -1 75





Annexure 2 –Format-6 80-81

Annexure 2 –Format-7 82



Annexure 3 -Format of SAR 85-86

Annexure 4 -Format ofRegularity/ComplianceAudit Report 87-88

Annexure 5 -Formatof University Audit Report 89-95

PART – 3 AUDIT CHECK LISTS

1 Generic Check Lists 98

1.1 EstablishmentExpenditure 98-102

1.2 Travelling allowance,Leave Travel Concession,etc 102-103

1.3 Pension Contribution 103

1.3. A Rent 103-104

1.3.B-MedicalReimbursement Bills 104

1.3.C-ContingentExpenditure/ PeriodicalCharges 105

1.3.D-StationeryArticles 105-106

1.3.E-Postage Stamps 106

1.3.F-Office MaintenanceExpenses 106

1.3.G-AdvertisementExpenses 106

1.3.H-Repairs andMaintenance 107

1.3.I-Professional Fees,Consultancy Fees. Etc., 107

1.4 Procurement of goods andservices/exemptions 108

1.4.1-General Activity 109

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1.4.2-Tendering andEvaluation 111-118

1.4.3-Agreements 118-120

1.4.4-Execution ofWorks 120-121

1.4.5-Audit of WorkBills 121-123

1.4.6-Audit ofprocurements of Goods/Equipment and StoresAccounts 124-126

1.4.7-Finance andAccounts 126-127

2. Regularity/Compliance AuditChecks for Specific Institutions

A. Audit checklist for audit ofUrban Local Bodies

A.1 Introduction 127-128

A.2 Background andEvolution of Urban

Local Bodies inKarnataka 128-129

A.3 Audit Mandate forUrban Local Bodies/charge &surcharge 129-132

A.4.1 Audit checklist forBudget 132-133

A.4.2 Audit checks onvarious AccountingRegisters 134-136

A.5 Audit checklistfor Revenue Items 136

A.5.1 Property Taxes 137-140

A.5.2 Service Charges Inlieu of PropertyTaxes 140-141

A.5.3 Advertisement Tax/Stamp Duty 142-143

A.5.4 (1) Acquisition ofproperties 143

A.5.4 (2) Revenue fromrent/lease income 144-145

A.5.5 Ground Rent onAdvertisements 146

A.5.6 Water Supply Charges 146-147

A.5.7 Registers/Recoveryof water charges 147-150

A.5.8.Hire Charges forEquipment 150

A.5.9 Rents from CommunityHalls, Guesthouses,Auditoriums, etc 150-151

A.5.10 RegularizationCharges 151

A.5.11 Road Cutting andRestoration Charges 151

A.5.12 Fees for TemporaryProjections andErections 151

A.5.13 Building PermissionFees/Regularisationof unlawfulBuildings 152-153

A.5.14 Revenue frommarket fees and feesfrom slaughterhouses 154-155

A.5.15 Fees from Jatra,Urus, etc 155-156

A.5.16 Development andBetterment Charges 156

A.5.17 Fees for Issue ofCertificates 157

A.5.18 Entry and ParkingFees 157

A.5.19 Sales Proceeds ofSolid Waste, Debrisand Silt 157-158

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A.5.20 Sales Proceeds fromTender Forms andPublications 158

A.5.21 Lapsed Deposits andforfeited Deposits 158-159

A.5.22 Infrastructure andSolid WasteManagement Cess 159

A.5.23 Sale Proceeds fromDisposal of FixedAssets andInvestments 159

A.5.24 Grants 159-160

A.5.25 Audit Checks forState FinanceCommission(SFC) - Grants 160

A.5.26 Audit Checks forthe Register ofGrants 160-161

A.5.27 Penalties/ Grant oflicence to use placesfor certain purposes 161

A.6 Audit checklist forExpenditure Items

A.6.1 Establishmentbills 161-162

A.6.2 Audit of Registersrelating toEstablishmentBills 162-163

A.6.3 Honorarium to theMembers of theCommittees 164

A.6.4 Public worksexpenditure 164-169

A.7Audit checklist for Assets

A.7.1 Movable andimmovableproperties 169-171

A.7.2 Vehicles 171-173

A.7.3 Investments 173

A.7.4 Stores 173-174

A.7.5 Loans &Advances 174-175

A.7.6 Cash and BankBalances 175-177

A.8. Audit Checklist for Liabilities

A.8.1 Earmarked Fund 177

A.8.2 Borrowings 177-178

A.8.3 Sinking Funds 179-180

A.9. Audit Report 180-181

B. Audit checklist for audit ofUniversities

B.1 Introduction 181-182

B.2 Statutory framework ofUniversities inKarnataka 182-183

B.3 Audit Mandate forUniversities underthe Statutes 184-185

B.4 KSA&AD’s auditarrangements 186

B.5 Method of accounting andFinancial Statements ofUniversities 187-189

B.6 Audit Checklistfor Budget 189-190

B.7 University Funds 190

B.8 Revenue 190-191

B.8.1 Examination Fee 191

B.8.2 Prospectus/Application Fees 191-192

B.8.3 Tuition fees 192

B.8.4 Convocation Fees 192-193

B.8.5 Fee for Affiliation 193-194

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B.8.6 Registration Fees/Admission Fees 194

B.8.7 Revaluation Fees 194-195

B.8.8 Eligibility Fees 195

B.8.9 Other Fees 195

B.8.10 Rent of Quarters &Other Buildings 196

B.8.11 Lease Rent ofProperty 196-197

B.8.12 Overdue Charges ofLibrary Books (Fines) 197

B.8.13 Charges forCopying, Xeroxing,etc 197

B.8.14 Fees for Issue ofcertificates 197-198

B.8.15 Sale of Books andPublications inPrasaranga 198

B.8.16 Hostelmaintenance 198-199

B.8.17 Receipts fromSale of Farm Produceand Seeds 199-200

B.8.18 Sale Proceeds ofGarden/Horticulturedepartment 200

B.8.19 Bus Fare and HireCharges of Vehicles 200

B.8.20 Sale Proceeds ofUnserviceableArticles 200

B.8.21 Sale Proceeds ofTender Forms 200

B.8.22 Share ofConsultancy Fees 201

B.8.23 GovernmentGrants 201-204

B.8.24 Receipt from Bequest,Donation,Endowment 204

B.9. Expenditure 204-206

B.9.1 Sanctions 206-207

B.9.2 ExaminationRemunerationBills 207-208

B.9.3 Establishment bills 208

B.9.4 Travelling allowance,leave travelconcession 209

B.9.5 MedicalReimbursementBills 209

B.9.6 ContingentExpenditure 209

B.9.7 Audit of SportsAccounts 209

B.9.8 Scholarships 210

B.9.9 Works Account/Contracts 211

B.9.10 Audit ofContracts 213-214

B.9.11 Audit Checklistfor Funds 214-217

B.9.12 Library Accounts 217

B.10 Audit checklistfor Assets 219

B.10.1 Procurement ofstores and stockaccount 219

B.10.2 Deposits 219

B.10.3 Investments 220

B.10.4 Loans &Advances 220-221

B.10.5 Revolving Funds 221

B.10.6 Suspense Account 222

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B.11 Audit checklist forverification of CommonRegisters 222-229

B.12 Audit Report 229-231

B.13 Audit Charges 231

C. Audit Checklist for Audit ofGram Panchayats

C.1. Introduction 231-232

C.2 Audit Mandate forGram Panchayat/charge & surcharge 233

C.3 Method ofAccountingPrescribed 233

C.4 Financial Reporting 233

C.4.1 Computerization ofAccounts 234

C.5. Audit Checklist forBudget 234-235

C.6 Audit checklist forRevenue Items 235-236

C.6.1 General Checks forall Categories ofRevenue 235

C.6.2 Tax on Buildingsand Lands 236-237

C.6.3 Assessment andCollection of Taxes 238

C.6.4 Advertisement Tax 238

C.6.5 Entertainment Tax 239

C.6.6 Rent from Buildings& Lease of Land 239-241

C.6.7 Income from marketsfees, slaughter-houses, etc. 241-243

C.6.8 Water Charges/Water Connectioncharges 243-244

C.6.9 Fees for Issue ofCertificates 244

C.6.10 Jatra Fees 244

C.6.11 Fines, Penaltiesand Recoveries 244

C.6.12 Warrant/DistraintFees 245

C.6.13 Inventory andRegister of DistrainedProperty 245-246

C.6.14 Cess Collections 246

C.6.15 Trade Licence Fees 247

C.6.16 Building LicenceFees 249

C.6.17 Licence Fees for Use ofPlaces for SpecifiedPurposes 250

C.6.18 Sales by Auction 250

C.6.19 Revenue Leased Out 251

C.6.20 Income fromEndowments andTrusts 251

C.6.21 Centrally Sponsoredschemes/ Grants 252

C.6.22 Lapsed Depositsand OtherForfeiture 252

C.7 Audit Checklist forExpenditure Items/monthly accounts 253-255

C.7.1 EstablishmentExpenses 255

C.7.2 Travelling Expenses toPresident, V-P andMembers of GP 255-256

C.7.3 Travelling andConveyance forPanchayatEmployees 256

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C.7.4 Programme Expenses 257

C.7.5 Audit of worksexpenditure/ nominalmuster rolls 257-261

C.8Audit checklist for Assets

C.8.1 Land and FixedAssets 261-262

C.8.2 Investments 262

C.8.3 Loans &Advances 262-263

C.8.4 Cash and BankBalances 263-264

C.9. Audit checklist for Liabilities

C.9.1 Borrowings 264-265

C.9.2 Sinking Funds 265-266

C.9.3 Write off of Irrecoverableamount 266

D. Audit checklist for Hindureligious institutions andCharitable endowments

D.1 Introduction 266

D.2 Mandate 266

D.3 Audit ReportFollow-upCompliance 266

D.4 General Instructionsfor Audit 266-268

D.5 Receipts 268-269

D.5.1 Income from lands,buildings, sites, shopsand other immovableproperties 269-270

D.5.2 Rents from Choultries,Guesthouses etc. 270

D.5.3 HundiCollections 271-272

D.5.4 Kanukas andUbhayams 272-273

D.5.5 Sale of Human HairCollections 273

D.5.6 Sale of Darsanam,Arathi, Archana andOther Services 273-275

D.5.7 Sale ofPrasadams 275

D.5.8 Sale of Pictures andPublications 275-276

D.5.9 Sale of ImmovableProperty 276-277

D.5.10 Other MiscellaneousReceipts 277

D.6.Expenditure

D.6.1 Dittam 277-278

D.6.2 Pay ofEstablishment 278-280

D.6.3 Travelling Allowancebills 280

D.6.4 TA & DA of Trustees 280

D.6.5 TA bills of paid officersand servants of theinstitution: 281

D.6.6 Transfer TA to officersand Servants Attached tothe Institutions 281

D.6.7 Contingent Bills 281-282

D.6.8 Bills relating toMaintenance of Carsand Vans 282-283

D.6.9 Register of Inventory ofEquipment 283

D.6.10 Receipt Book 283

D.7 Advances 283-284

D.8. Investments 284-286

D.9. Lending and Borrowingof Moneys 286

D.10 Registers 286-300

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D.11 Execution ofDevelopmental works tonotified institutions 300-301

D.12 Check of Accounts 301-302

D.13 Write off ofirrecoverable dues 302-303

D.14 Cases of charge andsurcharge 303

E. Audit checklist for audit ofUrban DevelopmentAuthorities

E.1 Introduction 303-304

E.2 Mandate for Audit 304

E.3 Receipts 304-306

E.4 Preparation ofBudget & Annualstatement ofaccounts 306

E.5 Recovery of fees,expenses,fines, etc 307-311

E.6 Betterment Taxes311-312

E.7 (i) (ii) (iii) Incomefrom Lease/Allotment of civic,corner, intermediarysites 312-317

E.8 Expenditure 317-318

E.9 Sanction andexecution ofDevelopmentScheme 318-319

E.10 Lease, Sale,Transfer ofproperties 319-320

E.11 EstablishmentBills 320-321

E.12 Travelling Allowance,Leave TravelConcession 321

E.13 Charge and Surcharge ofIllegal Amounts 321

F. Audit checklist for Audit ofPublic Libraries

F.1. Introduction 321

F.2. Budget 322-323

F.3 Receipts 323-324

F.3.1 Library Cess 324-325

F.3.2 Contributions, Gifts andIncome fromEndowments 325

F.3.3 Special GovernmentGrants 325

F.3.4 Other MiscellaneousReceipts 326

F.3.5 Sale of Old Articles,Books, news Papers andMagazines 326

F.3.6 Deposits 326-327

F.3.7 Interest onInvestments 327

F.4 Expenditure

F.4.1 EstablishmentBills 327-328

F.4.2 Contingent andSpecial Charges 328-329

F.4.3 Library Books 329-330

F.4.4. Travelling AllowanceBills 330-331

F.4.5 Expenditure -Registers 331-333

F.4.6 Public Works 333

G. Audit Checklist for CommandArea Development Authority

G.1 Introduction 333-334

G.2 Mandate for Audit 335

G.3 Receipts 335

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G.3.1 Grants 335

G.4. Expenditure 335

H. Audit Checklist for FinancialAttest Audit

H.1 Audit checklist forRevenue Items 336

H.1.1 Revenue fromRent/LeaseIncome 336-337

H.1.2 Interest/DividendIncome 337

H.1.3 Grants 337-338

H.2 Audit checklist forExpenditure items 338

H.2.1 Public WorksExpenditure 338-339

H.2.2 Purchase, Issue andConsumption ofMaterial 339

H.2.3 Establishment Bills 339

H.2.4 Rent 340

H.3 Audit checklist forAssets 340

H.3.1 Fixed Assets 340-341

H.3.2 Depreciation ofFixed Assets 341-342

H.3.3 Revaluation ofFixed Assets 342

H.3.4 Investments 342

H.3.5 Short TermInvestments 342-343

H.3.6 Long TermInvestments 343

H.3.7 Interest Accrual 343

H.3.8 Profit/Loss onDisposal ofInvestments 343

H.3.9 Stores 344

H.3.10 Loans & Advances 344

H.3.11 Cash and BankBalances 344

H.4 Audit Checklist forLiabilities

H.4.1 Earmarked Fund 344-345

H.4.2 Borrowings 345

H.4.3 Sinking Funds 345

H.5 Financial AuditChecks for UrbanLocal Bodies

H.5.1 Revenue 345

H.5.2 Property Taxes 345-346

H.5.3 Service Charges inlieu of PropertyTaxes 346-347

H.5.4 Stamp DutySurcharge Collectedby State Government 347

H.5.5 Revenue fromRent/LeaseIncome 347-348

H.5.6 Financial AttestAudit ofExpenditure Items 348

H.6 Financial AuditChecks forUniversities 348

H.6.1 Attest Audit ofRevenue Items 348-350

H.6.2 Attest Audit ofExpenditure Items 350

H.7 Financial AuditChecks for GramPanchayats 351

H.7.1 Attest Audit ofRevenue Items 351

H.7.2 Attest Audit ofExpenditure Items 351

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1


Chapter - IIntroduction

1. This manual is intended to assist thestaff and officers of Karnataka StateAudit & Accounts Department inconducting audit of various entitieswhich come under purview of theiraudit responsibility as provided instatutes and government’s executiveorders. The manual seeks toconsolidate current best practices inpublic auditing based on auditingstandards1 prescribed by the CAG ofIndia and INTOSAI (InternationalOrganization of Supreme AuditInstitutions). It also updates theexisting manuals such as the MysoreLocal Fund Audit Manual (1967) andthe University Audit Manual (1984).Instructions and suggestions inearlier manuals be referred to theextent they are not inconsistent withor do not contradict with thosecontained in this updated manual.

2. The instructions in this manualsupplement those contained indifferent departmental andorganizational manuals as also therelevant State Acts, Rules and Ordersissued by the Government for theireffective functioning.

3. The directions provided in thismanual are by no means exhaustive,nor is it the intention that they shouldbe taken as limiting the scope of auditrigidly to the lines indicated therein.

It is of considerable importance thatthe audit checks prescribed shouldbe observed in spirit and not merelyin the letter.

4. For conducting audit in an effectiveand efficient manner, the auditorshould know the underlying auditconcepts such as internal control,risk assessment, materiality, etc.Further, all auditors must followstandardized audit practices inorder to ensure consistency inquality of audit. Accordingly, thismanual provides brief descriptionof audit concepts the standardaudit practice and institution-wisechecklists in Part I, II & IIIrespectively.

General Principles of Audit

5. Audit as described in paragraph 7 of‘An introduction to IndianGovernment Accounts and Audit’ isan instrument of financial control. Itmust ensure that the accountsmaintained truly represent facts; thatthe rules and orders framed bycompetent authority in regard tofinancial matters have been obeyed;and that expenditure has beenincurred with due regularity andpropriety. It must bring to notice ofcompetent authority, irregularity orimpropriety in connection therewith.For this purpose, audit should be

1Auditing Standards relate to different aspects of audit ranging from auditor’s independence andcompetence to appropriateness of audit evidence and the manner in which the audit findings are reported.

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conducted by an agencyindependent of the authority chargedwith the duty of carrying on thebusiness and of maintaining theaccounts of the transactions.

6. The auditor has an inherent right ofindependent criticism and hisprimary function is to verifyaccuracy and completeness ofaccounts to ensure that all revenuesand receipts due under therespective Acts, Rules and Byelawsmade thereunder are properlydemanded and realized; that allrevenues and receipts so collectedare brought to accounts under theproper heads of accounts; that alldisbursements and expenditure areproperly authorized, vouched, andcorrectly classified; and that the finalaccounts represent a complete andtrue statement of the financialtransactions they purport to exhibit.

7. Both the statutory and non-statutory(excepting those of privateinstitutions) audits are conducted onbehalf of Government. It will not bebeyond the scope of audit to seewhether the financial rules andorders passed by government satisfythe financial laws and provisions andare otherwise free from auditobjections. It is the responsibility ofaudit that any deviations from thesame are brought to the notice ofgovernment. It is one of the importantduties of audit to see that the rulesand orders framed by Governmentare properly observed and that,where financial rules are framed bythe respective institutions or theirsubordinate authorities, they satisfy

the requirements of law and areotherwise in order and are properlyapplied.

8. It is not the function of audit toprescribe what such orders shall beor to interfere with theiradministrative application. Theauditor must recognize the cleardistinction between auditorial andadministrative functions. Criticismsoffered by the Audit Departmentmust, therefore, be limited tofinancial criticisms based on theactual accounts. Such orders/decisions, which do not result inexpenditure from public funds/funds of auditee organizations orreceipts to the auditee institutionsmay not be subject to audit analysis/comments.

9. The executive authorities and not theAudit Department are responsiblefor finding moneys for theadministration and for enforcingeconomy in expenditure. It is,therefore, not for audit to suggestnew sources of taxation. It is,however, the duty of audit to offerits comments on the financialposition of the local body and bringto notice any waste in administrationand expenditure. Generally, a localbody mindful of the interests of thetax-payers will welcome suggestionsto promote economy based oninformation forthcoming from theaccounts. But such suggestionsshould be made carefully.

10. In the course of scrutiny of accountsand transactions, audit is entitled tomake such queries and observations

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and to call for such vouchers,statements, returns and explanationsin relation to them as may benecessary. All queries andobservations shall be couched inlanguage which is courteous andimpersonal.

11. In auditing accounts of local bodies,audit should not make independentenquiries from private individualsor members of the general public.Audit should confine itself to callingupon the executive to furnish anynecessary information and in cases ofdifficulty, it should confer with theexecutive as to the best means ofobtaining the evidence which itrequires. Information/detailsavailable in price index published byReserve Bank of India/ EconomicAdvisor, Ministry of Commerce forvarious materials and LabourBureau for labour rate, rate contractpublished by Director General ofSupplies and Disposals, Governmentof India or State Government, annualreports, survey reports, evaluationreports of concerned departments ofstate government, public institutes/autonomous bodies of stateGovernment and court orders onscope of any law relating to recoveryof revenues/penalties and fines mayalso be referred to arrive atmeaningful conclusion.

12. If the necessary documents for theproper conduct of audit are notproduced; or if the personaccountable for or having the custodyor control of any such documentrefuses to appear in person beforethe government auditor despite of

written requisition; or if the personhaving appeared refuses to make andsign a declaration with respect tosuch document or to answer anyquestion or prepare and submit anystatement; and, as a result, theprogress of audit is retarded, thematter may be reported to the nextimmediate controlling authority fora decision and to call off the audit.

Auditing Standards

13. Guidelines with regard to conduct ofaudit have been issued by variousauthorities. These guidelines aregenerally known as AuditingStandards. They provide guidance tothe auditor and help him determinethe nature and extent of audit stepsand procedures that should beapplied to fulfill the audit objective.They are also good criteria toevaluate the quality of audit. The factthat an audit has been conducted inaccordance with certain standardsgives reasonable assurance to peoplemaking use of the financialstatements and audit reports.

14. Some of the authorities that haveissued audit standards areComptroller and Auditor General ofIndia (CAG), InternationalOrganization of Supreme AuditInstitutions (International Standardsof Supreme Audit Institutions) andInstitute of Chartered Accountants ofIndia (ICAI).

Audit Mandate

15. The Karnataka State Audit andAccounts department conducts auditof the various auditee institutions asper the mandate given below:

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Sl. No. Name of the Auditee Audit Mandate Institution

1 Municipal Corporations Section 150 of the Karnataka MunicipalCorporations Act, 1976

2 City Municipalities Section 290 of the KarnatakaMunicipalities Act 1964

3 Town Municipalities Section 290 of the KarnatakaMunicipalities Act 1964

4 Gram Panchayat Section 246(1) of the Karnataka GramPanchayat Act 1993

5 Hindu Religious Institutions Section 37(2) of the Karnataka Hinduand Charitable Endowments Institutions and Charitable Endowments

Act 1997

6 Public Libraries Section 22(1) of the Karnataka PublicLibraries Act, 1965

7 Command Area Section 24(2) of the Karnataka CommandDevelopment Authorities Areas Development Act, 1980

8 Universities a. Section 47(3) ofKarnataka Universities Act 2000

b. Section 26 of VisveswarayaTechnological University Act 1994

c. Section 43(2) of Rajiv Gandhi Universityof Health Sciences Act 1994

d. Section 27(1) of Karnataka State OpenUniversities Act 1992

e. Section 56(2) of Karnataka State LawUniversity Act 2009

f. Section 57(2) of Karnataka SamskruthaVishwavidyala Act 2009

g. Section 49(3) of Karnataka RajyaDr. Gangu Bai Hangal Sangeetha MattuPradarshaka Kalegala VishwavidyalaAct2009

h. Section 46(3) of Karnataka JanapadaUniversity Act 2011

i. Other specific Government orders

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Internal Control Framework

16. It is important for an auditor tounderstand what internal controls areand their significance for an entity’seffective and efficient functioningbecause the major objective of auditis to check compliance with theinternal controls. All the rules in theTreasury Code, the Financial Codeand the Budget Manual and otherrules and procedures prescribed bythe respective institutions areessentially internal controls to ensureintegrity of an entity’s transactions.

17. Internal Control is an integral processthat is operated by an entity’smanagement and personnel and isdesigned to address risks and toprovide reasonable assurance that inpursuit of entity’s mission, thefollowing general objectives areachieved:

■ Executing orderly, ethical,economical efficient and effectiveoperations;

■ Fulfilling accountabilityobligations;

■ Complying with applicable lawsand regulations;

■ Safeguarding resources againstloss, misuse and damage

18. Committee of SponsoringOrganizations (COSO) hasdeveloped an internal controlframework that has come to be

accepted as the standard all over theworld. The key concepts of COSOframework include:

■ Internal controls are an on-goingprocess, a means to an end, andnot an end in themselves;

■ Internal controls are affected bypeople at all levels of anorganization and not just policiesand their documentation; and

■ Internal Controls will nevereliminate risks but can provide areasonable assurance that controlsare in place to mitigate risks.

19. Internal control is not a singlemeasure but a series of prescriptionsof dos and don’ts that touch everyactivity of the organization. In thatsense, it is an integral part of theorganization. Also, internal control isnot something which is separate fromthe people who operate them. It ispart of the roles and responsibilitiesof the persons working in the entity.As all entities exist for a purpose, thebasic objective of internal control isto ensure that the entity achieves itsmission; in other words, it aims tominimize the risks that the entity maynot be able to achieve its mission.Any system of internal control canprovide only reasonable assuranceas it would be not be economical toprovide an absolute assurance. Thisrecognizes the fact that there are costs

Chapter - IIAudit Concepts

6


associated with any internal controland such costs should not exceedbenefit derived from it. Moreover,excessive controls may result inemployees circumventing them and,they could also result in delays andinefficiencies in operations.

20. Apart from ensuring ethical, efficient,economical and effective operations,one of the main objectives of internalcontrol in public sector is tosafeguard resources which areacquired with public money.Organizations in the governmentsector are vulnerable in this respectbecause cash basis of accounting(which is predominant mode ofaccounting in government) does notprovide sufficient assurance relatedto acquisition, use and disposal ofassets. With the extensive use ofInformation Technology (IT) in manygovernment entities, internal controlsrelated to IT have also assumed greatdeal of importance. Auditors shouldpay particular attention to internalcontrols in IT systems, particularlywhere they deal with payroll(HRMS), e-payments, etc. as anyerror would have far reachingimplications.

21. It must be recognized that anysystem of internal control is limitedby the following factors:

■ Human factor: Internal control issusceptible to flaws in design,poor judgment, wrongi n t e r p r e t a t i o n s ,misunderstanding, carelessnessand abuse or override as all theseinvolve human involvement.

■ Resource constraints: As alreadymentioned, internal controlimplies costs and resources andthis could be one other limitingfactor. Particularly in smallerorganizations very elaborate orsophisticated internal control maynot be possible. In such cases, themanagement should considerwhether the lack of one type ofcontrol could be compensated byanother less expensive control.

■ Organizational changes andmanagement attitude also have avery significant bearing oninternal control. Ultimately, it isthe management’s (the head ofoffice and his team) attitude thatdetermines how seriously theinternal controls are taken by thestaff. If they see that themanagement is relaxed or it doesnot itself follow many of theprecepts, they would have littlemotivation to observe the internalcontrols. It is, therefore, veryimportant that the top managersalways set an example in thisregard.

22. Internal control system consists offive interrelated and equallyimportant components:

■ Control environment,■ Risk assessment,■ Control activities,■ Information and communication,■ Monitoring.

23. The Control environment sets thetone of an organization, influencingthe control consciousness of its staff.

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It is the foundation for all othercomponents of internal control,providing discipline and structure.This is, as already pointed out,determined by the management.

24. Risk assessment is the process ofidentifying and analyzing relevantrisks to the achievement of entity’sobjectives and determining theappropriate response. Elements ofrisk assessment are:

● Risk identification: The entitymust identify risks that any of itsstated objectives would not beachieved. For example, there is arisk that payment of wages toNREGA labourer is not made at allor not made in time; or, a receipt(a user charge or tax) is notaccounted by the cashier.

● Risk evaluation: Risk evaluationinvolves assessing the significanceof the risk (in terms of its gravity)and the possibility of the riskactually materializing. Thisrequires the organization tocategorize risks as high, mediumor low based on some judgment.The idea is for the organization toaddress the high category risks. Inthe above example, significanceand possibility of risk i.e. nonpayment / short payment /delayed payment of wages wouldbe considered very high.

● Risk assessment: Risk assessmentrequires the entity to understandhow much risk it is able to take.This is important because any riskmitigation comes at a cost. In theabove case, non mitigation of risk

is not acceptable as the whole ideaof MGNREGS is to providelivelihood to poor.

● Developing a response: Afterhaving identified the risks,evaluated and assessed them, theentity must develop a response tomitigate (reduce / eliminate) therisk. Appropriate response couldinvolve transfer, tolerate,terminate or treat the risk.Obtaining insurance is an exampleof transferring the risk. Sometimes,it may be better to live with a riskthat is too expensive to treat.Where the risk is too big, it mightbe better to terminate the activityaltogether. This option may notalways exist in government sectoras there are obligations to societythat have to be met irrespective ofrisks. Lastly, which is in most cases,the entity would like to treat therisk by adopting suitable controlactivities. In the above illustration,one of the ways in which the riskis sought to be mitigated is todirectly transfer the wages tolabourer’s bank account.

25. Control activities are the policies andprocedures established to addressrisks and to achieve the entity’sobjectives. There are two types ofcontrols.

■ Prevent Control: This type ofinternal control would prevent arisk from occurring. An exampleof this would be barring thephysical access to cash chest or theplace from where cashier operates.

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■ Detect Control: Detect controls aremeasures that would point tomisdeeds through reconciliation /review. Any kind of reconciliation(bank reconciliation), post audit,etc. would fall under this categoryas they help detect if somethinghad gone wrong.

To be effective control activities mustbe:

■ Appropriate■ Function consistently■ Cost effective■ Comprehensive■ Directly relate to control objectives

Some examples of control activitiesare:

Authorizations and approvals:Authorization is the principal meansof ensuring that only validtransactions and events are initiatedas intended by the management.Authorization procedures must bewell documented and clearlycommunicated to managers andemployees. These should includespecific conditions and terms underwhich authorizations are to be made.

Segregation of duties: To reduce therisk of error, waste, or wrongful actsand the risk of not detecting them, nosingle individual or team shouldcontrol all key stages of transactionor event. Therefore, duties andresponsibilities should be soassigned to a number of individualsthat there are enough checks andbalances. Not with standingseparation of duties, collusion can

still take place, which can reduce ordestroy the effectiveness of thisinternal control. A common placeexample of this internal control is thesegregation of duties of cashier andaccountant; and that of stores clerkwho accounts for receipts and issuesand the store keeper who physicallyhandles receipts and issues. A smallorganization may have too fewemployees to implement thiscontrol. In such cases, themanagement should be aware of therisks and compensate them in someother manner e.g. enhancedsupervision, rotation of employees,and so on.

Control over access to resources andrecords: Restricting access toresources to authorized individualsreduces the risk of loss or misuse ofresources. All assets must beprotected against loss and misuse byimplementing this control. Chequebooks and receipt books are requiredto be securely kept under lock andkey. Facilities such as a photocopier,telephone, internet, vehicle, etc. alsorequire protection against improperuse.

Verifications: Transactions or events(receipt of goods supplied or cashbalance at the end of day) are verifiedto ensure correctness and validity.Personal records / service books areperiodically verified to ensure theircorrectness.

Reconciliations: This is one of themost commonly used and effectivedetect control measure in anyorganization. For eg. Reconciliation

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of one set of records with another (theDDO’s accounts with the Treasury,own cash book with bank statement).

Reviews and post audit play animportant role in ensuring thatactivities have taken place inaccordance with the intents andobjectives of management. A reviewof financial statements can reveal ifthere have been any discrepanciespointing to wrongdoing. Aprocurement process can be postaudited to make sure that it complieswith all the regulations.

Supervision: Supervision(assigning, reviewing, approvingand guiding, training) is animportant and high level internalcontrol. This is something that is doneat different levels of managementperiodically.

26. Information and Communicationare essential to realizing all internalcontrol objectives. ‘Management’sability to make appropriatedecisions is affected by (appropriate,timely, current, accurate andaccessible) information’. Effectivecommunication should flow down,across and up the organization,through all components and theentire structure.

27. Monitoring of Internal controlsystem should be done to assess thequality of the system’s performanceover time. Monitoring isaccomplished through routineactivities, separate evaluations or acombination of both.

Audit Assertions

28. In a financial audit, the auditor isrequired to express an opinion on thefinancial statements. The opinionexpressed should give a picture ofwhether the accounts fairly representthe actual transactions during theperiod. Audit assertions are nothingbut general audit objectives whichare designed to ensure that theauditor obtains adequate evidence tosupport the opinion required to beexpressed on an account. There aresix general audit objectives asdetailed below:

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Audit Assertions Description of the Audit Assertion

Completeness All transactions and events, and assets and liabilities thatshould have been recorded have been recorded and inthe correct accounting period. All disclosures that shouldhave been included in the financial statements have beenincluded. This assertion directly tests for potentialunderstatement of figures in accounts. For example, it isexpected that all assets that have been purchased duringthe year are included in the fixed assets account.

Existence and Assets and liabilities that exist, and transactions andOccurrence events that have been recorded or disclosed have occurred,

pertain to the entity and are recorded in the correctaccounting period. For example, purchase of equipmentby the office must be evidenced by payment actuallyhaving taken place during the accounting period and thereceipt of the equipment indicated by means of an entryin asset register and / or by physical verification.

Accuracy Amounts and other data relating to transactions andevents have been recorded appropriately and in theproper accounts. For example, if there is a difference inthe amount of expenditure as recorded in the books andas per the underlying documents like vouchers, bills,invoices etc. the ‘accuracy’ objective is not fulfilled.

Valuation ‘Valuation’ means that the recorded transactions have beencorrectly valued, properly calculated, or measured inaccordance with established accounting policies, on anacceptable and consistent basis.

Ownership The liabilities are the obligations of the entity and the entityholds or controls the rights to the assets.

Presentation and Financial information and disclosures are appropriatelyDisclosure presented and described, clearly expressed, disclosed

fairly and at appropriate amounts.

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Audit Evidence

29. Audit Evidence means informationgathered by auditor in course ofaudit to form credible auditconclusions. The importance of auditevidence cannot be overemphasizedas it determines the credibility notonly of audit observations but alsoof the audit organization itself.

30. Evidence collection process involvesidentification of appropriateevidence, its collection and cross-checking or validation anddocumentation. In case of allegationof professional negligence, evidencegathered by the auditor offersprotection. Hence, audit evidence isan important part of auditor’sworking papers.

31. Evidence in relation to accountsessentially relates to assertions aboutexistence/occurrence, completeness,validity and accuracy of recordedvalue of transactions. In case ofpurchase of an asset e.g. an airconditioner for the office, the auditwould gather evidence relating to itsactual delivery in the office(occurrence/ existence), sanction forits purchase (validity), payment(correctness of amount andclassification) and so on. In relationto internal controls, evidence refersto substance that supports effectiveoperation of controls. Evidence maybe obtained from any of thefollowing:

a. Source documents (vouchers /files);

b. Accounting records (books ofaccounts);

c. Re-computation of calculationmade by the entity (say pay orpension arrears).

d. Joint Inspection bySupervisory/Executive Officersof auditee unit/ any designatedthird party, of stores, assets,worksites and premises ofbeneficiaries of variousschemes/programmes.

e. Resolutions passed by electedbody like Zilla Panchayat/Urban Local bodies/Grampanchayats / Urbandevelopment Authorities.

f. Proceedings of Review meetingsof implementation of schemes /progress.

g. Evaluation reports.

32. It is expected that the auditor obtainscompetent, relevant and reasonableevidence to support his judgmentand conclusions regarding theorganization, programme, activity orfunction under audit.

33. Evidence collected should besufficient and appropriate.Sufficiency refers to quantity ofassurance and appropriateness refersto quality (relevance and reliability)of assurance. Sufficiency andappropriateness are inter-related.Evidence obtained should be bothsufficient and appropriate. It is notenough if only one is collected as itwill not compensate the other e.g.existence of inventory and itsvaluation. Evidence is consideredsufficient if the same results areobtained even when an independentparty re-performs the tests. If

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sufficient evidence could not beobtained, it should be disclosed inaudit report.

34. Evidence collected should be soobjective that any knowledgeableperson should reach same conclusionon reviewing the evidence gathered.In case auditor fails to obtainrequired evidence for reporting, heshould perform additional tests for

Principles of Audit Evidence

Relevance Evidence must be relevant to its related audit conclusion.Otherwise it is not persuasive regardless of any otherconsideration. E.g. While conducting audit of Social Welfaredepartment, poor results obtained by a boarder of the hostelcannot be claimed as evidence for weakness in administrativecontrols. Similarly, non-availability of staff cannot be claimedas evidence for poor control on assets.

Objectivity Objective evidence is usually more persuasive than subjectiveevidence. Objective evidence is achieved when two or moreauditors, working independently, are very likely to arrive atthe same result.

Documentation Documentary evidence typically is more persuasive thanundocumented evidence.E.g. Hearsay evidence that one of theemployee misuses office telephone for his personal use is lesspersuasive than detailed analysis of the phone bill.

External External evidence is considered more persuasive than internalevidence.E.g. Statement of account from bank is consideredmore persuasive evidence for bank balance than balance shownin bank book by the organization.Sales invoice received fromthe supplier is more persuasive evidence compared to internaladvice prepared while making payment to the supplier.

Sample size: Larger samples are generally more persuasive than smallersamples.

Sampling method Statistical samples are usually more persuasive than non-statistical samples. Statistically random samples help avoidsampling bias because they are based on laws of probability.

establishing the facts. Auditor shouldconsider most cost-effective means ofobtaining evidence, but difficulty inobtaining evidence or cost cannot bereasons for omitting necessaryprocesses. Auditors should considersource and nature of informationobtained to evaluate its reliability. Ifnot reliable, the auditor must conductfurther verification requirements.

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Statistical samples allow auditors to quantify their level ofconfidence in sample results.

Corroboration Corroborated evidence is usually more persuasive thanuncorroborated evidence. Corroborated evidence is the sameor similar evidence acquired from two or more independentsources. Eg. In a scheme where medicines are distributedthrough Non Government Organisation (NGOs) reconciliationof records maintained (copy of the consignment advice, entriesin stock register, copy of the courier invoice) with confirmationreceived from NGO would be more persuasive.

Timeliness Timely evidence is typically more persuasive than evidenceproceeded after a delay.E.g. Auditor’s observation of virus incomputer systems can be a good evidence (of weakness ofcontrols in safeguarding data), if reported soon. It may beuseless if reported after time lag. Note: For this reason, auditloses importance if they are taken up after considerable timelag. Follow-up and corrective action is part of audit scope insuch assignments.

Authoritativeness Authoritative evidence is more persuasive than non-authoritative evidence. E.g. Confirmation on the letter head ofthe entity is more persuasive than acknowledgement from thecourier company that the consignment has been delivered.

Directness Direct evidence is usually more persuasive than indirectevidence. E.g. A direct count of inventory by auditor is morepersuasive than someone else’s counted figure. Also, an originaldocument is more persuasive than its copy.

Adequacy of Evidence from a well controlled and reliable system usuallycontrols is more persuasive than evidence from a poorly controlled or

questionable system.E.g. Airlines ticket with boarding pass ismore reliable evidence than a bill from local airlines bookingagency.

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35. Evidence collected during theprocess of audit should be carefullydocumented. Audit supervisorshould review the working papers toensure that it is reliable on all countsand supports the audit conclusions.

Relation between managementassertions, audit objective and auditevidence

36. By placing controls, managementasserts that possibility of materialloss or misstatement is reduced.Control objective, therefore, refers tothe objective with which control isplaced by the management. Controlobjective is to negate the possibilityof risk or material misstatement.

Audit objective is to validatemanagement’s assertionsindependently and identifyweaknesses. To support auditopinion, auditor collects evidence.To illustrate, if employing securitypersonnel is a control, correspondingmanagement assertion is that no un-authorized person is allowed in andassets are safeguarded. Auditorperforms certain procedures to checkif this control (i.e., security) isfunctioning as intended by themanagement (i.e., no un-authorizedperson is permitted in). Similarly,bank reconciliation is a controlthrough which management assertscompleteness and authenticity ofdealings with the bank. Auditorwould check this control byinspecting reconciliation statements.

He would obtain statement ofaccount from bank as evidence tosupport effectiveness of this control.

Materiality and levels of assurance

37. Materiality is an audit concept whichrecognizes that some matters (orgroup of matters) are more importantas compared to others and thus theauditor should focus his attention onthe material matters rather than theentire information.

38. A matter may be material dependingon the value it represents. Forexample, while auditing a irrigationproject worth several hundred crorerupees, work done by a small sub-contractor worth a couple of lakhrupees may not be material, butwhile auditing a primary health carecentre an expenditure of Rs.50,000 oncivil repairs may be material.Materiality depends on the size andnature of the department activities.Materiality is subject matter ofprofessional judgment of the auditorand provides quantitative thresholdor cut-off.

39. Materiality may also be determinedbased on qualitative parameters likenature of the item or the context inwhich the information is used. Forexample, while auditing payments,auditor would not apply materialityto TDS obligations of the departmentunder Income Tax Act.

The following are the different kindsof materiality;

(a) Planning Materiality: Planningmateriality is used in audit planning

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when the auditor makes an initialjudgment about materiality levels todetermine areas which are materialand hence should be part of the auditcoverage at the minimum. Planningmateriality may differ from themateriality levels used in evaluatingthe audit findings because theremight be change in circumstancesand additional information about theauditee that has been obtainedduring the audit. Planningmateriality is primarily concernedwith materiality by value. Severallevels of materiality may be definedfor each of the financial statements.For example, for the incomestatement, materiality could berelated to income from operations ornet income over expenditure. For thebalance sheet, materiality could bebased on total assets, current assets,working capital etc.

(b) Reporting Materiality: This appliesat the end of the audit when all errorsare evaluated and viewed in relationto their known effects on the financialstatements. At this stage, the auditorhas to consider the audit findings byvalue, by nature and by context, anderrors or omissions may beconsidered material which otherwiseby value would not. It is common foraudit to report more serious auditobjections to higher levels ofgovernment / legislature anddiscuss and settle the less seriousones with the auditee locally.

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Chapter - IIITypes of Audit

40. While the primary objective of auditis to give an assurance with respectto compliance with internal controls,the focus could vary dependingupon the scope and context of audit.In most cases, audit of financialstatements in the context ofgovernment entities would alsoimply checking the propriety ofunderlying transactions. An audit ofaccounts that are completelyautomated would require applyingdifferent procedures which test thecontrols built into the informationsystem. On the other hand, anauditor might be required to assessthe performance of a governmentprogramme or a scheme withreference to its objectives. Generally,the audit mandate providesguidance on the type of auditexpected to be conducted.

a) Receipt Audit

41. It is primarily the responsibility ofthe department authorities to see thatall items of revenue and other dues,which have to be brought to accountare correctly and promptly assessed,realized and credited to the localbody. Under the various Acts relatingto local bodies, the Director (Audit),Karnataka State Audit & AccountsDepartment has been entrusted withthe audit of accounts of both receiptsand expenditure. As such, it is alsoone of the important functions of theAudit Department to see that all

sums due to the local body have beenrealised and properly accounted for.It should also be seen that the initialaccounts of demand have beenproperly prepared, that the demandarrived in the case of taxes and feesis generally correct, and thatadequate steps have been taken toenforce recovery. Any investigationby audit in this regard must beconducted so as to not interfere withthe executive responsibility.

In conducting the audit of receipts,audit should ascertain that adequateregulations and procedures havebeen framed to secure an effectivecheck on the assessment andcollection of revenue and to see, byan adequate detailed check, thatsuch regulations and procedures arebeing observed and that demand,collection and balance statements areregularly prepared and agreed withthe subsidiary registers of demandand collection and that balances areregularly reviewed or checked in themanner specified by the statutoryrules, Government orders orregulations, if any. In the audit ofreceipts, ordinarily the general ismore important than the particular.

It would be necessary to ascertainwhat checks are prescribed againstthe commission of irregularities atthe various stages of collection andaccounting and to suggest any

17


appropriate improvement in theprocedure. The audit of receiptsshould be regulated mainly withreference to the statutory provisionsof financial rules or orders whichmay be applicable to the particularreceipts involved. If the check revealsany defect in such rules or orders, theadvisability of amendment shouldbe brought to notice.

It is, however, rarely if ever the dutyof audit to question an authoritativeinterpretation of such rules or ordersand in no case may audit review ajudicial decision or a decision givenby an administrative authority in aquasi-judicial capacity. Thisinstruction does not, however, debaran auditor from bringing to noticeany conclusion deducible from theexamination of the results of anumber of such decisions. Whereany financial rule or order applicableto the case has prescribed the scaleor periodicity of recoveries, it will bethe duty of audit to see as far aspossible, that there is no deviationwithout proper authority from suchscale or periodicity. Ordinarily, auditwill see that no amounts due to localbodies are left outstanding in theirbooks without sufficient reason.Audit will continue carefully toreview such outstandings andsuggest to departmental authoritiesany feasible means for their recovery.Whenever any dues appear to beirrecoverable, orders for their write-off should be sought. But, unlesspermitted by any rule or order of acompetent authority, no sums maybe credited to a local body by debit

to a suspense head; credit mustfollow and not precede actualrealization.

A claim or demand may be either:

i. a specific demand fixed orfluctuating; (all taxes of thisnature) or

ii. a demand which arises inconsequence of some out-goingof property, or cash, advance orservice, in which case, it is a quidpro quo.

Of the latter nature are the demandsset by the sale or lease of land,property, etc., by cash advances andservices such as transport. The checkthat can be exercised in audit againstitem (ii) will depend upon the natureof the demand and the exactcircumstances in which it is made.The demand should, in all cases, beentered in a demand register ormiscellaneous sales register ormiscellaneous receipts register orregister of advances or some othersuitable register prescribed for thepurpose in the rules or regulations.

Levy, collection and accounting ofreceipts/revenues should receivespecial attention of audit andchecked very effectively as thesetypes of transactions are easily proneto risk of fraud and/ormisappropriation in local bodies. Aspecial zeal should therefore beshown in investigating into repeatedfrauds. The system of revenuecollection should be closelyscrutinized to see whether the fraud

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or defalcation was rendered possibleby any defect in the rules or whetherit was due to neglect of rules or thewant of supervision on the part ofany person responsible for theadministration of the fund. It is theduty of audit, therefore, at suchinvestigations to suggest safeguardsthat are likely to prevent therecurrence of such frauds ordefalcations.

Objections for want of receiptbooks in support of having collectedtaxes and other amounts and ofpayee’s receipts in support ofdisbursements made are seriousones, because such cases oninvestigation may, at times, disclosefrauds or defalcations. Objections ofthis nature, therefore, deserveimmediate attention andinvestigation. The Audit Officer/Accounts Superintendent or Auditorshould, therefore, prepare a report inthe form of a paragraph for the auditreport for approval of the Auditauthority and communicate it to theexecutive authority of the auditeeinstitution for immediate action. Theparagraph containing the defectshould be suitably modified withreference to the reply of the executiveauthority and included in the auditreport.

b) Expenditure Audit

42. The primary objectives for the auditof expenditure in the auditinstitutions are subject to thefollowing essential audit checks:

a. That the funds have beenexpended only on the purposesauthorized by the Acts or Rules;

b. That the moneys made availablefor the expenditure have beenprovided for in the mannerspecified in the Acts or Rules;

c. That the funds earmarked forspecific purposes have beenutilized for such purposes alone;and

d. That the sanction, either special orgeneral of the authority competentto sanction the expenditure, hasbeen obtained.

Note: - It is an implied condition thatthe expenditure should be i n c u r r e dfrom the funds of local bodies withdue regard to the broad and generalprinciples of financial propriety. Any caseinvolving a breach of these principles andthus resulting in improper expenditureor waste of public money should betreated by audit in the same manner ascases of irregular or unauthorizedexpenditure are treated.

Conditions (a), (b), (c) and (d)mentioned in the previous paragraph aremainly governed by the Acts of theLegislature or rules, or regulations issuedby authorities empowered in this behalf.Auditors must, therefore, familiarizethemselves with the relevant sections ofthe Acts and the schedules thereto andthe Manuals.

c) Audit against Regularity

43. Audit against regularity consists inverifying that the expenditure

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conforms to the relevant provisionsof the Act or rules made thereunderand is also in accordance with thefinancial rules, regulations andorders issued by a competentauthority either in pursuance of anyprovisions of the Act or in virtue ofpowers formally delegated to it by ahigher authority. The rules,regulations and orders under whichaudit is conducted mainly fall underthe following categories: -

a. Rules and orders regulating thepowers to incur and sanctionexpenditure from the revenues ofthe local bodies;

b. Rules and orders dealing with themode of presentation of claimsagainst the entity, withdrawingmoneys from the accounts of theentity, and in general the financialrules prescribing the detailedprocedure to be followed byofficers and servants in dealingwith the transactions of the entity;and

c. Rules and orders regulating theconditions of service and pay ofthe servants of the entity. Inaddition to carrying out the auditaccording to the prescribedprocess, the auditor should seethat the accounts rules or otherrules or laws prescribed andpromulgated by Government areobserved in letter and spirit andhe should further bring to noticeany practice which seems to himto be objectionable even though itmay not be in contravention of anyrule.

44. The work of audit in relation toregularity of expenditure is of aquasi-judicial character. It involvesthe interpretation of statute, rules andorders with reference to the case lawof previous decisions andprecedents. Interpretation by Auditshould be based on the plainmeaning of the section, rule or order,except when this is inconsistent withanother section, rules, or order; insuch a case, the inconsistency shouldbe referred to the competentauthority for resolution or removal.

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45. Provision of funds is required to bewatched at two different stages. Thefirst is the provision of funds for theentity for all items of expenditure asa whole for a year and the second isthe actual release of funds to beexpended on any particular item thatcalls for payment. The first stage isthe sanction of the budget and thesecond is the sanction to expenditure.A grant or appropriation is intendedto cover all the charges, including theliabilities of past years to be paidduring a financial year or to beadjusted in the accounts of that year.It is operative until the close of thatyear. Any unspent balance lapsesand is not available for utilization inthe following year. Audit againstbudget provision is simple. It isenough to see that a properlyprepared budget has beensanctioned by the competentauthority and that provision isavailable in the particular budgethead which is to receive the chargewhen the expenditure is incurred.The audit has to satisfy itself that theexpenditure which is being auditedfalls within the ambit of an allotmentor appropriation duly sanctionedand that it is within amount of thatallotment or appropriation.Expenditure in excess of the amountof an allotment or appropriation aswell as expenditure not falling withinthe scope or intention of anyallotment or appropriation asentered in the sanctioned budgetunless regularized by asupplementary budget or re-appropriation statement should betreated as unauthorized expenditure.

46. Audit against sanctions toexpenditure is conducted in twostages. It has to see that theexpenditure is covered by a sanctionwhether special or general and thatthe sanction is accorded by anauthority competent to do so byvirtue of the powers vested in it bythe appropriate legislation or rulesthereunder. The authoritiescompetent to sanction expenditureout of funds of local bodies arementioned to such bodies and it isthe primary duty of audit to see thatevery item of expenditure is coveredby the sanction of the properauthority. The determination of theproper authority will depend uponwhether (a) the sanctioning authoritypossesses full powers in respect ofexpenditure under audit and (b)whether the sanctioning powers aresubject to any limitations. In respectof expenditure sanctioned byauthorities having full powers ofsanction it is enough to confine auditmerely to consideration of propriety.But in respect of others, the effect ofcondition and restrictions should beclearly grasped and audit shouldchallenge every item if highersanction is necessary. This is a fieldwhere controlling authoritiesdepend upon audit to control thefinancial operations of the entities. Itis here that audit can perform usefulfunction as an instrument of financialcontrol. In judging which itemsrequire sanction, difficult cases oftenarise when the spending authoritiesspilt up schemes to avoid highersanction. Audit is often called upon

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to decide what constitutes a singlescheme, especially in the case ofexpenditure on works.

47. The general instructions set out in thepreceding paragraphs can beexpressed in a more detailed form asfollows: -

The objects of audit of expenditureare to ensure that: -

a. There is provision of funds for theexpenditure duly authorized by acompetent authority;

b. The expenditure is in accordancewith a sanction properly accordedand is incurred by an officercompetent to incur it;

c. The claims are made in accordancewith rules and in proper form;

d. All prescribed preliminaries toexpenditure such as properestimate prepared and approvedby competent authority for worksexpenditure, etc; are observed;

e. The rules regulating the methodof payment have been dulyobserved by the disbursing officer;

f. Expenditure sanctioned for alimited period is not admitted inaudit beyond that period withoutfurther sanction;

g. Payment has, in fact, been madeto the proper person and that it hasbeen acknowledged and recordedso that a second claim against thelocal body on the same account isimpossible;

h. The charge is correctly classifiedand a charge is debitable to thepersonal account of a contractor,employee or other individual oris recoverable from him under anyrule or order, it is recorded assuch in a prescribed account;

i. The rates paid for work done orsupplies made are in accordancewith any scale or scheduleprescribed by competentauthority; and

j. The payments have been correctlybrought to account in the originalaccount.

48. Recurring charges which are payableon the fulfilment of certainconditions or till the occurrence of acertain event should be admitted inaudit on receipt of a certificate fromthe drawing officer to the effect thatthe necessary conditions have beenduly fulfilled or the event has not yetoccurred as the case may be.

d) Audit against Propriety

49. Audit, to ensure the four objectivesindicated in Paragraph 43 above,carries out what may be called theformal examination of sanction andrules regulating such expenditure. Itis an essential function of audit tobring to light not only cases of clearirregularity but also every matterwhich in its judgment appears toinvolve improper expenditure orwaste of public money or stores,even though the accounts themselvesmay be in order and no obviousirregularity has occurred. It is thus

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not sufficient to see that sundry rulesor orders competent authority havebeen observed. It is of equalimportance to see that the broadprinciples of orthodox finance areborne in mind not only by disbursingofficers but also by sanctioningauthorities.

The general principles which havelong been recognized as standards offinancial propriety are laid down below:-

a. The expenditure should not beprima facie more than the occasiondemands. Every public officer isexpected to exercise the samevigilance in respect of expenditureincurred from public moneys as aperson of ordinary prudencewould exercise in respect ofexpenditure of his own money.

b. No authority should exercise itspowers of sanctioningexpenditure to pass an orderwhich will be directly or indirectlyto its own advantage.

c. Public moneys should not beutilized for the benefit of aparticular person or section of thecommunity unless: -

� A claim for the amountcould be enforced in a court oflaw; or

� The expenditure is inpursuance of a recognizedpolicy or custom of theGovernment.

d. The amount of allowances such astravelling allowances, granted tomeet expenditure of a particular

type, should be so regulated thatthe allowances are not on thewhole sources of profit to therecipients.

Note: The proper discharge of dutiesby an Audit Officer in this field is a verydelicate matter and requires muchdiscretion and tact. A challenge againstexpenditure should not be expressed orbased on ‘canons of financial propriety,’but as transgressing a universallyaccepted standard of official conduct orfinancial administration.

50. The audit of rates paid for workdone/ supplies made should receivespecial attention. But objections canbe raised only on grounds offinancial propriety. It demands theexercise of great intelligence andcare. Individual abnormalities inrates, should of course, be watched,by comparative examination,through the vouchers and accountsreceived for audit, with the rates paidby various agencies.

51. The audit may indicate cases inwhich the rates are abnormal, andfurther enquiry may be desirable insuch cases. The instructions relatingto detailed audit of vouchers insupport of payments are containedin the succeeding chapters of themanual.

e) Financial Audit

52. Financial Audit is the attestation offinancial statements of entities,involving examination andevaluation of financial records andexpression of opinions on financial

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statements. The objective of financialaudit is primarily to express an auditopinion on a set of financialstatements. It includes:

a. Audit of financial systems andtransactions including anevaluation of compliance withapplicable statutes andregulations which affect theaccuracy and completeness ofaccounting records;

b. Audit of internal control andevaluation of adequacy of internalaudit functions that assist insafeguarding assets and resourcesand assure the accuracy andcompleteness of accountingrecords;

c. Ensuring that financial informationis presented in accordance withthe applicable accountingstandards including specificrequirements of financialdisclosure; and

d. Ensuring that the entity hascomplied with laws andregulations applicable to it.

f) Performance audit

53. Efficiency-cum-Performance Audit(ECPA) or Value for Money (VFM)audit is a comprehensive review ofthe projects, programmes, schemes,organisations, etc. in terms of theirgoals and objectives aimed atascertaining the extent to which theexpected results have been achievedfrom the use of available resourcesof money, men and materials. It is atechnique of audit adopted to assess

and evaluate the economy, efficiencyand effectiveness of developmentschemes, projects or organisationsand hence this branch of audit is alsoknown as Economy, Efficiency andEffectiveness Audit or the Three EsAudit. Economy relates to incurringexpenditure which is keeping withthe requirement, while efficiencymeans that the output iscommensurate with the input. Forany expenditure to be consideredeffective, it should have resulted inachievement of the intendedobjective.

54. Performance audits considerwhether the entity has

a. followed sound procurementpractices;

b. acquired the appropriate type,quality, and amount of resourcesat an appropriate cost;

c. properly protected andmaintained resources;

d. avoided duplication of effort byemployees and work that serveslittle or no purpose;

e. avoided idleness and overstaffing;

f. adopted efficient operatingprocedures;

g. adopted adequate managementcontrol system for measuring,reporting, and monitoring aprogramme’s economy andefficiency.

55. Normally detailed guidelines areprepared for conducting

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performance audits based on deskreview of related documents. Toillustrate, if performance review ofworking of a government schemesuch as Rural EmploymentGuarantee scheme is to be conductedthe auditors would first study theMahatma Gandhi National RuralEmployment Guarantee (MGNREG)Act, the state government schemeguidelines, the organizationalarrangements, the processes, etc. indetail. They would then prepare a listof instances whose existence /achievement would be examined inaudit by gathering supportinginformation or evidence. In the aboveillustration, one of the instancescould be to gather evidence tosupport compliance with thestipulation that the use of material /equipment was restricted to 30percent of value of the work.

g) Systems Audit

56. A system is an orderly arrangementof separate but interdependent andinteracting activities and relatedprocedures which implements andfacilitates the performance of thefunctions of an organisation. Theconcept of Systems Audit is that if anin-depth analysis of the mechanics ofa system reveals that it is designedwith appropriate controls, checksand balances to safeguard againsterrors, frauds, etc., audit canreasonably assume, without thenecessity of undertaking a detailedexamination of the individual eventsor transactions, that the resultsproduced by the system would befairly accurate. Evaluation of the

efficiency and effectiveness of anysystem will, however, requiresample testing of its actual working.Systems Audit therefore, also servesas an effective aid to management.Information Systems Audit is a goodexample of a systems audit, which isdescribed separately below.

Manpower Audit

57. During systems audit theexamination of organization shouldextend to examining whether properdistribution and clear demarcationof functional responsibilities existamong the personnel working in theentity and whether its staffing patternconforms to the norms and standardsprescribed for the purpose and hasthe competent authority’s approval.During this review, it may also benecessary to examine how far thenorms adopted for assessingmanpower requirements are realisticand how far the available manpoweris utilized efficiently and effectivelywithout any overlap of duties andresponsibilities.

Information Systems Audit

58. The biggest challenge for auditors isthe extensive application ofinformation technology in offices thatcome under their audit purview.Many of the governmentdepartments have computerizedtheir operations in a manner that therecords do not exist in the hard copyform. Also the trail (sequence) ofoperations through a paper record isoften lost in automated system,particularly where work flow isautomated. Auditors face this

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challenge to varying degreesdepending upon the extent ofcomputerization in the departmentsthey audit.

59. Information Systems Audit is theprocess of collection and evaluationof evidence to determine whether acomputer system has been designedto maintain data integrity, safeguardassets, allow the effective realizationof organizational goals, and ensureefficient utilisation of resources. Dataintegrity relates to the accuracy andcompleteness of information as wellas to its validity in accordance withthe norms. An effective informationsystem leads the organisation toachieve its objectives and an efficientinformation system uses minimumresources for this purpose. Whileevaluating the effectiveness of anysystem, the auditor must be aware ofthe characteristics of the users of theinformation system and the decision-making environment in the auditeeorganisation.

h) Forensic Audit

60. The objective of forensic audit is tofind out if a fraud has taken place,the auditor should examine therecords in totality and also takeevidence from witnesses, ifpermitted by the audit mandate. Theoutcome of fraud audit will involve

� Proving the loss,

� Proving the responsibility forthe loss,

� Proving the method andmotive for the loss,

� Identifying the beneficiariesfrom the loss.

There should be sufficient auditevidence to prove each of theparameters above. The evidencegathered must stand the scrutiny oflaw to prove criminal intent.

Fraud and Audit

61. The term ‘fraud’ refers to anintentional act by one or moreindividuals, employees or thirdparties, involving the use ofdeception to obtain an unjust orillegal advantage. Thedistinguishing factor between fraudand error is whether the underlyingaction is intentional or unintentional.Detection of fraud especially whenit has occurred by manipulation ofaccounts and/or tampering ofvouchers is one of the primary dutiesof Audit. In post audit, before theaudit is taken up, it may come to theknowledge of audit that financialirregularities leading to fraud havetaken place in a particular institution.Sometimes even the transactionwhere fraud has occurred is knownwell in advance. In such cases, theaudit work is much simplified. Butquite a few cases of fraud, especiallyof a non-recurring nature and alsosome recurring cases where theyhave been committed cleverly, posea problem to audit. But a wellorganised and systematic audit ofaccounts, with an eye on the spotswhere there are chances for fraud willenable audit to pick up such caseswithout much difficulty. Traditionaltechniques like wrong carry forward

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of balances in Cash Book andManipulation of connected recordsor alteration of words and figures invouchers are too common place amodus operandi to miss theattention of an average auditor. Butthe real test of audit lies in detectingclever and sophisticated methods.This can be done only by applicationof mind to the various scopesafforded in each type of transactionand by an insight into the way inwhich such scopes could be utilisedby an unscrupulous person. Therecould be no specific guideline todetect ingenuous fraud where thetransactions are numerous andvaried. A sharp intellect and preciseapplication will however help indetecting most such cases.

Reporting of Financial Fraud

62. While identifying fraud risks, it isimportant to remember that thefollowing conditions are generallypresent when fraud exists.Misstatements arising fromfraudulent financial reporting areintentional misstatements includingomissions of amounts or disclosuresin financial statements designed todeceive financial statement users.Fraudulent financial reporting ofteninvolves override of controls bymanagement that otherwise mayappear to be operating effectively.For example, fraud can be committedby management which may overridecontrols using such techniques asrecording fictitious journal entries,particularly close to the end of anaccounting period to manipulate

operating results or achieve otherobjectives.

63. Misstatements arising frommisappropriation of assets(sometimes referred to as theft ordefalcation) involve the theft of anentity’s assets that would result in amaterial misstatement in the financialstatements. Misappropriation ofassets can be accomplished in avariety of ways, includingembezzling receipts, stealing assets,causing an entity to pay for goods orservices that have not been received,using an entity’s assets for personaluse, etc.

Some common types of fraud arepilfering, inflated travel claims,double payments, falsification ofjournal vouchers, payroll fraud withghost workers, treatment of revenueexpenditure as capital expenditureto avoid overspend under revenuebudgets, etc.

Management’s responsibilities inrelation to fraud

64. The primary responsibility for theprevention and detection of fraudrests with those in charge ofgovernance and management. It isimportant that management placesstrong emphasis on fraud prevention(which may reduce opportunities forfraud to take place) and frauddeterrence (which could persuadeindividuals not to commit fraudbecause of the likelihood of detectionand punishment).

Auditor’s responsibilities in

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relation to fraud

65. Due to the characteristics of fraud, theauditor’s attitude of professionalscepticism is particularly importantwhen considering the risk of materialmisstatement due to fraud.Professional scepticism is an attitudethat includes a questioning mind anda critical assessment of auditevidence. Auditor’s role in detectingfraud extends to

� Follow up on adverseindicators

� Check of the controldocuments

� Careful examinations unusualtransactions

� Analytical review oftransactions through sources

� Check on effectiveness ofinternal audit/controls

� Reconciliation of balances

� An effective review ofprocurements and its utility

66. Due to the characteristics of fraud andin particular to the different ways inwhich it may be concealed, instancesof fraud may be identified by theauditor at any time during audit andwhile performing audit proceduresthat may not be specifically intendedto detect fraud. Therefore, theauditor has to remain alert andmaintain an attitude of professionalscepticism throughout the audit.

Identifying fraud risk factors

67. Fraud risk factors are events orconditions that indicate an incentiveor pressure to commit fraud orprovide an opportunity to commitfraud. They may suggest anincreased risk of fraud, which maycome to auditor’s attention whileobtaining an understanding of theentity and its environment. Forexample, inadequate control overmaintenance of registers like cashbook, vouchers, absence of practiceof bank reconciliations, non-segregation of duties and suchcontrol measures codified ingovernment financial rules ortreasury code.

The auditor should make enquirieswith management, internal audit andothers within the auditee institutionas appropriate, to determine whetherthey have knowledge of any actual,suspected or alleged fraud affectingthe auditee. If there are confirmationsthat fraud has been perpetrated, thenthe auditor should amend his auditprocedures accordingly

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Chapter -IVRisk based auditing and

use of statistical samplingRisk based audit

68. A hundred percent audit check is notonly highly expensive but alsounwarranted as the objective of audit(which is assurance about operationof internal controls and effectivecompliance with laws, rules, etc.)could be well achieved by a testcheck. The question is - what is thecriterion used for selecting the areasof audit and transactions. Oneimportant criterion in prioritizing theaudit focus is based on risk. Risk isnothing but the exposure to thechance of failure or loss. It is relatedto the probability that an event oraction will occur which wouldadversely affect the entity. Inanalyzing risks, following questionsshould be asked:

� What can go wrong?

� What is the probability of it goingwrong?

� What are the consequences?

69. It is thus important to identify andanalyze the risks associated with theaudited entity. The risk ofmisstatement or error is notuniformly distributed across all areasor transactions. In other words, someareas or transactions tend to be moreprone to errors or misstatements. Toillustrate, when there is a pressure to

incur expenditure (say due to threatof lapse of funds), there is a tendencyto bend the rules to withdraw moneyas an advance and deposit in a bankaccount. Establishment expenditurehas lower risk compared toexpenditure on procurement.Therefore, one way of selecting areasand transactions would be based onauditors’ assessment of risk ofdeviation from the norms. Areaswhere there is discretion exercised bythe department should be consideredriskier than where the rules are clearand permit no deviation. Althoughhigher value transactions are notnecessarily riskier, being fewer itwould be wiser to check as many ofthem as possible.

70. It is likely that in some audit entitiesthe controls are generally weakposing a risk. Poor controlenvironment poses a high risk oferror and misstatement in accounts.Past audit reports would provide agood guide to control environmentof an entity. Auditors shouldinvariably consult the past auditreports and other material in theplanning phase (dealt with in moredetail later) to determine the state ofcontrols.

71. After identification of the risk factorsthat operate in the entity/programme, it is important to assess

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their materiality judged on theintensity of risks and their possibleimpact. Assessing the intensity canbe done on a scale consisting of high,medium and low risks. The effect ofthese risks on performance alsoneeds to be assessed. The existence,intensity and impact of the riskswould need to be considered intandem while prioritizing auditfocus.

Compliance and substantive testing

72. The auditors should initially checkthe controls by conductingcompliance testing, that is, testing toassess compliance with the internalcontrols. To illustrate, it is expectedthat the cash book is closed at the endof every working day and signed offby the supervisor. The auditorwould first check whether there iscompliance with this controlmeasure. If it is seen that the controlmeasure is operating without fail inpractice, the auditor would stopfurther examination. However, if it isseen that compliance with thiscontrol measure is poor, say only 40percent, then the internal auditorwould have to do a substantive testof the cash book transactions toensure that non-compliance with thecontrol has not resulted in anyuntoward incident.

Use of statistical sampling in audit

73. Since it is not possible to verify allthe transactions, events, records, etc.,the auditor uses risk to narrow downto areas or groups of transactions foraudit. The use of judgment up to this

point is acceptable. Beyond this,when selecting the actual transactionsfor audit, it would require theauditors to use sampling techniqueto draw a sample so that the auditconclusions would apply to theentire population.

74. Sampling is the process of selectinga subset of the population of theitems to draw inferences thatrepresent the entire population.‘Audit sampling’ means theapplication of audit procedures toless than 100 percent of the itemswithin an account balance or class oftransactions to enable the auditor toobtain and evaluate audit evidenceabout some characteristic of the itemsselected in order to form or assist informing a conclusion concerning thepopulation. [Auditing andAssurance Standard 15 on AuditSampling issued by Institute ofChartered Accountants of India]

75. Selection of a sample is influencedby the size of the population,objectives, complexity, type ofactivity, transaction frequency andlevel of comfort of expected from thetest.

Some of the methods of selectingsamples have been described below:

Judgmental or non-statisticalsampling

76. Judgmental sampling is the processwhere the auditor uses subjectiveselection of the items based onjudgment rather than a scientificmethodology. In this case, auditor

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relies on his experience to choose theitems for auditing. Thoughjudgmental sampling is a widelyaccepted method of sample selection,evidence gathered through thistechnique is considered less reliable.Selection of month of March for auditof payments is based on thejudgment that more irregularities arelikely to take place due to rush ofexpenditure at the last minute. Themajor disadvantage with judgmentsampling is that the auditors cannotextrapolate the test resultsstatistically to the entire population.However, judgmental sampling ispopular as auditor’s judgmentsupported by extensive knowledgeof the auditee and its functions offersimplicity in drawing conclusions.

Statistical Sampling

77. Statistical sampling is a scientificselection of items that ensures that allitems of the population have an equalchance of being selected. Although,statistical sampling reduces the over-reliance of the auditors’ professionaljudgment, it allows the concentrationof the same on certain key areas ofaudit. The advantages of statisticalsampling are as below:

� Scientific approach andapplication of the statisticalprinciples make the sampleresults objective and defensible;

� Constancy and consistency ofresults is maintained since allindividual, independent auditorsuse similar method of evidencecollection. Hence, even though the

inferences differ the variation ofinferences is within permissiblelimits;

� The method allows a tolerablelimit of exception and an estimateof error that allows the validationof the results of the test; and

� Major advantage of statisticalsampling is that the results cansafely be extrapolated to thewhole population, using thenormal distribution curve andlevels of confidence. This allowsthe auditor to pre-determine therisk parameters.

Statistical Sampling Techniques

78. Random sampling: The randomsampling technique can be termed asthe easiest method of sampling thatinvolves choosing of items from agiven population at random. All theitems in the population arenumbered and in case of availabilityof the data in digital form, samplingor audit software such ACL or IDEAcan be used to select the itemsrandomly. In cases of manualselection, some amount of judgmentof the auditor in choosing the samplerandomly is applied.

Illustration: If expenditure(payments) is being audited and allvouchers are serially /chronologically listed, auditor mayselect a random sample through arandom number generator.

79. Stratified sampling: The populationis divided into homogeneous,mutually exclusive groups and

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independent samples are drawnfrom each group. This is an efficientstrategy of sampling that ensuresequal representation of differentitems in different strata withadequate sample size of sub-groupsin the population. Stratifiedsampling is more useful in cases oflarge population where unbiasedrandom sampling would not bepossible.

Illustration: While conducting theaudit of procurement contracts, thecontracts can be stratified accordingto their values or volume of contractand samples can be chosen fromthese independent, homogeneousgroups.

80. Systematic sampling: Also known asinterval sampling, systematicsampling identifies the gap betweenthe items to be chosen. As in randomsampling, all the items in thepopulation are numbered; the totalpopulation size is divided by thedesired sample size to get the gapsize. Items with equal interval of thederived gap size are selected fortesting.

81. Monetary Unit Sampling: MonetaryUnit Sampling (MUS), as its nameimplies, is a statistical samplingmethod in which a high valuetransaction is more likely to appearin the sample than one of lowervalue. It is a particular case of thestatistical technique where theprobability of selecting a transactionas a sample is higher if thetransaction value is high.

Sample Size

82. Determination of the sample size andselection of the sampling techniqueare two important issues duringstatistical sampling. Sample size isimportant in sampling. The samplesize is influenced by various factorsincluding the purpose of the study,population size and allowablesampling error, the level of precision,level of confidence and the degree ofvariability in attributes (distributionof attributes or characteristics of thepopulation) being measured. Forexample, greater the heterogeneity ofthe population, larger should be thesample size, to allow the inclusionof the differences of attributes andattain greater level of precision.Sample size is determined using thefollowing techniques:

a) Using a sample size of a similarstudy: Working papers of theaudit conducted earlier on theentity can be used to determinethe sample size of the presentaudit in mandate.

b) Using formulae to calculate thesample size: Certain formulaederived from the probabilitytheories and distribution theoriescan be utilized to determine thesample size.

c) Using software: Using softwarelike IDEA, SPSS, and otherbusiness intelligence tools too,sample size can be determined.

83. Specific sampling techniques arechosen on the basis of the type of

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sampling (attribute or variable) andthe sample selection method(random, stratified, and systematic).

84. Attribute sampling: This is an audittechnique used to select items froma population for audit testingpurposes based on selecting all thoseitems that have certain attributes orcharacteristics. This type of samplingwill help the auditor evaluateinternal controls over a large numberof similarly characterizedtransactions. It is more objective innature and the item can be chosendepending upon the compliance(yes) or non-compliance (no) of thetransactions with policy andprocedures and set standards.

For example, a transaction can bechosen when it complies with theparameters set – does the studentusing the social welfare scholarshipform has the bank account numberfield filled: Yes or No. This allowsthe auditor to evaluate the existingcontrol mechanism and examine theextent of it.

85. Variable Sampling: This is atechnique used to estimate the totalvalue of the population based on thesample total and is used to projectquantitative characteristic. Forexample, review of the accountbalances, testing detailed items thatsupport the account total. It is usedin the substantive testing that detailsthe adequacy, completeness andexistence of those activities duringaudit period.

For example, in the Social WelfareDepartment, the number of studentsreceiving scholarships during agiven year as against the Estimatesis sampled using the variablesampling method.

86. Audit under this Chapter could betaken up on the directions from theHead of the Department. (Specificinstructions regarding takingsampling audit to be obtained by theHead of the Department)

If audit needs to be conducted basedon different method of sampling,specific instructions should beobtained from Head of the Office.Audit office may send a proposal tothe Head of the department fornecessary approval.

Notwithstanding variousinstructions/suggestions in Chapter4 and 5 regarding risk based audit,use of different sampling methods ofaudit, sample size, extent of audittest, etc., auditors of KSA&AD maystill continue with the procedure ofconducting detailed audit of auditeeunits under its purview which hasbeen in vogue since inception.

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Chapter - VAudit Procedures

87. The audit team should perform teststo confirm that the controls have beenoperating effectively andconsistently throughout the periodunder audit. This will help theauditor to decide extent of reliancethat can be placed on the controls.Based on the effectiveness of thecontrols, the auditor must decide theextent of audit tests and proceduresto be performed. If the audit testsconfirm that controls are effective,the audit team can perform aminimum level of substantivetesting. If the audit tests confirm that

controls are ineffective or partiallyeffective, the audit team should notplace reliance on them and the auditplan should be revised accordingly.If a particular control is effective foronly part of the period under review,then the auditor should ensure moresamples are selected from the periodwhen the control was not effective.

88. The methods commonly employedby audit to confirm whether thecontrols have operated effectivelyand consistently are detailed in thetable below:

Inspection of Inspection consists of examining records or documents, whetherRecords or internal or external, in paper form, electronic form, or otherDocuments media.

Physical Inspection of tangible assets consists of physical examination ofverification the assets. Inspection of tangible assets may provide reliableof tangible assets audit evidence with respect to their existence, but does not

assure about the entity’s rights and obligations or the valuationof the assets.

Observation Observation consists of looking at a process or procedure beingperformed by others. Examples include observation of thecounting of inventories by the entity’s personnel and observationof the performance of control activities.

Inquiry Inquiry consists of seeking information, both financial and non-financial, from knowledgeable persons in the entity or outsidethe entity.

External External confirmation, which is a specific type of inquiry, is theConfirmation process of obtaining a representation of information of an

existing condition directly from a third party such as theconfirmation of bank balance as at the end of financial year fromthe bank.

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Recalculation Recalculation consists of checking the mathematical accuracy ofdocuments or records.

Re-performance Re-performance is our independent execution of procedures orcontrols that were originally performed as part of the entity’sinternal control.

Analytical Analytical procedures consist of evaluations of financialprocedures information made by a study of reasonable relationships among

both financial and non-financial data.

Scanning of Scanning is the use of professional judgment to reviewthe data accounting data to identify significant or unusual items and then

to test those items. This includes the identification of anomalousindividual items within account balances or other data throughthe reading or analysis of entries in transaction listings, subsidiaryledgers, general ledger control accounts, adjusting entries,suspense accounts, reconciliations, and other detailed reports.

Flow Charting Flow charting will help the auditor to check and identify anydiscrepancy in the internal controls.

89. Controls testing described underParagraph 87 above deals withtesting of controls designed in thesystem, whereas substantive testingdeals with testing of transactions inthe process. Substantive testingfollows control evaluation where theauditor would have evaluated theimpact of controls on the plannedaudit approach and confirmedwhether he should be adoptingcontrols or a substantive testingapproach for each audit objective.Substantive testing consists ofsubstantive analytical proceduresand test of details which has beendiscussed below:

Analytical Procedures

90. Analytical procedures are tests liketrend analysis, ratio analysis, and

changes in account balances etc.which are performed to determineplausible relationship between twosets of data (financial or non-financialdata) and judge the reasonableness.However, it is important to note thatanalytical procedures can establishonly reasonableness and cannot beevidence by themselves formisstatement or error. Hence they aregenerally used in planning andreview stages. Some of thecommonly used analytical reviewprocedures are discussed below:

Comparisons involving a single ormultiple components

91. Single component comparisoninvolves:

a. Comparing the value of thecomponent to the budget; or

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b. Comparing the component’s currentvalue with its value in previousyears. Example: pay bill in thecurrent year is compared with that ofthe previous year to determine thereasons for any change in theamount.

92. Multiple component comparisoninvolves analyzing the relationshipbetween two or more components.For example, the auditor can checkthe reasonableness of the rate ofinterest paid by the auditee bycomputing the average rate ofinterest (interest paid divided by totalamount of loan outstanding) andcomparing the same to ratesprevailing in the market for similarloans. In case the rate of interest isabnormally high, the auditor shouldconsider flagging this area fordetailed checking. Another examplewill be comparison of budget figuresof other comparable auditeeinstitution like budget numbers ofsimilar City MunicipalCorporations.

93. Transaction Analysis - This involvesthe identification of anomalous itemswithin an account balance. Theapproach would be to scan oranalyze individual entries in aparticular ledger account so as tolocate unusual entries orabnormalities. For example,potential duplicate entries passed inthe account, entries not pertaining tothe account, entries with abnormalamounts passed in the account, etc.

94. Predictive Analysis - This involvesthe creation of an expectation using

not just financial data but alsooperating or external data,independent of the accountingsystem. The key word is‘independent’. Predictive testing canbe used only where sufficientinformation, independent of theaccounting system is available. Forexample, based on the number ofbuildings owned by the auditeeinstitutions and the rent prescribedas per relevant circular, thepredictive rent receivable frombuildings can be determined.

95. Business Analysis - This is a high(macro) level analysis of financialstatements involving critical ratiosrelated to liquidity, financialstability, debt, etc. It is a usefultechnique for identification of riskareas during planning and auditcompletion stages and also for abetter understanding of the entityand its operations. However, itprovides no audit assurance and isnot used in the execution stage. Forexample, liquidity ratio, which iscurrent assets divided by currentliabilities, will provide a measure onwhether the company has adequateliquid assets to pay off its short termdebts. Similarly, debt ratio/leveraging ratio (total liabilities/total assets) is a measure oforganization’s ability to repay itslong term loans. Another example isDebt Service Coverage Ratio, whichis Annual Operating Surplus beforeInterest and Depreciation divided byPrincipal and Interest. The purposeis to measure the organization’sability to repay its debts including

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interest. The higher the ratio, thebetter it is for the organization.

System Based Approach

96. The approach whereby the auditorrelies upon the entity’s system ofinternal control in arriving at anopinion is known as the SystemBased Approach (SBA). GovernmentDepartments will normally establishsystems of control designed toassure:

� Accuracy and completeness offinancial statements

� Legality and regularity ofunderlying transactions and

� Economy, efficiency andeffectiveness of operations.

97. Generally speaking, if the auditor issatisfied about the adequacy of theabove controls, substantive checkingof financial statements ortransactions can be reducedaccordingly. For example, control toensure that bank reconciliation hasbeen performed correctly is reviewof the reconciliation performed bythe superior officer. The auditor canplace reliance on the correctness ofthe reconciliation by testing a sampleof the reconciliation performedincluding evidence of reviewperformed by the superior officer. Ifthe auditor is satisfied that the controlis functioning as designed, then hecan reduce the amount of testing tobe performed in that area, else he hasto incorporate additional tests inorder to evaluate the impact ofcontrol failure.

Direct Substantive Testing

98. When the audit objectives can beachieved without relying on theInternal Control Systems in place inthe auditee, and thus withoutundertaking tests of control, it isknown as the Direct SubstantiveTesting approach (DST). Directsubstantive tests are those tests oftransactions and balances which seekto provide evidence as to thecompleteness, accuracy and validityof information.

99. Test of detail consists of either testingan entire population or specificitem(s) or substantive samples.Entire population may be testedwhen the population has a smallnumber of items or the auditor cantest the entire population through theuse of CAATs (Computer AssistedAudit Techniques). Specific itemsmay be selected for testing based onspecific characteristics.

100. Audit team may rarely obtaincompetent, relevant and reasonableevidence in respect of each auditobjective through tests of control andsubstantive procedures alone andmay have to use a combination ofboth. Hence the audit team membersshould, based on the audit objectiveand evidence available, decide on themethod of substantive testing to beused for obtaining reasonableevidence.

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Computer Assisted AuditTechniques

101. Computer Assisted AuditTechniques (CAAT) is applicationsof auditing procedures usingcomputer technology as an audittool. It may involve use of eitherbasic office productivity softwarelike spreadsheets or advancedsoftware packages involvingstatistical analysis and businessintelligence tools. CAAT may beused to read, display, sample,perform calculations and extract datafrom client’s data files. Someexamples of such computerapplications are IDEA, MS-Access,etc.

102. CAAT may be package programmeswhich are generalized computerprogrammes designed to performpre-defined activities or they may bepurpose-written programmes thatare designed to meet specificrequirements. These programmesmay be either developed by theauditor or the entity being auditedor an outside programmer hired bythe auditor. In some cases, theauditor may use an entity’s existingprogrammes in their original ormodified state because it may bemore efficient than developingindependent programmes.

Using the work of external parties

103. This section will provide guidancein respect of relying on the work ofexternal parties, other auditor andspecialists for the purpose ofexpressing an opinion. For example,the external auditor may decide to

carry out limited testing or re-performance testing of a specific areabased on his assessment of InternalAudit. Similarly, while relying on thework on a specialist, it would benecessary for the external auditor toassess the professional competenceof the external party.

Synergy with internal auditors

104. Internal audit is an independentappraisal or monitoring activity setup by the management of an auditeeentity to review and evaluateaccounting and internal controlsystems. As such, it can beconsidered to be part of anorganization’s overall internalcontrol system. The function may beprovided in-house by staff in fulltime employment or by a third party(For example an audit firm).

105. It is the responsibility of auditeemanagement to establish appropriateinternal audit arrangements withineach entity. Even if audit does notplan to use the work of internal audit,it is important to note that it is anaspect of the auditee entity’s internalcontrol systems. Hence, audit shouldcarry out a general assessment of theeffectiveness of the internal auditfunction. Such assessments shouldtake account of the size andcomplexity of the auditee entitiesand the desirability of a stronginternal audit function.

106. In the planning phase of audit, theauditor should ensure that theactivities of the entity’s internal auditfunction are considered and a

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sufficient understanding obtained toinform the development of aneffective audit approach. TheAuditor should aim to obtain asufficient understanding of the roleand scope of internal audit to aid theassessment of the controlenvironment and to enable an initialassessment of whether it may bepossible to use any internal auditwork. If, as a result of considerationof the role and scope of internalaudit, the Auditor decides that it maybe possible and desirable to rely oncertain internal audit work, anassessment of the internal auditfunction should be carried out.

107. Internal audit may provide auditevidence on:

a. the overall financial controlenvironment;

b. the operation of the systems ofinternal control, including thoseestablished to ensure regularityand propriety and theachievement of departmentalobjectives;

c. Specific account balances, wherethese have been subject toinvestigation or other internalaudit work.

108. While making an assessment ofinternal audit function, some of thepoints to be seen are:

a. the status of the internal auditfunction:

� Is there a clear written mandate?

� Does it report to seniormanagement i.e. Chief ExecutiveOfficer / the governing board orequivalent level of management/ audit committee?

� Is management required torespond/act on itsrecommendations? What is theactual response?

� Is it empowered to carry out afull range of assignments, or arethere significant restrictions onthe scope of its work?

b. The resources available to theinternal audit function – reviewedand documented?

109. It is common practice to use aquestionnaire, while making anassessment of the internal auditfunction. Even where the internalaudit function is assessed to besufficiently independent andprovided with adequate resources inquantity and quality, it is stillnecessary to evaluate such work toreach a conclusion on its adequacy.This evaluation should includeconsideration of:

a. The proficiency of the staff whohave carried out the work and oftheir supervisors/managers;

b. The level of internal auditmanagement review of the workcarried out;

c. The sufficiency of the evidence tosupport the conclusions reached.

Depending on the results of theprocedures, the Auditor may

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decide that the audit team shouldcarry out some limited testing orre-performance of the internalauditors’ work.

Using the work of other specialists

110. A specialist is some person or firmpossessing a professional skill,knowledge or experience in aparticular field other than audit oraccountancy. When using the workof a specialist, it is necessary toassess their objectivity andprofessional competence and obtainsufficient and appropriate evidencethat their work is adequate for auditpurposes.

111. It is essential that the audit teamshould be satisfied as to theprofessional standing andindependence of the specialist and toascertain whether they possess theskills and competence required. Thisrequires consideration of thespecialist’s:

a. professional certification orlicensing by an appropriate,established professional entity;

b. experience and reputation; and

c. lack of conflict of interest.

112. The audit team should also ensurethat the scope of the specialist’s workis sufficient to meet the relevant auditobjectives. If the specialist has beenengaged by the entity, the audit teamshould review the relevant terms ofreference. If the auditor is engagingthe specialist, he should ensure thatclear written instructions of auditrequirements are provided.

113. The other factors to be considered bythe audit team include:

a. the accuracy and appropriatenessof the underlying source dataused;

b. the assumptions and methodsused, and the consistency of theirapplication;

c. the results of the specialist’s workin the light of overall knowledgeof the business and operations ofthe auditee entity; and

d.Whether the specialist’s findingsare properly reflected in thefinancial statements.

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PART – 2

AUDIT PRACTICE

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Chapter - VIAudit Procedures

114. A single plan that incorporatesregularity audit, financial attestaudit, etc., should be prepared witha detailed plan for the current year.The audit planning is an annualexercise with planning done for thecurrent year based on prioritiesdetermined and availability ofresources.

Annual Audit Planning

115. The objective of annual auditplanning is to prepare a plan ofaction to perform audit of all theauditee institutions based on therequirements of the mandate. Oncethe list of auditable entities isfinalized, the list should be linked tonumber resources needed to performthe audit. This will assist in matchingthe resources to meet the plannedaudits.

116. While planning, it should beconsidered that financial attest auditwill be carried out every year as perthe requirements of the statute underwhich the audit is conducted andother audits may be decided by theDirector (Audit)/Additional Directorof Regional office for area/institutions to be covered andfrequency of coverage. Suchcoverage may be decided based onaspects like risk analysis, materialityof the potential risk, public/ politicalfocus etc. While preparing the annualplan, relevant inputs from other

sources like reports of LegislativeCommittees, Enquiry Commissions,Study Reports, Plan/BudgetDocuments, newspaper and journalclippings etc. must also beconsidered.

117. Audit planning should recognize thenecessity of professional/ technicalassistance in complex areas of audit.Therefore, provision must also bemade in the plan for procurement ofservices of outside experts in therelevant fields, wherever necessary.A well-developed audit plan helpsin achieving required coverage interms of institutions to be coveredwhile also allowing adequate timefor each audit institution.

118. Instructions should be circulated bythe Head office (approved by theDirector (Audit)) by first week ofJanuary asking the Local Audit Circle(LAC), and Regional Offices toprovide an annual plan for audits tobe conducted in ensuing year. Theannual plan shall consist of the belowmentioned details:

a. Audits in arrears (year wise) alongwith reasons

b. Institutions to be audited(including those in arrears)

c. Various levels of resourcesrequired for each institution andman-days at each resource levelalong with detailed workings of

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the man-days showing theestimate of effort required at eachlevel of resource and each activityinvolved in audit. This should alsoinclude the parameters andassumptions that have been madewhile making the estimate

d. Monthly calendar of audits to beperformed

e. Name of reviewing authority

119. The annual audit plan should besubmitted to the Director (Audit)/Additional Director of Regionaloffice by first week of March. Allannual plans will be consolidatedand be reviewed by the Director(Audit), who may considerrationalization of audit resourcesacross various LACs and residentoffices. In case of shortage of auditresources, the audits which aremandatory/ statutory to be carriedout in compliance with theprovisions of the applicable statutes/regulations should receive priorityover other non-mandatory audits.

Manpower allocation/ Man-Days

120. Following factors may beconsidered while determining theteam composition and number ofman-days.

a. The audit team should consist ofmembers who have suitableexperience of auditing theinstitutions. Any new member inthe team should be regularlyguided and monitored by theexperienced staff to ensure qualityand timeliness in audit.

b. The volume and value oftransactions should be consideredto ensure that the team has enoughstaff with suitable experience toconduct the audit in the plannedperiod. This requires that thevolume and value of transactionsshould be known before hand,preferably at the time of preparingthe Annual Plan itself.

c. The complexity of the operationsof the auditee entity should alsobe considered to ensure allocationof suitable and adequate staff. Forexample, while the total size oftransactions at a Gram Panchayat,may be lesser as compared to aCorporation, audit of GramPanchayat can be still beconsidered as important becauseof the total number of GramPanchayats which collectivelycontribute to a large value ofpublic expenditure and also onaccount of various schemes beingimplemented through these GramPanchayats requiring a periodiccheck that the scheme guidelinesare adhered to.

Man days for the audit ofinstitutions are based on thetransactions of the auditeeinstitutions and also on the mandays utilized in the previous audityear. In general, the man daysnormally provided as per theOrder No. Ra Le Pa / ULBs (3)dated 27-01-2015 are as follows:

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Sl.No. Institutions No. of Man days

1 Mahanagara Palike * As decided by the Joint Director,LAC, in consultation with theRegional Office

2 City Municipal Council 150 to 200

3 Town Municipal Council 40 to 50

4 Town Panchayat 25 to 40

5 Gram Panchayat Maximum 6

6 University As decided by the AdditionalDirector, Regional Office

7 Command Area 25 to 70Development Authority

8 Urban development 20Authorities/ PlanningAuthority

9 Hindu Religious Institutions 10and Charitable Endowments

10 Public Library Authority 5

* Bruhath Bengaluru Mahanagara Palike has got exclusive Chief Auditor appointed byGovernment (Section 150 of KMC Act, 1976).

As per Order No. CSA/1/IDF/2012/2013-14/116 dated 04-04-2016, AuditingAuthority, Review and Finalisation of Audit Report Authority are as follows subject tooverall monitoring by Director of Audit and Additional Director of concerned RegionalOffice.

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Sl.No. Type of Institution Audit Authority ReviewAuthority/Finalisationof Audit Reports

1 Mahanagara Palike Joint Director of Additional Director ofconcerned Local concerned RegionalAudit Circle Office

2 City Municipal Joint Director /Senior Joint Director /SeniorCouncil Deputy Director of Deputy Director

Local Audit Circle of Local Audit Circle

3 Town Municipal Joint Director /Senior Joint Director /SeniorCouncil Deputy Director of Deputy Director


4 Town Panchayat Joint Director /Senior Joint Director /SeniorDeputy Director of Deputy DirectorLocal Audit Circle of Local Audit Circle

5 Gram Panchayat Joint Director /Senior Joint Director /SeniorDeputy Director of Deputy DirectorLocal Audit Circle of Local Audit Circle

6 Universities and Additional Director, Additional Director,CADAs Regional Office Regional Office

7 HRI & CE,Muzrai Joint Director /Senior Joint Director /Seniorand Miscellaneous Deputy Director of Deputy Director


8 Urban Development Joint Director /Senior Joint Director /SeniorAuthority Deputy Director of Deputy Director


9 Public library Joint Director /Senior Joint Director /SeniorAuthority Deputy Director of Deputy Director


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Staffing Pattern:

The staffing pattern of each Regional Office and Local Audit Circle is as indicatedbelow:

A. Regional Office

Additional Director 1 No.

Senior Deputy Director 1 No.

Audit Officer 8 to 11 Nos.

Accounts Superintendents 8 to 10 Nos.

Accounts Assistant 15 to 22 Nos.

Stenographer 2 Nos.

Typist/Data Entry Operator 4 Nos.

Jr. Accounts Assistants 2 to 3 Nos.

B. Local Audit Circle

Joint Director/Senior Deputy Director 1 Nos.

Audit Officer 3 to 4 Nos.

Accounts Superintedents 1 Nos.

Accounts Assistants 8 to 12 Nos.

Stenographer 1 Nos.

Typist/Data Entry Operator 1 Nos.

Jr. Accounts Assistants 2 Nos.

The duties and responsibilities of the staff are issued vide orders from time to time.The Audit team for major institutions will comprise of an Audit Officer, 3 or 4 Auditorsdepending on the volume of transaction of Auditee Institutions

Monitoring of compliance to theAnnual Plan

121. Based on the monthly calendar ofaudits included in the annual plan,a detailed monthly plan will beprepared by the respective teams

(LACs, and Regional offices) and sentto Additional Director of Regionaloffice/ Director (Audit) for review.The monthly plan in addition tohaving the details of the annual planwill also specify the belowmentioned

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a. Status of audits that are due andagainst which number of auditscompleted, audits in progresswith reasons for delay and auditsnot commenced with reasons.

b. The planned audit dates (start andend) and actual audit dates (startand end) with remarks column fordetailing the reasons fordifferences.

c. Man-days planned and actualMan-days with detailed reasoningfor delay or efficiency achieved inaudits.

d. The monthly calendar may alsoinclude any of those auditspostponed from the previousperiods where the auditee hasagreed to commence in the currentperiod.

122. Monthly audit status must be sent bythe respective Regional offices/LAC’s to the Director (Audit)/Additional Director of Regionaloffices for review by end of first weekof the subsequent month. Based onthe status report, the Director (Audit)will communicate his instructionsregarding further actions to be takenby the respective LACs/Regionaloffices.

Entity level planning and auditplanning memorandum

123. Entity level planning helps theauditor to devote appropriate

attention to important areas of audit.It also helps the auditor to organizeand manage the audit engagement sothat it is performed in an effectiveand efficient manner. It facilitatesdirection and supervision of the teammembers and review of their work.In case of Director (Audit), KarnatakaState Audit & Accounts Departmentcarries out a concurrent post audit. 2

124. Planning of the individual audits isthe most critical process for securinga high standard of audit. Sufficienttime should be provided forcollection of data and preparation ofdetailed guidelines for the audits ofthe selected subjects. Entity levelplanning should be done by the auditteam lead, which should beapproved by the respective Head ofLAC’s or Regional Offices. Theplanning process would involve thefollowing steps:

a. Creation of Permanent Audit File(PAF)

b. Understanding the auditeeinstitution

c. Perform preliminary analyticalprocedures

d. Determining materialitye. Risk Assessmentf. Designing the audit plan

2. Section 36 of the Mysore University Act, 1956 provides for the conduct of a detailed concurrent audit ofthe accounts of the University (including those of the Institutions managed by it) by Government or bysuch other agency as may be determined by the Syndicate with the approval of Government. The UniversitySyndicate at the meeting held on-9 10 the April 1957 resolved that Government be requested to makearrangements for the conduct of detailed concurrent post audit of the accounts of the University undersection 36 of the Mysore University Act 1956 through the Principal Director, Karnataka State Audit &

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Accounts Department, Bangalore. On a reference made by the Principal Director, Karnataka State Audit &Accounts Department, Bangalore in his letter no.112/Aud/Csa, dated 31st May 1957, Government intheir order No. ED 15 UNI 57, dated 12th September 1957 approved the proposal of the University that thePrincipal Director, Karnataka State Audit & Accounts Department, Bangalore, may arrange for theconcurrent post audit of the accounts of the University. The concurrent post audit of the accounts of theUniversity is being conducted by the staff of the Karnataka State Audit & Accounts Department.

Creation of Permanent Audit File(PAF)

125. A prior understanding of the entityis a very important part of entitylevel audit planning. A thoroughunderstanding of the auditee entity’soperations helps in designing anefficient and effective audit approachso that audit resources are focusedon the areas of greater risk and auditmethods which meet audit objectivesat minimum costs are adopted inobtaining competent, relevant andreasonable evidence to support theaudit judgment and conclusions.Permanent Audit File is an excellentway of building this knowledge baseabout individual audited entities.Therefore, it is recommended that aformal data base (or a paper file)should be created for each auditedentity covering the following: thetype of activities of the entity; thedetails of any new activitiesundertaken in the recent years; thelegal / regulatory environment inwhich the entity functions; the pastaudit reports; the accountingstandards, if any, applicable for theentity; any circulars / orders /guidelines issued by the government(administrative department); copiesof returns / ManagementInformation System reportssubmitted by the organization tohigher authorities; minutes ofmeetings; newspaper articles, if any,

on the working of the entity, etc. Thedata base should also contain thebudget, financial statements,outstanding audit observations, etc.The audit team should study andtake note from the permanent auditfile before taking up the auditengagement of the concernedentities. The suggested format forpermanent audit files is given inAnnexure 2 in Format 1.

126. The data should be maintained in asystematic manner and regularlyupdated which can be easilyretrieved as and when they arerequired. The data should be kept inelectronic format, if possible, tofacilitate easy retrieval. These fileswill serve as ready reference materialfor preparation of entity-wise auditguidelines/ plan.

127. At the planning stage, the auditormay perform some preliminaryanalytical procedures to identifyroutine and non-routine transactions,significant and non-significant auditareas and confirm / improve onunderstanding of business.Analytical procedures may assist inidentifying specific risk factors at theentity level. Generally, at theplanning stage, the analyticalprocedures likely to be used consistof simple comparisons and ratiocalculations - for example,comparing information for the latest

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period or budget with previous yearaccounts and budget. There may alsobe scope to consider non-financialdata and its relationship with figuresin the financial statements.Unexpected variations should beinvestigated and evaluated in thelight of other information identifiedduring preliminary planning.

128. The audit team lead should preparethe audit plan and the auditprogramme. The audit plan shouldcontain areas which will be coveredas part of the audit and auditprogramme will detail out the auditsteps to be executed for each area asper the audit plan.

129. All the parameters involved inauditing (understanding the auditentity, risk assessment, materiality)should be documented for futurereference. The entity level audit planis based on the evidence availableand assumptions made at a particularpoint in time. As such, it is only validfor as long as those assumptions holdand should not be followed blindly,if circumstances change. The auditteam should be alert throughout thefieldwork to any matters, which maycome to attention either as a result ofaudit procedures or from othersources which may necessitate arevision in the planning assumptionsand audit procedures.

Audit programmes

130. For each and every area identified foraudit, it is necessary to specify indetail the manner in which the auditwill be carried out. An audit

programme would contain theobjective of audit for that area, theaudit procedure to be followed, thesource for audit and description ofwhat constitutes error.

131. An audit programme of entity maybe a standardized/ genericprogramme with some items whichare specifically applicable to aspecific entity. In other words, theaudit programme of an entity maycontain both standardized andtailored programmes.

Standardized audit programmes -This is a pre-prepared listing of testswhich may be used in any audit. This willensure that a consistent approach isfollowed for all audits and reduces therisks that procedures are omitted. Asample of Standardized auditprogramme is given in Format 2 inAnnexure 2. Also in this context, it maybe mentioned that standard checklists foraudit of different items and for differenttypes of organization have been providedin Part III of this manual.

Tailored audit programmes - Someaudit programmes need to be tailored tothe specific circumstances of anengagement in order to ensure that theaudit procedures to be followed matchthe actual system of the auditee. A sampleof the tailored audit programme is givenin Format 3 in Annexure 2.

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Chapter - VIIAudit Execution

Commencement of audit

132. Communication with the auditeeinstitutions – The communication tothe auditee institutions should takeplace simultaneously along with thepreparation of the audit programmeto ensure that there is no delay incommencement of audit.Communication should be sent tohead of the auditee institutions wellin advance of the commencement ofaudit and to agree on a workingarrangement for conduct of audit.The communication should includethe following points

a. Date of commencement of auditand duration of audit

b. Details of members of the auditteam

c. Initial Data Requirementsconsisting of the information thathas to be provided to the auditoron commencement of audit

d. List of basic records to be madeavailable to audit team oncommencement

e. Request for entry conference withthe chief and key members of theauditee institution

f. Request for adequate internalarrangements within theinstitution for ensuring availabilityof all records for audit, furnishingreplies to preliminary memos of

audit in time, arrangement fordiscussion of reports / auditobjections

g. Even when the finalization ofaccounts is in arrears for aparticular year, it should beadvised that records should bemade available for audit oftransactions.

The format of the intimation for theaudit commencement has beenprovided in Format 4 in Annexure 2.

133. Communication with the auditeeentity is a continuous process and theaudit team will be required to be incommunication with the auditeeinstitution at different levelsthroughout the audit process. Goodcommunication with the auditeeinstitution at the planning stage ofany audit is very vital.

134. The audit team should discuss withthe auditee institution and agree onthe administrative arrangements likeappointment of a coordinator forliaising with the auditee and theauditor, system access to theauditors, working space, etc. whichare needed for the smooth runningof the audit.

Entry Conference

135. A request for entry conference shouldbe made at the time of intimating thecommencement of audit so that thehead of the entity provides time for

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it on the very first day of auditengagement. At the entry conference,the Audit Officer (Team Lead)should explain the audit planincluding the audit objectives andtime frame to the management. Arequest for initial data requirementmay also be communicated. Theaudit team should discuss anysignificant changes impacting theaudit plan/ programme, based onwhich the audit plan/ programmeshould be changed. Minutes of theentry conference must be preparedand documented by the AuditOfficer (Team Leader).

Audit Process

136. Detailed lists of checks to be carriedout in respect of different receipt andexpenditure items of various typesof entities are provided in Part 3 ofthis Manual. Once the documents/information are received, the auditteam should perform testing as perthe audit programme and thechecklists. The enquiries seekingfurther records/ information andpreliminary audit observationsshould be issued through HalfMargin Memos where the querieswill be recorded on the left side ofthe memo and the management willreply to the same with details/information on the right side of thememo. The format of the Half MarginMemo has been provided in Format5 in Annexure 2. The Half MarginMemo has to be in duplicate and theaudit team should obtain theacknowledgement from theconcerned authority for receipt of theHalf Margin Memo.

Audit Working Papers

137. Working papers are the documentseither created by the auditor orgathered by him during the courseof audit. Their preparation andmaintenance is one of the keyprocesses of audit. It providesevidence on how the processes ofaudit have been carried out. Auditorshould document all importantmatters that provide evidence thataudit has been carried out inaccordance with the generallyaccepted auditing standards.Working papers are also a goodsource for evaluation of auditor’swork by the supervisor and for peerreview.

138. It is advisable to standardize auditworking papers wherever possible.Correspondence with auditee,records of entry and exit conferences,questionnaires, checklists, etc. are afew that can be standardized. Welldesigned working papers facilitatesauditor to delegate work and reviewwhether the work is performed inaccordance with the plan or not. Italso provides a means to achieveefficiency, consistency and quality ofaudit. However, standardization ofworking papers in all audit areas isnot possible as the audit procedureskeep varying depending on size andcomplexity of audit.

139. Auditors should create yearly auditfiles that contain documents relatingto that particular audit. Such a filewould consist the following:

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a. Minutes of meetings such asentry / exit conferences and othermeetings;

b. Audit plan and programme;

c. Status of the follow-up of earlierobservations;

d. Audit assertions identified andnature of tests planned for eachsuch assertion;

e. Data collected from thedepartment, proceduresperformed and results achieved;

f. Reviews of the work done byassistants;

g. Communication withmanagement and other externalentities during the course ofaudit;

h. Audit finding and conclusionsreached.

140. Yearly audit files should bemaintained in ring folders withseparator sheets that would set apartaudit plan, sampling plan (if any),each audit area (establishment,contingent charges, procurement,etc.), the audit observations, repliesfrom auditee, audit findings andfinally the audit report. The auditparagraphs should be crossreferenced to audit observations(memos issued to auditee), and theaudit evidence. The suggestedformat for current audit files is givenin Format 6 in Annexure 2.

141. Electronic Documentation – Theefficiency and productivity of the

audit process can be enhanced byusing electronic documentationsoftware. Use of such softwarereduces the time spent duringvarious audit processes by theauditor, allows simultaneous accessto audit files from different locations,provides adequate security throughautomatic encryption andcompression of all audit data andsuch other benefits.

Raising of preliminary auditobjections

142. Financial Attest audit is only givingan opinion about the FinancialStatements whereas, in case ofregularity/compliance audit theobjective is to report on whethertransactions conform to the relevantprovisions of the Constitution and ofthe Laws and Rules made thereunderand is also in accordance with thefinancial rules, regulations andorders issued by a competentauthority.

143. It is an essential and an inherentfunction of Audit to bring to light notonly cases of clear irregularity butalso every matter in which in itsjudgment appears to involveimproper expenditure or waste ofpublic money or stores even thoughthe accounts themselves may be inorder and no obvious irregularityhas occurred. Such audit, often called‘Propriety Audit’ extends beyondthe formality of the expenditure to itswisdom, faithfulness and economy.

144. In order to make a collectivepresentation to controlling

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authorities of the results of audit andthe progress of clearance of auditobjections, it becomes necessary toexpress the objections in moneyvalues. Great care should be taken inarriving at the amount to be placedunder objection. The nature ofobjections should be recorded insufficient detail, the reasons forenforcing recovery should beindicated in the objection, the ruleor order violated should specified,and the person responsible for lossor illegal payment should bementioned in the objection. In thecase of objections or observationsregarding the defective maintenanceof accounts, incorrect use of forms,suggestions of improving the state offinance or accounts, etc., no amountneed be placed under objection.

145. Auditors should omit both from theaudit reports and objectionstatements, all individual itemswhere the sum involved is less thanfifty paise. Where there are manypetty items of a similar nature andthe total involved is more than tenrupees, they can be groupedtogether in the objection statement,and one remark made against the lot.When individual items are omittedfrom the objection statement underthis Rule, the auditor should makean interrogation mark with pencil onthe voucher or the particular item, inorder that the officer in charge maysee, when inspecting, that theauditors have noticed thediscrepancy.

146. Objections should be self-containedas far as possible. All the materialsnecessary to pursue the objection tothe point of surcharge withoutfurther correspondence should beavailable in the audit report itself, orin the audit reports and the objectionstatement put together.

147. Preliminary audit objections arequeries raised by the auditor duringthe course of audit requiring themanagement to provide its formalresponse in order to enable theauditor to decide whether or not topursue the objection further. If theexplanation / information furnishedby the management adequatelyaddresses the issues raised in thequery, auditor may decide to dropit. However, if the explanation /information is inadequate, auditormay choose to pursue it further byincluding it in the final report. Itshould be understood that only suchreplies as will enable an objectionbeing finally withdrawn can beaccepted. Replies such as ‘Noted’‘Will be done’, etc., and partialanswers to objections are of no valueand cannot, therefore, be accepted.

148. While the auditor should focus hisattention in areas where he suspectssubstantial irregularities, the auditorshould not ignore small value or lessimportant items if their cumulativeeffect could be material. The finaldecision as to whether an objectionshould be pursued or not ultimatelyrests with the audit team leader. Theauditor should consider the below

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mentioned points in relation to auditobjections:

a. Before formally communicatingthe audit objections to the auditee,the auditor should provideadequate opportunity to themanagement to present the factsand to rebut the audit objection.Exit conference provides anopportunity to once again discussthe major audit points with themanagement.

b. The auditor must communicateall audit objections in a clear,courteous and impersonalmanner.

c. The objections should be basedon undisputed facts. Theobjections should be based onworkings / data that has beenvalidated to the extent possiblebased on the views / clarificationsprovided by the management ofthe auditee institution.

d. Any statement of criticism ofirregularity in the audit reportshould be accurate, fair,moderately worded anddispassionate. If a charge cannotbe substantiated, there should notbe any hint of it.

149. The value of audit depends largelyon the intelligence and thoroughnesswith which the work is done.Sometimes a procedural irregularity,some irregular payment, or someslight discrepancy may be noticed inthe course of audit. The usualtendency is to embody this in aformal objection statement, which is

replied in the usual course. If therequirements of the AuditDepartment are complied with in theparticular case in question, the matterends there. But that is where it shouldnot end. Small cases like these, iftaken up may lead to the detectionof serious irregularities or a defect ofsystem liable to lead to fraud andtheir value as such should be bornein mind.

150. The Auditor should look ateverything in a fresh and originalway and when he realizes that he hastouched on a matter which mayrequire investigation, he should gointo it, and must take nothing forgranted. It is not, however, thefunction of an auditor, except underspecial orders, to undertake suchduties as conducting enquiries intoallegations of an administrativenature, taking down statements ofwitnesses, the examination of thebooks of trader and the taking orchecking of stock. If there aresuspicious circumstances in theaccounts, the auditor should reportthe fact to the officer in charge. It isnot the business of an auditor toundertake an enquiry, but that of theadministrator or manager of the fundto which the accounts relate.

151. In conducting audit, the auditorswhile yielding in nothing that theyconsider to be their duty, must becareful to avoid friction with theofficial with whom they come intocontact. If they avoid frivolousobjections and convince theadministrative authorities, by the

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manner in which they go about theirduty, that they are there, not tocomplicate the procedure but tosimplify it, not to criticize but toassist, they will meet with littledifficulty in proceeding with theirwork.

152. The Auditor shall issue the objectionstatements over his dated signatureday by day as the audit proceeds. Theaudit objections should be writtenout in duplicate and the first sheetgiven to the local authority afterobtaining their acknowledgement onthe copy.

153. Every query or observation made byaudit should be promptly taken intoconsideration by authority to whomit may be addressed and returnedwith the necessary documents and/or explanations to the auditorconcerned within such period as maybe prescribed by the statute. Forexample, The KarnatakaMunicipalities Act, 1964 specifiesthat the auditor in any requisition orinvitation may fix a reasonableperiod, not being less than 3 days forresponding.

154. The auditors should see that actionhas been taken by the auditeeconcerned to answer all the pointsraised in the inspection notes issued.If action has not been taken to answerall the points raised, the fact may berecorded in the audit report,furnishing details.

Supervision and Review

155. Supervision is essential to ensure thefulfilment of audit objectives and the

maintenance of the quality of theaudit work. Proper supervision andcontrol is therefore necessary in allcases, regardless of the competenceof individual auditors. The work ofthe audit staff at each level and auditphase should be properlysupervised during the audit, anddocumented work should bereviewed by a senior member of theaudit staff.

156. Audit supervision involves ensuringthat:

a. The members of the audit teamhave a clear and consistentunderstanding of the audit plan.

b. The audit is carried out inaccordance with the auditingstandards and practices.

c. The audit plan and action stepsspecified in that plan are followedunless a variation is authorized.

d. Working papers contain evidenceadequately supporting allconclusions, recommendationsand opinions.

e. The auditor achieves the statedaudit objectives; and

f. The audit report includes theaudit conclusions,recommendations and opinions,as appropriate.

157. While both supervision and reviewfunctions aim to ensure that audit isconducted effectively and efficiently,supervision is concerned with day-to-day control to ensure that the auditproceeds satisfactorily and that any

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problems are immediately attendedto, while review takes place either instages during the progress of workand after its completion.

158. While day-to-day supervisionshould be exercised by the teamleader (normally the Audit Officer incharge), Joint Director/SeniorDeputy Director of LAC orAdditional Director, Regional Officemust supervise the planning phaseof individual audits and final reviewof audit reports on completion ofaudits. In case of prolonged audits,a midterm review may be carried out.

159. All audit work should be reviewedby Audit Officer/senior teammember of the audit staff beforefinalizing the audit report. Reviewbrings more than one level ofexperience and judgment to the audittask and should ensure that:

a. All evaluations and conclusionsare sufficiently supported bycompetent, relevant andreasonable audit evidence, as itbecomes the foundation for thefinal audit opinion or report.

b. All errors, deficiencies andunusual matters have beenproperly identified, documentedand either satisfactorily resolvedor brought to the attention of asenior officer(s); and

c. Changes and improvementsnecessary to the conduct of futureaudits are identified, recordedand taken into account in later

audit plans and in staffdevelopment activities.

Audit conclusion and auditreporting

160. In the completion phase of audit, theaudit team should perform anoverall review of the financialstatements. The review mustconsider whether:

a. The financial stat`conclusion as towhether the financial statementsas a whole are consistent withaudit team’s knowledge of theauditee’s business (i.e., activitiesand operations);

b. Whether the presentation adoptedin the financial statements mayhave been unduly influenced bythe management’s desire topresent matters in a favorable orunfavorable light;

c. The potential impact on thefinancial statements of theaggregate of uncorrectedmisstatements identified duringthe course of the audit and thepreceding period’s audit, if any;and

d. Whether the financial status of theauditee is sound (adequateliquidity is maintained,borrowings are within limits, etc).

161. Audit considerations while carryingout the analytical review at thecompletion phase are:

a. Whether the financial statementsadequately reflect the informationand explanations previously

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obtained and conclusionspreviously reached during thecourse of audit;

b. Whether the review reveals anynew factors which may affect thepresentation of or disclosures inthe financial statements;

c. Whether comparing theinformation in the financialstatements with other relevantdata produces results which assistin arriving at overall conclusion asto whether the financialstatements as a whole areconsistent with audit team’sknowledge of the auditee’sbusiness (i.e., activities andoperations);

d. Whether the presentation adoptedin the financial statements mayhave been unduly influenced bythe management’s desire topresent matters in a favorable orunfavorable light;

e. The potential impact on thefinancial statements of theaggregate of uncorrectedmisstatements identified duringthe course of the audit and thepreceding period’s audit, if any;and

Whether the financial status of theauditee is sound (adequateliquidity is maintained,borrowings are within limits, etc).

Exit Conference

162.The audit team must conduct an exitmeeting with the auditee consistingof chief of the organization and otherstakeholders. All audit objections/observations should becommunicated to the auditeerepresentative for internal circulationin advance prior to the exit meeting.The exit meeting provides anopportunity to both the sides to putforth their view points and concludeon the objections/ observations. Theminutes of the exit meeting shouldbe documented and circulated to theauditee institution.

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Chapter - VIII

Audit ReportsFormat and Content of Audit Report

163. Auditors should be careful not toembody any objection in their auditreports without giving themanagement full opportunity forexplanation. All objections, whichcan be settled once the rules arecomplied with, should be so settledduring the audit. Every effort shouldbe made to leave as few objectionsas possible, to be dealt with, after theconclusion of the audit.

164. For audit to be effective, it dependson its right and duty to report resultsto the proper authority, so thatappropriate action may be taken torectify the irregularity andimpropriety, where possible, or toprevent a recurrence of it. Thisauthority may be a departmentalauthority or local body, orGovernment.

165. It is in the treatment of results ofaudit that the auditorial functiondemands the highest qualities ofunderstanding, balanced judgmentand sense of proportion, and it is toenable him to deal with resultsadequately that the auditor has beenaccorded a high degree ofindependence and prestige. Anauditor must develop an instinct forassessing the importance of anindividual irregularity.

166. The Auditor must keep before himhis primary functions of securing thesubstantial correctness of accountsand the regularity and propriety ofindividual financial transactions.Therefore, when the detailed audit ofaccounts and transactions has beencompleted and all infractions of rulesand orders noticed, he must decidewhether to demand regularization orcorrection in an individual case, orwhether to be satisfied withprevention of the error or irregularityfor the future. In particular, it shouldbe remembered that, while financialrules and orders must be observed,mere rigid and literal enforcement ofsuch rules and orders maydegenerate into wholly unintelligentaudit.

167. Audit report is a formal opinion ordisclaimer statement expressed bythe auditor. This is prepared as aresult of the evaluation of definedareas performed on the auditeeinstitution. It is intended for the userto take informed decisions based onthe results of audit. The format andcontent for the audit reports may beprescribed by the applicable statutes,in which case the auditor has toprepare his report in the prescribedformat incorporating the specifiedcontent.

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Audit Reports - Financial Audit

168. Usually the audit reports forfinancial statements are in the formof certificates with an appendedreport containing audit observations.The prescribed statement may beincluded in the appended report.The auditor, however, can annex, inappropriate cases, a detailed reportwherever he feels it is necessary.

169. Below are some general principlespertaining to the format and contentof the audit report.

a. Title – The opinion or audit reportprovided by an auditor shouldhave a suitable title or heading.

b. Signature and Date – The reportshould be properly signed anddated. The date informs the readerabout the time taken forcompletion of audit and the eventsafter the period of the financialstatements which may have beenconsidered in the report.

c. Objective and Scope – The reportshould provide details of thescope and objectives of audit inorder to enable the reader todetermine the boundaries withinwhich the audit has beenperformed.

d. Completeness – Opinionexpressed by the auditor shouldbe part of and included in theaudit report and cannot be aseparate document from theaudited financial statements.However, there might be some

information (confidential orsensitive) which cannot be freelydisclosed. These kinds ofinformation if not disclosed mayimpact the completeness of theaudit report. In such cases, theauditor may consider includingthe confidential or sensitiveinformation in a separate,unpublished report.

e. Addressee - The audit reportshould identify the people orgroup of people to whom it isaddressed, as per therequirements of the auditengagement and local regulationsor practice.

f. Other matter – The audit reportshould contain apart from thematter mentioned above, otherdetails like auditee entity, periodof coverage by financialstatements, relevant legislation/basis under which the audit hasbeen conducted, audit standardswhich have been followed inconducting the audit,responsibilities of themanagement and the auditor etc.

Audit opinion

170. Audit opinion is a certificate orstatement given by an auditor,expressing whether or not, thefinancial statements for a particularperiod audited by him, present anaccurate picture of the financial statusof the audited entity for that period.

171. A final opinion on the state ofaccounts and financial

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administration should be furnishedin the following form: -

‘The financial administration and thecondition of accounts as disclosed byaudit may be considered to besatisfactory/fairly satisfactory/notsatisfactory’

172. Notwithstanding the wording ofopinion given in the aboveparagraph, it must be borne in mindthat an opinion in other forms maybe required. The language used inthe audit opinion depends on thebasis of accounting employed. Thecircumstances in which differentlanguage/ words are used areprovided below: -

a. The words ‘Properly Presents’ isused when the financial statementshave been prepared on a cashbasis. This form of words used isrelatively precise, reflecting thevery low level of judgmentrequired in preparing financialstatements on a cash basis.

b. The words ‘Presents Fairly’ isused when the financial statementshave been prepared on a partialaccrual basis and are not intendedto give a true and fair view. Thisform of words reflects the fact thatthough some element of judgmenthas been used in preparing thefinancial statements, the auditopinion is distinct from the one onaccounts which give a true and fairview.

c. The words ‘True and Fair View’is used when the financial

statements have been prepared ona full accrual basis and intendedto give a true and fair view. Suchfinancial statements willsubstantially comply with thecommercial accountingrequirements and with applicableaccounting standards.

Different types of opinions

173. Unqualified opinion – In case offinancial attest audit, an unqualifiedopinion is provided when thefinancial statements give a true andfair view and have been prepared inaccordance with relevant accountingrequirements.

174. In forming an unqualified opinionthe auditor should be satisfied that:

a. The financial statements have beenprepared in accordance with therelevant legislation, regulationsand applicable standards.

b. There is adequate disclosure of allinformation relevant to a properunderstanding of the financialstatements.

c. Appropriate accounting policieshave been consistently applied inthe preparation of financialstatements.

d. The financial statements are freefrom material irregularity andtherefore, the transactionsrecorded in them conform to theauthority which governs them.

If the auditor has any reservationson any of the above matters, then

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an unqualified opinion shouldnot be provided.

175. Qualified Opinion – A qualifiedopinion is provided where theauditor is not able to satisfy himselfthat the financial statements are freefrom material misstatement whethercaused by fraud, error or otherirregularities.

176. The auditor may qualify his opinionif he is uncertain as to whether amaterial error exists or not in thefinancial statements or the auditdisagrees with the manner in whichsomething has been dealt with in thefinancial statements. Uncertaintymay arise either because the auditoris not able to obtain all theinformation / explanation forcompleting the audit, absence ofproper accounting records or suchother reasons. Disagreement mayarise in situations where the auditeeinstitution may present figures in thefinancial statement which are not inaccordance with the applicableaccounting rules or not based onappropriate accounting policies orprinciples or where the auditordisagrees with facts or amounts in thefinancial statements and such otherreasons.

177. The Auditor may provide thequalified opinions mentioned below:

a. ‘Subject to’ opinion – This isprovided when the auditor isuncertain as to whether a materialerror exists or not in the financialstatements. However, althoughthe error is material it is not

fundamental (a matter isconsidered as fundamental, wherein the opinion of the auditor aperson reading the financialstatements would be totallymisled as a result of the error).

b. ‘Except for’ opinion – Where theauditor is in disagreement withthe financial statements; however,if the disagreement is material butnot fundamental in relation to thefinancial statement, then theauditor will provide an ‘Exceptfor’ opinion.

c. Disclaimer of opinion – Where theauditor is uncertain as to whethera material error exists or not andthe error has a fundamental impacton the financial statements thenthe auditor should give adisclaimer of an opinion.

d. Adverse opinion – Where theauditor is in disagreement withthe financial statements, and thedisagreement is fundamental inrelation to the financial statement,then the auditor will provide anadverse opinion.

178. Before the auditor issues a qualifiedopinion or a disclaimer of opinion,discussions should be conductedwith the management of the auditeeentity where the auditor will providedetails as to the circumstances givingrise to the qualification. The auditeemanagement should be given theopportunity to make corrections tothe financial statements or providefurther information in support ofthem.

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179. Whenever the auditor expresses aqualified opinion, he should clearlyspell out the reasons for expressingsuch opinion and wherever possibleshould quantify the effects on thefinancial statements.

Format of an Audit Opinion isprovided in Format 7 in Annexure 2.Examples of Qualified Opinion,Unqualified Opinion and DisclaimerOpinion are provided in Format 8 inAnnexure 2.

180. The Financial Attest audit report willcomment only on the financialstatement of the year in question andwill be a Separate Audit Report(SAR) as part of the Main AuditReport. Format of the SAR is givenin Annexure 3.

181. The audit report should be clearlydated and personally signed by theauditor or such other person as perthe requirements of the statute. Incase of financial statement audit, theauditor should not sign the auditreport/certificate unless the financialstatements and other financialinformation contained in the reporthave been approved by the ChiefAccounts Officer or equivalentauthority.

Management Letters

182. The outcome of financial audit is notonly to express an opinion on thefinancial statements of the auditeeorganization, but also to add valuein improving the financialmanagement and controls. Therecommendations to the auditee

towards improvement in theirfinancial management and controlswould be auditor’s value addition inthe overall financial management. Onthe conclusion of financial (attest)audit of an entity for a year, KSA&ADmay issue a Management Letter tothe top management of the entity toinclude the audit findings other thanthose which have been consideredmaterial enough to be taken to theAudit Certificate. The managementletter may also include quality ofinitial and subsidiary books ofaccounts, audit trail, security controlof computerized accounting data etc.

Audit Reports - Propriety andRegularity

183. Attention of the Auditors is invitedto Rules 21 to 26 of the MysoreMunicipalities (Powers and duties ofAuditors) Rules, 1965 which containinstructions relating to drafting ofaudit reports on the accounts ofMunicipal Councils. The same rulesmay be followed mutatis mutandisin the case of other institutions also.As stated therein, the audit reportshall be in two parts, namely: -

Part I – Previous Audit

Part II – Current Audit.

Part I of the audit report shall containa brief summary of the audit objectionswhich still require action for clearance.

Part II of the audit report shallcontain remarks relating to the currentaudit under following three sections inrespect of Grama Panchayats, UrbanLocal Bodies & other institutions.

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a. Section A - Major irregularitiesthat merit reporting to higherauthorities / Legislature.

b. Section B - Irregularities which,though not major, are required tobe brought to the notice of higherauthorities and followed up bythe KSA&AD and instances ofrecoveries to be effected orregularized.

c. Section C - Minor irregularities orprocedural irregularities inrespect of which the head of theoffice has held out assurancesabout following correct procedurein future. Format of the Proprietyand Regularity Audit report isgiven in Annexure-4.

In respect of Universities, the formatin which the Audit Report is to bedrafted is specified in Annexure-5.

184. Part I should contain a brief referenceto the important paragraphs of theprevious audit reports, year-wise,which remain unanswered or remainpending for want of final replies. Inthe end, an abstract of the amountsheld under objection and proposedfor recovery in respect of each yearmay be put up, so as to give an ideaof the cumulative balance of thepending objections and amountspending recovery.

185. The first paragraph in Part II of theaudit report should begin with ageneral financial review of the entityconcerned for the period covered inaudit. The review of the financialposition should include comments

on the normal income and normalexpenditure for the year of audit andof the two preceding years.

186. While furnishing figures undernormal receipts and normalexpenditure, debt head transactions(i.e., loans deposits, advances,grants, royalty, Health Cess,Education, Cess, etc.,) andextraordinary receipts such asincome from investments,realizations, on account of sale ofsites, etc., should be excluded underreceipts and similar items ofpayments under expenditure.

187. The balances under assets andliabilities should be criticallyreviewed and commented upon. Thereview, for instance, in the case ofadvances should contain typicalcases of old advances not recoveredor got adjusted and in the case ofdeposits, the defects in themaintenance of the deposit register,the non-lapsing of time-barreddeposits, etc., should be pointed out.

188. The result of verification of each ofthe debt head balances with thedetailed accounts maintained in asubsidiary register should be brieflymentioned next in as many sub-paragraphs as necessary, withsuitable comments as to thedeviation from rules observed in thecourse of verification, such as delayin effecting recoveries oradjustments, omissions to note thetransactions in the subsidiaryregister concerned, etc.

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189. The system of budgeting should beexamined and suitable commentsmade regarding variations betweenthe actual and the budget estimatesboth under receipts and payments.Cases in which expenditure wasincurred in excess of or in the absenceof budget provision withoutobtaining the necessary re-appropriation of funds sanctioned bycompetent authority should benoticed in audit, and the amountsinvolved held under objection.Similarly, shortfalls in the realizationof revenue should be commentedupon.

190. After completing the paragraphsrelating to revenue as detailed above,the irregularities observed undereach kind of expenditure such asestablishment charges, travellingallowance, contingencies, publicworks, etc., should be recorded in theorder in which they occur in thebudget. The purpose of arrangingthe items of Revenue andExpenditure one below the other assuggested above is to see that all theirregularities relating to oneparticular kind of Revenue orExpenditure is brought in one placeto render them more impressive andnot scattered in the Audit Report.

191. One paragraph should reviewwhether the entity concerned haspaid, as required under the rules, thevarious contributions due toGovernment such as pensioncontributions and amounts due forsupplies made and service renderedby various departments of

government, and should detail theamounts, if any, that are still due togovernment on various accounts.Whether the entity concerned hastaken adequate action to recover thecontributions due to it either fromGovernment or other local bodies,should also be mentioned here.

192. A paragraph relating to theirregularities noticed in the accountsof grants, including diversion ofgrants may be included in the auditreport. A statement showing theopening balance of grants, grantsreceived during the year,expenditure incurred during theyear and balances of grantsremaining unutilized at the end ofthe year should be attached to theaudit report. Similar comments onloans shall also be included in theaudit report.

193. Irregularities which do not fall eitherunder Receipts or Expenditure, suchas delay in the submission ofmonthly accounts, the condition ofmaintenance of various books andregisters, etc., should be dealt within the concluding portion of theAudit Report. Auditors must notembody any criticism in their reports,until they have considered as fullyas possible, the views, andarguments of the officer in charge ofthe fund. When, after carefulconsideration of these views, theAuditors still adhere to their views,it should be stated in the audit reportfor the information of the officer. Theauditors should see that action hasbeen taken by the local authority

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concerned to answer all the pointsraised in the inspection notes issuedby the Local Audit Circle/RegionalOffice. If action has not been taken toanswer all the points raised, the factmay be recorded in the audit report,furnishing details.

194. The following points should bespecially looked into: -

a. Losses: Losses may be due toomission in assessment, non-recovery of an item of revenuewithin the time prescribed forrecovery by a civil suit, selectionof contractor whose rates were notthe lowest and other similarcauses.

b. Illegal action: Payments madewithout obtaining requisitesanction and expenditure incurredfor purposes not authorized bythe Act are a few examples ofillegal payments or paymentscontrary to law.

c. Violation of financial rules ororders: Non-investment of funds,expenditure in excess ofallotments and diversion ofearmarked funds, are examples ofviolation of financial rules ororders. All improprieties may bementioned.

d. Disregard of interests of localbodies.

195. The following are irregularitiesfound in main account: -

a. Delay in the preparation ofaccounts and unpreparedness foraudit;

b. Errors in accounts;

c. Violation of accounting rules

d. Errors in procedure; and

e. Non-maintenance of registers

196. The most common types ofirregularities or illegal payments,waste or misappropriation of fundsof a local body which may berecommended for surcharge are thefollowing: -

a. Irregular employment ofestablishment without competentsanction or continuing it beyondthe period of sanction in caseswhere the competent authorityrefuses to regularize it;

b. Expenditure unsupported byvouchers or bills;

c. Over-payments in work bills orother bills which could not berecovered from the partiesreceiving payment;

d. Unjustifiable write-off of revenueor other dues which are eitherrecoverable or becomeirrecoverable due to negligence ormisconduct.

e. Short or non-recovery of revenue(which subsequently becomesirrecoverable) due to negligence ormisconduct;

f. Misapplication of funds on objectsnot provided for in the Acts orcontrary to law or in a wastefulmanner;

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g. Other loss due to negligence andmisconduct; and

h. Amounts received, but notbrought to account.

197. When erroneous payments have beenadmitted in audit for a considerabletime, owing either to a wronginterpretation of financial rules ordue to oversight, the followingcourse should be observed: -

a. When a wrong interpretation of afinancial rule has been followed, thenew interpretation should, in absenceof special instructions to the contrary,take effect from the date of issue, bycompetent authority, of the ordersstating the correct interpretation; and

b. When erroneous payments have beenleft unchallenged through oversight,a re-audit of bills which have beenpaid more than one year ago, shouldbe undertaken only with the ordersof Government.

Note: - Government may, however, ordera re-audit of accounts of a Local Bodyfor purposes of investigation in casesof fraud but charges that might bediscovered to have been erroneouslyadmitted in audit for long timeshould not be summarily disallowedor recommended for beingsurcharged by the auditors on theground that they are inadmissible.Objections, if any overlooked inclosed audit, discovered in thecourse of subsequent audit should bebrought to the notice of the Director(Audit), Karnataka State Audit &Accounts Department and his orders

obtained as to how they should bedealt with.

198. Care should be taken to see that allfacts and figures appearing in theobjection are correct, and the reasons,if any, for disallowing a particularitem of expenditure as contrary tolaw, and for charging any personwith deficiency or loss, are clearlystated. It is also necessary that in allcases of financial irregularitiesnoticed in audit, the actual amountsinvolved should be determined andmentioned in the audit report.

199. Defalcations detected by theexecutive authorities and adequatelydealt with by them need not bedetailed in the audit report, but onlya brief abstract of the number,amount and nature of thedefalcations may be given.Comments should be made, if theembezzlements disclosed negligenceon the part of the staff in notobserving the rules. If a defalcationwas rendered possible by and defectin rule or procedure, a suitableparagraph may be included in report.Defalcations noticed in audit shouldbe fully stated in the audit report.

200. It is not possible to issue instructionsas to how to produce a good auditreport. These rules contain only afew of the most important pointswhich may help the Local Auditorsto produce a good audit report. Itshould deal with all importantpoints, but should not be undulylong. The merit of an audit reportconsists in its brevity and clearness.

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201. Audit reports should be drafted withthe utmost care. They should be asbrief as possible, consistent withlucidity and should not be in looseor ambiguous language. It is notsufficient, merely to quote the ruleor order violated. The effect of theviolations on the financial interestsof the local body should, as far aspossible, be explained, so as to beintelligible to an outsider. Onlyimportant irregularities should gointo the report and the rest should beincluded, in the objection statement.Objections should be self-containedas far as possible. Whereirregularities of the same nature arenoticed in several transactions, thenarration of the irregularity of eachtransaction need not be given in theaudit report proper, but the itemsmay be listed in a statement andappended to the audit report givingreference to the statement in the auditreport. If clear cases of losses orillegal payments, etc., are noticed inthe course of audit, a letter may beaddressed to the concernedauthorities recommending surchargeproceedings and issued along withthe audit report.

202. Trivial and purely technicalirregularities and omissions, as far aspossible, should be rectified locallyduring the time of audit and need notbe mentioned in the audit reports orobjection statements. However,where it is not possible to get repliesto the objection statementscontaining irregularities of a minornature, the fact may be brieflymentioned in the audit report and

the return of the objection statementwith replies may be watched. Wherethe provisions of the Act or rules areinfringed, the fact should be brieflystated. Where details are considerednecessary in any account or registerand no rule in support of suchrequirement can be quoted, necessityfor the details may be brieflyexplained. Where an objection istaken, the mode of removing theobjection should also be stated, e.g.,it will not do to ask, how anexpenditure unsupported bycompetent sanction was incurred,but such sanction should be requiredto be obtained.

203. After drafting the audit report inaccordance with the instructionsgiven above, the Auditor shouldsubmit the draft audit report to theLAC office/Regional office for beingreviewed and issued to theadministrator of the fund over thesignature of the officer authorized todo so. The authorized auditauthority should take up the localreview of the audit report whenevernecessary before the Auditors leavecamp. Before submitting the report,a facing sheet to the audit reportshould be put up showing theamounts held under objection andproposed for recovery givingreference to the paragraph numbersof the audit reports.

204. A copy of the audit report dulysigned by the concerned officershould be forwarded to theappropriate authorities ascontemplated in the Acts or Rules.

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Submission of audit reports

205. The auditor must maintain theconfidentiality of all communicationwith the auditee institution includingthe audit report. The auditor shouldnot reveal the contents of anycommunication to a third partywithout the client’s permission,subject to the provisions of any lawin force (like the Right to InformationAct). Auditor shall send the auditreport to the auditee along with acovering letter addressing the Headof the department / institution. Thedetails to be mentioned in thecovering letter are

a. Details of the auditee institutionand the year of audit report

b. Cumulative amounts ofObjections

c. Total amounts for recovery

d. Time limit for the reply to theobjections and action to be taken.

The format of Audit Covering letteris given in Format 9 in Annexure 2.

206. The respective acts governing theauditee institutions may provide themanner in which the audit reports areto be submitted. For example, theKarnataka Panchayat Raj Act, 1993provides that ‘the auditor shall,within one month after thecompletion of audit, forward a copyof the audit report to the Gram-Panchayat and to the ExecutiveOfficer’. The auditor has to ensurecompliance to such requirementswhile submitting the audit reports.

207. References to relevant sectionspertaining to the submission of auditreport have been provided below:

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Sl. No Statutes governing institutions Time limit for submission ofaudited by KSA&AD report

1 The Karnataka Panchayat Raj Within one month after theAct, 1993 completion of audit.

2 The Karnataka Municipal Within a period of 3 monthsCorporations Act, 1976 from the end of the financial

year or within such other periodas notified by Government.

3 The Karnataka Municipalities Within 3 months after theAct, 1964 completion of audit.

4 The Karnataka Urban Not defined in the statute. ReferDevelopment Authorities note belowAct, 1987

5 The Karnataka Command Not defined in the statute. ReferAreas Development Act, 1980 note below

6 University, (Respective Not defined in the statute. ReferUniversity Act) note below

7 The Hindu Religious Institutions Not defined in the statute. Referand Charitable Endowments note belowAct, 1997

Note: Where time limits are not defined by the statutes, auditor should issue theaudit report within a month of the completion of the ground work audit.

Consolidated Annual Audit Report.

a. Consolidated Annual Audit Reporton Grama Panchayats: - As perSection 246 (12) of the KarnatakaPanchayat Raj Act 1993, which cameinto force as per Governmentnotification dated:16-07-2011, theConsolidated Annual Audit report isrequired to be submitted to theGovernment for being placed beforethe State Legislature.

b. Consolidated Annual Audit Reporton Urban Local Bodies: - As perSection 295(6) of the Karnataka

Municipalities Act 1964, and as perSection 150 (2-B) of KarnatakaMunicipal Corporations Act 1976,which came into force from 14-03-2012, the Consolidated Annual Auditreport is required to be submitted toGovernment for being placed beforethe State Legislature.

The Audit Reports of the GramaPanchayats and the Urban LocalBodies should be so drafted that themajor findings could be taken to theConsolidated Annual Audit Report.

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Follow up of audit report

208. Auditor has to comply with thefollow up of audit report with respectto the objections raised. The statutesof the auditee institutions prescribethe time period for compliancerequirement. Compliancerequirement for each of the auditeeinstitution are discussed in theindividual checklists. In the absenceof provisions of Audit report follow-up/ compliance in the respectiveActs, the hand book on “SpeedySettlement of audit observations,inspection reports, speedy disposalof audit paragraphs and timelyaction on matters pertaining to thePublic Accounts Committee, TheCommittee on Public Undertakings2001” may be referred to wherein itis stated that “ the auditobservations/ notes received fromthe auditor normally needs to bereplied to within a fortnight from thedate of the receipt of the report andin no case it should exceed threemonths.”

Levy of Surcharges

209. If action has not been taken to recoverthe losses or make good the illegalpayments pointed out in the auditreports, action has to be taken torecommend charge or surchargeproceedings according to therelevant provision of the Act orRules. This item of work shouldreceive the personal attention of theAudit Officer. Prompt action shouldbe taken in such cases as delay inreporting such cases to the DivisionalCommissioner or any other

competent authority might come inthe way of recovery of the objectedamounts.

210. A register should be maintained ineach Audit Office in which all thepoints included in the special letterfor taking surcharge proceedingsshould be noted and their disposalshould be carefully watched. Thisregister should be reviewed by theconcerned officer periodically at leastonce a month. Regular remindersshould be sent to the concernedOfficers in the matter. Disposalsreported by the competent authorityshould be noted in the registeragainst the cases concerned. Thecases recommended for surchargeand the result of action taken by thecompetent authority should beincluded in the annualadministration report of theKarnataka State Audit & AccountsDepartment for the information ofGovernment. A register of surchargecases should also be maintained inthe audit section of the Head Office.

Powers to drop / forego recoveries

211. The Director (Audit), Karnataka StateAudit & Accounts Department may,in order to avoid unnecessaryexpenditure of time and labour oncases of an unimportant nature, mayforego recovery of irregularexpenditure not exceeding Rs.500 inany individual case. The SeniorDeputy Director may exercise thesame powers up to a limit of Rs. 250and a Deputy Director may exercisethe same powers up to a limit of Rs.125. If the irregularity is such that it

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is likely to recur, the officerresponsible should be informed thatit is objectionable even if no recoveryis made.

212. Some items are placed underobjection not because the whole orany portion of the expenditure isunjustifiable in itself but because itis not exactly covered by a rule or theauthority, or full proof such as sub-vouchers for incurred expenditure,has not been produced. In suchcases, the Director (Audit), mayforego recovery up to a limit of Rs.500 in each case. The Senior DeputyDirector may forego up to a limit ofRs. 250 in each case and a DeputyDirector may forego recovery up toRs. 125 in each case, if the followingconditions are fulfilled: -

a. The expenditure must not be of arecurring nature.

b. Where the objection is based oninsufficiency of sanction, theDirector (Audit), Senior DeputyDirector or Deputy Director, as thecase may be, must be satisfiedthat the authority empowered tosanction the expenditure wouldaccord sanction if requested to doso.

c. Where the objection is based oninsufficiency of proof of payment,the Director (Audit), SeniorDeputy Director, as the case maybe, must be satisfied that unduetrouble would be caused by theinsistence on submission of fullproof and must see no reason to

doubt that the charge has actuallybeen paid.

213. The Director (Audit) may foregoamounts of expenditure objected tofor recovery which have, for anyreason, became irrecoverable, up toa limit of Rs. 500 in each case, subjectto the following conditions: -

a. These powers are not to beexercised in respect of items, thecheck or audit of which does notdevolve on the Karnataka StateAudit & Accounts Departmentsuch as items in bills, which theDepartment receives and forwardsto another office for audit, or inrespect of any amountoutstanding under a debt ordeposit head.

b. These powers are not to beexercised in respect of objectionsagainst excesses over technicalestimates of works.

214. The Senior Deputy Director andDeputy Director may forego parasup to the limit of Rs. 250 in each case,and a Deputy Director may write offamounts up to Rs. 125 subject to theconditions prescribed in clause (a) &(b) above.

215. The Director (Audit), KarnatakaState Audit & Accounts Departmentmay forego recovery of personalclaims which are placed underobjection more than a year after thedisbursement of the amounts up toa limit of Rs.500 in each case, if he issatisfied that the amount was drawnby the employee concerned under a

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reasonable belief that he was entitledto it. Subject to the same condition,the Senior Deputy Director, mayforego recovery of such amounts upto Rs. 250 in each case.

216. All cases of which recoveries areforegone in accordance with thepowers delegated above should berecorded in a register.

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ANNEXURE - 1

Audit offices and coverage

The audit functions are performed through geographically distributed Local AuditCircles (LACs) and Regional offices. Below is the list of various auditee institutionsaudited by KSA&AD

Sl. No. Type of Institution No of Institutions Audited byin Karnataka

1 Gram Panchayats 5628 Local Audit Circles

2 City Municipal Councils 44 Local Audit Circles

3 Town Municipal 168 Local Audit CirclesCouncilsTown Panchayats Local Audit Circles

4 Municipal Corporations 8 Local Audit Circles

5 Universities 24 Regional offices

6 Urban Development 51 Local Audit CirclesAuthorities

7 Muzrai Institutions 202 Local Audit Circles

8 Hindu Charitable 4 Local Audit Circles/Institutions Head Office

9 Command Area 6 Regional OfficesDevelopment Authorities

10 Other Institutions 502 Local Audit Circles

Total 6637

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Audited Entity____________________Period of Audit___________________Type of File: Permanent File

Section # Section Description Suggested Contents

A Audit Mandate Relevant Acts, notices, circulars etcproviding the mandate for conducting audit

B Organizational structure Organization chart, list of keymanagement personnel etc

C Accounting Details Description of accounting systems,accounting rules, reference to accountingmanuals, list of books and recordsmaintained, chart of accounts etc

D History and Background Background information about the a uditee institution like documents obtainedwhile getting the understanding of theentity, vision and mission, historyand registered address, etc.,

E Relevant Regulations Laws & regulations providing a legalframework central to the auditee’s abilityto conduct its business.

F Audit Reports and Previous years Financial statements,Financial Statements Internal audit, documents pertaining to

internal control environment and otheraudit reports etc.,

G Other Records Any other documents pertaining to theauditee institution like latest budget andAnnual Accounts to be updated every year.

ANNEXURE - 2

Format - 1

76


STANDARDIZED AUDIT PROGRAMME

Name of the Entity:

Financial Year:

Persons handling the audit:

1) Verification of Bank Balances

Checklists Yes / No

Whether the bank balances as per the ledgers reconcile with the balances in thebank statements.

Does the Bank reconciliations of the previous year match?

Are there cases of cheques issued by the entity but not presented for payment?

Are there cases of cheques deposited for collection by the entity but not credited inthe bank account, have been duly debited/credited in the subsequent period?

Are there items in the reconciliation statements which are outstanding for anunduly long period?

Do the items on reconciliation require an adjustment/write off?

Are there any inoperative accounts and have remained stagnant, but transactions have taken place only during the end?

Have the suitable disclosures made in the financial statements?

In respect of fixed deposits or any other type of deposits with banks, do thereceipts/ certificates reconcile?

Conclusions

Observations by the audit assistants:

Queries resolved/concluded by Audit Officers:

Finalized by (Name of the person):

Signed on (Date):

ANNEXURE - 2

Format - 2

77


CUSTOMISED AUDIT PROGRAMME

Name of the Entity: XXXXXX University

Financial Year:

Persons handling the audit:

1) Verification of Sale of Farm Produce and Seeds

Checklists Yes/No

Whether the sale of Farm produce/seeds is done in the best interestsof the university?

Whether the farm produce/ seeds are sold at competitive prices?

Whether the sale proceeds have been remitted to the university funds?

Whether the stock registers are updated with all the details of Inwardsand outwards of stock material and approved by an appropriate authority?

Whether the weight of the outward stock matches with the total weight ofthe farm produce sold?

Conclusions

Observations by the audit assistants:

Queries resolved/concluded by Audit Officers:

Finalized by (Name of the person):

Signed on (Date):

ANNEXURE - 2

Format - 3

78


Format of Audit Intimation for commencement of audit

From:

Date:

To:

Subject: Commencement of Audit of __________________ (Auditee Institution) forthe year______ (Financial Year of Audit)

We would like to inform you that we would commence the audit of __________(auditee institution) for the year________. The audit shall commence from_________(date of commencement) and will be held till _________ (date of Completion). Theaudit would be led by the _____________ (Team head) of _______office (LAC/ROlocation). The audit members would consist of _______, ______ &________ (Nameof the audit team members)

We would request the management to keep ready all the documents listed in theannexure by____ (time and date).

Also, the management is requested to provide all the data/clarifications furnishingreplies to preliminary memos of audit in time, arrangement for discussion of reports/ audit objections that are raised by the concerned auditors.

Kindly acknowledge the receipt of this audit intimation letter.

Yours Faithfully

(Name and Designation)

ANNEXURE - 2

Format - 4

79


Half Margin Memo/ Audit Inquiry Memo

Karnataka State Audit & Accounts Department

Entity: ___________ Place: ___________

Date: _______________ No.______

Query/audit observation Reply/response

Addressed to: ________________________(kind attention): _____________________1. Records/Information/clarification sought: _____________________________________ _____________________________________ _____________________________________

2. Analysis & Observation________________ _____________________________________ _____________________________________ _____________________________________Signature and Designation:<signature and Signature and Designation:<signature anddesignation of audit officer> designation of the responding authority>

ANNEXURE - 2

Format - 5

80


Audit Entity____________________

Period of Audit___________________

Type of File : Current File

Section# Section Description Suggested Contents

A Audit Plan Audit planning memorandum and otherrelated documents like basis of arriving atmateriality, risk assessment performed, auditapproach, details of analytical proceduresperformed, final approval of the audit plan etc

B Audit Programme a. Audit programme approved by the relevantauthority with trails of changes made alongwith appropriate justification for the changesb.Details of audit steps planned, executed,evidence collected in support of the auditsteps, conclusion of the audit steps andremarks, if any. The evidence should be crossreferenced to the relevant section/ subsectionwhere the documents have been filedc.Names of the audit personnel conducting auditand dates when the audits are planned

C Communication a. Communication with the auditee institution,Documents and for example communication for initiation of audit.Minutes of meetings b. Communication with others like Internal Auditors,

experts etc.c. Other formal communications made with theauditee institution during the course of auditd. Minutes of the entry, exit conferences and othermeetings held with the auditee institution during thecourse of audit.

D Field Work All files/ documents collected for conduct of auditDocumentation with cross reference to the audit programme

ANNEXURE - 2

Format - 6

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E Observation/ Preliminary observation / objection listing alongObjection listing with responses and supporting documents provided

by the auditee

F Reports and Draft and final audit reports with evidence ofAudited Financial review/ approval along with the responses from theStatements auditee and audited financial statements cross

referenced to relevant schedules. The audit reportshould be cross referenced to the field workdocumentation section

G Others Any other relevant documents

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Auditor’s Opinion<Name of the auditee institution><Audit Period><Designation of the head of office>XXXXXXXXXXXXXX.

We have audited the accompanying financial statements of XXXXXXXXX whichcomprise the Balance Sheet as at March 31, ____, and the related Income and ExpenditureAccount for the year then ended, and a summary of significant accounting policies andother explanatory information.

Management is responsible for the preparation of these financial statements thatgive a true and fair view of the financial position, financial performance and cash flowsof the Entity. This responsibility includes the design, implementation and maintenanceof internal control relevant to the preparation and presentation of the financialstatements that give a true and fair view and are free from material misstatement,whether due to fraud or error.

Our responsibility is to express an opinion on these financial statements based onour audit. We conducted our audit in accordance with the statutory provisions/procedures as applicable to the Auditee Institution. These require that we complywith ethical requirements and plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free from material misstatement.

An audit includes examining, on a test-basis, evidence supporting the amountsand disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by the management, as wellas evaluating the overall financial statement presentation. We believe that the auditevidence we have obtained is sufficient and appropriate to provide a basis for ouraudit opinion.

In our opinion and to the best of our information and according to the explanationsgiven to us, the financial statements give the information required by the Act in themanner so required and give a <true and fair view> in conformity with the accountingprinciples generally accepted in India:

a. in the case of the Balance Sheet, of the state of affairs of the entity as at March 31, __

b. in the case of the Income and Expenditure Account, of the surplus/ deficit for theyear ended on that date

Place:......................... Date:...........................

ANNEXURE - 2

Format - 7

83


i) Extract of the Paragraph on Unqualified Opinion

“In our opinion, the financial statements referred to above present fairly, in all materialrespects, the financial position of XXXXXXXXX as of March 31, _______, and theresults of its operations and its cash flows for the year then ended in conformity withgenerally accepted accounting principles.”

ii) Extract of the Paragraph on Qualified Opinion- For Scope Limitation

Explanatory paragraph

“We were unable to obtain the supporting information of the Entity’s investment in aDeposits stated at —————at date———— which is included in the Balance Sheetfor the year then ended as described in note x to the financial statements; nor were weable to satisfy ourselves as to the carrying value of the investment in the deposits.”

Opinion paragraph

“In our opinion, except for the effects of such adjustments, if any, as might have beendetermined to be necessary had we been able to examine evidence regarding theinvestment in deposits……….”

iii) Extract of the Paragraph on Disclaimer Opinion

Explanatory paragraph

“We were not provided the documents for the updated Fixed Asset Register for the____(year) ending March 31 and we were unable to satisfy ourselves regarding thevalue of Fixed Asset quantities by means of other auditing procedures.”

Opinion paragraph

“Since the company did not provide for the Fixed Asset Register and we were unableto apply other auditing procedures to satisfy ourselves as to Fixed Assets values andnumbers, the scope of our work was not sufficient to enable us to express, and we donot express, an opinion on these financial statements.”

ANNEXURE - 2

Format - 8

84


Format of covering letter enclosing audit report

From:

Date:

To:

Subject: Submission of the Audit report of _________________ (Auditee Institution) for the

year______ (Financial Year of Audit)

The audit of _____ (auditee institution) for the year_____ is completed and the audit report is

annexed to this letter.

The Audit report contains audit objections of Rs.__________, and recoveries to be made for

Rs _________.

Management has to provide the responses for the objections within ______days as per section

____ of the _____Act.

Yours Sincerely

(Signature)

(Name and Designation)

ANNEXURE - 2

Format - 9

85


Format of “Separate Audit Report” (SAR)

<Name of the auditee institution>

<Audit Period>

Section A – Audit Report issue letter from the designated authority to the ChiefExecutive of the auditee institution

Section B – Index with relevant section and page numbers

Section C - Introduction

This may include the following reference to the Act, Rules, notifications, etc. underwhich the entity was set up, main objectives of the entity, rules under which the entityis functioning, relevant section under which audit is conducted, grants / loans receivedduring the year.

Section D – Comments on Accounts

1. Balance Sheet

1.1 Liabilities - Misstatements, omissions and other deficiencies in accountingvarious liabilities – i.e. Corpus Fund, grants received, borrowings, currentliabilities and provisions may be commented in short sub-paras.

1.2 Assets - Misstatements, omissions and other deficiencies in accountingvarious asset accounts – i.e. fixed assets, cash and bank accounts, othercurrent assets, loans and advances, investments etc. may be commented inshort sub-paras.

2. Income & Expenditure Account

2.1 Expenditure – Errors, omissions and other deficiencies noticed in accountingvarious heads under expenditure like purchases, trading expenses, salariesand wages, finance charges etc. may be commented in short sub-paras.

2.2 Income - Misstatements, omissions and deficiencies noticed in accountingvarious revenue heads - i.e. sales, income from services rendered, otherincome, interest earned, etc. may be commented in short sub-paras.

2.3 Excess of Income/Expenditure over expenditure/income - Specificcomments on overstatement / understatement of the above item may beincluded.

ANNEXURE - 3

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3. Receipt and Payment Account

3.1 Receipts - Errors, omissions and other deficiencies in accounting receipts maybe commented against specific heads.

3.2 Payments - Errors, omissions in various payment accounts may be c ommented.Errors and omissions and other deficiencies in opening and closing balancesof cash and bank accounts may also be commented.

Section E – General

4. All comments of general nature may be included in this paragraph. Briefcomments about deficiencies noticed in adoption of accounting principles andpolicies, matters in notes to accounts, non-disclosure / inadequate disclosureof significant matters concerning accounts etc. may be included in this para.

Section F – Effect of Audit Comments on Accounts

5. The net impact of the comments given in preceding paras is that the assets ason…………. were understated/overstated by Rs. ….lakh, the liabilitiesunderstated/ over stated by Rs. ….lakh, and the Excess of Income overExpenditure/Expenditure over Income for the year was understated/overstatedby Rs…………lakh.

Section G – Lack of Response

6. If reply to draft SAR is not received within the stipulated period, the mattermay be included in the Para.

Place:Dated:

Name and Designation of the Authority signing the report

Notes:

Comments to be included should be concise and brief with a clear statement aboutimpact of each comment on the accounts as a result of deficient procedure / wrongaccounting practice followed. Comments should be pointed and indicate the resultantunderstatement/ overstatement of head concerned and the impact on income /expenditure, excess of Income over expenditure /excess of Expenditure over Incomeand on assets / liabilities.

It should be ensured that comments included in SARs are linkable with the respectiveaccount heads shown in the annual accounts/schedules. Comments framed should bespecific and impact of comments on the accounts should be clearly indicated.

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Format of Regularity/Compliance Audit Report

<Name of the auditee institution>

<Audit Period>

Introduction

� Audit Report issue letter from the designated authority to the Chief Executiveof the auditee institution.

� Index with relevant section and page numbers.

� General Comments - This section may include the following reference to theAct, Rules, notification etc. under which the entity was set up, main objectivesof the entity, rules under which the entity is functioning, relevant section underwhich audit is conducted, significant grants / loans received during the year.

Part I –Previous Audit observations and Comments

This section shall contain a brief summary of the audit objections which still requireaction for clearance. Results of discussion with respect to previous auditobservations both in terms of settlement on action being taken; and dropping ofthe objections owing to clarifications given and accepted by audit may be mentioned.

A brief reference must be made to the important paragraphs of the previous auditreports, year-wise, which remain unanswered or remain pending for want of finalreplies. In the end, an abstract of the amounts held under objection and proposedfor recovery, in respect of each year, may be put up so as to give an idea of thecumulative balance of the pending objections and amounts pending recovery.Further revised assurances regarding pending audit observations may be reiterated.

Part II – Current Audit - Significant Observations and Comments

Part II of the audit report should begin with a general financial review of the entityconcerned for the period covered in audit. The review of the financial positionshould include comments on the normal income and normal expenditure for theyear of audit and of the two preceding years. While keeping in mind the variousaspects of working of the entity and expenditure categories which are required tobe reviewed and commented upon, they may be organized broadly under thefollowing three sections.

ANNEXURE - 4

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Section A - Major irregularities that merit reporting to higher authorities / legislature.

Section B - Irregularities which, though not major, are required to be brought to thenotice of higher authorities and followed up by the KSA&AD andinstances of recoveries to be effected or regularized.

Section C - Minor irregularities or procedural irregularities in respect of which thehead of the office has held out assurances about following correctprocedure in future.

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Sl. Heading InstructionsNo.

1. Authority for issuing the Report. This para should be on the followinglines: “This report is being issued undersub-Section (3) of Section 42 of theKarnataka State Universities Act, 2001.”

2. Provisions with reference to This para should be as follows:”Inwhich Audit has been compiling this report the provisions ofconducted. the Act, Statutes, Ordinances and Rules

specified below have been kept in view:Act:………………............................Sections”…………...........................Statutes:……………………………..Ordinances:………………………….Rules:……………………………….With regard to matters not covered bythe provisions of the Act, Statutes,Ordinances and Rules, it has beenassumed that the Principles u n d e rlying the rules in the KarnatakaFinancialcode, the Manual of ContingentExpenditure, etc., are applicable to thetransactions of the University.”

3. Action to be taken. This para should be as follows: “Actionmay be taken on this Report in terms ofSection 47 of the Act.”

4. Names of Officers of the University This para should be as follows: “Thenames of the various Officers of theUniversity who held office during theperiod under Report are noted below:… … … … … … … … … … … … … … …

5. Brief summary of the accounting As the accounting method differs frommethod. University to University, it is necessary

to incorporate for the information of

ANNEXURE - 5

Format of University Audit Report

90


those who are dealing with the AuditReport, a summary of the procedurefollowed in the University for theaccounting of Receipts as well asExpenditure.

6. Receipt of Cash Accounts and Comments have to be offered on theother Accounts Returns in the punctuality of submission of CashAudit Office. Accounts and other Accounts returns to

the Audit Office. A statement may beappended to give an idea of delay (ifany.)

7. Disposal of Audit Notes. This para should be as follows:“During the year Audit Notes onthe accounts of ‘various Institutionswithin the jurisdiction of the Universitywere issued vide Statement NoAs may be seen from column .................of that Statement, no compliance reportwas received from Institutions before‘This report incorporates all theimportant irregularities which werebrought out in the Institution-wiseAudit Notes. It also covers certainirregularities which were disposed off,but which are considered importantenough from the point of view of auditto be brought to the notice of theSenate/Syndicate/Board of Members/Governing Council or any apexgoverning body as per the Act.”

8. Disposal of Annual Audit Reports The action taken on the previousAnnual Audit Reports should becommented upon in detail. A statementmay be attached indicating the year, thenumber of objections outstanding andthe amounts involved. An observationmay be made referring to the previousreports for the details of outstandingobjections.

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9. The Budget Estimates. This para should deal with the Budgetof the University as passed by theSenate/Syndicate/BoM/GC or anyapex governing body as per the Act. AStatement should be attached, citing areference to this paragraph, indicatingthe Budget Estimates and the actualexpenditure incurred under severalHeads. Comments should be offeredabout the accuracy of forecasting theestimates of Receipts and Expenditure.Comments should also be offeredabout adherence to the time scheduleunder the Act and the relevant Statutesby the various Bodies connected withthe preparation and the passing of theBudget Estimates.

10. Receipts ——

11. University Fund. It should be seen whether (i) allamounts which are required by Sub-Section (I) of Section 41 of the Act tobecome part of the University Fundhave actually been credited to thatFund or whether any amount has beenkept separately and (ii) the Universityhas kept the fund in a single ScheduledBank as required by Sub-Section (2) ofthat Section. Comments may also beoffered with regard to the manner inwhich the fund was operated uponduring the year under report.

12. Control of expenditure. Comments should be offered about themethod of financial control followed bythe University, such as whetherMonthly Expenditure Statements arebeing obtained from Heads of variousDepartments /Institutions/ PGCentres, whether the rate ofexpenditure is being watched againstthe allotments given and whether any

92


system has been devised to check thefigures of expenditure as reported bythe subordinate authorities with theStatements pertaining to BankAccounts.Comments may be offeredabout the extent to which the Officersthe University have observed theprescribed procedure. If no clear-cutprocedure has been laid down so far,then suitable suggestions should bemade in this regard. If the officers havefailed to observe the procedure, theeffects of their failure should bebrought out.

13. Cases of Misappropriation, Comments should be offered aboutcases of misappropriations,embezzlements and fraud in somedetail. Amongst other things, thecomment should indicate whether themisappropriation, embezzlement orfraud was due to any lacuna in anyStatutes, Ordinances or Rules orwhether it was due to the negligence ofone or more officers of the university. Ifpossible, the names of the persons who,from the audit point of view, areresponsible for misappropriation,embezzlement or fraud should also benoted along with the amount involved.

14. Infructuous/Extravagant Comments should be offered in respectExpenditure. of cases of infructuous and extravagant

expenditure. For example, the ratiobetween the staff charges and thenumber of students in the Universityproper may be compared with the ratioin the various Post- Graduate Centresto work out the teaching cost perstudent in order to ensure that there isno appreciable difference between thetwo. Such a comparison can be madefaculty-wise.

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15. Diversion of Funds —-

16. Block Grant Amongst other things, commentsshould be offered in cases whereexpenditure on a scheme for which agrant has been given by UniversityGrants Commission or any other bodyis partly met from the Block Grant.

17. U.G.C Grants. A Statement should be attached in thefollowing forms:——————————————————————————-Sl.Particulars of AmountsPurposeNo the Grant. ——————————————————————————-Comments should then be offeredwith regard to the utilization of variousgrants There should be a separate parawith regard to each grant.

18. Grants by other authorities. ——

19. Grants by State Government. Comments may be offered in this pararegarding the utilization ofDevelopment grant given by the StateGovernment.

20. Pay and Allowances of Officersand Teaching Staff:

20.1 Payments made in respect Statements may be attached whereofirregularly created posts the number of cases to be commented

upon is large.

20.2 Payments made in respect ofposts continued without propersanction.

20.3 Over-Payment made on accountof erroneous fixation of pay

20.4 Over-payments as a result ofunauthorized higher starting pay.

20.5 Over-payments as a result ofunauthorized sanction ofadvance increment.

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20.6 Other irregular payment.

21 Pay and Allowances of Non-Teaching Staff:

21.1 Payments made in respectof irregularly created posts.

21.2 Payments made in respect ofposts continued without propersanction.

21.3 Over payments made on Statements may be attached whereaccount of erroneous the number of cases to befixation of pay. commented upon is large.

21.4 Over payments as a result ofunauthorized higher starting pay.

21.5 Over payments as a result ofunauthorized sanction ofadvance increment.

21.6 Other irregular payments.

22 Travelling Allowance:

22.1 Journeys performed in higherclasses or by routes other thanshortest ones.

22.2 Journeys performed in higherclasses or by routes other thanshortest ones.

22.3 Payment of excessive advancesfor performance of journeys.

22.4 Failure to recover T.A. advancewithin prescribed time.

22.5 Double drawal of T.A.

22.6 Other irregularities.

23 Contingent Expenditure:23.1 Purchases made withoutproper authorization23.2 Purchases made in excess of powers23.3 Purchases made without callingfor Tenders/ Quotations

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23.4 Purchases made in excessof prescribed scale

23.5 Other irregularities

24. Payment of remuneration toexaminers

25. Works Expenditure

26. Stock Accounts

27. University Press

28 Advances for purchase ofVehicles

28.1 Advances for purchase ofMotor Cars

28.2 Advances for purchase of MotorCycles and Scooters

28.3 Advances for purchaseof Bicycles

29. Advances for Construction/Purchase houses

30. Other Advances

31. Grants in aid

32. Endowments for Scholarshipsand Prizes

33. Provident Fund

34. Pensionary Benefit Schemes

35. Sale of Books

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PART – 3

AUDIT CHECKLISTS

97


98


The audit steps to be conductedduring audit have been detailed in thispart of the manual. The checklists havebeen segregated into Checklist forRegularity/Compliance Audit andChecklist for Financial Attest Audit.Further tests for areas like payroll,procurement, etc. have beenconsolidated at one place under theheader ‘Audit checks for common headsof expenditure’ or the generic checklists.Checks that are specific or unique toauditee entities have been mentionedunder the relevant auditee entity. Further,out of all the institutions being auditedby KSA&AD, checklists have beenprovided for key categories ofinstitutions. The checks mentioned foreach expenditure category can be usedwhile conducting audits of anyinstitutions not specifically mentioned inthis manual. Similarly checks relevant torevenue may also be adopted and usedfor institutions not specifically mentionedin this manual.

1.1 Establishment Expenditure

During the audit of Pay bills, thefollowing need to be checked:

1. Whether there is sanction by acompetent authority for all theposts as per Scale register andGovernment servant actuallydischarged duties of the postagainst which salary is drawn.

2. Whether the pay and allowancesclaimed is in accordance with the

pay and allowances authorized(For this purpose, audit has tocheck the pay-slips issued andascertain that allowancesauthorized are in accordance withthe existing rules/ ordersapplicable from time to time andwhether rate at which pay drawnin the salary bill agrees with entryin the service register for thecorresponding period)

3. In case of the first appointment,verify:

a. Whether there is a sanctionedpost

b. Whether the appointment hasbeen made by the competentauthority and is in accordancewith relevant rules

c. Whether medical certificateshave been duly furnished onthe first appointment.

4. Whether there is sanction ofcompetent authority for newlycreated/upgraded posts duringthe year.

5. Whether the persons in therespective posts possess thequalifications prescribed for theposts held by them.

6. Whether Scale register ismaintained with reference tonumber of sanctioned postssupported by sanction orders andactual number working.

Audit Checklist1. Generic Checklists

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7. Whether leave is sanctioned by thecompetent authority and leavegranted is in accordance with rulesin force and leave account registerand entries in the service books arecorrectly maintained.

8. Whether allowances are drawn inaccordance with orders ofGovernment, whether HRA wasdrawn for leave exceeding 120days, which is not admissible (Rule171 of KCSRs).

9. In case of increments, verify

a. Whether the amounts claimedare according to rules and haveactually accrued.

b. Whether the due date of theincrement and pay after theannual increment is correctlyindicated in register andservice books. (refer to the rule55 to 57 of KCSRs)

c. whether the date of incrementwas postponed by periods notqualifying for incrementservices such as extraordinaryleave taken otherwise than onmedical grounds, period ofsuspension unless otherwiseordered vide rule 53 note 4(ii)(b)-55 of KCSRs.

d. Whether Pay fixed onpromotion to higher gradeswas correct as per the relevantrules (Rule 41 to 49 of KCSRs)

10. In the case of claims relating tosurrender of leave forencashment/ sanction of

commuted leave / Half Pay leave/leave not due, verify whethera. There is leave title

b. More than one claim has notbeen preferred within acalendar year

c. All the other conditionsgoverning the sanction ofencashment of leave arefulfilled.

d. Leave sanctioning authorityhas ensured before sanction ofleave not due, that officialwould return to duty and earnhalf pay leave equivalent toleave not due, granted viderule 114 (b) of KCSRs.

e. A Government servant whohas been granted commutedleave, resigns from service orhas been permitted to retirevoluntarily without returningto duty, the sanctionedcommuted leave wasconverted into half pay leaveand difference in leave salaryrecovered as per rule 114 (5) ofKCSRs.

f. A Government servant whohas been granted leave notdue, fails to return to duty, dueto resignation or voluntaryretirement etc., the Leave notdue sanctioned was cancelledand leave salary recovered.

11. That in the case of terminalencashment of leave

a. There is a leave title

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cal Sampling Techni

b. Sanction has been accorded bythe competent authority

c. The claim preferred is inaccordance with the rulesd.

d. Leave salary on terminal leavedoes not include HRA, Fixedtravel allowance, CityCompensatory Allowance(Rule 118 (a) (3) of KCSR).

11 A. For other kinds of leave, verifythe following: -

i) Extraordinary leave wasgranted to permanent andQuasi Permanent employeesonly, for period not exceeding3 months without medicalcertificate and 6 months withmedical certificates and noleave salary was paid (Rule117 & 118 (5) of KCSRs).

ii) Maternity leave was notgranted to female governmentservant having two or moreliving children.

iii) Maternity leave granted inother cases did not exceed 180days and leave salary wasequal to pay drawn before suchleave (Rule 135 (1) of KCSRs)

iv) Child care leave was grantedto benign woman governmentemployee to look after suchspecial children with autism,blindness, mental illness,cerebral palsy, mentalretardation and multipledisabilities for period of 730days in entire service notexceeding 3 times in a yearand not less than 15 days on anoccasion.

v) Fixed travelling allowanceswere not drawn during leave.

12. Sanction for payment of timebarred arrear claim has beenobtained.

13. The advances taken by theemployees have been dulydeducted from the salary either ona monthly basis or any agreedmanner.

14. The statutory deductions likeIncome tax, Profession Tax,Pension Contribution, etc., havebeen deducted from the pay of theemployees and the dues havebeen remitted to the respectivefunds in a timely manner.

15. The Group Insurance Scheme andGPF subscriptions from theeligible employees have beenrecovered and the amount creditedto concerned Government accountby prescribed due date.

16. The net pay to the employees eachmonth is made in the form of creditto the Bank Accounts or in the formof cash payment. If the payment ismade in the form of cash, verifywhether the cash so drawn isrecorded in the Register of CashDrawn and Disbursed and paid tothe employees through thisregister.

17. The amounts drawn have beenduly disbursed to proper personsand that payees’acknowledgements have beenobtained wherever necessary.

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18. The entries relating to particularsof Basic Pay, increments, etc.drawn are recorded in the ServiceRegister of the employee.

19. Check on a sample basis througha review of previous month’s paybills with current month’s paybills for completeness. Also checkthe supplemental bills (bills forarrears) in a similar way to checkif the double claims are avoided.

20. Pay, leave salary, allowances andpension of a deceased employeeare drawn only up to andinclusive of the date of death.

a) Annual verification of serviceshas been conducted in respect ofeach member of the staff withreference to pay bills andacquittances and a certificate tothat effect recorded in the serviceregister at the end of the year.b) Details of events likesuspension, revoking of the same,other disciplinary proceedings,transfers/postings as and whenthey occur, are recorded in theservice register, to verifycontinuity of service.

22. In cases of transfers, joining timeavailed and salary admissiblewere according to relevant rules/orders (Refer to rule 76 to 87 ofKCSRs). In case of mutualtransfers/transfers on request, nojoining time is availed of as perRule 76 (3) of KCSRs.

23. Conveyance allowance, projectallowances permanent travelling

allowance are not drawn duringjoining time (Rule 88 (e) ofKCSRs).

24. Joining time was not availed by aGovt. Servant who was deputedfor training by competentauthority, within the state oroutside the state in India as timespent on joining is treated as partof training period (Rule 76(8) ofKCSRs).

25. Amounts advised for recovery/adjustment in the Last PayCertificate are effected byconcerned drawing officer.

26. In respect of deputed officers’pension and leave salary,contributions have been paid asper rules and in accordance withthe terms and conditions ofdeputation.

27. The claims in respect oftemporary posts have not beenpreferred beyond the specifiedperiod of sanction and suchclaims are covered by furthersanction for continued drawal ofsalary etc.

28. Subsistence allowance paidduring the first 6 months ofsuspension did not exceed leavesalary admissible for half payleave and thereafter decreased orincreased up to a maximum of50% of subsistence allowanceallowed for the first 6 months, ifsuspension was prolonged forreasons attributable to suspendedemployee or disciplinaryauthority respectively (Rules 97

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(a) & 98 of KCSRs). Cases ofprolonged periods of suspensionmay be examined andcommented.

1.2 Travelling allowance, LeaveTravel Concession, etc.

The checks to be performed during theaudit of travelling allowances bills are asfollows:

1. The journey was actuallyperformed and Governmentservant had not signed attendanceor other record for period for whichTA was claimed except outstationoffice and claims are supported byattendance certificate in cases ofjourney performed for attendingofficial meetings and courts etc.,

2. The purpose of the journey isnoted.

3. The journey was necessary andauthorized by general or specialorders.

4. The journey was performed asexpeditiously as possible;

5. No bill has been submitted for itbefore the travel was performed.

6. The amount drawn is correct withreference to rates and generalconditions.

7. The bills have been countersignedby the competent authority.

8. Necessary certificates prescribedhave been recorded on the body ofthe bill.

9. Advances drawn have been dulyadjusted.

10.The claims preferred have beenreflected in the cash book.

11.Attendance certificates areattached to the bills wherevernecessary.

12.Proportionate conveyanceallowance has been deducted forthe days on which the claimant hasmade use of vehicle, where he isin receipt of conveyanceallowance.

13.Acknowledgement of stampedacquittances, as the case may be,has been obtained in proof ofpayment.

14.The claims have been preferredwithin the prescribed time limit.

Time limit for preferring claims isone year, counted from the datesucceeding the date of completionof Journey to the date ofpresentation of claims. This timelimit applies For TransferTravelling Allowances, HomeTravel and Leave TravelConcessions. In this regard,Articles 18 to 22 of KFC may bereferred. In the case of Tour, whereadvance was drawn, the same hasto be adjusted by the end of monthsucceeding the month in whichjourney was performed. Caseswhere T.A advance was drawnand adjustment bill thereof is notpresented within one year from thedate of Travelling allowancebecoming due, Tour /Transfer T.A

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claims stand forfeited and advancemay be recovered from pay orother dues.

15. The claims relating to HTC havebeen claimed in relation to hometown as recorded in the serviceregister and more than one claimhas not been preferred in a blockperiod of two years.

16. Claims relating to LTC/HTC/Transfer T.A have been confinedto only those members of thefamily who are actually entitledfor the same.

17. Travelling allowance in respect oftransfers from one station toanother station is admissible incase of transfers ordered in Publicinterest only. It may be ensuredin audit that in cases of transferson request or mutual transfers, notravelling allowance is allowed,vide rule 532 (I) of KCS Rs.

1.3 Pension Contribution

In respect of permanent employees ofULB excluding BBMP, NPS has beenextended from 1.4.2006 vide G.O. No.NaAEEi 69 BMS 2011, dated 10-10-2011and the following may be verified inaudit:

1. Check if the monthly contributionis a percentage of Basic andDearness Allowance (DA) andalso check if the same amount iscontributed from thegovernment/ULBs

2. Check if the total amounts ofdeduction and the contributionfrom the auditee institution has

been made monthly to thedesignated trustee banks.

3. If any new employee has joined,check if that person has obtainedregistration for the New PensionScheme before the deductions ismade from his salary.

4. The following records are to beverified for the verification ofpension records

a. Pension Contribution file

b. Trustee Bank Records

5. Check if the accounts aresubmitted as per the provisionsof Karnataka Treasury Code andany other government ordersissued from time to time.

Check if the Drawing andDisbursing officers (DDOs) havecompleted the necessaryregistrations for the pensioncontributions

1.3(A) Rent

While conducting the audit of therental expenditure, the following aspectsneed to be verified:

a. If the rent fixed is commensuratewith the size and location of theproperty and sanctioned bycompetent authority.

b. Whether Tax Deducted at Source(TDS) as per Section 194I of theIncome Tax Act has beendeducted for rent accrualsexceeding the prescribedstatutory limits before the finalpayout.

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c. If the PAN of the lessor ismissing, verify whether TDS hasbeen deducted u/s 206AA of theIncome Tax act at a higher TDSrate.

d. If the owner of the rental propertyis a non-resident, whetherprovisions of Section 195 of theIncome Tax Act 1961, have beenadhered to.

e. If there is a separate rentalagreement entered into for therent of furniture and fixtures orwhether it is included in therentals fixed.

f. In case there has been a default inrental payouts, review the rentalagreement for the conditions fordefault. Check if there are anypenalties payable by the lessee.

g. In case the rental expenditureaccrued is greater than thebudgeted expenditure, obtainreasons for such excessexpenditure.

h. Demand Cum Balance (DCB) ofRent Register should be verifiedwith respect to Cash Book andBank Statement.

1.3 (B) Medical ReimbursementBills

The following should be verified:

a. Medical reimbursement isallowed for treatment taken inrecognized hospitals only. Wheretreatment is not taken fromGovernment hospital, necessarypermission of competent authorityis obtained. In case, treatment was

taken in emergent cases fromprivate hospitals reimbursementwas as per rules/instructions

b. Medical reimbursement billsconform to Karnataka GovernmentServants (Medical AttendanceRules) 1965 or rules prescribed inthe auditee entity.

c. The charges of only admissiblemedicines/tests are reimbursed tothe claimant and noreimbursement has been made oninadmissible items.

d. The cash memos of medicines/tests and essentiality certificate areverified/countersigned by themedical officer.

e. The medical bills in case of in-patients are countersigned by theMedical Superintendent.

f. Medical reimbursements areallowed to either husband or wife.In case both spouses areemployed, then requisitecertificate to this effect has beenobtained from the DDO ofrespective organization whereother spouse is serving.

g. Medical reimbursement checkregister has been maintained.

h. Medical bills are signed by DDOand countersigned by thecontrolling officer of the claimant.

i. The claim has been preferredwithin the time limit and in thecase of delay, due condonationhas been obtained from thecompetent authority.

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1.3(C) Contingent Expenditure/Periodical Charges

The term contingent expendituremeans and includes all incidental andother expenses which are incurred for themanagement of an office. For managingthe office, an officer is allowed to drawmoney from the funds within the amountof allotment placed at his disposal.

The institutions incur expendituretowards periodical recurring charges likerent, water charges, electricity charges,etc.

It should be seen that,a. a separate register on the lines of

establishment audit register ismaintained

b. the bill is in the proper form andthe classification is correctlyrecorded thereon.

c. the payments are entered in therelevant months with voucher anddate to watch regular payment andavoid double payment

d. the expenditure under these itemsare entered in the contingentregister to watch against budgetprovision

e. the requisite sub-vouchers areenclosed to the bills and that suchvouchers have been duly stampedand cancelled.

f. any certificate required under therules has been furnished.

g. the payments are made on properdemand and proper receipts areobtained in support of payments,which are produced and verifiedin the audit

h. the expenditure is a proper chargeon the funds.

i. the expenditure has received suchsanction as is necessary.

j. the expenditure has been incurredby the officer competent to incurit.

k. the rates are prima facie notextravagant.

l. there is no breach of any canons offinancial propriety.

m. penalties, if any, paid towardsreconnection charges for delay inpayment of electricity charges areavoidable expenditure and loss tothe institution and that suchpayments are pointed out in theaudit report.

n. expenditure on contingencyconformed to provisions of KFC &MCE and other relevant rules ofrespective auditee institution.

1.3 (D) Stationery Articles

In case of audit of stationery articles,verify whether

a. The requirement for the year hasbeen worked out at the beginningof the year.

b. The purchases are made by callingtenders, the tender procedure hasbeen followed, comparativestatement is prepared and one ofthe tenders approved by theinstitution and agreement enteredinto with such vendor.

c. The supplies received have beenentered in the Register ofstationery articles with date of

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supply, bill No & date andvoucher number, date andutilization particulars entered withdetails of date of issue, theemployee to whom issued, thequantity issued and signature ofthe recipient.

d. The annual verification of stock isdone by the competent authorityand stock balance certified by him.

1.3 (E) Postage Stamps

In case of audit of postage stamps,verify whether: -

a. A stamp account in the prescribedform has been maintainedcorrectly.

b. The balance of the stamps on handhas been counted on any dayduring the course of the audit andrecorded in the stamp accountbook.

c. The balance on the stamp on handand the balance in the stampaccount is recorded in the auditreport.

d . All the payments made for thestamp accounts are entered in theGeneral Cash Book.

e. The issues of stamps for postageare fully supported bycorresponding entries in thedispatch register.

f. The balance is struck in the registerat the end of every month andverified by the Executive Authorityor the person authorized and thebalance certified.

1.3(F) Office Maintenance Expenses

It should be seen:a. That where the purchases of the

material under each item are oflarge quantity, separate stockregisters have been maintained foreach item.

b. That the supplies received areentered in the concerned stockregisters with details of date ofreceipt, Bill no & date, quantityreceived, Voucher No. & date andutilization particulars like date ofissue, quantity issued, purpose, towhom issued with signature of therecipient etc..

c. That the stocks are periodicallyverified to ensure that there are noshortages in the stocks.

d. That annual verification of thestock is done by the concernedofficer and the balance of stock iscertified by him.

1.3 (G) Advertisement Expenses

The points of audit are:a. It should be seen that for the

tenders called with regard topurchase of stores, works, leasesand auctions, notices are publishedn Newspapers.

b. Rates paid for advertisementsconformed to that approved byAuditee institutions. In absence ofthe same, rates as fixed by Director,Department of Publicity andInformation Department wasfollowed.

1.3(H) Repairs and Maintenance

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The following audit checks need to beperformed with respect to verification ofrepairs and maintenance expenditure:

a. Obtain plans and schedules formaintenance programmes to meetthe needs of routine service calls,preventive maintenance,emergency calls

b. Evaluate plans and schedules todetermine reasonableness andcompliance

c. Verify procedure for controllingequipment, tools, spare parts, andother supplies. Perform testswhere appropriate.

d. Verify whether individual’sresponsibilities are assigned forevery area of repairs andmaintenance

e. Review that tools and equipmentare in proper working condition(no frayed cords, damaged shieldsetc.)

f. Verify the Department’s records ofregular preventive maintenanceand repairs

g. Verify whether staff available forrepairs and maintenance istechnically qualified

h. Verify the selection process ofoutside vendor (if required) usedfor repairs and maintenance.

i. Verify approval and authenticityof payments made to outsidevendors

j. Identify delays in actual andplanned maintenance activities

k. Obtain reasons for deviations andreport it as an observation

1.3 (I) Professional Fees,Consultancy Fees, Legal Fees, etc.

In case of the audit of professionalfees, consultancy fees, etc., the followingpoints need to be verified:

i) Whether Professional Fees havebeen accrued in accordance withthe contract.

ii) If the professional fees exceed thestatutory limits for deduction ofTDS u/s 194J of the Income tax actand TDS at the prescribed rates hasbeen deducted and remitted beforethe final payout.

iii) If the PAN number of the payee ismissing, verify whether TDS hasbeen deducted u/s 206AA of theIncome tax act at a higher TDS rate.

iv) If the Professional Fees arerendered by a non-resident, checkif the provisions of Sec 195 havebeen adhered to.

v) If professional fee is incurred withrespect to the purchase of an asset,whether such professional fee hasbeen capitalized to its respectiveasset cost.

vi) In case there has been any breachin the terms of contract, check ifthere is any liability arising on theauditee as per the terms ofcontract. If there is a liability checkif a provision/contingent liabilityhas been provided for/disclosedin the books.

vii)In case of payment of legalcharges, check if a track is availableon the number of cases pending, ifthe payments are in accordance

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with the number of days ofappearance in the court and othercharges relating to consultancy,filing of petition etc. are chargedas per the applicable rates.

1.4 Procurement of goods andservices

Karnataka Transparency in PublicProcurement of goods and services Act1999/Rules 2000 (KTPP Act/Rules)prescribe detailed procedure/process forprocurement of goods and services byprocurement entities with effect from 04-10-2000. Subsequently, notificationsamending certain sections of the KTPPAct/Rules, circulars, and Govt ordersfurnishing clarifications have beenissued. Standard Tender Documents havealso been prescribed for all contracts videGovt. order No. FD 09 PCL 2004 (1), dated06-08-2005, FD 06 PCL 2006, dated 21-03-2007 and FD 04 PCL 2008, dated 4-10-2008.These Standard Tender Documentsprescribe comprehensive conditions ofcontract. The Act/rules, notifications,circulars, Government orders have beenhosted on website of Finance Department(FD). Auditor may refer to these ordersas and when required. KTPP Act/Rulesare not applicable in so far they areinconsistent with the procedure specifiedfor projects funded by InternationalAgencies or covered by internationalagreement (Section 3 of KTPP Act).Instructions on maintenance of the stockaccount, works contracts, inspections,payments etc., have been laid down inspecific Departmental Manuals andFinancial Code. Effective Internal controlsand audit of procurement and contract isnecessary to ensure that the rules andregulations provide reasonable security

against malpractices, any loss or wastageof public money.

In some cases, procurement of goodsand services are exempted fromapplication of KTPP Act/Rules videSection 4 (ibid). Amendments made tothis section through notification No.Samvyashree 33 shasana 2001, dated 06-09-2001 and clarifications issued in No.PWD 33/FC-111/2001, dated 21-03-2001and PWD/513/FC-111/2001, Dt.29.10.2001 may also be referred.Exemptions are subject to fulfillment ofcertain conditions and monetary limits.In this regard, orders issued by theGovernment from time to time may bereferred.

In cases of exemptions from theapplication of KTPP Act/Rules,procurement entities have to comply withrules, regulations, codal provisions,procedures and circulars/orders whichwere followed prior to thecommencement of KTPP Act/rules(Notification No.PWD/513/FC-III/2001dated-29/10/2001.)

Auditors may verify whetherconditions and monetary limitsprescribed were fulfilled in all cases ofexemptions and deviations if any may beanalyzed and suitably commented.

Auditors may also verify whethervalues of estimates of works andpurchase orders were split with theintention of getting exemption fromapplication of KTPP Act/Rules andcomment. e.g.:-

i) Splitting road work of reasonablyshort length into more than onecontract.

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ii) Separation of civil work fromsupply of equipment for the samework / non-inclusion of one ormore items of work in TenderDocuments, from those inapproved estimates.

iii)Issue of purchase orders for thesame material frequently limitingvalue of each order to Rs. 1 lakh.

Goods and services which areavailable from single source or particularsupplier or contractor has exclusive rightsin respect of goods and services orconstruction work and no reasonablealternatives or substitute exists are alsoexempted from KTTP Act/ Rules {Section4(b)}.

In this regard, Auditor may verify andensure that a committee consisting ofthree members, one technicalrepresentative of procuring entity andanother technical representative fromGovernment organization dealing withsimilar procurement and third memberfrom reputed academic or researchinstitute or non-commercial organizationhaving expertise in such line, examineand declare that such goods and servicesare available from single source only.

1.4.1 General Activity:

The following check lists have beenprepared for verifying effectiveness of theinternal controls in the process ofprocurement in Auditee Institutions.Internal control checks have to be in placeat all stages of procurement. The auditchecks help to review the existing controlpoints and sets tone for improvisation.The entire questionnaire has been dividedinto following sections:

i) Preliminary stage

ii) Tendering stage

iii) Evaluation stage

iv) Agreement

v) Work execution

vi) Audit of work bills

1.4.1(A) Preliminary Stage:

Preliminary stage consists of survey,ensuring preparation of land/site,preparation of annual programme ofworks, annual forecast of requirement ofstores, provision for funds, planning forexpenditure and preparation ofestimates.Audit check in this regard areas follows:

1. Annual programme/Action Planof works to be executed wasprepared and approved bycompetent authority.

2. Adequate funds were provided foreach item of work.

3. The annual requirement of storeswas assessed correctly beforecommencement of procurement.

1.4.1 (B) Planning for Expenditure:

Audit Stepsa. Except in the case of a pressing

emergency, no sum shall beexpended unless such sum isincluded in the budget estimates.Check whether the action plan orthe programme of works includesworks only to the extent providedin the budget estimates.

b. As per the best practices, theProgramme of Works (PoW) has to

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be prepared based on the need indifferent zones/wards andapproved by the department.Check whether lump sumprovisions are made in the actionplan without indication of specificworks.

c. Check whether there is anabnormal difference between thePOW and the actual worksexecuted.

1.4.1 (C) Preparation of Estimates

Detailed procedure/instructions forpreparation of estimates are provided inPara 90 to 92, Para 101, 103 and 104, andPara 123-130 of KPWD code (2014edition). After detailed survey,investigations, inspection of site/fieldetc, estimates are prepared on the basisof Schedule of rates. Estimates areaccompanied by report which furnishdetails of survey investigation andnecessity for the work for which estimateis prepared. The detailed estimatesupported by complete details such asschedule of all items, quantities, rate,cost, drawings, specifications, rateanalysis, measurement details needs tobe prepared for each work and technicalsanction of competent authority shouldbe obtained. Technical sanction ensuresthat the proposal is structurally soundand estimate is an economical one.

Check the followinga. The divisions have prepared the

preliminary report and roughestimate before getting theadministrative approval as percodal provisions (Paragraph 115KPWD Code)

b. As per paragraph 122 of KPWDCode, it is mandatory that allestimates contain a reportindicating the justification for theparticular work and every work isjustified before it is sent foradministrative and technicalapproval.

c. As per the best practices, it ismandatory that the estimates,especially the estimates relating tothe road works, contain the detailssuch as place of work, name of thestreet or number. Check theestimates as to the place and crossroads where the work is proposedto be laid.

d. For every estimate, the necessarydrawings/designs along withlocation map were enclosed beforeit is sent for approval.

e. As per Para 192(b) of KPWD Codeno work should be split in such away that it comes within thepowers of sanction of the authoritysanctioning it or to avoid e-procurement. Check whether theTender Inviting Authority splitseveral works in such a way itcomes within the powers ofsanction of the Tender InvitingAuthority. According to Para 175of KPWD code (2014 edition)splitting up of work should beresorted only in exceptional casesin the interest of speedyimplementation of works or whenthe nature of work is such that iftendered, it would be difficult forsingle agency to execute all items,subject to approval of competent

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authority. In case of splitting ofwork, check whether sufficientjustification was brought on recordand approval of competentauthority obtained and otherconditions fulfilled as mentionedin Para 175 of KPWD code (2014edition). Even if a case of splittingis covered by sanction ofcompetent authority, justification/reasons for such action may beanalyzed and comments, if any,offered. The practice of splittingthe contract (particularly goodscontract) among all or sometenderers by offering price oflowest tenderer and dividingquantity undermine the rationaleof competitive bidding and isagainst KTPP Act/Rules. Thecontract should be awarded tolowest bidder found responsive.(Para 181of KPWD Code)

f. No work is entrusted to anycontractor without preparation ofestimates.

1.4.2 Tendering and Evaluation

As per Section 5 of KarnatakaTransparency in Public Procurement Act1999, all procurements have to be donethrough tendering process.

Tender documents comprising noticeinviting tender, standard tender formwith conditions, schedule of quantities,set of drawings, specification of the worketc. should be prepared and approved bythe competent authority.

Following issues may be verified inaudit: -

a. As per KPWD provisions (Para 104and 105), no tender should becalled before obtaining theadministrative and technicalsanction. Further, technicalsanction should not be givenbefore administrative sanction.Check that no tenders are called forbefore obtaining sanction.

b. Notice inviting Tender (NIT) isinvariably issued in respect ofworks for which tenders are to becalled for. The salient feature suchas name of the work, amount putto tender, period of completion,time and date of receipt andopening of tenders and otherrelevant conditions should beincluded in the NIT. Check ifTender inviting/ acceptingauthorities are competent to inviteor accept tenders. Verify whether:

I) Tender notice was invariablypublished in national and localdailies with large circulation inorder to generate widepublicity for bettercompetition and to avoid cartelformation and favoritism toselect firms.

II) NIT was published in IndianTrade Journal forprocurements whose valueexceeds Rupees 10 crore.

III) NIT was also published inState Tender Bulletin if (1)value of procurement exceedsRupees 1 crore (2) if TenderInviting Authority is Secretary

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to Government, ChiefExecutive Officer of PublicSector Undertaking,University, Statutory Boards,Apex Co-Operative Institutionformed by the Government.(Refer to Para 173(1) of KPWDcode and rules 4 to 10 of KTPPRules 2000.)

c. E- procurement system wasadopted for all works costingRupees 50 lakhs and above (GONo. DPAR 26 EGV 2003 (Part I)dated:19.03.2008 and Para 205 ofKPWD code.

d. The tenders were issued only tothose contractors who satisfied theeligibility criteria for issue oftenders as inserted in the Pressnotice.

e. The postponements werepublished in the newspapers.

f. As per KPWD code provisions, thetenders were to be called for, aftertechnical, administrative andestimate approvals so that Bill ofquantities are issued to thecontractors who quote their ratesand submit the tenders by duedate. Check the bids as to whetherthe estimates are ready beforeclosing of tenders.

g. Tenders were received in sealedcovers within the due date. (Referto Para 170 of KPWD Code)

h. Tenders received have beenentered in the Tender Register.

i. Signatures of the contractors ortheir representatives have beenobtained on the tender register for

having witnessed the opening ofthe tender.

j. Officer opening the tender hassigned and noted the number ofcorrections in the tender.

k. Comparative statement has beendrawn and whether the ratesmentioned in this statement is asper the tenders received (Theauditor should check thearithmetical accuracy of thestatements)

l. Statement was attested by theOfficer opening the tender.

m. Opening of tenders has to be doneas per schedule indicated in theNIT document and if there ischange it has to be commented.

(I) Tenders were opened in thepresence of tenderers/authorizedagency of tenderers and signaturesof the tenderers present should beobtained in the records.(II) A noteon the number of tendersreceived/counted is recorded(III)All corrections in estimate/bill ofquantities are attested(IV)Opening of tenders are invariablydated and initialed.(V) The nameof tenderer and quoted priceshould be read.(VI) Minutes of thetender opening must be recordedand sent to tenderers or theirrepresentative. Refer Para 173(2), 173 (3) and 173 (4) and Rule 18and 19 of KTPP rules 2000

n. Sale register of tender forms aremaintained and produced to auditfor verification and to ensure thecollection and remittance of tenderfees.

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o. The tender opening registers whichare meant for acknowledgement oftenders, the rates quoted byindividual tenders, EMD amountand its date, eligibility of contractoretc. are maintained.

p. As per the circular No. PWD 1359SO/FC 2001(P-2) dated 03/12/2002, whenever there are less than3 tenders participating in responseto a tender, such cases are to beconsidered as tenders lackingcompetition and the works are tobe re-tendered. Check if thecircular instructions are followedin all such cases.

q. Negotiations solely for purpose ofobtaining lower prices would beappropriate only in exceptionalcircumstances such as lack ofcompetition i.e., receipt of less thanthree bids/single bid. In suchcircumstances, if the lowest tenderis found to be substantially aboveupdated estimated cost, firstchoice is rejection of all tendersand re-inviting of tenders.Pleaserefer Para 3.2 of Govt. Order No.1359 SO/FC 2801 (P.2), dated 03-12-2002 to determine whereTender is substantially aboveupdated estimated cost (10% or5% depending on contract valueand other conditions).In such caseswhere tendered amount is notsubstantially above updatedestimated cost (as per Para 3.2 ofG.O. No. PWD 1359 SO/FC 2001(P-2), dated 03-12-2002) TenderAccepting Authority may acceptlowest tender. In other caseswhere tendered amount is

substantially above updatedestimated cost, Tender scrutinycommittee/Evaluation officer maychoose to reject all tenders and re-invite fresh tenders.[Please refer tocircular No. PWD 1359 SO/FC2001 (P-2), dated 25-10-2002 andGovt. Order PWD 1359 SO/FC2001 (P-2), dated 03-12-2002]. Itmay be checked whether estimatewas updated (i.e.revised /recast)before determining whetherTender was substantially high.

r. Contractors have the qualificationsnecessary for participation in thetender as prescribed in tenderdocuments.

s. Check that all the major items inthe estimates are tendered andincluded in the Schedule B of thetender. Reasons for non inclusionof any of the items of estimatesmay be ascertained and commenton merit of the reasons. Check iftenders are invited for such itemslater and resulted in extraexpenditure comment on thesame.

t. Check whether for each work, onlyqualified contractors of specifiedcategory are given the tender formsand participate in the tenders.Similarly, the contractors shouldhave sufficient experience incarrying out similar kind of works.

u. In regard to invitation for bids/notice inviting tenders, provisionof rule 4 to 10 of KTPP rules andclarifications furnished in circularNo. PWD 1359 SO/FC-III 2001 (P-2), dated 03-12-2002 in respect of

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estimates of value of less thanRs.50 lakh may be referred. Para155 of KPWD code regarding pre-qualification and two cover systemmay also be referred. As mentionedtherein, works or supplies of valueof less than Rs. 50 lakhs for whichneither pre-qualification nor twocover system are being adopted,contract awards are determined onthe basis of registrationonly.Regarding two cover system,provisions of rule 28A of KTPPrules inserted through amendmentnotification No. PWD 33 FC-3/2003, dated 05-03-2003 and circularNo. PWD 1359 SO/FC-2001 (IP-2),dated 30-06-2003 may bereferred.Auditors while reviewingbids may refer to relevantprovisions of KTPP Rules (Rule 28(2)/ 28 A) and clarifications issuedthereto. Auditor may also refer toPara 167, Para 168 & 169 of KPWDcode (2014 edition) regarding useof standard documents forprocurement of goods andequipment.Verify if bids are asprescribed in Standard TenderDocuments (KW-1 estimate costup to Rs. 20 lakh, KW-2 estimatecost of Rs. 20 lakhs and below Rs.50 lakhs provide for single coverwhile K3 & KW4 for estimate of Rs.50 lakhs and above, provide fortwo cover tender systems).Wheretwo cover tender system wasadopted, verify that while openingtenders, second covers containingprice quotations are kept in a largecover securely sealed in presenceof tenderer or their representativesand signatures obtained on such

large cover.Verify whether timegap between opening of First coverand large cover was within aperiod of 45 days or 60 days withthe approval of Secretary toGovernment of concerneddepartment or Managing Directorof concerned corporation and iflarge cover was not opened within60 days, tenders were re-invited.(Circular No.PWD 1359 SOFC-2001(P-2) dtd.30-6-2003).

v. Auditor may refer to rule 17 ofKTPP Rules and Para 176 ofKPWD code (2014 edition) clause12/KW-1, clause 12/KW-2, clause12/KW-3 and clause 16/KW-4(Standard Tender Documents). Asprovided therein, a minimumperiod 30 days and 60 days forsubmission of tenders up to Rs. 2crores and in excess of 2 croresrespectively, are allowed.Anyreduction in stipulated period forsubmission of tenders has to bespecifically authorized by anauthority superior to TenderInviting Authority. Nomodifications to tender areadmissible after expiry ofstipulated period.The stipulatedperiod of 30/60 days is allowedbetween the date of publication ofnotice inviting tenders/invitationfor bids in the relevant bulletin, andthe last date for submission oftenders. Auditor may verifywhether period allowed forsubmission of tenders conformedto KTPP Rules and standardTender Documents, deviation, ifany, was authorized by competentauthority. Even in cases of

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authorizing deviation in thestipulated period by competentauthority, justification/reasons forsuch deviations may be criticallyexamined and comments, if any,made.

w. Check the Proforma of theapplication and verify the bidder’sinformation as prescribed for thepre-qualification. Pre-qualificationof bidder is adopted for contractsof value of Rs. 10 crore above.Please refer to G.O. No. FD 9 PCL2004 (1), dated 06-08-2005 and KW-5 and KW-6 (Standard Tenderdocuments)

Some of the key information fieldsare▲ Description of the bidder

▲ Description of the track record

▲ Financial record and positionof the group

▲ Description of the managementof the bidder

▲ Any contingent liabilities

▲ Any litigations involving thebidder

▲ Approach and design ofcompletion of the contract

▲ Quality management systemof the vendor

x. Whether sufficient time been givento the bidder to submit the formdepending upon the value andnature of the work/stores

y. Whether the e-procurement detailshave been explained to thetenderer

To audit evaluation of tender, thefollowing may be verified:

a. The lowest tender was accepted.Refer to clarification in CircularNo. PWD 1359 SOFC-2001 (P-2)dtd.25-10-2002 in this regard.

b. In case of works, if the work wasgiven to one contractor or morethan one contractor.

c. Tenders were evaluated andcontract awarded in accordancewith criteria stipulated in tenderdocuments and within tendervalidity/extended validity periodas prescribed in rule 21 to 23 ofKTPP rules 2000.

d. Validity of tenders is not less thana minimum period of 90 days andtenders whose validity period wasless than 90 days were refused asnon responsive. Validity period oftenders may be extended onrequest by Employer as providedin rule 22 of KTPP rules 2000 andclause 8/KW1, clause 8/KW2,clause 8/KW3, clause 12/KW4.

e. The auditor may also check if :i. Tenders were re-invited if

they were not evaluatedwithin the tender validityperiod.

ii. In cases of failure to completeevaluation of tenders andaward of contract withinvalidity period of tenders,check whether adequatejustifications/ reasons were onrecord.

iii. retendered rates were higherthan those quoted earlier in

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case of re-invitation of tendersdue to failure to open largecovers (second covercontaining price quotations incase of two cover tendersystem) within the 60 days ofopening of first cover/ orcomplete evaluation withinvalidity period, extra cost dueto failure to evaluate tenderswithin validity period may bequantified and commented.

f. As prescribed in clause 2.2 ofstandard Tender Documents(KW1, KW2, KW3, KW4, andKW5) tenders from joint venturesare not acceptable, check forcompliance with this condition.Joint ventures are considered incase of contracts of more than Rs.10 crores (KW6)

g. Security Deposit/PerformanceSecurity and Earnest MoneyDeposits: -

The successful tenderer has to payin cash/banker’s cheque/Demand Draft/small savingcertificate as security deposit at5%of contract price plusadditional security (performanceguarantee) depending on quotedrates and quantity of work forunbalanced tenders within 20days of receipt of letter ofacceptance. Rule 12(3) of KTPP

rules, Para 199,190 and 201 ofKPWD code (2014 addition)clause 25/KW1, clause 24/KW2,clause 25/KW3 & KW4 ofStandard Tender Documents andGovernment order no. FD 4 PCL2008, Dated:-14.10.2008 may bereferred. Failure to pay securitydeposit plus additional securitywithin specified period of 20days, constitutes sufficientground for cancellation of awardand forfeiture of EMD. Auditorsmay verify compliance withabove rules/conditions andcomment on deviation if any.

h. Earnest Money Deposit (EMD)means the amount required to bedeposited by the tenderer alongwith the tender, indicating hiswillingness to execute the work.As per KPWD Code, no tender forthe execution of work of anydescription should be receivedunless accompanied by EMD to theextent which has been notified asnecessary by the Tender InvitingAuthority and also as provided inRule 12 of KTPP rules andGovernment Order No. FD 4 PCL2008, dated 14-10-2008 and clause9/KW1, KW2, KW3 and clause13/KW4 (Standard TenderDocuments). Earnest MoneyDeposits payable by tenderers areas follows:

Estimated cost of work As a Percentage of Estimated costa) upto Rs.20 Lakhs 2.5%b) Rs.20 lakhs and above, up to Rs.1 crore 2% subject to minimum of Rs. 50,000c) Rs.1 crore and above up to Rs.10 crores 1.5%subject to minimum of Rs. 2 lakhsd) Rs.10 crore and above 1% subject to minimum of Rs.15 lakhs

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Please also refer Para 174 of KPWDcode, check that EMD has validity periodof 45 days beyond the validity of tender,otherwise tenders must be rejected asnon responsive. Check that:-

▲ The EMD is credited to the bankaccount in all the cases.

▲ Single DD is not given for severalworks together as it defeats thesystem of tendering.

▲ the EMD register is maintainedproperly

▲ The EMD is remitted immediatelyand there is no delay.

▲ The EMD amounts have beencollected from the persons biddingfor the contract only in cash or DDand not by cheque.

▲ All the EMDs collected andretained are with respect to thesuccessful bidders and anyamount of EMDs with respect tothe unsuccessful bidders musthave been refunded.

EMD is forfeited in the following cases

i. Tenderer withdrawing thetender after tender openingduring tender validity period.

ii. Tenderer not acceptingcorrection of the tender pricepursuant to clause 19 of KW1,KW2, Clause 27/KW3, clause31/KW4 (correction of errors/defects)

iii. If, within the specified timelimit (within 20 days of receiptof letter of acceptance),successful tenderer fails

a) To sign agreement

b) To furnish required securitydeposit

(Clause 23/KW1, clause 21/KW2,clause 24/KW3, clause 28 /KW4).

Auditors may review register oftenders, comparative statement, minutesof pre-bid meetings to identify cases offorfeiture of EMD.

EMD is refundable within 30 days ofthe end of tender validity period whichis 90 days, to unsuccessful tenderers.EMD of successful tenderer is refundableafter signing of agreement and furnishingthe required performance security. EMDrefunded otherwise may be verified andcommented.

i. Verify that bank guaranteesNational Savings Certificate(NSC)sor any other approved securitiesin respect of the deposits pledgedin favour of the Commissioner orChief Officer and unclaimed/lapsed deposits have beencredited as revenue after duediligence.

j. The provisions are followed as perArticle 355(7) of KarnatakaFinancial Code 1958 regardingacceptance of Bank guarantees (BG)as one of the valid securities fromcontractors towards performanceof contracts.

k. Payment of contractor’s bills ismade considering thechronological priority incompletion of works.

l. Bank guarantee was obtained asprescribed in Para 200 KPWD code

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(2014 edition) for mobilizationadvance payable at 5% of contractvalue.

m.The moneys received towardssecurity deposit / additionalperformance security is to berepaid on completion of defectliability period and on a requestmade by the contractor. No amountcan be drawn from this account forpurposes other than for repaymentof deposit. Check that no amountis drawn for other than repaymentof deposits.

n. All records relating to collectionand remittance of sale proceeds oftender forms are maintained.

o. General receipts for the cashreceipts are issued and accountedas per the article 4 and 6 ofKarnataka Financial Code, whichstate that all moneys receivedshould be paid in full withoutundue delay in any case within twodays, into Government treasury/bank account, to be credited to theappropriate account and the officerreceiving money on behalf ofAuditee Institution/ governmentmust give the payer a receipt.

1.4.3 Agreements

It should be verified that: -a. Written agreements were entered

with successful contractors within20 days of receipt of letter ofacceptance vide clause 23/KW1and KW2, clause 24/KW3, clause28/KW4. Also refer to Para 177,180 and 181 of KPWD code (2014edition). If the contractor failed to

sign agreement within thespecified period, verify if EMD isforfeited.

b. Quantity of work executed is inexcess of that provided in BOQ/schedule B of agreement, andpayment for quantity of an item ofwork executed in excess of thoseprovided in the bill of quantities/schedule B of agreement was inaccordance with the ratepermissible as per contractagreement.Rule 12 (5) of KTPPrules 2000 permit variations inquantities of work. Refer to Para184/222 of KPWD code (2014edition).Quantities in excess of25% of tendered quantity (quantityas per BOQ plus 25% thereon) ofan item of work as given in theBOQ/schedule B of agreementhas to be paid at rate derived/entered or from the schedule ofrates (applicable for the area of thework and current at the time ofaward of work plus or minusoverall percentage of originaltendered rates i.e. CSR plus /minus Tender premium /discount. Extra item/additionalitem/substituted or altered itemof work, may be paid at ratesderived from the BOQ/ orschedule of rates applicable to thearea of work and current at thetime of award of work plus orminus overall tender percentage ofthe original tendered rates. If therate cannot be derived, contractormay be asked to furnish quotation.If the contractor’s quotation isfound to be unreasonable,

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variation can be made for that.Auditor may refer to clause 30/KW1, clause 31/KW2, clause 31/KW3, clause 35/KW4 regardingpayments for variations. Auditormay check whether rate at whichextra/ additional/ substituteditems were paid are in accordancewith the procedures. It may beverified whether payments forexcess quantities, extra items ofworks were sanctioned bycompetent authority. Compareitems and quantities as providedin bill of quantities/ schedule B ofthe contract/agreement withactual quantities as recorded invouchers and measurement booksand identify variations. Auditormay analyse circumstances/reasons for execution, of quantitiesin excess of that provided in thebill of quantities/schedule B ofagreement, Auditor may verifywhether they were attributable toinadequate/improper survey,underestimation of quantities, etc.In such cases, extra expendituredue to payment for such excessquantities and extra items at therates higher than original tenderedrate may be quantified andcommented.

c. The agreement obtained was asprescribed (KW1 to KW4)depending on value of contract.

d. Conditions of tender notificationand conditions put forth by theContractor in Part II of the tenderwere incorporated in theagreement.

e. Details relating to issue ofmaterials with rates, agreed ratesand details in respect of tools,plant and machinery to be let outon hire, were appended to theagreement.

f. The agreement has been executedon stamp paper of requisite valueand (Rupees 100 mentioned inPara 180 (7) of KPWD code) theagreement and the scheduleswere duly signed by theContractor and accepted by theOfficer duly authorized in thisbehalf.

g. Any addition and alteration orintroduction of a new clause inthe agreement was specificallyapproved by the competentauthority.

h. The rates mentioned in theagreement conformed to thetender rates. Price adjustmentclause was included in theagreement where value ofcontract is Rupees 50 lakhs ormore and period of completion is12 months or more and star itemrates ( steel, cement, bitumen)only for contracts with period ofmore than six months and upto 12months. ( GO No. FD03PCL2008dtd.21-11-2008). This implies thatcontracts of less than Rs.50 lakhsprice adjustment is notadmissible.

i. The agreement does not containany clause which is prima-facieambiguous, impracticable, lossoriented or legally infirm.

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j. There was provision forliquidated damages in case ofavoidable delay in execution ofworks by the contractor resultingin cost escalation and/or re-order.

k. The royalty schedule wasappended to the agreement. If notcurrent royalty rate to be applied.

l. Check if the clauses of taxationand penalty for default wereincluded in the agreement andsuch clauses were complied, incase of any defaults.

m. All schedules and proceedings ofpre-bid meetings formed integralpart of the agreement.

1.4.4 Execution of Works

Execution of works by the engineersis of paramount importance in convertingthe efforts of supreme decision makingbody to creating infrastructure at theminimum cost and deriving maximumreturns. It should be ensured that worksare executed as per the estimatesapproved and proper records are kept toascertain the efficiency and effectivenessand implementation. Unless the effortsare put in the right direction, noinfrastructure can be created to thesatisfaction of citizens.

It should be seen in Audit that: -

a. The works are strictly executed inplaces indicated in the approvedestimates as the estimates give animpetus for providinginfrastructure. Check themeasurement books to ensurethat works were executed only in

places where it is proposed in theestimates.

b. Works have been executed as perthe approved estimates. Verify ifany deviations were alsoapproved from the competentauthority justifying such changes.

c. No work has commenced beforethe finalization of tenders andissue of work orders. Checkwhether the works have beentaken up before the NIT/workorder.

d. The work was executed as per theguidelines and the programme.

e. Only one estimate was preparedfor one work and. severalestimates with similar scope ofwork and the place of work are notprepared for the same work.

f. The work was executed by theperson who has qualified aftertendering /approval and who hasbeen issued the work order forentrustment of work and theexecution of work was not doneby a contractor other than theperson entrusted with execution.

g. The components included in theestimates have relevance to thename of the work.

h. The work orders for thecommencement of the works havebeen issued after an agreement isentered into by the contractor withthe competent authority. Verifythe date of stamp papers as to

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whether this was done before theissue of work orders.

i. The photographs are available forall the works before thecommencement, during executionand after completion.

j. The works which are entrusted tothe contractor are completedwithin the prescribed time. If not,check if the payments are madeafter the deduction of penalty asper the tender conditions.

k. The royalty charges, whereverapplicable, are recovered at theprescribed rates.

l. There is no entrustment of workdirectly without calling fortenders.

m.All works are inspected by a thirdparty before payment is made tothe contractors and theexpenditure on this account ischarged to the cost of works.Verify if Third Party Inspection(TPI) reports are obtained whichare mandatory as per G. O (FD 55PRO.CELL 2004, dated17.02.2005).

n. Compensation paid to contractoris in accordance with conditions ofcontract/Standard TenderDocuments. Clause 34/clause 23/KW1, clause 34/KW2, clause 34/KW3 and clause 38/KW4, containdetails of events/circumstancesfor payments of compensation tocontractors.

These include the delay in

i) giving access to site/possession of the site (refer toPara 196 (1) of KPWD code)

ii) f i n a l i z i n g / a p p r o v i n gd e s i g n s / d r a w i n g /specifications,

iii) issue of completion certificateby employer.

Auditor may analyze in detail,reasons/justification for such delays andcomment on lapses/avoidable delaysand avoidable payments in respect ofthese events.

The contractor is not eligible for anycompensation to the extent employer’sinterest was adversely affected.

1.4.5: Audit of Work Bills

In the audit of work bills (RunningAccount Bills) the following are the itemsfor verification in audit.

a. The work bill is in the standardform as prescribed.

b. The work bill contains reference towork order and the agreement.

c. The dates of measurement andcheck-measurement as reflected inthe bill tally with the entries in theMeasurement Book.

Regarding maintenance ofmeasurement books (initial andcheck measurement of works)instructions/guidelines providedin Para 209 and 210 of KPWAcode, 300 and 301 of KPWD code(earlier editions) Appendix VII ofKPWD code vol. II may be

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referred. Para 109 to 113 of KPWDcode (2014 edition) and Govt.

Order No. FD 56 Pro. Cell 2004,dated 18-01-2005 may also bereferred.

Officer’s Cost of work Extent of check Reference todesignation measurement Rule

AEE/sub-divisional All works 100% Para 110/6) (a) & (b)officer costing more of KPWD code

than rupees (2014 Edition)12,000/-

EE/Divisional Works costing 10% 110 (9) of KPWDoffice up to Rs. 25 lakh code

EE/Divisional Works costing 25% Para 110 (9) ofoffice Rs. 25 lakh and KPWD (2014

above Edition)

As provided therein, extent of check measurement, are as follows:

As mentioned in GO. No. FD 56Pro. Cell, dated 18-01-2005 currentprovisions of KPW ‘A’ code and ‘D’code for taking measurementscontinues to be applicable for allworks contract of value of Rs. 25lakhs and less.

In respect of all works contract ofmore than Rs. 25 lakhs, contractoris responsible for submitting billswith hard copy of detailedmeasurement of works usingelectronic spread sheet anddiskette, C.D. ROM, etc. Thesehave to be verified by AE who isresponsible for their correctness.

d) The quantities mentioned in thebill in respect of various items ofwork agree with the quantitiesmentioned in the MeasurementBook.

e) The collection, issue and balancesof road metals have beenreflected in the MeasurementBook duly furnishing the crossreferences to the paid vouchers.

f) The rates claimed tally with therates specified in agreement.

g) Issue rates for materialssupplied departmentally havebeen correctly worked out andrecorded.

h) If there is departmental issue ofmaterials the cost recovered fromthe Contractor is as peragreement.

i) Voids and shrinkages have beencorrectly worked out anddeducted while arriving at finalmeasurements.

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j) Released materials have been dulyaccounted for and disposed offunder competent sanction.

k) Recoveries towards royalty,income tax, security deposits, etc.,have been correctly worked outand whether such amounts havebeen remitted to the proper heads.As provided in Standard TenderDocuments (clause 35 /KW1,clause 36/ KW2, clause 36 /KW3and clause 40/KW4) rates quotedby contractor shall be deemed tobe inclusive of sales tax and othertaxes payable by the contractor.Audit may verify whether suchtaxes included in the tenderedrates are recovered at source andremitted to Government. Pleaserefer Para 182 (3) of KPWD code.

l) Recoveries towards securedadvance/mobilization advancehave been correctly made.

m) In respect of secured advances,whether it is secured against bankguarantee.

n) Cumulative quantities and valueof works are indicated in anyrunning account bill and value ofworks recorded in previous billwas deducted for payment ofcurrent running account bill.

o) The following additional checkswill have to be exercised in respectof final bills:

i) Whether the released balancerates have been correctlyworked out

ii) Whether steel and cementcalculation sheet have beenenclosed to the final bill andif there is any excessconsumption, cost at twice theissue rate has been recoveredfrom the contractor

iii) Whether the contractor hasgiven his acceptance for fulland final settlement of theclaim.

iv) Whether the Officer-in-chargehas furnished a certificate inthe final bill to that effect

v) Whether the work has beencompleted satisfactorily asper specification, design andagreement.

vi) That there are no duesoutstanding against thecontractor.

vii) That Contractor has madehis own arrangements forsupply of water andelectricity. However, when thedepartment/ organization forwhich works wereimplemented, furnish bills forproviding such facilities, thesame may be recovered fromcontractor’s bill and remittedto concerned organization.Please refer to Para 182 (4) ofKPWD code)

p) Liquidated damages as prescribedwere recovered for delays incompletion of work (referred toclause 36 / KW1 to KW3 andclause 41/ KW4.

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1.4.6 Audit of procurements ofGoods / Equipment and StoresAccounts

The points for verification are that:

a. Purchases are covered by sanctionaccorded by competent authority.

b. There is budget provision.

c. Purchases are made as per theprovisions of KTPP Act/ Rules2000 unless exempted underSection 4 (b).

d. Purchases are made on the basisof the lowest quotations andcontract was not split among all orsome tenderers by offering theprice of lowest tender.Clarification/ guidelines issuedregarding rejection or acceptanceof lowest quotation in circularnumber PWD1359 SO/FC 2001(P2) Dated: 25.10.2002 and03.12.2002 were complied with.e.Cost of transportation of goodsand equipment was borne bysupplier and agreement providedfor the same.

f. The rates paid agree with thoseshown in the contract or agreementmade for the supply and paymentsare made on the basis of propervouchers.

g. Inspection on quality and quantityare conducted and certificaterecorded on the bill beforepayment.

h. The articles supplied are properlyaccounted for in the stock register

and certificate recorded on thesupply bill.

i. The following were observed withrespect to storage facilities:

i) A particular official was notentrusted with custody ofstores for long time.

ii) Physical verification isconducted regularly everyyear by authorities other thanwho is in charge of stores.

iii) Results of verification arereported and effective actionis taken on such reports.

iv) Effective precautionarymeasures are made to preventmisuse of stores.

v) Adequate storage facilities areavailable.

vi) Stores rendered obsolete/unserviceable are identifiedand action taken for disposalwith proper sanction.

vii) Adequate security deposit hasbeen obtained from suchperson in charge of stores.

j. Purchase orders have not beensplit up so as to avoid the necessityof obtaining the sanction of higherauthority

k. No prima-facie loss is attributableto acceptance of any defective orinferior supplies which have beencertified to be satisfactory inquality

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l. No purchase has been made whenthere is sufficient balance in stockand to avoid lapse of budgetprovision. It must be verified thatpurchases were made on the basisof indents received from useragencies without resulting inunnecessary accumulation of stockand requirement of goods wereforecast properly.

m. Proper acknowledgement isobtained for all moneys paid to thesuppliers.

n. In the case of purchase ofequipments involving paymentsin foreign currency, the foreignexchange rate has been correctlyworked out.

o. The benefit available during theguarantee period has been dulyavailed. The purchase contractincludes specific conditions forwarranty / annual maintenance.

p. The discount available for promptpayment, if any, has been dulyavailed

q. Expensive machinery andequipments purchased have beeninsured

r. List of blacklisted suppliers ismaintained and updatedwhenever there is regular defaultor supply of sub-standardproducts or services.

s. Advances paid, if any, wereadmissible as per relevant rules/agreement and it was secured bybank guarantee etc

t. Agreement provided forinstallation / commissioning of

machineries /equipment at thecost of supplier and levy ofpenalties for delayed supply andnon fulfillment of other conditions.Advances were adjusted beforefinal bill payment.

u. Price adjustment clause was notincluded in goods and equipmentstender documents except forelectrical cables transformersgenerators and motors videGovernment order No. FD 59PRO.CELL 2004 Date: 26.11.2004.

v. Claims for carriage are dulysupported by proper receipts andnecessary documents.

w. Bills for the payments of contractsmust be presented with copies ofcontract and certificate signed bycompetent authority to the effectthat claim is correct.

x. The purchasing officer should signin all copies of acceptance oftenders and supply orders etc..,including all attachmentscontaining the details of rates /prices and other importantconditions.

y. When a contract is completed thefollowing points may be verified:I. The quality of the goodsconforms to the specificationmentioned in supply order/schedule ‘B’ of the tender.

II. In cases of goods needinglaboratory testing, sampletesting is carried out.

III. The sales tax and other taxesclaimed in the supply bill areverified with reference to

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conditions in supply order andtender document.

z. For purchase of medicines byauditee institutions the audit mayverify the following:

I. The medicines are procured atcontracted rate.

II. The rate at which medicineswere purchased should becompared with those in ratecontract schedule ofDepartment of Health &Family Welfare/MedicalEducation/rate contractfinalized by Employees StateInsurance Corporation for theirhospitals and variations, if any,may be analyzed andcommented.

III. Contracts should includespecial conditions according towhich supplier has towithdraw unused medicinesthree months before its expirydate and replace them by newsupplies.

IV. Cases of failure to return andobtain replacement of suchdrugs may be analyzed andcommented.

1.4.7 Finance and Accounts

General: Works expenditure ischecked with reference to the estimatesand contract agreements in order toensure that the charges have beenincurred only in pursuance of the objectsintended in the estimates. Theadministrative, accounting and technicalauthorities are responsible for checkingthe expenditure on each sub-head with

the estimated quantity or work to bedone, the sanctioned rate and the totalsanctioned cost and to avoid alldeviations from the sanctioned estimate.The following source documents andissues may be verified in the audit.

Source documents

▲ Monthly accounts includingschedules and schedule dockets.

▲ Cash book (main and subsidiary)

▲ Vouchers.

▲ Cash and stock accounts.

▲ Sanctions.

▲ Estimates of works.

▲ Tender Documents.

▲ Works Register.

▲ Contractor’s ledger

▲ Measurement books

▲ Register of Deposits

▲ Inspection report and notes ofhigher authorities

▲ Register of Tenders, contractagreements

▲ Third Party inspection report

▲ Any other relevant recordsmaintained

The following may be seen by audit:

a. Check that there is no excessexpenditure over the budgetprovisions. The source of funds,utilization of fund, reasons for non-utilization or excess expendituremay be analyzed to bring theinconsistencies.

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b. Check whether works budgetinghas been done realistically takinginto account the availablerevenues and is approved by thecompetent authority. Check theimportance given for the budgetformulation and also if cumulativeexpenditure on works in progressand completed was recordedcorrectly in the annual accountsand initial registers or ledgers.

c. Check the abnormal increase inpending bills. If this is increasingprogressively, check the reasons asto whether works more thanbudgeted are included in theprogramme of works/ action planor if works were taken up by theexecutive for which funds were notavailable. The source from whichit is proposed to be paid may alsobe analyzed.

d. Expenditure was classified anddebited correctly to concernedhead of account/accounts codeand simultaneously posted in theRegister of works or other relevantrecords. Recoveries made fromwork bills should be accountedunder relevant receipt heads.

e. Sufficient funds were allotted forworks in progress continued fromprevious years.

2. Regularity/Compliance AuditChecks for Specific Institutions

A. Checklist for audit of Urban LocalBodies (ULBs)

A.1 Introduction

A municipality has been defined as a“distinct legal and administrative entitywith a well-defined geographical orterritorial boundary and created for thepurpose of providing for the generalwelfare of its constituents”. The wordmunicipality comes from the Latin word“municipium” meaning “free city.”

The concept of local self governance,which includes municipal governance,stems from the theory of democraticdecentralization of power to the peopleat the grassroots level. Politicaldecentralization aims to give citizens ortheir elected representatives more powerin public decision-making.Administrative decentralization seeks toassign responsibilities for public servicesamong different levels of government.Fiscal decentralization involvesresourcing of sub-national governmentsand their autonomy to make spendingdecisions and this involves themobilization of local own revenue,intergovernmental transfers and debtmanagement, as well as overall fiscalrules. In the opinion of internationalbodies involved in development of localself governance in developing countries,local governance indicators may informlocal policy and strengthen localaccountability. Local governanceassessment also may be useful at the statelevel in order to enhance decentralizationpolicies, strengthen capacities andcompare trends across cities or districts.

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Considering the special characteristicsof municipal governance and distinctivefeatures of the municipalities in terms ofmandate and delivery systems, it wasconsidered important to frame a separateaudit checklist to inform the audit systemof municipalities to act as a componentof local governance assessment forfulfillment of citizen’s charter.

A.2 Background and Evolution ofUrban Local Bodies in Karnataka

The history of urban local self-governing bodies (commonly calledMunicipalities) in Karnataka State datesback to more than a century. These localbodies are again classified into variouscategories like Corporations, City orTown Municipalities and TownPanchayats depending upon thepopulation. The Municipal bodies arenow governed by the provisionscontained in Karnataka MunicipalitiesAct, 1964 (for City Municipalities, TownMunicipalities and Town Panchayats)and Karnataka Municipal CorporationAct, 1976 (for Corporations).Municipalities have been constitutedwith the objective of discharging certainobligatory functions.

The Government of Karnataka hasreconstituted the municipalitiesaccording to the 74th ConstitutionalAmendment Act. The towns have nowbeen classified based on the populationand other criteria as Town Panchayat(Population 10,000-20,000), TownMunicipal Councils (Population 20,000-50,000) City Municipal Councils(Population 50,000-3,00,000) and CityCorporations (Population 3.0 lakhs andabove).

In order to discharge the aboveresponsibilities, Municipalities havebeen vested with the powers to levycertain taxes and fees. Also, the StateGovernment transfers a portion of itsgeneral revenues to the urban localbodies.

The main sources of income of themunicipalities are

i) Taxes on building and lands;

ii) Taxes on advertisement

iii) User charge for water supply;

iv) Licence fee for regulating thebuilding construction activities

v) Market fees

vi) Trade licence fees.

The municipalities can also raise loansfrom Central and State Governments andFinancial Institutions to meetexpenditure under capital heads ofaccounts.

Government through Directorate ofMunicipal Administration supervises thefunctioning of the municipalities.Government directly supervises thefunctioning of the Corporations. TheDirectorate has the responsibility tosupervise the function of themunicipalities, work out suitable humanresource policies, exercise disciplinarycontrol over the staff of municipalities,monitor the tax collection of ULBs, laydown policies for transparency inexpenditures, hear appeals against thedecisions of municipalities, release theGovernment transfers to the ULBs, as wellas implement schemes like SJSRY (forurban poverty alleviation), IDSMT,

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Nirmala Nagar, etc. The Directoratecollects statistics from ULBs and helps inthe preparation of municipal statistics.The Directorate also inspectsmunicipalities, interacts with both electedrepresentatives and the employees to findout both genuine and specific problemsof urban administration and urbanmunicipal services and work outsolutions for those problems.

A.3 Audit Mandate for Urban LocalBodies

According to Section 150 of theKarnataka Municipal Corporations Act,1976, the accounts of all receipts andexpenditure of a corporation shall beaudited by a Chief Auditor appointed bythe government who in turn is subject tothe supervision and control of theDirector (Audit) of the Karnataka StateAudit & Accounts.

The accounts of the municipalities ineach district are audited annually for eachcompleted financial year as requiredunder Section 290 of the KarnatakaMunicipalities Act 1964. As per Section293, the auditor appointed shall preparea report on the accounts audited andexamined and shall send such report tothe Municipal Council concerned, to theCommissioner and to the Director(Audit), Karnataka State Audit &Accounts Department.

i) Submission of Audit ReportAccording to Rule 12 of Part II of

Schedule IX of the Karnataka MunicipalCorporations Act, 1976, the auditorshould submit the audit report within aperiod of 3 months from the end of thefinancial year or within such other periodas notified by Government.

According to Section 293 of theKarnataka Municipalities Act, 1964,auditor shall prepare a report on theaccounts audited and examined and shallsend such report to the municipal councilconcerned within three months.

ii) Audit Report Follow-up /Compliance

According to Rule 13(2) of Part II ofSchedule IX of the Karnataka MunicipalCorporations Act, 1976, the Corporationshall submit its remarks on the auditreport, if any, to Government through theDirector (Audit), Karnataka State Audit& Accounts Department within sixmonths after the receipt of the report bythe corporation.

According to Section 295(1) of theKarnataka Municipalities Act, 1964,within three months of the receipt of thereport, send to the Director (Audit),Karnataka State Audit & AccountsDepartment, intimation of his havingremedied the defects or irregularities, ifany, pointed out in the report, or shall,within the said period, supply theDirector (Audit), Karnataka State Audit& Accounts Department, any furtherexplanation in regard to such defects orirregularities as the municipal councilmay wish to give.

iii) Provisions of surcharge and chargeSection 464 of the Karnataka

Municipal Corporations Act, 1976 andSection 298 of the KarnatakaMunicipalities Act, 1964 state theprovisions of Charge and Surcharge. Asper this section, every sum certified bythe auditor to be due from any personshall be paid by that person within the

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stipulated time and such amount shall bepaid to the treasury or bank in which thefunds of the corporation/CMC/TMC islodged subject to procedure prescribedin this regard.

iv) Annual reports and auditrequirements

As per chapter 21 of KarnatakaMunicipalities Accounting and Budgetand Rules 2006, the Annual Statementsshall comprise statements mentionedbelow. Audit has to verify annualaccounts maintained in the prescribedforms.

i) Receipts and Payments Account forthe year (KMF NO 74)

ii) Balance Sheet as on 31st March ofthe year (KMF NO 77)

iii) Income & Expenditure Account forthe year (KMF NO 78)

iv) Significant accounting policiesfollowed in presentation of thefinancial statements

v) Notes to Accounts which shalldisclose Contingent Liabilities,and such other information as maybe useful in understanding thefinancial statements clearly.

v) Method of accounting prescribedThe accounting method is prescribed

for all the Urban Local Bodies ofKarnataka in Karnataka MunicipalBudgeting and Accounting Rules, 2006.The method of accounting prescribed inthese rules is in line with the NationalMunicipal Accounting Manualprescribed by C & AG. As per rule 19(1)of Karnataka Municipal Accounting andBudget Rules 2006, all items of revenue

which fulfil the following criteria shall betaken as income on accrual basis:

i) The income is earned or the rightto receive it is established;ii) The amount due is determinedor determinable; andiii) No significant uncertaintyexists about its realization.

Incomes which do not fulfil the criteriaof accrual shall be accounted as and whenthey are actually collected or received bythe Municipality.

As per the Rule 36 of KarnatakaMunicipal Budgeting and AccountingRules 2006, for all items of expenditure,the accrual has to be done on the followingbasis.

i) Every claim against the municipalfund, shall after examination withreference to work order or supplyorder or indent shall be accepted,if it is in order and accruedthrough a journal voucher.

ii) In respect of bills pertaining toestablishment expenses andprocurement of goods and orservices, in the latter casessupported by work order orsupply order, the accrual shall bedone on the event of approval ofthe bill.

iii) Other revenue expenditures maybe accounted on payment and theout-standings accrued at the endof every half year.

Audit checks for items of revenue,expenditure, assets and liabilities havebeen identified and segregated betweenthose required to be performed for

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financial attest audit and those requiredto be performed for transactions audit.

Certain audit checks for financialattest audit are common for all items ofrevenue/expenditure. These have beenseparately provided at one place underrevenue/ expenditure without beingrepeated under each item.

In addition, under each item ofrevenue, expenditure, assets andliabilities, applicable regulations, andregisters/documents required to bemaintained have also been mentioned.

vi) Fund AccountingThe different types of funds

maintained in the ULBs are▲ Water supply and Sewerage fund▲ Enterprise Fund▲ General Fund

Transactions pertaining to watersupply and sewerage shall be accountedunder Water Supply & Sewerage Fund.Transactions relating to commercial typeactivities, and activities carried out withthe objective of earning profits, or at leastrecovering costs, shall be accounted in theEnterprise Fund. However, if the revenuefrom such commercial type activities isnot significant (less than 10%) ascompared to the total revenue of the ULBfrom all sources, they shall be accountedunder the General Fund. All othertransactions, including property taxrelated transactions shall be accountedunder the General Fund.

vii) Allocation of expenditure:Expenditure that can be directly

related to a particular Fund shall beaccounted under that Fund. Common

operations and maintenance expensesrelating to more than one fund shall beallocated and accounted under therespective Funds on an equitable basis.All other expenditure that cannot bedirectly related to any particular Fundshall be accounted under the GeneralFund.

viii) Audit using e-Gov ComputerApplication

As per the Government order no. 149GEL 2013, Bangalore, dated: - 29.04.2013all the Urban Local Bodies in Karnatakahave to make a compulsory transitionfrom manual accounts to computerizedaccounting in “e-Gov” with effect from1st April 2013. e-Gov is a computerizedsoftware application used for thepreparation of accounts in the systems.

In case of BBMP, accounts are to beprepared in the special application called“Fund Based Accounting System (FBAS)”specially designed for BBMP accounts.

Since the accounts are prepared in theabove mentioned Computerapplications, it would be convenient forthe auditor to perform his auditprocedures with the help of theseaccounting applications. It would helpthe auditor to do away with checking themanual records.

Key steps involved in the auditconducted through accountingapplications are as follows:

a. The auditor should obtain theaccess of the computerapplications from themanagement and understand thestructure of the application.

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b. Auditor should identify the fieldsin the accounting applicationwhich would help him view thereports with the help of the IToperator/ Accounts personnel.

c. The auditor should extract thecopies of Detailed Trial Balance,Balance Sheet and Income &Expenditure account for theirreference.

d. The ledgers of each accountinghead in the Trial Balance can beverified in the system itself ratherthan referring the manual entriesor taking the prints.

e. In case the auditor has to verify anyspecific entries relating to anytransaction, he can view the samein the application directly andverify with the supportingnarration.

f. Auditor can take the prints of theledgers or Journal entries only ifthere is an observation orclarification. This also forms partof the evidence collection for therelevant observation.

g. Auditor has to check various kindsof reports that are generated in theapplication that helps inperforming audit procedures. E.g.:report of the property taxcollection, Bank reconciliationstatement etc.

h. All the checklists mentioned in thismanual are to be performed withthe help of the computerapplications.

ix) Report FormatFor the purpose of preparing an audit

report for an Urban Local Body, apartfrom the format mentioned in Paragraph183 of Part II, the auditor has to providean opinion on the following points as perSection 294 of the KarnatakaMunicipalities Act 1964.

i) every payment which appears tohim to be contrary to law;

ii) the amount of any deficiency orloss which appears to have beencaused by the gross negligence ormisconduct of any person;

iii) the amount of any sum receivedwhich ought to have been but is notbrought into account by anyperson, and

iv) Any material impropriety orirregularity which he may observein the accounts other than thosementioned in clauses (a), (b) and(c).

A.4.1 Audit checklist for Budget

Section 166 to 170 of K.M. CorporationAct, 1976 and Section 286 to 291 of K.M.Act 1964 and Rules 131 to 135 ofKarnataka Municipal Budgeting andAccounting Rules, 2006 may be referred.

Check that:-

a. Budget for each year is approvedby the Municipal Councili) Detailed estimate of Income

and Expenditure was preparedby 15th January each year for theensuing year and submitted tothe Standing Committee onBudget. Budget copies have tobe sent to State Government/

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DMA/Deputy Commissioneras case may be. Reasons fordelay if any may beascertained / analyzed andcommented.

ii) Estimation of Income andExpenditure was scrutinizedby the Standing Committee forTaxation and Finance in case ofBBMP and StandingCommittee for Taxation,Finance and Appeal in othercorporations and thenpresented the same tocorporation for final approvalat least three weeks beforebeginning of the year to whichit relates.

iii) Criteria/basis for estimationof income and expenditurewere realistic. Compare theincome actually generated atthe end of financial periodwith approved estimate andcheck whether there was hugevariation. If so, ascertain/analyze reasons for the sameand comment suitably.

iv) Funds of Corporation/Municipal Council are utilizedfor purposes/services whichare under the purview of suchbodies. In this regard, refer tosections 87 to 91 of KarnatakaMunicipalities Act 1964 andsection 58 and 59 of MunicipalCorporation Act 1976.

v) The estimate of receipts isexhaustive and cautious, anddue provision has been madefor all obligatory charge.

b. provision has been made fordischarge of all liabilities in respectof Loans contracted by the Counciland for all other commitments,

c. the budget grants fixed byGovernment are not re-appropriated by the Councilwithout approval of Government,

d. The Council has not authorizedany item of expenditure notincluded in the budget or in excessof budget allotment.d.

e. Supplemental budget prepared bythe corporations did not includeany item which was disallowed bygovernment while sanctioningmain budget. Auditors maycompare estimates of receipts andexpenditure as shown in thebudget approved by governmentand those in supplemental budget.

f. Where an additional allotmentunder any head of account issubsequently found necessary,such additional allotment is madeby re-appropriation from otherheads, subject to conditions andlimitations prescribed therein.f.

g. Revised Budgets by municipalcouncil have not reducedprovisions for certain itemsmentioned in section 287 (3)(b)and(c) of KMA (installments ofprincipal and interest,contributions towards watersupply etc, payable togovernment) without approvalfrom government.

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A.4.2 Audit checks on variousAccounting Registers, General Ledgersand Financial statements.

Detailed provisions/regulations/procedures for accounting of variousfinancial transactions and maintenance ofregisters/ledgers are prescribed inKarnataka Municipal Budgeting andAccounting Rules 2006 and KarnatakaMunicipal Accounting Manual. Auditorshave to study these regulations/procedures before checking ofaccounts.Audit checks on accountingfinancial transactions and maintenance ofregisters/ledgers and financialstatements include inter alia thefollowing:

A. ReceiptsVerify whether,a. For every item of receiving money

in cash/cheques/demand draftstowards tax, fees, fine, rent, depositand other dues etc., proper receiptin printed and prescribed form(KMF 14/Rule 23) was issued bythe person authorized to collectmoneys.

b. Receipts of cheques and demanddrafts were entered in a registermaintained in form KMF15 (Rule24 (2) and all cheques cleared onpresentation were brought toaccount.

c. Suitable action was taken oncheques dishonored. Lapses/omissions were identified andmentioned in the report.

d. Details of moneys depositeddirectly to bank accounts by anyperson as reported in daily bankscroll and original challan are

identical with copy of the challanand other papers furnished by thepayer (Rule 27) and register asprescribed in KMF 16 wasmaintained for this purpose.

e. Amounts collected by the billcollectors and others in the officewere recorded in the registermaintained in the Form No. KMF17 (CHITTA) besides issue ofreceipts and such amounts weretaken to cash book and remitted totreasury / bank account.Commissioner/ Chief Officer mustverify this register at least once ina week and certificate recorded(Rule 28).

f. In the event of loss of originalreceipt (KMF 14) issued to anyperson, no duplicate copy of suchreceipts was issued and only acertificate recording amount, date,reasons for the receipt, head ofaccount/ account code was issued.

g. All receipts/collections of moneysdaily, were recorded in a Registerof daily collections (ROZ KIRDI)maintained in form No. KMF 4(Rule 13) and summary of dailycollections was prepared in theprescribed format i.e., KMF 18 orKMF 19 or KMF 20 recording headof account/account code wisedetails (Rule 29). Check ifCommissioner/Chief Officer hasverified these documents at leastonce in a month and attestedentries. Auditor may compareentries in ROZ KIRDI/ summaryof daily collections with register ofCHITTA/bank scrolls/challans/sent from banks (KMF 16) and

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office copies of the receipts(KMF14) and ensure its accuracy.

h. Receipts of moneys andremittances to treasury or bankwere accounted in the cash book.Amount shown as remitted shouldbe verified with the pass books ortreasury schedule and comment ondiscrepancies if any.

i. Demand collection balanceregisters for taxes, fines, fees,deposits and rent weremaintained in form KMF 24, KMF25, KMF 26, KMF 26A, KMF 27(Rule 53). Collections as posted inthese DCB registers have to beverified with daily collections/summary of daily collections.

B. Payments

Verify that:

a. Every payment is supported byvalid voucher in prescribed formand acknowledgement of payee.

b. All payments except those belowRs.500 are made through accountpayee cheques (Rule 39, 44 and 77of KM BAR 2006)

c. Receipts of claims / bills areentered in prescribed registers i.e..,KMF 21, KMF 22, & KMF 23 inreceiving branch recording passorder and accounts branchrespectively and details as enteredin these registers must match withthose in bills (Rule 37).

d. Vouchers contain full particularsof claims head of account /account code, amount paid,

cheque number and recoveries ifany.

e. All paid vouchers are correctlyposted into respective registers/general ledger indicating head ofaccount code, daily and monthlytotals. Compare details of passedbills/vouchers as entered in KMF21, 22 &23 with the entries ingeneral ledgers / registers andensure there were no omission. Aregister of classified receipts anddisbursement for each month mustbe maintained in KMF 6 & KMF 7respectively (Rule 15(2)) andentries in these registers shouldagree with daily summarycollections/payments.

C. Financial Statements.

Check the following in Audit:

a. Monthly Receipts and PaymentAccount (R & P) was preparedbefore 20th of succeeding month.

b. Closing balance as shown in R&Paccount of the previous monthmatched with opening balance ofimmediate next month.

c. Closing balance of current monthagreed with cash balance asrecorded in cash book and bankpass book or treasury schedule forthe same month.

d. Receipt and payment entries asreflected in R & P account agreedwith those in respective registers/general ledgers under each headof account/account code for thatmonth.

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e. Entries in monthly consolidatedDCB prepared in form 76 agreedwith total balance of eachindividual DCB (KMF 24, KMF 25,KMF 26, and KMF 26A).

f. Annual income and expenditureaccount (I & E) was prepared inForm No. KMF 78 and entriesregarding receipt and paymentsposted correctly from individualregister /ledgers.

g. Receipts and disbursements thatpertain to the accounting periodonly were posted in this account (I& E).

h. Balance sheet prepared was inprescribed format KMF 77 (Rule125).

i. Outstanding amount under eachhead of account/ account codeagreed with respective ledgers/DCB/ schedule of assets.Outstanding dues such as arrearsof rent, lease amount or taxes,advances and recoveries may beanalyzed year wise and commenton the same.

j. Investment as reflected in thebalance sheet need to be verifiedwith instruments such as fixeddeposit receipts and total of suchreceipts agreed with that shown inbalance sheet. Outstandingliabilities particularly depositsmay be analyzed yearwise.Identify such deposits which hadremained unclaimed for threeyears and comment on failure ofthe authorities to lapse them if any,

and credit them to the concernedhead of account (rule 117 /KMF69).

k. Outstanding loans reflected inbalance sheet agreed with thebooks of lending agencies and loanledgers of auditee. Analyse thereasons for not discharging suchliabilities with in prescribed duedate and comment on avoidablepayment of penal interest /penalties for delay in repayments.

A.5 Audit checklist for RevenueItems

Major items of revenue have beenmentioned below along with auditchecks specific to each such item.

The following areas need to be givenspecial attention by the auditor as theseare considered to be areas of highpotential risk. Attention and Vigilance isrequired for the audit in the followingareas mentioned below:

▲ Property Tax Collection

▲ Advertisement Taxes

▲ Stamp Duty Collection

▲ Water Supply and SewerageConnections

▲ Monthly water supply charges

▲ Public Works.

▲ Utilization of Grants

▲ Audit of Procurement & Stores

▲ OFC charges

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I. Check whether survey, inspections,measurement was conducted to identifybuildings or vacant land or both andregister of properties/assessment ofproperty tax register maintained/updated periodically and database oftaxable properties has been created foreach ward in Form II of schedule I. Referto sections 112B, 112D of K.M.Corporation Act as amended from timeto time (amended on 12/11/2001, 2/3/2002, notification No. UDD 188 MUN2001, dated 2/3/2002), Rule 11/scheduleIII of KMC Act) and Section 106 and 107Aof Karnataka Municipalities Act, 1964.

Please refer to Section 106 of KMC Act1976 and Section 97 of Municipalities Act1964 and check whether a notice/resolution of corporation/ municipality

indicating details of classes of personsand properties which are liable to tax andamount /rates at which tax leviable waspublished in local newspapers.

In the absence of reliable data/register of properties ascertain howcorporation/municipal council ensuredthat all taxable properties were broughtwithin tax net. Inadequacy/deficienciesin this regard, if any, may be analysedand suitably commented, quantifying ifpossible non recovery of property tax andnumber of properties, ward wise/zonewise.

Section 94, 98, 99 and 101 to 105 ofKarnataka Municipalities Act 1964contains detailed provisions forassessment of property tax.

A.5.1 Property Taxes

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��As per Section 103(b)(i) of the Municipal Corporation Act, 1 976 and Section 94(b)(i) of Karnataka Municipalities Act 1964, a ULB, shall, at rates not exceeding those specified in the Act, levy a tax on buildings or vacant land or both situated within the city which is referred to as property tax. Section 108 and 108A of the Act provides for the minimum and maximum within which the corporation may fix the rate through a resolution as mentioned in Section 106 of the Karnataka Municipal Corporation Act, 1976.

Registers/Documents

i) Demand collection and balance register cum Form III register (KMF no 24)and Statement of demand and adjustments (KMF No 27)

ii) Summary Statement of Demand Raised or Income Accrued’ (KMF No 13)

iii) Summary Statement of Changes in Demand or Adjustments’(KMF No 13A)

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Section 103 (b), sections 108 to 109Aand sub sections thereunder andschedule III of KMC Act 1976 as amendedfrom time to time (Notification No. UDD89 AHD 2000 (Pt-1), dated 12-11-2001,Amendment Act of August 2003,Notification No. UDD 188 MUN 2001,dated 02-03-2002) deals with theprocedure/process for determinationproperty tax on building or vacant landor both. These sections define variousfactors connected with property tax,(property tax as a percentage of taxablecapital value, taxable annual value orannual rateable value, unit area value,estimated market value guidelines etc).

Taxable capital value of vacant landor building is determined with regard toestimated market value guidelinesnotified under section 45 (B) of Stamp Actprevailing before last date of filing thereturn under Rule 4(5) of schedule III ofKMC Act 1976.

Taxable annual value of a building orvacant land or both is calculated bymultiplying corresponding unit areavalue with total area of a building, vacantland or both for ten months. Unit areavalue means an average rate of expectedreturn from the property per square footper month determined on the basis ofaverage market rate, through massappraisal method, real marketinformation or combination of both(Section 108A as amended byAmendment Act of 2009).

II. Check whether fixation of taxablecapital value, taxable annual value andassessment of property tax were correctand in accordance with these factors/provisions.

In respect of BBMP where scheme ofself assessment of property tax has beenintroduced through resolution No. 194/99-2000, dated 13-03-2000, videamendment in Notification No. UDD 220MUN 2006 (P), dated 18-11-2008 and UDD162 MUN 2009, dated 17-06-2009, UDD162 MUN 2009, dated 25-06-2009, auditof property tax has to be conductedhaving regard to rules/conditionsstipulated in the resolution andnotifications.

In other Municipal Corporations/Municipal areas where scheme of selfassessment of property tax has beenintroduced through resolutions ofrespective corporations/MunicipalCouncils/Government Orders, audit ofassessment of property tax has to beconducted having regard to rules/conditions prescribed therein. Besidescompliance with other provisions ofKMC Act/KMA Act (Section 112A ofKMC Act 1976) may also be verified.

III. Further, the audit may check thefollowing:-

a. Demand Collection and Balanceregister for the property tax ismaintained in form KMF No 24, inwhich the department shall notefor each property

b. The arrears of property tax due

c. The current demandd.Collection during the year

e. Any adjustment due to the changein the demand

f. The properties are classified asResidential, non-residential andothers.

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g. Random ScrutinyAccording to BBMP PropertyTaxation Rules (Rule 12 therein) asamended in notification No. UDD162 MUN 2009, dated 25-06-2009,random scrutiny of property taxreturns not exceeding 10 percent ofreturns filed in each zone, has tobe conducted. The audit shouldconfirm that:·▲ Random scrutiny of property tax

return conducted was up toprescribed percentage.

▲ Random scrutiny includedreturns of all categories ofproperties.

▲ Adequate preference was givento domestic, commercial,industrial categories ofproperties and properties withhigher tax incidence.

In other Municipal Corporationsand Municipal Councils also,similar checks may be exercised.

h. The DCB register has beenupdated based on compulsoryassessments in the belowmentioned situations:1.For those properties which are

registered with the ULB, but theself assessment return has notbeen filed

2.For those properties which areregistered with the ULB, but selfassessment return filed isincorrect or property tax has notbeen paid

IV. Check in respect of such cases,where owner/occupier of a building/vacant land/both fails to submit returns,

or return filed is incomplete/incorrectand fails to pay advance tax, survey,inspection, local enquiry was conductedand property tax due, assessed andpenalty as provided in section 112A ofKMC Act 1976 and Section 103 (3) and 103(4) KM Act 1964 was levied.

V. As provided in Section 112A (asamended in 8/2003) of KMC Act 1976 andSection 103 of KM Act, 1964, penalty at 2percent per month of the amount ofproperty tax assessed and due, in case offailure to submit returns and payproperty tax is leviable. Rs. 100 in case offailure to submit return after payment ofproperty tax, is leviable.

VI. Check also whether total numberof properties liable for property tax, asregistered in Assessment of property taxregister/property register, were morethan number of returns filed for any year.If so, verify action taken by AssessingOfficers to assess the property tax fromsuch owners/occupiers who failed tosubmit return and pay tax. Deficiency, ifany, may be suitably commented.

a) Assessment has been completedwithin one year from the date ofsubmission of the return and acopy of the order is sent to theassessees.

b) The enhanced property tax (rate)needs to be applied as per therequirements of Section 102-A ofthe Karnataka Municipalities Act,1964

c) the closing balance of previousyear in the DCB is accuratelybrought forward to the currentyear as opening balance

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d) The amount of tax receivable fromthe assessees is correctly updatedin the DCB register as Property Taxamount and Cess Amount at thespecified rates.

e) The correctness about assessmentof property tax under SelfAssessment Scheme (SAS).

f) On a sample basis compare thedate of payment and submissionof return in the DCB register toverify:i) If the payment of property tax

or filing of return is not within90 days, check whether apenalty as prescribed inSection 105(1) of KarnatakaMunicipalities Act, 1964 hasbeen included in the DCBregister and demand to thiseffect has been sent to theassessees.

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i) Miscellaneous Demand collection and balance register (KMF No 26)

ii) Summary of the demand register (KMF No 13) �

ii) If the payment of property taxand filing of return is donewithin one month of the dateof commencement of thefinancial year, then checkwhether rebate as prescribedin the relevant act has beenincluded in the DCB registerand notification to this effecthas been sent to the assessees.

iii) The arithmetical accuracy ofthe rebates granted to theassessee and also check if theproperty tax is levied on theannual value of the land andbuildings.

iv) The ‘Cess Payable Account’ toensure that remittances torespective authorities havebeen made on time.

A.5.2 Service Charges in lieu of Property Taxes

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During audit, verify that:-

i) The rate of the service charges asprescribed in relevant notificationsis applied and the demand for thesame amount is raised.

ii) It is levied only on the propertiesfor which the Property taxes areexempt and Remission on accountof demolition or destruction ofbuildings

iii) For Remission on account ofdemolition or destruction ofbuildings, it may be ascertainedthat

a. The building has beencompletely demolished ordestroyed as per the notice ofDemolition.

b. No remission is granted inrespect of buildingsdemolished or removedotherwise than by order of themunicipal council till thepersons primarily liable for thepayment of the tax shall havegiven notice thereof in writingto the Municipal Council

c. When notice is given the grantof remission by the MunicipalCouncil from the date of thenotice shall be obligatory ordiscretionary accordingly as itfalls under Section 323 of theKarnataka Municipalities Act1974.

d. The necessary entries havebeen made in the register ofchanges in demand oradjustments (KMF No 27).

e. Refunds made have beennoted in the demand registeragainst the item concerned.

f. Any periodical inspection/enquiries prescribed andconducted to ensurefulfillment of conditions forobtaining exemptions.

iv) Service charges are recovered asprescribed in Rule 7A/schedule IIIto KMC Act 1976 i.e. at 25% ofproperty tax payable if propertieshad not been exempted/Rule 10 ofBBMP Taxation Rules 2009.

v) The properties exempted fromproperty tax (Section 110 of KMCAct 1976 and Section 94 (1) (A) ofKM Act 1964) includes inter alia(a) places of worship for publiceither actually used or used for noother purpose, (b) choultries foroccupation of which no rentcharged, and where rent chargedand used for philanthropicpurpose and (c) places used forcharitable purposes or sheltering,destitute animals, orphans anddeaf/dumb hospitals,dispensaries maintained byrailways. Auditor may ascertainwhether any rent is recovered frompersons using these places, whichdisqualifies them for exemption.

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Following are the points to beconsidered while auditing collection andlevy of Advertisement Tax:

a. The taxes on advertisement arecollected on such items and ratesspecified in schedule VIII ofSection 103 of the MunicipalCorporations Act, 1976 and respectof TMC/CMC/TP as determinedin the byelaw of municipalcouncils.

b. All the exemptions granted werein accordance with Section 134 ofKMC Act/ KMA.

c. The concerned officer has takensteps to recover the advertisementtaxes not exceeding one year(section 139 of KMC Act 1976.)

d. Penalty at the rates prescribed inthe bye-laws is recovered in caseswhere the provisions of the bye-laws have been contravened byadvertisers.

e. While reviewing registers/filesrelating to advertisement tax,advertisements, after expiry of oneyear from the date of payment ofadvertisement tax, continued toexist without further renewal/payment of tax, and penaltieslevied for violations of provisions.

f. System of periodical inspection ofpremises used for advertisementsis prescribed and conducted. If not,comment on lack of system toensure compliance withprovisions of Act/byelaws andineffective monitoring inregulating advertisements.

A.5.3 Advertisement Tax

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i) Miscellaneous Demand collection and balance register (KMF No 26)

ii) Summary of the demand register (KMF No 13)

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Following are the checks to be adoptedin the audit of Stamp Duty Surcharge:

a. The stamp duty/surcharge advicehas been received from the DistrictRegistrar’s (DR) office at the endof the year.

b. Verify whether additional stampduty /surcharge transferred to anurban local body (Corporation/CMC/TMC/TP) was not less than2 % of stamp duty collected ontransfer of immovable propertieswithin the limits of urban area(section 140 of KMC Act 1976/section 99 of KMA 1964). For thispurpose, stamp duty realized dueto transfer of immovableproperties within the urban areamay be ascertained from Sub-registrar of concerned jurisdictionand compare the amounttransferred at the end of the year.Check the details furnished everymonth by District Registrar

regarding collection of stamp dutyand surcharge payable to urbanlocal bodies (Rule 4 of MunicipalCorporation Rules).

A.5.4(1) Acquisition of properties

Refer to section 175 & 176 of KMC Act1976 and section 72 of KMA 1964

a. Verify whether standingcommittee has approvedacquisition of any moveable andimmovable properties fixing therates/ prices and followed theprescribed procedure of invitingtenders as per the provisions ofKTPP Act.

b. Verify whether the Sanction fromGovernment was obtained fortaking properties on lease basis forperiods exceeding 3 years.

c. Verify that properties acquiredwere consistent with purposes/provisions of the acts and rules.

A.5.3 (a) Stamp duty surcharge collected by state government

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i) Daily collection register (KMF No -20)

ii) Miscellaneous Demand collection and balance register (KMF No 26)

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A.5.4 (2) Revenue from Rent/Lease Income

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i) Special DCB Register (KMF No 25)

ii) Miscellaneous demand register (KMF No 26)

iii) Summary of daily cash collections (KMF No 18)

iv) Changes in demand or adjustments of advances (KMF No 27)

v) Summary of demand raised (KMF No 13)

vi) Summary of changes in demand raised (KMF No 13A)

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The following points should beconsidered in verifying the authenticityof the lease agreements entered into:

a. Ascertain total number properties(buildings such as shops, officecomplex, market places etc.,)available as per Schedule ofproperties/ Register of ImmovableProperties. Identify such buildingsnot leased/rented and not put touse and ascertain the reasons forthe same and comment suitably.

b. Compare the total number ofproperties leased/rented andincome realized during previousyear with that of the current yearand analyze the reasons forshortfall, if any.

c. Verify that wide publicity wasgiven to notice inviting bids forlease/rent and adequate time wasallowed to respond.

d. Adequate earnest money depositwas prescribed and applicationswithout payment of the same werenot considered.

e. Lease was confirmed in favour ofthe highest bidder and expenditureon registration of lease deed wasborne by such bidder afterpayment of full lease amount incase of lumpsum lease.

f. Earnest money deposit wasforfeited if highest bidder failed toexecute agreement within theperiod mentioned in noticeinviting tender.

g. An agreement has been enteredinto by the competent authorityand that necessary lease deed,setting forth the conditions subjectto which the lease is granted, isexecuted.

h. Sanction of government wasobtained for leasing any propertyfor periods exceeding 5 years.,

i. The lease deed has specified,i) Duration of lease,ii) purpose for which leased

property may be used

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iii)Periodical revision rent/ leaseamount

iv)Amount of each installment ofthe rent

v) The compensation or penalinterest payable in the case ofdelay in the payment of anyinstalment

vi)The liability of the lessee tomake good any loss caused tothe leased property ofmunicipality/ corporation.

vii)Adequate amount of securitydeposit was obtained to guardagainst any loss of rent due todefault in payments ofinstalment

j. The lease deed is duly stampedaccording to the Indian Stamp Actand signed by the Commissioneror relevant authority and lessee inthe presence of witnesses andregistered in cases where theperiod of lease exceeds one year.(Section 17 of Registration Act).

k. Every lease deed contains anexpress condition that the lesseeshall use the property for thepurpose for which it was leased.

l. That no person is allowed to enjoythe lease until he has executed thelease deed.

m. If any installment and penalty dueunder the lease is not paid withinagreed time, the executiveauthority has forthwith reportedthe matter to the municipal councilwhich should terminate the leaseand order reauction or resale ofproperty.

n. Penal interest is calculated andrecovered or written off with thesanction of the competentauthority.

o. Verify that when a resale isconducted or terminated onaccount of the default of the lessee,necessary legal steps are taken forthe recovery of the loss from theoriginal lessee.

p. Verify if lessee vacated propertyafter expiry of lease period, unlesslease period is extended /renewed. Ascertain criteria/basisadopted for fixing lease value/rentof the property leased andcompare the same with market rateexisting in the area. The marketrent may be ascertained fromrevenue authorities.

q. The lease amount or rentsrecovered were credited tocorporation or municipal fundwithin the prescribed period anddelays, if any, may be commented.All demand and collections wereposted in the DCB register. Anyrent/lease amount outstanding atthe end of the financial year wascorrectly accounted in the balancesheet.

r. If the authority fails to includeessential conditions in lease deed,suitable comments may be offered.

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A.5.5 Ground Rent onAdvertisements

The following points should beconsidered during audit of ground rentcollections on advertisements:

a. Verify if rental income is earned onall the advertisement boardsregistered with the municipality.

b. In case of any amounts not re-ceived, check for any remissions,agreements and waivers granted.

c. Verify if the amount for groundrent on advertisements are ac-crued based on the demand or asper the agreed contracts.

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a) Monthly water supply charges

b) Connection charges for water supply for new connections

c) Water tanker charges for supply of water at fixed rate per tanker

d) Road cutting and restoration charges (to be accounted under general fund)

e) Connection charges for new sewerage connections

f) Monthly sewerage maintenance charges, if the council decides to charge the users in future

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i) Meter readings entry register

ii) Meter card

iii) Demand register for water charges (KMF No 25)

iv) Register of changes in DCB (KMF No 27)

v) Summary statement of demand raised (KMF No 13)

vi) Summary statement of changes in demand and adjustments (KMF No 13A)

vii) Register of House - Service Connections of water supply/Water works distribution (Form OBS-6)

A.5.6 Water Supply Charges

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Audit should examine whether thefollowing points are covered with respectto water charges:

a. The charges for water consumptionor for the number of taps havebeen correctly calculated in accor-dance with the conditions and ratesfixed in the bye-laws.

b. The meters have been read at ap-proximately one month’s intervaland entries made in the watermeter cards

c. The amount of water charges col-lected is higher of the actual con-sumption or minimum watercharges.

d. There has been no delay in trans-mitting to the municipal office inconvenient batches, the meter read-ings for entry in the meter ledger.

e. There has been no undue delay inthe issue of miscellaneous bills forthe number of taps (if the tap ratesystem is in force) or meter rentsand meter maintenance charges forexcess water charges.

f. Prompt steps have been taken tocollect the dues.

g. In case the bye-laws have pre-scribed a special fee for water sup-plied for building construction andother special purposes, verify ifsuch fee is correctly calculated andcollected.

h. The house service connections reg-ister, meter register, meter readingcard and the meter ledgers havebeen kept up to date with reference

to payment and adjustment vouch-ers for opening new connections,reconnections or additional tapsand for closing or cutting of sup-ply and that they have been pre-served for the period prescribed.

i. the demands for excess watercharges, meter rents and metermaintenance charges as the casemay be, for all the house serviceconnections without exception arefound in the meter ledger and de-mand register

j. Charges on account of excess wa-ter-supply and the bills are issuedevery month and that the arrearsoutstanding at the end of the yearhave been brought forward to anarrear demand register.

k. An overall verification has beendone to ascertain that the waterbill has been raised for the totalnumber of the connections regis-tered. If the same has not beenraised, check whether steps havebeen taken for raising the demandand recovery is appropriately ini-tiated.

l. On a sample basis, the arithmeti-cal accuracy of the water bills needto be checked for the amountcharged with reference to the unitrates notified under the act/circu-lar.

A.5.7 Registers/ Recovery of watercharges

(i) Register of House - ServiceConnections of water supply/Waterworks distribution

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It should be seen that –

a. Connections given are entered asper the list of connectionsforwarded by the MunicipalEngineer

b. The information whetherconnection is given on tap ratebasis or meter basis is entered

c. The connection is given on meterbasis; the serial number in theMeter Register is entered in therelevant column.

d. The hire charges or maintenancecharges and consumption chargesare collected by issue ofmiscellaneous bills and thetransaction recorded in theMiscellaneous Bills Register.

e. The Register is maintained as

permanent record.

(ii) Water charges demand register for taprates

The purpose of this Register is toprovide for the record of demand,collection and balance of water chargesin respect of taps sanctioned on tap ratebasis. It should be seen that: –

a. Particulars are entered in thisRegister based on the entries inthe House Service ConnectionRegister.

b. The demand is worked out on thebasis of the charges fixed by theMunicipal council.

c. Collections are posted month wiseon the basis of the entries in theChallan Register.

d. Annual abstract of demand,collection and balance isprepared at the end of the year.

(iii) Meter Register

It should be seen:

a. That the connections issued onmeter basis are entered as per listforwarded by the MunicipalEngineer.

b. That the date of application formeter, date of providing meter anddiameter of the meter are enteredin the register.

c. That the Register is maintained aspermanent record.

State Government has revised watercharges for water supplied bycorporations and municipalitiesexcluding BBMP. Charges forunderground drainages and one-timeconnection charges for water and UGDhave also been revised.

Auditors may refer to Govt. Order No.£ÀCE 07 Ai À ÄÄq À§Ä è ö åJ¸ï 2011, dated20-07-2011 and check whether recoveriesfor water supplied, undergrounddrainages and connection for bothmetered and unmetered connectionsrecovered are in accordance with the ratesapproved in the said Government Orderfrom time to time.

Details of rates as provided in the saidGovernment Order are as follows:

iv) Check whether total number ofmetered and unmeteredconnections from which water,UGD charges are recovered matchby and large, with the total number

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(ii) For unmetered connection-water rates per month

Type of consumer Corporation(Rs.) City municipal Town municipalcouncil (Rs.) council/town

Panchayats(Rs.)

Domestic 175 120 80

Non Domestic 350 240 160

Commercial/ 700 480 320industrial

(iii) one-time connection charges

Domestic Non Domestic Commercial/industrial

Water (Rs.) UGD Water (Rs.) UGD Water (Rs.) UGD

Corporation 2500 15 5000 30 10000 60(excludingBBMP)

City Municipal 2000 15 4000 30 8000 60Council

Town Municipal 1000 15 3000 30 6000 60Council/TownPanchayats

(i) For metered connections - water rates per month

Extent of water Domestic(Rs.) Non domestic Commercial/consumption in / kilo litre (Rs.)/ kilo litre industrial (Rs.)/Kilo litres kilo litre

0-8 7 14 28

8-15 9 18 36

15-25 11 22 44

Above 25 13 26 52

Subject to Rs.56/per 112/ per 224/ perminimum of month month month

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of properties registered as perregister of properties/assessmentof properties tax register. If thereis difference between these two,analyze the reason for the sameand non recovery of water/UGDcharges may be observed andcommented suitably.

v) Also check whether rates forsupply of water are revised andeffected once in three years asprovided in Govt. Order No. £ÀCE07 Ai À Ä Äq À§Ä è ö åJ¸ ï 2011,dated:20-07-2011. If not, commenton this lapse and also compareexpenditure on maintenance ofwater supply and UGD withwater/UGD charges recoveredand highlight the deficiencies ofsystem and need on revision ofrates from time to time.

vi) Check that DCB register inprescribed form (KMF 25) wasmaintained and demand collectionbalance details were shownagainst each connections and thetotal also indicated.

A.5.8. Hire Charges for Equipment

The following points should beconsidered in the audit of equipment hirecharges:

a. Check if particular equipment isauthorized to be given for hire topublic and a valid lease agreementhas been entered into with the les-see.

b. Check the transactions with refer-ence to terms of agreements re-garding

▲ Lease deposit

▲ Rental amounts to be charged

▲ Penalty in case of default

▲ Penalty for damages

A.5.9 Rents from Community Halls,Guesthouses, Auditoriums, etc.

In case of rental collections, it shouldbe seen that,

a. a separate register is maintainedfor all the rooms in the Communityhalls, Guesthouses etc. for whichrents are charged from theoccupants.

b. the register contains fullparticulars regarding the name andaddress of the occupants, the exacttime and date of occupation andvacation by the parties.

c. the rent due has been collectedcorrectly with reference to the ratesfixed and the period of occupation.

d. receipts in the prescribed form areissued for all the amountscollected.

e. the party’s signature has beenobtained on the reverse of thecounterfoil of the receipts.

f. the number and date of themiscellaneous receipt on which therent was collected have been notedagainst the concerned item in theregister.

g. the amounts collected have beencorrectly credited to municipalfunds.

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A.5.12 Fees for Temporary Projections and Erections

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a. Verify if all the encroachmentsnoticed and reported are enteredin the Register of Encroachments.

b. Verify that the licences granted areentered in the Register of

Encroachments against the relevantitems.

c. Verify if the fees levied are as perthe council resolution rates.

h. there are no unusual delays in theremittance of collections tomunicipal funds

A.5.10Regularization Charges

Following checks are to be conductedin the audit of regularization charges:

a. It should be checked whether allthe receipts are acknowledged andwhether a separate demand regis-ter is maintained in the KMF No25 for the items of the register.

b. Verify if the municipalities levy theregularization charges for supplyof water for drinking and otherpurposes.

c. It should be seen whether the wa-ter connections are given and feesfor the supply of water recoveredin accordance with the provisions

of the bye laws of the Municipal-ity.

A.5.11 Road Cutting and RestorationCharges

Following checks are to be conductedin the audit of Road cutting andrestoration charges:

a. Verify if the Road cutting and res-toration charges are levied in caseof all the new water and UGD con-nections and also for any workdone for the repairs in existingwater and UGD connections

b. Check if the amounts levied are asper the rates decided in the coun-cil meeting.

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A.5.13 Building Permission Fees

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Audit should:

a. Verify if such permissions arenoted in a separate register.

b. Verify if the amounts collected forsuch permissions are reconciledwith the registers.

A.5.13 ( A) Regulations of Buildings:-

Constructions of buildings of varioustypes and purposes are regulated underSections 295 to 320 (Chapter 5 of KMC Act1976), Section 187 of KMA 1964 andbyelaws framed by the respective urbanlocal bodies. Auditor needs to studythese provisions and ensure compliancewith the same. The issues suggested forexamination by audit include inter aliathe following.

i. Fees as prescribed under relevantbyelaws/rules were recovered andcredited to the funds of UrbanLocal Body for grant ofpermission/licence forconstruction/re-construction/alterations of any building.

ii. In case of building which are to beused for cinematograph exhibition,building plan/ specification werein accordance with Karnataka

Cinemas Regulation Act (Section304 of KMC Act)

iii. Construction/reconstruction/alteration commenced within 2years / 6 months of grant ofpermission/ fresh permissionobtained thereafter for building orhut respectively (Section 306 & 318of KMC Act) and in case ofmunicipal areas permission /licence granted for construction/r e c o n s t r u c t i o n / a l t e r a t i o ncommenced within 1 year from thedate of such permission (Section187 (6) of KMA 1964.

iv.Proper records/registers/fileswere maintained in respect oflicences/permissions granted.Auditors may review such recordsfor 2 or 3 years preceding theperiod of audit and identify thecases where works were notcommenced within the prescribedperiod and licences not renewedand comment suitably.

v. Completed buildings were addedto the Register of Assessment ofProperty Tax and tax recovered.

vi.Periodical survey/inspection wasconducted to ensure compliance

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A.5.13 (B) Regularisation of certainunlawful buildings

Section 321A of KMC Act / Section 187 Aof KMA 1964 read with Section 76 FF ofKTCP Act 1961 provided forregularisation of certain unlawfulconstructions subject to payment of feesas prescribed in respect of buildingsconstructed prior to 3rd December 2009 incorporation areas and after 2004 whenSection 76 FF of KTCP Act becameeffective in municipal areas.

The applications for regularisation ofviolations as mentioned in theseprovisions have to be submitted within4 months of the amendment (i.e.., 2004)

with conditions and rules ofpermission for construction ofbuildings.

vii. If Byelaws have provided forrecovery of expenses incurred bythe corporation or municipalcouncil for removal of any work,alteration or demolition of anybuilding /portion of the buildingbuilt in violation of condition ofpermission or provision of Act &rules (Section 308 & 321 of KMCAct/section 187 (9) (e) of KMA1964). It must be verified whetherPenalties as provided in Section436 of KMC Act were levied.

Details of the fees payable and extent of the violation permissible are as follows:

Nature of Extent of setback Fees payable as a percentagebuilding /Floor area violation of the value of portion

permissible, of building built in violation ofnot exceeding rules.

CorporationaArea Municipal Area

Residential 25 % of norms 6 10

50% of norms 8 25

Non - Residential 12 and ½ % of the norms 20 25

25 % of norms 35 40

Auditors may verify whether survey was conducted to identify such buildings andviolations. If no such data is available, comment on the lapse. Number of casesregularized during the period covered by audit may also be verified.

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In cases where the collection of anyrevenue, such as market fees, cart-standfees, etc., is managed by ULBs, thefollowing checks should be exercised.

a. Verify that the receipts having afixed value printed on them havebeen issued for collections.

b. Check the total number of differentkinds of receipt issued and theamount realized arrived at bymultiplying the number of receiptsby the rate thereof.

c. The counterfoils of the receiptsissued should be examined indetail for sample number ofmonths and ascertain whetherthere are any short credits ordelays in credit, etc.

d. If, in the course of the test audit,any serious irregularities arenoticed, further detailed checkshould be exercised as the auditormay consider necessary.

The auditor should also see –

a. Whether the proper accounts asprescribed, is kept for the receipts,issues and balances of the printedreceipt books.

b. Whether the books have beenmachine numbered and stampedwith the council’s common seal andthe total number of pages eachbook contains is certified by theCommissioner or any otherresponsible officer.

c. Whether proper collectionregisters are maintained by theofficers entrusted with thecollections.

d. Whether the remittance shown asmade by them have all beenbrought to account in themunicipal office.

e. Whether the municipal officeexercises proper check over therealizations.

f. Whether the balance of books inthe office have been verified by anyresponsible officer.

g. Those with the collecting officersas well as the accounts books withthem have been likewise verifiedat irregular intervals.

h. Whether adequate security hasbeen taken from the personsentrusted with the collection work.

A.5.14 Revenue from Market Fees and Fees from Slaughter Houses

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i) Miscellaneous DCB Register (KMF No 26)

ii) Summary of Demand register (KMF No 13)

iii) Collection register

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A.5.15 Fees from Jatra, Urus,etc.

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i) Collection register

i. In case the Market fees are notcollected directly, verify if the sameis leased out to other individualsand only the lump-sum leaseamount is collected.

j. Regarding Public markets, pleaserefer to section 368 and 369 of KMCAct 1976/Section 243 and 324 ofKM Act 1964 and Rule 64 to 71(Chapter 12) of MunicipalAccounting and Budget Rules2006.

i) Ascertain total number ofPublic markets (i.e. marketsacquired, constructed/maintained out ofcorporation/ municipalityfunds are deemed to be publicmarkets) under the control ofcorporation/municipalitiestotal area/places available ineach public market for beinglet out.

ii) Check whether entire areaavailable for being used as

markets, has been actuallyused, if not, the extent to whichthey remained vacant, periodfor which remained vacant andreasons for the same may beverified. Consequences ofkeeping any such places/areavacant which could have beenused in any public market maybe analyzed and commented,and loss of rent, if anycommented..

iii) Check whether fees/ ratesdetermined by the concernedstanding committee has beenrecovered and accountedcorrectly.

iv) Check whether MunicipalCouncil maintained register ofproperties yielding revenues.Check that rent in respect of allsuch buildings are recoveredand accounted. Check whetherMunicipal Commissioner hasverified entries in the registerand certified them as correct.

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The audit should:

a. Check whether the fees arecollected at the sanctioned rate

b. Check whether penalty for anybreach of the rules for collection ofthe fees is recovered at the rateprescribed in the Act.

c. Check whether a separate head hasbeen credited with the feescollected from the Jatras underSection 137 of the KarnatakaMunicipalities Act, 1964

d. Check if the sums collected as feesfor Jatras, Urs have been

exclusively used for the purposesspecified in the Act.

e. Collect details of occasions/eventsof conducting Jatras/publicfunctions etc., for whichpermissions are granted. Checkwhether fees as prescribed byMunicipal Corporation/councilsare recovered in all such occasions.For this purpose, details of events/functions occurred over last 2 or 3years may be analyzed. Resolutionregisters / files accordingpermission to such events may alsobe verified to cross check thatprescribed fees are recovered in allcases.

A.5.16 Development and Betterment Charges

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i) Collection register

a. Check if application scrutiny feesand other charges levied by theExecutive Authority and othercharges viz, development chargesand betterment charges for grant ofpermission for layouts,construction and reconstruction ofbuildings, in accordance with thenorms laid down therein onpayment of the fees are charged asprescribed.

b. Verify if the complete record of allthe permissions issued forconstruction of buildings are asper the Building rules.

c. Verify that fee for scrutiny ofapplications, development chargesand betterment charges have beencollected as prescribed in therules/by-laws in each case andaccounted for.

d. Review if the dates of completionor occupation are noted againsteach case,

e. Review whether the register hasbeen verified by the authorizedpersonnel.

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A.5.19 Sales Proceeds of Solid Waste, Debris and Silt

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i) KMF No 26- Miscellaneous DCB Register

ii) Collection register

A.5.17 Fees for Issue of Certificates

The following are the different kindsof fees collected for issuing variouscertificates

● khata extract and khata transfer

● Birth and Death certificates.

The Municipality may collect fees forissue of the above said certificates at theprescribed rates. The audit checks are:

a. Verify if the fees collected for is-suing the certificates are at the ratesprescribed in the schedule noti-fied.

b. A valid certificate is issued in theprescribed format and a receipt isgiven for the receipt of money.

A.5.18 Entry and Parking Fees

Following are the audit checks in caseof entry and parking fees:

a. Whether parking places are main-tained by the Municipal authori-ties and parking fees are collectedand accounted properlyb. Checkthe number of pre-printed receiptsissued to the authority concernedfor the entry and parking fees.

c. Verify if the tickets issued are se-rially numbered and check thenumber of tickets issued in each ofthe ticket booklets issued.

d. Check the arithmetical accuracy ofthe amounts collected by multiply-ing the number of tickets issuedwith the price of the tickets.e.Total amount of parking fees col-lected/accounted over a period oftime say last one or two years mayanalyzed and comment on trendsof receipts.f. If the tickets are notissued, verify the parking spacesare leased to different individualsand the lease amounts are collectedfrom them for an agreed period.Any control registers are main-tained

g. If the parking places are auctioned,the procedure adopted may be ex-amined, whether it was auctionedby giving publicity for the same.

h. Minimum bid amount has been re-vised from time to time in case ofpublic auction of facilities of park-ing places.

i. Bid was confirmed in favour ofhighest bidder. If parking place isleased, the audit check suggestedfor leasing of property are appliedhere also.

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Points to be considered in relation tosales proceeds of waste, debris and siltare:

a. Verify that the orders of themunicipality are obtained fordisposal/ of the solid waste,debris and silt.

b. Verify whether they are sold inpublic auction if ordered by themunicipality.

c. Check if the receipts of the sales areshown in the register KMF No-26-Miscellaneous DCB Register.

d. Verify if the amount of saleproceeds are accounted on thereceipt basis.

e. Check if all the revenue on saleproceeds under this head isaccounted under Water supplyand sewerage fund.

A.5.20 Sales proceeds from Tender Forms and Publications.

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i) KMF No 26- Miscellaneous DCB Register

ii) Collection register

iii) Tender files

iv) Contract agreement

Following are the audit checks in caseof receipts from sale of tender forms andapplications:

a. Verify if all the sale proceeds of thetender forms have been accountedon the receipt basis.

b. Check if the amounts collectedhave been recorded in the registerKMF No 26 Miscellaneous DCBregister.

c. Verify if the amounts collected areas per the rates prescribed.

A.5.21 Lapsed Deposits and Forfeited Deposits

Statute Reference

Rule 117 of Karnataka Municipal Accounting Rules, 2006 prescribes that depositsremaining unpaid for three years will be lapsed and credited to the revenue head ofaccount. The Security Deposits, EMD paid by the contractors or suppliers are forfeitedfor breach of the conditions of contract and credited to revenue head of account.

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The audit should:

a. Verify if a voucher is passed forcrediting the lapsed deposits torevenue head of account.

b. Verify that a separate registercalled Register of Lapsed Depositsis maintained.

c. Verify that the refund of depositsmade from the Register of LapsedDeposits, if any, is made with thesanction of the council.

d. Verify that the fact of refunds oflapsed deposit is noted against therelevant entry.

A.5.22 Infrastructure and Solid WasteManagement Cess

a. Verify if the Infrastructure cess hasbeen levied on all the motor

vehicles within the city at the ratesprescribed in the Act.

b. Verify if the Solid WasteManagement Cess has been leviedon the owner/ occupier of thebuildings or lands or both in thecity at the rates specified in the Act.

A.5.23 Sales Proceeds from Disposal ofFixed Assets and Investments

In case of Disposal of Fixed Assets, itshould be seen:

a. That the orders of competentauthority to enter into contracts hasbeen taken for the disposal of oldand unserviceable tools, plantsstores and materials and old assetsby sale or by public auction

b. That the receipts from all suchsales are shown in the Register ofmiscellaneous sales.

A.5.24 Grants

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determine.

a) Specific Grants As per the rule 2 (19) of KMABR, 2006, any grant received for a specific

purpose, or use in a particular m anner or proportion as per the terms and conditions of the grant are called specific grants. The Municipal Councils receive grants from State Government, Central Government and other agencies under schemes and for providing public amenities for specific purposes.

Some of the examples under the specific grants are as follows.

• Swarna Jayanthi Shahari Rojgar Yojana

• Infrastructure Development Scheme for Small and Medium Towns (Component of JNNURM)

• Urban Infrastructure Development Scheme for Small and Medium Towns (Component of JNNURM)

b) General Grants As per the rule 2(20) of KMABR, 2006, any grant received which does not

have any condition attached to its usage and can be used for other purposes is called general grants.

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The following are the auditcheckpoints to be observed at the time ofauditing the grants.

The audit should:

a. Verify if the grants are utilized forthe purposes for which they arereleased.

b. Verify if the amounts are spent asper the guidelines issued in theorder wherein the grant is released

c. Check if the amounts are spentwithin the time stipulated byGovernment.

d. Seek explanations for amount notutilized for the specified purposeand consider their treatment to beundertaken as per the stipulatedrules.

e. Check if the unspent amount hasbeen refunded to the grantreleasing authority

f. That the grant releasing has beenaddressed for reimbursement ofthe excess expenditure, if any.

Note: The auditor should make a noteof the reasons for

● not utilizing the grant in full

● not refunding the unspent grant

● Excess expenditure under the grantnot getting reimbursed.

A.5.25 Audit Checks for State FinanceCommission (SFC) - Grants

These are grants received by the ULBfrom the government for the specifiedpurposes. Some of the SFC grants

received and the purposes are mentionedbelow

1) SFC Salary grants- Grants receivedto meet the salary expenses of theULB staff.

2) SFC Electricity grants- Grantsreceived to meet the electricitycharges.

3) SFC Untied grants- Grants receivedfor development purposes.

The following aspects with regard tothe SFC grants need to be verified.

a. Whether the amount of grantsreceived have been spent on thespecified purposes for which it hasbeen sanctioned.

b. Whether the grant has beenrecognized as an income at thetime of the receipt and it isaccounted under the GeneralFund.

A.5.26 Audit Checks for the Register ofGrants

It should be seen:

a. That a grant register in KMF No 35shall be maintained by theaccounts department to recorddetails of

▲ each specific grant received

▲ unutilized grant amount

▲ refund of unutilized grant

▲ dates of receipt of the Grants

▲ a separate page should beopened for each account

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b. That all the Grants to be receivedfrom Central Government, StateGovernment, State FinanceCommission are entered in theregister account-wise,

c. That the particulars of Grantsreceived during a period of threeyears are written account-wise inthe same register to watch thereceipt of Grants as to thequantum to be received andapproximate time of receipt,

d. That the action is taken by theMunicipal council, if a particulargrant receivable during previousyear is not received in the currentyear and if there is considerableshortfall in the quantum receivedin the case of any Grant.

A.5.26 (A) Grant of Licence/permissionto use places for certain purposes

a) Check whether corporation/municipality has prescribed bye-laws/resolution for levy andcollection of fees for grant oflicence/permission to use placeswithin city or 5 kilometers of citylimits for purposes mentioned inschedule X/Section 353. KMC Act1976. Section 354 and section 362of KM Act 1976 may also bereferred.

b) Check whether such licence feesmentioned above are recoveredand accounted properly.

c) Check whether any controlregisters/systems exist to ensurethat, without permission, noperson/agency can use any place

for purposes mentioned inSchedule X/ Section 354/Section362 and provision of Section 443 ofthe KMC Act 1976. Also refer toSection 256 and Section 149 andPart I or Part II of schedule XIII ofKM Act 1964 regarding grant oflicence/ permission and paymentof fees.

d) Check Register of Licences issuedand ensure all cases were enteredtherein and fees recovered.

e) Check whether any periodicalinspections of such places referredabove, are conducted to ensurecompliance with conditions oflicence/ permission. If noperiodical inspection of suchplaces is prescribed /conducted,comment on inadequatemonitoring on use of places forthese specified purposes.

A.5.27 PenaltiesFor levy of penalties, refer to Section

431 to 442 of KMC Act 1976/Section 263of KM Act 1964.

Check whether penalties are levied forinfringement of provisions of KMC Act1976/KMC Rules or any directions/orders issued thereunder, and specifiedin schedule XI and XII. Check whetherany system is in place to detect violationsof provisions of Act/Rules/orders suchas periodical inspections, survey, etc. Ifno such procedure is followed, commenton lack of proper control systems.

A.6 Audit checklist for ExpenditureItems

Audit checks for some of expenditurewhich are available in all types of auditee

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institutions can be referred to in theprevious Section related to genericchecklists. Audit checks specificallyapplicable to Urban Local Bodies are

In the audit of establishment expensesof Urban Local Bodies, in addition to thegeneral checks prescribed in Paragraph1.1 above, the auditors should verifywhether there is sanction by a competentauthority for all the posts as per the KMFNo 49 – Scale register and also checkwhether the pay scales and pay drawnare as per the above register.

A.6.2 Audit of Registers relating toEstablishment Bills

The following are the list of registersthat need to be maintained in relation toemployee related transactions. Thefollowing checks need to be made at thetime of verification of these registers.

1) Proposition Statement for Revision ofEstablishment (KMF No. 48)

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i) Proposition Statement for Revision of Establishment (KMF No. 48)

ii) Scale Register (KMF No.49)

iii) Pay Bill cum Acquittance Roll - (KMF No. 50)

iv) Abstract of Pay Bill cum Acquittance Roll (KMF No. 50A)

v) Periodical Increment Certificate (KMF No. 51)

vi) Annual Return of Establishment (KMF No. 52)

vii) Register of Advances (KMF No. 61)

viii) Register of Interest on Loans & Advances (KMF No. 62)

mentioned in the section below withappropriate reference to the CommonAudit Checks of Expenditure.

a) Verify whether any addition/modification of existingsanctioned establishment isentered in KMF 48 giving fullexplanation for the grounds ofthe proposed change.

2) Scale Register (KMF No.49)

a) Verify if the appointments areentered into the scale registerunder the initials of MunicipalCommissioner or Chief Officeror the Officer authorized byhim.

b) Verify if the revised number ofposts and scale of pay andallowances are noted in thespecific columns.

A.6.1 Establishment bills

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6) Annual Return of Establishment(KMF No. 52)

a) Verify whether a detailedstatement of pensionableestablishments as on 1st March isprepared in the register

b) Such a return is prepared fortemporary and permanentemployees in respect of bothpensionable and non-pensionableemployees.

c) Whether such statements are beingsent to the Pension SanctioningAuthority not later than 15th Mayevery year.

7) Register of Advances (KMF No. 61)

This contains details of advancesmade to each employee. It must be seenwhether a separate register is maintainedfor each type of advance.

8) Register of Interest on Loans &Advances (KMF No. 62)

a) Whether details of interest onloans granted to employees isentered in this register.

b) Check whether the details ofinterest accrued and recovered isentered.

c) Verify if the detailed componentsof pay (including revisions madethereon) are entered in the Payregister.

3) Pay Bill cum Acquittance Roll -(KMF No. 50)

a) Verify if the Pay bill cumacquittance roll matches with theemployee muster roll, servicebooks, etc.

b) Verify if the components of salarywith computation of net pay, grosspay and details of deductions areentered into this register and checkthe arithmetical accuracy of thedifferent deductions.

4) Abstract of Pay Bill cum AcquittanceRoll (KMF No. 50A)

a) Verify if a separate account wiseand code wise summaries of thePay Bill of KMF No 50 are enteredin the extract.

b) Check if monthly approvals of theCommissioner/Chief Officer or theauthorized officer are obtained.

5) Periodical Increment Certificate(KMF No. 51)

a) Check if all the periodicalincrement certificates are preparedfor municipal employees in thisprescribed form.

b) In respect of periodical incrementcertificates for drawing officers(non-gazetted), whether the sameis passed by the next higherauthority.

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A.6.3 Honorarium to the Members of the Committees

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a. Check if the honorarium paid to thecouncillors is paid as per theprescribed government orders.

b. Check if a separate register ismaintained for the payment ofHonorarium and signatures to beverified for the receipt.

c. Section 17 of K.M. Corporation Actmay be referred. Check whetherHonararia fees and allowancespaid to Mayor, Deputy Mayor andcouncillors were in accordancewith rates approved by theGovernment. In case ofMunicipalities, refer to Section 18Aof KM Act 1964, with respect tofees/allowances payable forattending meetings of variouscommittees of municipal council.Check the period for payment offees/allowances with attendance

maintained/meeting proceedings,etc.,

A.6.4 Public works expenditure

Execution of works /tendering/con-tracts by corporations and municipalitiesare regulated by the provisions of KTPPAct and Rules. Audit checks suggestedin para 1.4 to 1.4.6 (procurement of goodsand services) apply mutatis mutandis.

Check whether administrative ap-proval of estimates and contracts madeby different authorities, of corporationsare within financial powers delegated tothem.

Refer to section 181 and 182 of KMCAct 1976 and Rule 6 and 6A as amendedfrom time to time and also rule 7 of KMCrules 1977.

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Financial powers to accord administrative approval for estimates (Rule 6 of KMCRules)

Financial powers to make contracts for procurement of services, goods, executionof works (Rule 6A of KMC Rules)

Not exceeding

Rs. 50 Lakhs

Rs. 30Lakhs

Exceeding But dose

not exceed

Rs. 50 Rs. 200

Lakhs Lakhs

Rs. 30 Rs. 50

Lakhs Lakhs

Exceeding But dose

not exceed

Rs. 200 Rs. 500

Lakhs Lakhs

Rs. 50 Rs. 100

Lakhs Lakhs

Exceeding But dose

not exceed

- -

Rs. 100 Rs. 200

Lakhs Lakhs

Exceeding

Rs. 500

Lakhs

Rs. 200

Lakhs

Commissioner Standing Corporation DMA Govt.

committee exceeding

BBMP

Other

than

BBMP

Govt. DMA Corporation Standing CommissionerCommittee

Exceeding Not Not Not Notexceeding exceeding exceeding exceeding

BBMP/with Rs. 500 lakhs - Rs. 500 lakhs Rs. 250 lakhs Rs. 60 lakhstender premium 15% of CSR 12% of CSR 8% of CSRnot more than

Other Rs. 200 lakhs Rs. 200 lakhs Rs. 100 lakhs Rs. 50 lakhs Rs. corporations30 lakhs 15% of CSR 12% of CSR 8% of CSR 8% of CSRtender premiumnot more than

Details of delegation of financial powers as provided in these rules (includingamendments up to 4/2011) are as follows:

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Check also that the estimates are notsplit into smaller values/more than onecontract made for different component ofthe same work (civil work, supplyequipments) to avoid sanction of higherauthorities.

Check whether in respect of estimatesexceeding Rs. 20 lakhs the e- tenderingmethod was adopted in BBMP and checkfor compliance with KTPP Act 1999/Rule2000 vide rules 7 of KMC Rules 1977 (asamended in 1/2011, Notification UDD 59)May 2009 (Pt-2), dated 17-01-2011.

For audit checks of Public Worksexpenditure, please refer Paragraph 1.4.

Verification of the registers relating topublic works

1. KMF No 38- Contractor’s bill

a. Verify the fact that for every bill itis stated whether it is a running billor a final bill.

b. Check if the details of the workdone, work order reference, grossvalue of work, deductions from thebill and the net amount arerecorded in this register.

c. Verify if all the entries areauthorized by the signatures of therelevant personnel.

d. Verify that recoveries towardssales tax, royalty, Income Tax aremade in the bills and are remittedto Government without delay.

e. Quantity of works as entered in thebill agreed with correspondingentries in the measurement booksand works were check measured

as prescribed (Refer to rule 76,80& 81 of KMABR 2006)

2. KMF No 39- Nominal muster roll

a. Verify if details of all the labourerson daily wages engaging in the workscontract is captured in this register withall the relevant details required as per theRule 78 of KMABR, 2006.Check part II ofNominal Muster Roll (MaR 53) (KMABR2006) for quantity of work executed bydaily labourers. Work done has to bemeasured and entered in part II of NMR.

Check whether work executed wascommensurate with the amount shown asspent thereon as per schedule of rates. Ifthe amount shown as spent in NMR for aparticular work is higher than theexpenditure that would have beenincurred at schedule of rates, analyseexcess expenditure and comment. Referto rule 78(4) of Karnataka MunicipalAccounting and Budget rules 2006.

3. KMF No 40- Daily labour report

a. Verify if all the details ofsubordinate in charge of work,details of labour employed arerecorded every evening.

b. Verify if the details of KMF No 39are fed into the details of thisregister and reconciliation isperformed.

4.KMF No 41- Register of Public works

a. Verify if the details of all the publicworks have been recorded in thisregister along with details ofvarious bills raised under the workorder, deposits received,refunded, etc.

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5. KMF No 42- Summary statement ofstatus of Capital work-inprogress

a. Verify if the amount of capital workin progress has been prepared ona quarterly basis.

b. Also check if the details of workorders remaining unexecuted arealso recorded.

c. In case of Deposit works, verify ifthe amount paid to Public WorksDepartment (PWD) of the StateGovernment are treated asadvance and the expenditureincurred by PWD are adjustedagainst the advances paid andtransferred to Capital Work inprogress.

d. In case of delegated loan works,verify if the amount of loan istreated as advance to the agency,and also the loan from thegovernment or as public issue ofsecurities.

e. In the above case, check if theamount of expenditure incurred bythe agency is adjusted against theadvances to the agency and istransferred to capital Work inprogress. Verify if the payments/adjustments made towardsrepayment of loan is reduced fromthe loan liability.

A.6.4(i) Execution of public works byMunicipal councils

Refer to Rule 73 to 85 (Chapter 14) ofKarnataka Municipal BudgetingAccounting rules 2006 and Sections 345and 346 of Karnataka Municipalities Act1964 regarding powers to make contracts.

Please refer to Karnataka Municipalities(Preparation of Plans and Estimates andExecution of Municipal works) Rules1966 (Notification No.: UDD TMS 2002,Dated: 28.12.2002

1) In all cases where work wasexecuted through public workdivisions as deposit contributionworks, check the actualexpenditure incurred on each workas against advance deposited withthe division and verify whetherunspent amount was refunded toULBs.

2) In respect of works executed byMunicipal Council directly, checkthat rates paid are in accordancewith schedule of rates of PublicWorks Department and the worksare approved by MunicipalCouncil.

3) Register of Public Works - Refer toRule 79 of Karnataka Budgetingand Municipal Accounting Rules2006 regarding maintenance ofRegister of works. Check whetherall works under taken byMunicipal Council are entered inthis register while conducting areview of work register, identifyworks that have remainedincomplete and analyze reasonsfor the same. Comment on worksthat remained incomplete for over2 to 3 years.

4) Verify that mobilization advanceto contractors are made againstsecurity/bank guarantee. Checkwhether secured advance wasrecovered in Running Account

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Bills of the Contractor KMABR2006 (rule 76).

5) Check that payment to contractorsare made only through cheques.

6) In respect of purchase of ElectricalItems check that rates paid are inaccordance with Schedule of Ratesof respective Electrical Division ofKPWD.

7) Verify whether Register ofestimates is maintained asprescribed in rule 5 of theKarnataka Municipalities(Preparation of Plans andEstimates, and Execution ofMunicipal Works) Rules 1966 andsanction accorded for all estimatesare entered in the Register.

8) Execution of construction/repairs/maintenance of works of roads,drains and culverts etc, wereentered in the register maintainedin KMF 44A (Rule 87 of KMABR

2006) with complete details suchas place, measurement, period ofwork, expenditure, reference tomeasurement books, vouchers andcontract. The register may bereviewed for two or three years toidentify whether works werecarried at the same placerepeatedly/frequently and in suchcases analyze reasons andcomment suitably.

9) Verify whether Technical andadministrative approval accordedby different authorities, werewithin the powers delegated tosuch authorities (refer to Rule 8 and9 of rules (K.M. (Preparation ofPlans, Estimates and Execution ofMunicipal Works) Rules). Checkfor estimates were not split intosmaller values to avoid sanction/scrutiny from higher authorities.Details of delegation of powers asprovided in these rules are asfollows:

(I) Technical Sanction of estimates for Municipal Engineer of the rank

Executive Engineer AssistantExecutive Engineer

Assistant Engineer

Not exceeding

Rs. 20 lakh in each case Rs. 5 lakhs in each case Rs. 2 lakh in each case

In case of an estimate of value of Rs. 20lakhs and above verify whether technicalsanction obtained from competent

authority other than Municipal Engineersuch as public works department atappropriate level.

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A.6.4 (ii) Administrative approval of plans and estimates

Town Panchayat (T.P.) - Not exceeding Rs. 2 lakhs in each case.

Town Municipal Council (TMC) - Not exceeding Rs. 5 lakhs in each case.

City Municipal Council (CMC) - Not exceeding Rs. 10 lakh in each case.

Deputy Commissioner (TMC) - exceeding Rs. 2 lakhs (T.P.), Rs. 5 lakhsand Rs. 10 lakhs (CMC) but does notexceed Rs.20 lakhs, in each case.

Director of Municipal Administration - exceeding Rs. 20 lakhs but does not exceedRs. 25 lakhs in each case.

State Government - Exceeding Rs. 25 lakhs in each case.

10)Verify whether security depositwas recovered as prescribed in rule21 ibid (i.e. at 7 ½ percent of totalestimated cost, 2 ½ % as EMD attime of Tender and 5% to berecovered at time of payment ofbills).

A.7 Audit checklist for Assets/properties

Major items of assets have beenmentioned below along with auditchecks specific to each such item.

A.7.1 Movable and immovable properties

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i) Register of Land - KMF NO 44

ii) Register of Land under Roads - KMF NO 44A

iii) Register of Immovable Properties (other than Land) - KMF NO 45

iv) Register of Movable Properties - KMF NO 46

The following are some of the pointsthat should be kept in view andexamined in the audit of Fixed Assets

A.7.1 (a) Verification of PurchaseProcedure of Fixed Assets:

Verify that:a. The authority which has purchased

a Fixed Asset enters the bill of thesupplier in the Register of billsreceived (KMF No. 21).

b. The concerned department verifiedit with the procurement order,budget availability etc.FixedAssets purchased conformed tospecifications/descriptions/ other

170


physical parameters and rates asdetailed in the procurement orderand relevant provisions werecomplied with. Authorityreceiving the assets certified thatit was received in proper condition(eg. In the case building, all fitting/furnitures, in the case of land, therewere no temporary structures orillegal constructions).

c. Approval of competent authorityis obtained for the sale/purchaseof the fixed assets.

d. Detailed Bill of Order Expenditure(KMF No. 59) along with the filecontaining the relevant documentssuch as the Supplier’s bill,procurement order, note sheetcontaining details of the bill etc, issent to the authority responsiblefor maintaining the relevant ‘FixedAssets Register’. Verify if thereceiving authority has made thenecessary entries in the Registerand the detailed bill then sent tothe Accounts Department forverification.

e. The Accounts Department made anentry in the “Register for billsreceived by Accounts Department(KMF No. 23), verified all thedocuments and then passed theentries in the relevant Fixed AssetsRegister.

f. The bill was filed with theCommissioner for approval.

g. The assets are insured adequatelycovering the value of the assets andthe renewal is done on timely in-

tervals.

A.7.1 (b) Revaluation of Assets

a. Verify if the revaluation of FixedAssets has been done only underthe following circumstances asstated under Rule 90(1) of KMABR2006.

b. Check if the Commercialdevelopment of the fixed assets istaken up after the land use andarchitectural control have beenapproved by the competentauthority.

· At the time of lease, or

· At the time of issue ofmunicipal bonds

c. Check if the revaluation of fixed as-sets has been done for individualassets, entire assets or for a classof assets. It is to be noted that re-valuation cannot be done on indi-vidual assets as per Rule 90 ofKMABR 2006.

A.7.1 (c) Disposal/Sale of Movable andImmovable properties

(Refer to section 176 of KMC Act 1976/section 72 of the KMA 1974)

Movable and Immovable propertiesare disposed of either by sale or throughauction, check whether the statedprocedure as under has been followed –

a. The ULB will normally collectEMD from the bidders, and afterthe auction is over, the EMD willbe refunded to the unsuccessfulbidders. The EMD of the successfulbidder will be adjusted towards

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the sale value of the asset and thebalance amount will be collectedfrom him. The accounting ofcollection of EMD and sale valueof the asset shall be done in thesame way.

b. Verify if the details of bidsreceived, EMDs collected,outcome of the bid, refund ofEMDs etc. are recorded in Registerof Miscellaneous Sales/Auction(KMF no. 34).

c. Upon floating the tender for thedisposal of assets, check whetherthe fixed assets disposed aretransferred to “Fixed Assets underDisposal Account (Account Code4181) and all subsequenttransactions pertaining to the sale/disposal of the asset is routedthrough this account.

A.7.2 Vehicles

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i) Log books in the prescribed form.

ii) A record of re pairs and replacements indicating the cost and the dates on which they have been carried

iii) A register showing cost of petrol, diesel, oil, etc., consumed and all incidental expenditure.

iv) An inventory of accessories, tools, spares parts etc.

d. Check whether the details of thedisposal of the asset is noted in therelevant Fixed Asset Register,under attestation by theCommissioner/Chief Officer.

e. Verify that sale of any Movable orImmovable property wassanctioned by the StandingCommittee and the sale waseffected through public auction.

f. Sale of any immovable propertieswas sanctioned by Government.

g. Properties whether Movable orImmovable was not transferredfree of cost or for upset pricewithout sanction of government.

h. Notice inviting offers containessential clauses like EMD to bepaid, period for filling bids etc.

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The following points should be seen inaudit: -

a. The entries in the log book andother records are made in ink andthere is no tampering of the entries.

b. The kilometer readings at the startand at the completion of eachjourney are noted by the officersusing the vehicles in their ownhandwriting or by othersubordinate officers dulyauthorized to authenticate theentries.

c. The purpose of the journey is notedclearly to indicate that journeys areofficial and also marked as‘Official’ and signed by the officerusing the car, van or jeep.

d. The log book is scrutinized by asenior officer once a month toensure that there is no misuse ofthe staff car and that officers whoused the staff car have made thenecessary entries in the log book.A certificate to this effect isrecorded in the log book by theofficer authorized to scrutinize itevery month.

e. The log book is closed at the endof each month and a summaryshowing details of duty and non-duty journeys performed duringthe month is prepared in theprescribed proforma.

f. The staff car is used for bonafideofficial duties.

g. All private journeys whereallowed are charged at the rate

fixed for the purpose and thecharges at these rates arerecovered correctly and promptlyfrom the concerned persons forthe entire distance travelled.

h. Proper control is exercised overconsumption of petrol, diesel, etc.The average K.M. run per litre offuel is worked out every monthand it compares favorably withthe optimum averageconsumption prescribed. In caseconsumption is more than theaverage, reasons for the same areinvestigated and suitableremedial measures are taken.

i. The cost of repairs andreplacements are not on the highside. The replacement of samepart/parts is/are not repeated inquick succession

j. Reasons for frequent repairs/break down of vehicles/staff carare not such as to indicatenegligence on the part of thedrivers or laxity of control.

k. All bills paid towards the cost ofPetrol oil and Lubricants (POL)are entered in the Register ofPetrol, Oil and Lubricants.

l. The entries made in the Registerof POL agree with those made inthe POL Account maintained inthe log books.

m. The accessories, tools and spaceparts are kept on recordimmediately on their purchaseand the entries are verifiable fromthe relevant vouchers.

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n. The stocks of accessories, spareparts, etc., are physically verifiedonce a year by a responsibleofficer with reference to theinventory and a certificate ofverification recorded. Anyshortage coming to notice ispromptly enquired into and is gotreplaced or its value recoveredfrom the person responsible forthe shortage. The Stock verifiershould also verify whether theaccessories, spare parts, etc., arein good and usable condition.

A.7.3 Investments

A.7.3 (a) Investments made fromEarmarked (Sinking) Funds:

It should be seen whether the fundsavailable in Sinking funds for loanrepayment (or redemption of bonds) orasset replacement will be required by theULB till the due date for loan repayment(or redemption of bonds), or till it is timeto replace the asset, or instead of keepingthe funds idle, ULB has invested thefunds in revenue-yielding investments.

a. Verify whether income earned oninvestments made out ofearmarked funds are deposited inthe designated bank account of theEarmarked Fund.

b. Verify if such income amounts toaccretion to the Earmarked Fundor Grant and such income is notutilized for any purpose other thanfor which the Earmarked Fund hasbeen created.

c. Whether interest earned onInvestments made fromEarmarked funds is updated in theRegister of Investments (KMF

no.66) as well as the EarmarkedFunds Register (KMF No. 73)

A.7.3 (b) Registers to be verified

(i) KMF No 66 -Register of investments

This register would have beenchecked already in connection with theaudit of transactions relating toinvestments. It should be seen –

a. that the registers show allinvestments belonging to theMunicipality with details of datesof maturity interest due etc.,

b. that the interest due has beenrealized on the due dates and thatthe investments matured have beenrealized or reinvested underproper authority,

c. that the total amount of theinvestments has to be verifiedannually by the ExecutiveAuthority and a certificate ofverification has been appended inthe register,

d.That the totals of investments madeas shown in the register agree withthe figures in the posting registerand the annual account.

Note: - All the investments have to beverified by the auditor at the time of audit.

(ii) General Checks

a. Verify if the Fixed Deposits areclassified under Bank Accounts inthe Chart of Accounts, and notconstrued as “Investments”.

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b. Whether Investments are classifiedin the Chart of Accounts asfollows:

� Investments in CentralGovernment Securities

� Investments in StateGovernment Securities

� Investments in Debentures andBonds

� Investments in Equity Shares

� Other Investments

(iii) Maturity/Disposal of Investments –

a. Whether Investments are held tilltheir maturity or may beprematurely withdrawn latersatisfying the terms and conditionsof the Investment.

b. Check if the profit or loss incurredon the disposal of investment is

calculated correctly and isrecorded as income or expense ofthe ULB, whereas, in case of an‘earmarked fund investment’ or‘grant investment’, the profitrealized or loss incurred shall becredited or debited, as the casemay be, to the Earmarked Fund orGrant.

c. Check if the profit or loss arisingon disposal of Earmarked Funds’Investments and GrantInvestments is updated in theEarmarked Funds Register andGrants Register.

A.7.3 (c) Investments made from SinkingFund

a. Verify if income from Investmentsis credited to the account of theEarmarked Fund/Grant itself,instead of treating it as income.

A.7.4 Stores

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i) Register of Stores (KMF No 53)

ii) Departmental Register of Bills received (KMF 21)

iii) Material Receipt note (KMF No 54)

iv) Detail bill of other expenditure (KMF No 59)

v) Register of Miscellaneous Sales (KMF No 34)

i) Conservancy related storesii) Water related storesiii) Medical supply storesiv) Lighting related storesv) Food grains storesvi) Stores- Othersvii) Public works related stores

The following aspects should beexamined in the audit relating to thestores

a. The material supplied is as per theprocurement orders and theagreements.

b. For the sample selected, verify if

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a. Loans to others are entered in the‘Loans to Others Register’ in FormLA –1 and on a monthly basis; theamounts as per the register arereconciled with the amounts as perthe Ledger Accounts.

b. The interest accrued at the periodend is entered in the registersreferred above and the interest onloans as per the registers isreconciled with the amount as perinterest ledger.

c. At the end of the year, an abstractof ‘Loans to others’ is madeshowing the loans outstanding atthe beginning of the year, loans lentduring the year, total interestsaccrued during the year and totalamount of recoveries/adjustments during the year.

d. Register of Loans contains recordof all loans borrowed andconfirmation statement as perprescribed format is sent to thelender every year.

A.7.6 Cash and Bank Balances

The following aspects of internalcontrol relating cash and bank balancesshould be reviewed:

a. Segregation of duties relating toauthorization of transactions,handling of cash/ issuance ofcheques and writing of books ofaccount, and rotation of the dutiesperiodically;

b. proper authorization of cash andbanking transactions;

c. daily recording of cashtransactions;

the bills are entered in KMF No 21and the Material receipt note isprepared by the Store Keeper afterthe verification of the quality,quantity and rate in KMF No 54.

c. The material receipt has beennoted in KMF No 53

d. There is a proper utilization of thestores.

e. In case of disposal of materialverify if it is as per the policyframed by the ULB and such salesare entered in KMF No 34.

f. The normal loss due to spoilage,damage, evaporation or anyother reason in the stores of theULB has been treated as per theprescribed procedure.

g. In case the material disposed hasbeen done by the way of anauction, verify if the EMDscollected have been refunded tothe unsuccessful bidders.

h. In case of medical stores/perishable goods, check if thematerial movement is done onFirst-in- First out basis and checkif no medicines are issued afterexpiry date.

i. Audit checks as mentioned in para1.4.6 may be adopted (audit ofprocurement of goods/equipmentstores).

A.7.5 Loans & Advances

The following aspects relating toLoans and advances should be examinedin audit:

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d. safeguards such as restrictivecrossing of cheques, use of pre-printed, pre-numbered forms;

e. periodic reconciliation of bankbalances;

f. reconciliation of cash-on-handwith book balance on a daily basisor at other appropriate intervals,including surprise checks byhigher authorities;

g. Safe custody of cash, chequebooks, receipt books.etc.

h. Cash /fidelity insurance

Verification of Cash Balances, etc

a. As per Rule 13 of the KarnatakaMunicipalities (Powers and Dutiesof Auditors) Rules, 1965, the cashbalances, Securities held by theMunicipal Council or its officersand servants should be verifiedand also the postage stamps andthe stock of printed forms kept forissue of receipts for paymentsreceived.

b. Physical verification may becarried out, on a surprise basis, atany time during audit.

c. If IOUs ('I owe you') or othersimilar documents are foundduring physical verification, theauditor should obtainexplanations from a senior officialof the entity as to the reasons forsuch IOUs/ other similardocuments remaining pending. Itshould also be ensured that suchIOUs/other similar documents arenot shown as cash-on-hand andsettled on a timely basis.

d. Where postdated cheques are onhand on the balance sheet date, theauditor should verify that theyhave not been accounted for ascollections during the periodunder audit.

Verification of Bank/Treasury Balances

a. Verify if the bank/treasurybalances as per the ledgersreconcile with the balances in thebank/treasury statements.

b. Examine the bank/treasuryreconciliation statement preparedand reviewed as on the last day ofthe financial year. Also examine thereconciliation statements as onother dates during the year.

c. It should be examined whether thefollowing have been dulydebited/credited in thesubsequent period:

i) Cheques issued by the entitybut not presented for payment,and

ii) Cheques deposited forcollection by the entity but notcredited in the bank account.

d. Special emphasis on those items inthe reconciliation statements whichare outstanding for an unduly longperiod. Ascertain the reasons forsuch outstanding items. Alsoexamine whether any such itemsrequire an adjustment/write off.

e. Verify if there are any inoperativeaccounts and have remainedstagnant, but transactions mayhave taken place in that accountduring the year.

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i) Earmarked Funds Register (KMF No 73)

ii) Register of Sinking fund for asset replacement (KMF No 47)

Types of earmarked funds

a) SC/ST Development

b) Sinking Funds

c) Revolving fund, created undercertain schemes

d) Any other ear-marked fund whichthe council may decide to create

The following aspects need to beconsidered for the audit ofearmarked funds:

i) Transfers to Earmarked Fundshall be made at intervals andof such amounts as per theterms for creation of theEarmarked Fund.

ii) In case of the funds lying idle,verify if the amounts inEarmarked funds are investedand if so, timely follow up forthe maturity or reinvestmentdecisions are taken.

iii) Verify that the amount of theEarmarked Fund is not utilizedfor the purpose other than forwhich the fund was created.

Verification of Forms and RegistersEarmarked Funds Register (KMF No 73)

i) Check if a separate folio ismaintained for each EarmarkedFund.

ii) Verify if all transfers to EarmarkedFunds, details of utilization etc., isrecorded in the register, withvoucher references.

iii) Check if the balance in the fund asshown in the register, and as perBooks of account is reconciled bythe end of the month.

Register of Sinking fund for assetreplacement (KMF No 47)

a. Verify if all the details aremaintained to record the money set

A.8.1 Earmarked Fund

f. In relation to balances/depositswith specific charge on them, orthose held under the requirementsof any law, verify that suitable dis-closures are made in the financialstatements.

g. In respect of fixed deposits or anyother type of deposits with banks,the relevant receipts/ certificates,duly supported by bank advices,should be examined.

h. The auditor should examine thatsuitable adjustments are made inrespect of cheques which have be-come stale as at the close of theyear.

A.8. Audit Checklist for Liabilities

Major items of liabilities have beenmentioned below along with auditchecks specific to each such item.

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aside, sinking fund investmentsmade, interest earned utilization offunds available for replacement ofasset etc.

b. Verify if all the details of thesinking fund investments is alsorecorded in the Register ofinvestments (KMF No 66)maintained separately.

A.8.2 Borrowings

Important points to be looked into inthe course of audit:

a. Ensure that the borrowings areregulated as to not to exceed thelimits, if any, fixed from time totime and the conditions laid downin this regard are duly observed.

In respect of borrowings pertainingto corporations and MunicipalCouncils, refer to Section 154 to 163of KMC Act 1976 and Section86 ofKMA 1964, Rule 120 of KarnatakaMunicipal Budgeting AccountingRules 2006, respectively

The audit must check and ensurethat:

� Outstanding loan at the end ofany given period did notexceed ten percent of annualrateable value/capital valueof buildings and lands ownedby corporation. Refer tosection 156 of KMC Act 1976.

� That loan is raised bycorporations/municipalitiesfor purposes mentioned inSection 154 of KMC Act/section 86 of KMA 1864, with

previous permission fromGovernment.

b. In the case of loans raised, ensurecompliance with the conditionsimposed (if any) by the competentauthority while giving consent totheir raising the loans orguaranteeing their repayment, orwhile granting a loan to them.

c. The proceeds from borrowingshave been properly brought toaccount and have been expendedonly on the objectives for whichthe loans were raised or to whichborrowed moneys may properlybe applied in accordance with thesound principles of public finance.

d. Adequate arrangements have beenmade for amortization of the debtand bring to light instances inwhich this requirement has beenignored or the arrangements madeappear prima facie to beinadequate.

e. The conditions governing theBorrowings are scrupulouslyobserved. It should be seen, inparticular, that the annual debitsagainst revenue under the specificborrowings are calculated strictlyin accordance with the approvedprogrammes, that theappropriations for reduction oravoidance of debt are applied tothe objects for which the money hasbeen set aside, and that theliquidation of debt proceeds at therate and on the lines prescribed.

f. Borrowings were made againsthypothecating any tangible assets

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Relevant provisions of Act and Rulesfor the redemption of loans raised, withinthe periods prescribed, the followingpoints should be verified: -

a. A separate account is maintained.

b. The Fund is sufficient to repay theprincipal and interest by theprescribed due date/dates.Check whether amounts paid intosinking fund quarterly hasenabled repayment of instalmentof loan and interest, within theprescribed period (section 160 ofKMC Act 1976). Check whetherany penal interest was paid due todelay in repayment of instalmentof loan and delay attributable toadministrative procedure andcomment.

c. Credits to the Fund are made ininstallments regularly from theULB funds debiting Revenue inaccordance with the prescribedprocedures.

Check whether available balance insinking fund has been invested insecurities of State Government orsecurities guaranteed by

Government, and that investmentsare made in joint names of theCommissioner and Secretary, FD(section 160 (2) of KM Act 1976).

Check whether annual statementswere submitted by the trusteereferred in section 162 of KMC Actto the corporation at the end ofeach year and review and commenton the Statements.

d. Payments from the Fund are madeonly for the purpose for which it iscreated.

e. Accumulations in the Fund areinvested in such securities as maybe prescribed and suchinvestments are sound.

f. A Register for Sinking Fund ismaintained, posted up to date andthe balances as per the Registeragree with account balances.

g. Verify if a separate bank accountis present for all the loans grantedfor specific purpose as per Rule120 of KMABR, 2006, and check ifthe amounts utilized are for thepurpose defined.

A.8.3 Sinking Funds (Section 161 & 162 of KMC Act 1976/Rule 89 of KMBAR 2006)

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i) Register of Loans (KMF No 71)

ii) Register of Sinking Funds for Repayment of Loans (KMF No 72)

conditions may be reviewed andcomment if any conditions aredetrimental to interest of auditee.Compare amount of borrowings

and market value of asset pledgedand comment if there is hugevariation between both thesevalues.

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Sinking Fund for Repayment of Loan/Bonds

a. Check if the terms and conditionsof the loan provide forestablishment of a sinking fund forredemption of the loan and hencethe ULB has created a “sinkingfund for loan repayment”.

b. Verify if transfer of funds is doneperiodically to it from theMunicipal Fund.

c. Verify if a separate bank accountis maintained for such a fund, andequivalent amount is transferredfrom the main bank account of theULB, to this account.

d. On the due date for redemption ofthe loan, verify if the payment ismade from the sinking fund bankaccount. Balance, if any, in thesinking fund bank account, istransferred to the Municipal Fundand its main bank accountrespectively, which will have theeffect of closing the sinking fund.

e. Verify if the terms and conditionsof the loan taken, requires themaintenance of escrow accountand check if the stipulatedpercentage of revenue earned fromthe asset created is transferred tothe Escrow account.

Verification of Forms and Registers

(i) Register of Loans (KMF No 71)

a. Check whether a separate page ismaintained for each loan.

b. Verify if full particulars of the loanreceived, repayment of loan,

interest due and paid, etc., arenoted in the register.

c. In cases where the loan amount isreceived in installments, verify ifeach installment is recorded as andwhen it is taken.

(ii) Register of Sinking Funds forRepayment of Loans (KMF No 72)

a. If the terms and conditions of theloan require maintenance of asinking fund for repayment of theloan, a register shall be maintainedin KMF No 72.

b. Check if this register gives thedetails of:

� Amounts transferred to thesinking fund from time to time,

� Investment of the amount in thesinking fund,

� Interest earned on such aninvestment,

� Utilization of the amount forrepayment of loan.

A.9. Audit Report

The Audit report should comply withthe following requirements mentioned inthe relevant statutes

a. As per Section 294 of KarnatakaMunicipalities Act 1964, theAuditor shall include in his reporta statement of:

� every payment which appearsto him to be contrary to law;

� the amount of any deficiencyor loss which appears to have

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been caused by the grossnegligence or misconduct ofany person;

� the amount of any sumreceived which ought to havebeen but is not brought intoaccount by any person and

� Any material impropriety orirregularity which he mayobserve in the accounts otherthan those mentioned inclauses (a), (b) and (c).

b. Rule 24 of the MysoreMunicipalities (Powers and dutiesof Auditors) Rules, 1965 prescribescertain set of points that an auditorshould cover in his report. Themain points which an auditor hasto cover in his report are

� Whether grants or borrowingsare utilized for the purpose ofthe schemes/ projects forwhich they were received /obtained.

� List of loans availed andwhether necessary provisionshave been made for repaymentof principal and payment ofinterest

� Whether all the advances andinvestments are fully secured

� Result of the verification of thestock, and whether any losseshave occurred, and whether thesystem of stores accountsrequired to be improved etc.

c. Rule 130(4) of the KarnatakaMunicipal Accounting and Budget

Rules, 2006 requires the FinancialStatement auditor to report onadditional matters listed inSchedule IX. Some of the key areason which the opinion has to begiven are

� Utilization of Grants andEarmarked Funds

� Deviation of contracts withoutan appropriate sanction

� Completeness of the FixedAsset register and physicalverification

� Regularity in collection ofLeasehold rentals

� Critical points on acquisitionand maintenance of stores

� Proper maintenance of Loansand Advances accounts

� Timely deduction of statutorydues and remittance ofcontributions

� Periodical reconciliations

B.Audit checklist for audit ofUniversities

B.1 Introduction

A University is an institution of highereducation and research which grantsacademic degrees in a variety of subjectsand provides both undergraduateeducation and postgraduate education.The word "university" is derived from theLatin phrase “universities magistrorumet scholarium” which roughly means"community of teachers and scholars”.

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The universities enjoy a degree ofautonomy because of the status providedand the activities performed by them.However, they are accountable and thisaccountability is exercised through auditwhich is conducted by KSA&AD.

B.2 Statutory framework of Universitiesin Karnataka

State Universities are constitutedunder the Seventh schedule, Part III(Concurrent list) and entry no. 25 of theConstitution of India, which includeseducation, including technical educationand universities.

In Karnataka, there are totally 12University Acts and a total of 24universities under the jurisdiction of theActs are being audited by Karnataka StateAudit & Accounts Department.Universities are classified as generaluniversities and special universities. Allthe general universities are under theKarnataka State Universities Act, 2000 andall the other remaining Acts and thecorresponding universities may betermed as special universities. The list ofall general universities and specialuniversities along with the Acts arementioned in the table below.

Sl No University

1 Bangalore University

2 University of Mysore

3 Karnataka University, Dharwad

4 Kuvempu University, Shankara ghatta

5 Mangalore University

6 Karnataka State Women’s University, Bijapur

7 Tumkur University

8 Gulbarga University

9 Davanagere University

10 Rani Chenamma University, Belgaum

11 Vijayanagar Sri Krishnadevaraya University, Bellary

List of General Universities under Karnataka State University Act, 2000

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List of Special Universities under the respective statutes

Sl. No Act Name of the University1 The Universities of

Agricultural Sciences Act,2009

University of AgriculturalSciences, BangaloreUniversity of AgriculturalSciences, Dharwad

University of AgriculturalSciences, Raichur

2 The Karnataka Rajya Dr.Gangubai Hangal Sangeethamattu Pradarshaka KalegalaVishwavidyalaya Act, 2009

Karnataka State Dr. GangubaiHanagal Music & Performing ArtsUniversity, Mysore

3 Kannada University Act, 1991 Kannada University, Hampi4 Karnataka Veterinary, Animal

and Fisheries SciencesUniversity Act, 2004

Karnataka Veterinary, Animaland Fisheries Sciences University

5 Karnataka JanapadaVishwavidyalaya Act, 2011

Karnataka JanapadaVishwavidyalaya

6 The Karnataka SamskritaVishwavidyalaya Act, 2009

Karnataka Samskrit University

7 The Karnataka State OpenUniversity Act, 1992

Karnataka State Open University

8 The University ofHorticultural Sciences Act,2009

University of HorticulturalSciences, Bagalkot

9 The VisvesvarayaTechnological University Act,1994

Visvesvaraya TechnologicalUniversity, Belgaum

10 The Karnataka State LawUniversity Act, 2009

Karnataka State Law University

11 The Rajiv Gandhi Universityof Health Sciences Act, 1994

Rajiv Gandhi University of HealthSciences, Bangalore

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B.3 Audit Mandate for Universities under the Statutes

Sl No Governing Act Audit mandate as per statute Order appointing Director

(Audit), Karnataka State

Audit & Accounts Department

1 Karnataka Universities Section 47(3)-The accounts of the Not Applicable

University shall be audited by the

Director (Audit), Karnataka State Audit

& Accounts once in a year, in the

month of April.

2 The Visvesvaraya Section 26- The State Government G.O. ED 08UTV 2009 dt.12-

Technological shall have power at any time to order 02-2009

University Act, 1994 an audit of the account of the University

by such auditors as it may direct.

3 Rajiv Gandhi University Section 43(2) - The accounts of the Not Applicable

of Health Sciences University shall, once at least in a

Act of 1994. year at intervals of not more than

fifteen months be audited by the

Director (Audit) of Karnataka State

Audit & Accounts.

4 Karnataka State Open Section 27(1)- The annual accounts Not Applicable

Universities Act, 1992 and the balance sheets of the University

shall be prepared under the directions

of the Board of Management and shall

once at least every, and at intervals of

not more than, fifteen months be audited

by the Director (Audit), Karnataka State

Audit & Accounts or such person as may

be authorized in this behalf.

5 Karnataka State Law Section 56(2) - The accounts of the Not Applicable

University Act 2009 University shall, once at least in a year at

intervals of not more than fifteen months

be audited by the Director (Audit),

Karnataka State Audit & Accounts.

6 University of Section 40(2) - The annual accounts Government letter No. Tho EE

Horticultural and the balance sheet shall be submitted 507 ThoEeVi/2011 dated 09-11-

Sciences Act, 2009 by the Vice-Chancellor to the 2011 (Government Order yet to

Government,which shall cause an audit be issued)

to be carried out by such persons as

it may appoint in this behalf.

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Sl No Governing Act Audit mandate as per statute Order appointing Director

(Audit), Karnataka State

Audit & Accounts

Department

7 The Karnataka Rajya Section 49(3) - The accounts of the Not Applicable

Dr. Gangubai Hangal University shall be audited by the

Sangeetha mattu Director (Audit), Karnataka State

Pradarshaka Kalegala Audit & Accounts once in a year,

Vishwavidyalaya Act, 2009 in the month of April.

8 Kannada University Section 26- The annual accounts of the G.O.No.ED/35/ KVV/ 99/

Act, 1991 University shall be submitted to such Bengaluru dated 17-07-1999

examination and audit as the

Government may direct.

9 Agriculture University Section 40(2) - The annual accounts G.O. AI 507 AIU 2011,

Act 2009 and the balance sheet shall be submitted dtd 9-11-2011

by the Vice-Chancellor to the Government,

which shall cause an audit to be carried

out by such persons as it may appoint

in this behalf.

10 Karnataka Veterinary, Section 43(2) - The annual accounts and G.O. No. AaEe/392/ RaLePa

Animal and Fisheries the balance sheet shall be submitted by 2005 Bengaluru

Sciences Act 2004 the Vice-Chancellor to the State Dated 05-06-2006

Government, which shall cause an audit

to be carried out by such persons as

it mayappoint in this behalf.

11 Karnataka Samskrita Section 57(3) - The accounts of the Not Applicable

Vishwavidyalaya Act, University shall be audited by the

2009 Director (Audit), Karnataka State

Audit & Accounts once in a year,

in the month of April.

12 Karnataka Janapada Section 46(3) - The accounts of the Not Applicable

University Act 2011 University shall be audited by the

Director (Audit), Karnataka State Audit

& Accounts once in a year, in the

month of April.

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B.4 KSAAD’s audit arrangements

Sl No Universities Audited by

1 Bangalore University Regional office, Bangalore

2 University of Mysore Regional office, Mysore

3 Karnataka University, Dharwad Regional office, Belgaum

4 Kuvempu University Regional office, Bangalore

5 Mangalore University Regional office, Mysore

6 Karnataka State Women's University, Bijapur Regional office, Gulbarga

7 Tumkur University Regional office, Bangalore

8 Gulbarga University Regional office, Gulbarga

9 Davanagere University Regional office, Bangalore

10 Rani Chennamma University, Belgaum Regional office, Belgaum

11 Vijayanagar Sri Krishnadevaraya Uni., Bellary Regional office, Gul

12 University of Agricultural Sciences, B’lore Regional office, Bangalore

13 University of Agricultural Sciences, Dharwad Regional office, Belgaum

14 University of Agricultural Sciences, Raichur Regional office, Gulbarga

15 Karnataka State Dr. Gangubai Hanagal Music Regional office, Mysore& Performing Arts University, Mysore

16 Kannada University, Hampi Regional office, Gulbarga

17 Karnataka Veterinary, Animal and Fisheries Regional office, GulbargaSciences University, Bidar

18 Karnataka Janapada Vishwavidyalaya Regional office, Belgaum

19 Karnataka Samskrit University Regional office, Bangalore

20 Karnataka State Open University Regional office, Mysore

21 University of Horticultural Sciences, Bagalkot Regional office, Belgaum

22 Visvesvaraya Technological Uni., Belgaum Regional office, Belgaum

23 Karnataka State Law University Regional office, Belgaum

24 R G Uni. of Health Sciences, Karnataka Regional office, Bangalore

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B.5 Method of accounting and Financial Statements of Universities

There is no common accounting rule prescribed for universities in Karnataka. Thegoverning statutes in the case of some of the universities as mentioned in the tablebelow stipulate the method of accounting to be followed.

Sl No Governing Act Mandate for the method of accounting

1 Karnataka Universities Act, 2000 Section 47(1) – The annual accounts of the University shall be prepared under the direction of theSyndicate. Circular No. ED 367 UBB 2005 prescribesthe method of accounting, the books to be maintained etc.

2 The Visvesvaraya Technological Section 28 –The annual accounts and the balanceUniversity Act, 1994 sheet of the University shall be prepared under the

direction of the Vice-Chancellor and all moneyaccruing to orreceived by the University fromwhatever source and all amounts disbursed or paidby the University shall be entered in the accounts.

3 Rajiv Gandhi University of Health Section 43(1) – The annual accounts of the UniverSciences Act of 1994. sity shall be prepared under the direction of the

Vice- Chancellor and a copy shall be sent to theGovernment.

4 Karnataka State Open Section 27(1) - The annual accounts and the balanceUniversities Act, 1992 sheet of the University shall be prepared under the

directions of the Board of Management andshall once at least every, and at intervals of notmore than, fifteen months be audited by the Director(Audit), Karnataka State Audit & Accounts or suchperson as may be authorized in this behalf.

5 Karnataka State Law Section 56 -The annual accounts of the UniversityUniversity Act 2009 shall be prepared by the Finance Officer under the

direction of the Vice Chancellor and a copy shall besent to the Government.

6 University of Horticultural Section 40(1) – The annual statement of accounts ofSciences Act, 2009 the University based on double entry system of

accounting

7 The Karnataka Rajya Dr. Gangubai Section 49(1) – The annual accounts of the UniverHangal Sangeetha mattu sityshall be prepared under the direction of thePradarshaka Kalegala Vishwavidyalaya Academic Council.Act, 2009

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In cases where the method ofaccounting is not defined in thegoverning statutes, the accounts aremaintained as per the guidelines orinternal statutes issued by the Syndicate.

In case of double entry system of bookkeeping, the following financialstatements are prepared as a part ofAnnual accounts.

a. Receipts and Payments Accountfor the year

b. Balance Sheet as on 31st March ofthe year

c. Income & Expenditure Account forthe year

In addition, the financial statementsmay also have disclosures about

8 Kannada University Act, 1991 Section 26(1) – The annual accounts of the University shall be submitted to such examination andaudit as the Government may direct.

9 The Universities of Agricultural Section 40(1) –The annual statement of accounts ofSciences Act, 2009 the University based on double entry system of

accounting

10 Karnataka Veterinary, Animal Section 43(1) – The annual accounts and theand Fisheries Sciences Act 2004 balance sheet of the University shall be prepared

under the direction of the Vice-Chancellor and allmoneys accruing to, or received by, the University,from whatever source and all amounts disbursed orpaid by the University shall be entered in theaccounts.

11 Karnataka Samskrita Vishwavidyalaya Section 57(1) – The annual accounts of the UniverAct, 2009 sity shall be prepared under the direction of the

Academic Council.

12 Karnataka Janapada University Section 46(1) – The annual accounts of the UniverAct 2011 sity shall be prepared under the direction of the

Syndicate.

significant accounting policies followedin presentation of the financial statementsand notes to Accounts which disclosesuch information as may be useful inunderstanding the financial statementsclearly.

In case universities follow Fundbased accounting system (FBAS), then theaccounting system is classified intodifferent type of funds and each accounthead is classified under one of thesefunds. FBAS is objective orientedaccounting system where different fundtypes are created and every account isclassified under one of the fund types.The fund names under each fund typehave been decided based on theobjectives and policies of the University.The fund names under each fund type aredecided based on the objectives and

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policies of the University. Following arethe statements maintained under Fundbased accounting

a. Balance sheet (The Balance Sheetconsists of as many columns asthe number of “funds” created.)

b. Revenue and Expenditurestatement (this statementaccounts transactions belongingto various funds under therespective funds for whichindividual columns areprovided.)

In case of single entry system of bookkeeping, receipts and payments accountsare prepared as a part of financialstatements.

Note: Fund Based Accounting manualhas been prepared in lines of CommonFinancial Accounting Rules for BangaloreUniversity. However, a manual isprepared considering the existingaccounting system in the Universitiesand also based on Common Finance andAccounts Rules.

B.6 Audit Checklist for Budget

Budget is the basic internal controlmechanism of any institute for sound andprudent financial management. Checkingof the budget and its implementation isa primary duty of any auditor. Thefollowing aspects need to be verified inrespect of budget:

a. The budget was approved by thesyndicate/ council of therespective university before thebeginning of the year.

b. In case the expenditure exceeded

the budget provision, re-appropriation of grant oradditional grants were sanctionedby the competent authority.

c. There was no diversion of fundsfrom plan to non-plan schemes.

d. Appendix-B of the Budget wasprepared on the basis of sanctionedstrength (Teaching & Non-teaching).

e. Necessary provisions were madefor temporary/contractappointments.

f. The entitlements of Pay Scales wereas per UGC /AICTE guidelinesand Govt. orders and Statutes.

g. Separate scheme-wise accountswere maintained in respect ofsponsored schemes.

h. All the fund heads as per thebudgets were maintained in theaccounts and the budget estimatescould be compared with therelevant heads of accounts to thedetailed head of account/budgetcodes.

i. Any expenditure on a new head ofaccount which was not providedfor in the budget estimates wasincurred with the sanction of theauthority competent to sanctionthe same and Budget allocations.

j. Separate accounts weremaintained in respect of fundaccounts like CPF, GPF, Pension,Group Insurance, etc and theyconformed to the statutes framedin this behalf, if any.

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k. The different grants received/anticipated were correctlyexhibited.

l. There was a system ofprojecting fund flow/ cash flow ona monthly/ quarterly basis to thefinance committee.

m.There is any system of release offunds to the departments by wayof a percentage allocationmonthly/quarterly.

n. There were no other deviationsfrom budgetary provisions orprocedures.

o. Earmarked funds were notdiverted to other purposes orrevision of pay scales or anyscheme involving matching grantsfrom State Government orrecurring liability on StateGovernment after assistance ceasesfrom sponsoring agencies withoutapproval of Government. Refer toSection 48 (4) of KarnatakaUniversity Act 2000.

p. Sufficient Budgetary allocationswere made for incomplete works,compare allocation with proposalssent from the agency (AEE/EE)executing works.

B.7University Funds

The amounts received from any of thefollowing sources shall form part of theUniversity Fund:

1. Any contribution or grant made bythe University Grants Commissionor the Central Government.

2. Any contribution or grant made bythe State Government.

3. Any bequests, donations,endowments or other grants madeby private individuals orinstitutions.

4. The income received by theuniversity from fees and charges.

5. Any contributions or bequestsfrom the industries, traders orentrepreneurs.

6. Any contributions or endowmentsfrom foreign governments or anyforeign institutions or companiessubject to any law for the timebeing inforce.

7. The amounts received from anyother source.

B.8 Revenue

Major items of revenue areExamination fees, affiliation fees,admission fees, tuition fees, fees for issueof various certificates, etc.

Some key risks involved in accountingof revenue are as follows

v Fees not collected for all caseswhere applicable (Examinationfee, registration fees etc.)

v Fees being collected at ratesdifferent from the approved rates

v Delay in accounting or accountingunder improper heads.

v Delay in deposits or collection

v Amounts not collected from thegovernment/ other authorities

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due under various schemes whereconcessions have been granted tothe students.

v Amount not received from theGovernment/Amounts which aredue

v Receipts of the Universitiesincluding adjustment amounts ofscholarship received from theGovt. are not accounted.

Major items of revenue have beenmentioned below along with auditchecks specific to each such item.

B.8.1Examination Fee

Examination fees are collected fromthe students as a fee for conducting theexaminations. The points for verifying theexamination fees are as follows:

a. The rates of examination feescollected are as approved by theSyndicate of the university andwhere applicable, late fees havebeen collected from students incase of delays in payment ofexamination fees.

b. The fee has been collected from all

students admitted for the variousexaminations conducted by theUniversity within its constituentcolleges and as well as through theaffiliated colleges.

Ascertain total number of admissiontickets issued from the registers/records/computer generatedstatements maintained for thispurpose and calculateexamination fees payable,

adopting rates of fees as applicablein each case. Compare amount soarrived with the examination feesaccounted in the annual accounts(Receipt and Payment account/Income and Expenditure account)and Bank accounts, if separate Bankaccounts are maintained. If there isany variation, the same may beanalyzed further.

c. The examination fees collected bycolleges were remitted on time tothe universities along with therelevant/ required details.

d. Any concession was granted tostudent and the amount isrecoverable from government/other authorities, the same hasbeen recovered on time.

B.8.2 Prospectus/ Application Fees

Prospectus/ Application fee iscollected while supplying forms for theadmission of students to various courses,application sent to colleges for affiliationand issuing applications for any otherpurpose. The points for verification are:

a. An approval has been obtainedfrom the syndicate for printing therequired number of applications/prospectus for sale and the ratesfor the sale of prospectus havebeen fixed.

b. Proper stock account has beenmaintained for prospectus printedand sold;

c. The amounts collected on the saleof prospectus are as per theapproved rates mentioned on theprospectus and have been

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accounted under the appropriateheads.

d. The amount (application fees)collected agrees with the amountarrived by multiplying thenumber of issued applicationswith the rate fixed for theapplication. If any applicationswere issued at discounted rates,verify if the same has beenapproved by the syndicate.

e. The book balance of prospectusand the physical balance match.

f. Quantity of applications/prospectus forms printed asrecorded in the invoices of printingpress were taken correctly to stockregister. Besides quantity andvalue, accounts of various types offorms may be confirmed fromprinting press.

g. Rules/procedure as prescribed inKTPP Act /Rules were followedif the printing of forms has beenentrusted to private press.

h. Total amount realized by sale offorms/ applications/ prospectusas reported in annual accounts wascorrect and agreed with initialledgers and expenditure incurredon printing of forms matched theamount realized by sale of suchforms. If not, verify the source fromwhich deficit were borne.

B.8.3Tuition fees

Tuition fees are collected along withadmission fees in one lump orinstallments. The points for verificationin audit are

a. Verify whether a separate DCBregister is maintained for thepurpose of assessing the demand,collection and balance.

b. Verify if tuition fees have beencollected from all the studentsadmitted for the various coursesand at the rates prescribed by theUniversity and verify if fines havebeen collected in case of latepayments.

c. In case any student has opted topay the amounts in installments,check if the demand andcollections are done at predefinedintervals.

d. Check the arithmetical accuracy ofthe tuition fees collected with thetotal number of admissions thathas happened during the yearsubject to any exemptionsprovided to students as per theapplicable schemes.

e. Verify where any concession isgranted to any student and theamount is recoverable fromgovernment/ other authorities, thesame has been recovered on time.

f. Total amount of tution feerecovered as per DCB register andthat accounted in annual accountswere correct and outstandingbalance, if any, was reflected in thebalance sheet.

B.8.4Convocation Fees

This fee is collected in connection withconferring degrees. The amounts are alsocollected for conferring degrees in-

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absentia. The points for verification inaudit are:

a. Check whether the amountscollected for issuing convocationcertificate are as per the rates fixedby the Syndicate.

b. Verify the correctness of the Stockregister of Convocation certificatescontaining the printed details andissue of certificates.

c. Check the arithmetical accuracy ofthe convocation fees collected withthe total number of certificatesissued during the year.

d. Verify if a receipt is given for theissue of convocation certificates forthe students collecting convocationcertificates directly from theuniversity.

e. Verify if the physical stock ofcertificates match with the stock asper the register

f. Also verify the cases where theconvocation fees are received fromthe colleges directly, but thecertificates are either given tocolleges or sent to the students bypost. Check if all such cases areeffected in the stock register.

B.8.5 Fee for Affiliation

Affiliation fees are collected by theuniversities from the colleges foraffiliation with the university curriculum.The points of verification of audit are asfollows

a. The affiliation fee collected is forthe first time affiliation of a newcourse/ college, for the purpose of

intake of additional students or asa part of renewal.

b. The fee paid is as prescribed by theSyndicate of the university and anamount collected is as per the typeof the affiliation fee.

c. Temporary affiliation ofinstitutions were renewedperiodically as and when due andprescribed fees was recoveredcorrectly.

d. Check whether a penalty iscollected in case of delay incolleges paying the affiliation fee.

e. A separate DCB is maintained forthe purpose of collection ofaffiliation fees. A statementshowing the demand, collection ofaffiliation fees and any balanceremaining to be collected shouldbe maintained.

f. In case of any new affiliations,check on a sample basis, anycourse of a college, whether thefees are collected for the actualnumber of students in a particularcourse. This is to verify if there isno loss of revenue.

g. In case of pending receivables,check if universities are followingup for the collection and in case itis not recoverable, the affiliation ofcolleges has to be removed.

h. Verify total amount of affiliationfees as accounted in the Receipt-Payment account/Income andExpenditure account, with thatrecoverable from all affiliatedcolleges/courses/ enhancement

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of intake of students/at prescribedrates. If the affiliation feerecoverable is higher, identifycollege from whom it is due andamount due, verify amount due isshown in the DCB/Balance sheetand comment on non recovery, ifany.

i. Auditors may ascertain totalnumber of colleges with permanentand temporary affiliation, periodby which renewal of suchaffiliations become due, changesin intake capacity of students andcourses. Non availability of suchdata, lapse/deficiency if any,regarding recovery of affiliationfees as against recoverable amountmay be commented.

j. Total amount and number ofcolleges from whom affiliation feeswere recovered during the currentyear and previous year may beverified. Decrease of affiliationfees, if any, may be analyzed andcommented.

B.8.6Registration Fees/ Admission Fees

Registration fees/ admission fees arecollected at the time of admission of astudent and generally collected beforethe start of the curriculum. The auditshould:

a. Verify if the amounts collected asregistration/ admission fees are asper the rates prescribed by theSyndicate.

b. Verify if the amounts collected areupdated in the DCB register

c. In cases of concession for recoveryof tuition, admissions,examination, sports and othersgiven to students belonging to SC,ST, Backward classes, otherminorities etc. check that entireamount concession wasreimbursed by the respectivedepartments.

d. Verify the arithmetical accuracy ofthe collections with the number ofstudents enrolled and the ratesapplicable, subject to anydiscounts given to students underdifferent schemes.

e. In case of registration fees/admission fees collected fromcolleges, verify whether theadmission section collects all thedetails of students such as name,address, previous educationalprogress, and details of the coursesopted and such other details asmay be necessary.

f. Whether the Registration fee isrecovered as per the statutes of theUniversities and is remitted ontime to the Universities with thestatement of fee collectionindicating the name of studentsand course.

B.8.7Revaluation Fees

Revaluation fees are collected fromstudents for the re-verification of theanswer booklets.

a. Verify if the amounts collected asrevaluation fees are as per the ratesprescribed by the Syndicate.

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c. Check if the funds are diverted tothe examination and valuationsection.

d. In case the universities followrefund of revaluation fees in caseof change in the marks awarded,check if the same has beenrefunded to the student correctly.

e. Ascertain total number ofapplications received (forwardedfrom different colleges) as enteredin relevant register/computergenerated statement, seeking re-valuation.

Verify whether all such applicationswere accompanied by demand drafts/cheques/proof of payment made onlineas may be prescribed and remitted toconcern Bank Accounts.

B.8.8 Eligibility Fees

Eligibility fees are collected fromstudents in case of any transfer of anystudents from one university to another.

a. Verify if the amounts collected aseligibility fees are as per the ratesprescribed by the syndicate.


c. Check if the eligibility certificatesare issued after placing thestudents' file in the council. Thecertificate must be issued onlyafter a decision has been taken inthe council.

B.8.9 Other Fees

The following is the illustrative list ofthe other kinds of fees collected byuniversities and this would varyaccording to the specifics of the kind ofuniversities.

a. Sports fee

b. Library/Reading room fee

c. Union fee

d. Fee for duplicate certificates

e. Fee for duplicate membership card

f. Fee for duplicate scholarship card.

g. Fee for supplying copies ofextracts from applications forUniversity Examinations

h. Fee for furnishing marks sheet

i. Fee for re-totaling marks

j. Fee for permission to change name

k. Fee for Registration of Graduates

l. Penal fee for late application forExamination

m.Fee for applications forcondonation of shortage ofattendance

All such fees depend upon the natureof the university but the basic auditchecks remain the same across all thecategories of fees collected. The points forverification in audit are:

a. Whether the fees collected are asprescribed by the University; and

b. Whether the amounts collectedhave been remitted to theUniversity Funds.

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B.8.10 Rent of Quarters and OtherBuildings -

Verify that:-

a. All the quarters have been rentedout. If any of the quarter hadremained vacant reasons for thesame may be ascertained andsuitable comments made.

b. Whether penal charges have beenrecovered in respect of overstay.

c. Rent has been realised at theprescribed rates from the date ofoccupation.

d. DCB resister has been properlymaintained and

e. A stock account has beenmaintained in respect of furniture,fittings, etc. of the furnishedquarters.

B.8.11 Lease Rent of Property (section 29(b & e) of Karnataka University Act 2000.

It may be ascertained whetheruniversity has framed any statutesregulating sale/lease of properties. If not,it may be seen that in case of lease or rentof properties, agreement in respect ofleased or rented properties include allessential terms and conditions.

Wherever university property hasbeen leased out to other agencies, thefollowing points inter alia needverification in audit.

i. Lease deed has been drawn up asrequired under law and expensesof registration of lease deed wasborne by highest bidder if theperiod of lease exceeds 12 months

(Section 17 of the Registration Act).

ii. There are no such clauses in thelease deed which are detrimentalto the interest of the University.

iii. Due dates were prescribed forrecovery of rent and lease deedprovided for increase of leaseamount/ rent periodically asagreed between lessee and lessor.

iv.DCB register has been maintained.

v. Lease value/rent fixed is not lessthan the market rent prevailing inthe locality at the time of executingthe lease deed. Market rent may beascertained from RevenueDepartment/Public WorksDepartment.

vi.Lease deed contained clauses forlevy of penalty for delayedpayments and for damagescaused, if any, to the leased/rented property

vii. Period of lease is specified andlessee vacated premises as soon asexpiry of lease period unlessextended/renewed.

viii.Adequate security deposit isobtained depending on value ofmonthly rent payable, to guardagainst loss of revenue due tononpayment of lease rent.

ix. Wide publicity was given inleading newspapers inviting bidsfor lease or rent.

x. Notice inviting bids specifiedearnest money deposit to be paidalong with application, time

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allowed for filing bids wasadequate and for execution ofagreements.

xi.Applicants who failed to payearnest money deposit were notallowed to participate in thetender process.

xii. Lease was confirmed in favour ofhighest bidder and in case ofhighest bidder failing to executeagreement within the specifiedperiod earnest money deposit wasforfeited and clause to this effectwas included in the notice. In caseof lumpsum lease amount, thesame was paid by lessee beforeexecution of lease deed.

xiii. Leasing and renting of anyproperty was approved bySyndicate.

xiv. All properties available for beingleased or rented were actuallyleased / rented. Any such buildingnot put to use may be ascertained/indentified from the Register ofimmovable properties andcommented suitably.

xv. Lease deed specifies purpose forwhich property may be used.

B.8.12 Overdue Charges of LibraryBooks (Fines)

The points for verification of overduecharges of Library books (fines)

a. Verify if a register is maintainedto track the delay in returning thebooks.

b. Whether the days of delay areauthenticated.

c. Whether the fines collected is inaccordance with the ratesprescribed in the University andwhether it corresponds with thedays of delay

d. Whether the system analysisshows any scope of leakage of thefines collected.

B.8.13 Charges for Copying, Xeroxing,etc.

The points for verification are:

a. Whether a register indicating thenumber of copies suppliedtogether with the charges leviedand collected have beenmaintained.

b. Whether all the entries in theregister have been attested by theHead of the Office.

B.8.14 Fees for Issue of certificates

The following is the illustrative list ofthe fees collected by universities for theissue of certificates

a) Degree Certificates

b) Rank Certificates

c) Migration certificate

d) Eligibility certificate

e) Provisional certificate in respect ofdegree examination before thedegree is taken

f) Duplicate certificate or Diploma

g) Fee for Registration of Graduates

h) Penal fee for late application forExamination

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i) Fee for applications forcondonation of shortage ofattendance

The points for verification in audit are:

i. Whether the fees collected are asprescribed by the syndicate of theuniversity.

ii. Whether the amounts collectedhave been remitted to theUniversity Funds.

iii. Whether a separate register ismaintained for each kind of feescollected or if the same isaccounted in separate accounts.

iv.In case the certificates are printedin serial numbers check the issueregisters and reconcile the samewith the physical certificates.

B.8.15 Sale of Books and Publications inPrasaranga

Prasaranga is a section in theuniversity which is involved in thepublication of the university books whichis either the university syllabus or fromother authors. These books are sold to thestudents of the university


a. Verify if a register is maintainedfor the total number of bookspublished or printed under thesupervision of a store supervisor.

b. Check whether all the new printsand issues of books are entered intosuch stock register on a timelybasis.

c. Verify if the sale proceeds are

shown as issues in the stockregister.

d. Verify if the sale proceeds havebeen remitted to the UniversityFund.

e. Whether the discount allowed ifany is based on the universityorder.

f. Whether the closing balance tallieswith the physical balance asrevealed by the stock verificationreport.

B.8.16Hostel Maintenance

Check for Records/Registersprescribed/maintained - availability ofaccommodation, Admission Register,Receipts books, Fee Prescribed, sharingpattern. Stock Registers, Caution MoneyDeposit Register etc.

Auditor may ascertain whetheruniversity has framed statutes foradmission of students to hostels andmaintenance of hostels and ensurecompliance with same, if such statuteshad not been framed comment on thelapse.

Audit should verify inter alia thefollowing:

a. Fees from all Boarders has beenduly collected on the due dates atthe prescribed rates approved bythe University

b. Caution money is collected fromall the inmates and deposited inthe Bank Account

c. Fees collected in cash / D.Ds. havebeen remitted.

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d. For purchase of provisions,furniture, fittings, Beds, Bed sheetsetc. the tendering procedure hasbeen followed as per KTPP Act/Rules and the bids are knockeddown in favour of the lowestbidder, agreements taken andsupplies monitored. Check thattender documents for supply ofgoods did not include pricefluctuation clause, refer to G.O. No.FD 59 PRO Cell, dated 26-11-2004.

e. If there are more than one hostel,verify whether single tender wascalled for all hostels, If separatetenders were called for each hostel,verify the reasons for the same andif accepted rate for each identicalitem of supplies or services weresame. If there are variations in ratesfor identical items, the same maybe analysed and commented.

f. Verify whether university hasprescribed any norms foremploying Hostel Staffproportionate to strength ofBoarders (Hostel Inmates) and staffemployed were according tonorms. In the absence of suchnorms compare the ratio betweenhostel staffs and inmates for 2 or 3years. If there is huge variation,analyse and comment.

g. Verify whether total expenditureon maintenance of hostel washigher than fees collected frominmates, and source from whichsuch excess expenditure was metand approved by the syndicate.Examine rationale for fixingcharges or fees recoverable from

inmates and it included norms formaintance for hostels on no profitno loss basis. If there are no propernorms or system comment on suchlapse.

h. Stock entries have been maintainedproperly for all items and the stockbalances checked periodically bythe warden and certificaterecorded.

i. The Hostel Bills of S.C. / S.T. /B.C.students are properly recoveredfrom the scholarships payable tothem

j. Caution deposit money isrefunded to students only whenthere are no dues from them.

k. Total amount of collections andrefunds of caution money depositin a year as recorded in initialrecord (Register of caution moneydeposit) should be verified withReceipt and Payment account ofhostels. Cumulative amount ofcaution money deposit retained atthe end of the year should beverified with reference to suchrecords. Yearwise analysis ofcaution money deposit held maybe conducted and comment onnon refund of caution moneydeposits unclaimed for longperiod.

B.8.17 Receipts from Sale of FarmProduce and Seeds

The farm produces and seeds grownin the fields belonging to the universitiesare sold to outsiders. Audit should:

a. Verify if the sale of Farm produce/

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seeds are done in the best interestsof the university.

b. Check whether the farm produce/seeds are sold at competitiveprices.

c. Verify if the sale proceeds havebeen remitted to the universityfunds.

d. Verify if stock registers areupdated with all the details ofInward and outward of stockmaterial and approved by anappropriate authority

e. Verify if the weight of the outwardstock matches with the total weightof the farm produce sold.

B.8.18 Sale Proceeds of Garden/Horticulture department

The points of verification are as follows

a. The sale of Garden/ Horticulturalproducts including wood has beencarried out in the best interest ofthe university.

b. The wood sold is at a competitiveprice.

c. The sale proceeds have beenremitted to the university fund.

B.8.19 Bus Fare and Hire Charges ofVehicles


a. The bus fare has been deductedfrom the salaries of the UniversityEmployees using transport facilityat the rates prescribed by theUniversity

b. The Certificates have beenrecorded in pay bills in respect ofthose who do not avail thetransport facility; and

c. In case of hiring of Universityvehicles to other persons, ifcharges at prescribed rates havebeen recovered with reference tothe mileages covered as per the logbook.

B.8.20 Sale Proceeds of UnserviceableArticles


a. Whether the unserviceable articleshave been disposed off on the basisof orders of the competentauthority.

b. Whether such items have beenreduced from the stock account.

c. If the articles have been sold inpublic auction, whether all therequired formalities have beenobserved.

d. Whether the sales proceeds havebeen treated as miscellaneousreceipts of the University.

B.8.21 Sale Proceeds of Tender Forms


a. Stock accounts of the tender formshave been maintained.

b. The forms are sold at the prescribedrates.

c. Book balance tallies with thephysical balance as revealed in thestock verification certificate

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B.8.22 Share of Consultancy Fees

In some of the schemes from externalfunding agencies there is provision forconsultancy fee charged, which is sharedbetween the scientist and the university.This is typically found in the agriculturaluniversities. The following checks needsto be made with respect to suchconsultancy fees.

a. The amounts allocated to theuniversities are as per the orders/permissions issued by the externalfunding agencies.

b. The amounts are allocated to theuniversity funds as per orders.

c. The amounts are appropriatelycredited to the university funds.

d.The order issued by the externalfunding agency prescribes themanner in which the share ofconsultancy fund is to be used.Check if such funds have beenapplied as per the orders issued.

B.8.23 Government Grants

Grants are received mainly from thefollowing sources:

1) State Governments

2) UGC and the Central Government

3) Others

1. State Government –

The following are the types of grantsreceived from the State Government:

a. Block Maintenance grantsThe audit checks to be performed are

as follows:

a. The grant received fromGovernment has been properlyaccounted for by the University.

b. The admissibility of blockmaintenance grants to theUniversities is on the basis of theguidelines issued by Governmentof Karnataka.

c. The compliance with conditions, ifany, stipulated in release orders ofsuch grants may be verified.

d. In case a statute requires, checkwhether the utilization certificateof the grant has been attested bythe statutory auditor.

Auditor may collect details of grantsdrawn from State Government, fromtreasuries (list of payments of concernedHeads of Account) and verify itsaccounting/ utilisation, concernedRegisters, Cash Book, register of Grants,vouchers may be reviewed.

b. Development grants & SpecialDevelopment Grants

The points for audit of developmentgrants and special development grantsare:

a. Whether the grant has beenutilized for the purpose for whichit has been sanctioned; andconditions stipulated in the releaseorder is complied with

b. Whether the unspent balance, ifany, has been distinctly carriedforward to the next year’s account.

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2. Grants from University GrantsCommission and Central Government-

The Central Government may alsomake grants to the University for anypurpose as the Government may deemfit and also matching grants in respect ofvarious Development Schemes, financesby the University Grants Commission.

The University Grants Commission(UGC) pays grants for variousdevelopment schemes undertaken by theUniversity. The conditions governing thegrants are contained in the individualorders of the University GrantsCommission.

The points for audit of grants fromUniversity Grants Commission are:

a. The grants released have beenutilized for the purpose for whichthey have been sanctioned andconditions in the release orders arecomplied with.

b. The UGC grant guidelines havebeen followed

c. All the details have been enteredappropriately in the SchemeRegister.

d. Utilization Certificates have beenissued.

e. The unspent balance has beenrefunded to the source. If not, itshould be shown in the balancesheet.

f. Total amount of grants as recordedin the Register of Grants/ schemesetc. and amount for whichutilization certificates furnished

and that accounted in receipt andpayment account agreed. If thereare variations it may be analyzedand commented.

3. Grants from Other Sources- AICTE,ICAR, ICMR, Department of Bio-Technology, Department of Science &Technology, CSIR, etc

AICTE, ICAR, ICMR and otheragencies pay grants for various otherdevelopment schemes. Even these grantsprescribe conditions for the sanctioningof the grants. The audit checks for suchother sources of grants will be similar tothe checks prescribed in the previoussection for the grants from CentralGovernment and UGC.

Utilization Certificate/compliancewith conditions of grants:

Universities receive grants from thevarious sources mentioned above.Utilization certificates will have to beissued by the University Authorities inrespect of each such grant received fromtime to time. The terms and conditionsof the grant, in most of the cases, providethat the Utilization Certificates issuedshould be certified by the authorityauditing the accounts of the University.The points for verification in this behalfare as follows:

a. The grants have been utilizedwithin the period stipulated orsuch period as extended bycompetent authority.

b. Conditions regarding thecontribution of the Universities/State Government’s Share ofExpenditure (matching grant) if

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any, specified in the orderssanctioning the grants have beenfulfilled.

For Projects requiring matchinggrant from State Government orState Government to shareexpenditure, in addition to grantsprovided by sponsoring agencies,verify that prior approval of StateGovernment was obtained. Referto section 48 (4) of KarnatakaUniversities Act 2000.

c. The expenditure from the grantssanctioned for specific purposeswas incurred only on the objectsspecified in the orders sanctioningthe grants.

d. Sanction of UGC has been obtainedfor the grant of benefits likeadvance increments etc. to the staffwhose pay and allowances hasbeen received from theCommission.

e. The unutilized portion of thegrants has been credited back tothe sources.

f. In respect of grants provided forworks expenditure, and purchaseof equipments, the rules regardingthe works expenditure andpurchase rules have been strictlyfollowed.

g. In respect of appointments, theprescribed rules followed by theUniversity have been adopted.

h. Irregular payments or excesspayments would have to beproposed for recovery while

certifying the statement ofaccounts.

i. Scheme-wise ledger accounts havebeen maintained.

j. The equipments purchased out ofthe grants and also the models andobjects designed and produced, ifany, have been properly accountedfor as the property of theUniversity wherever there areconditions to that effect.

Sanction of grants provided forinspection of equipments by grantsanctioning authority and reviewsuch inspection notes.

k. Machineries and equipmentspurchased and have been kept idlefor long period of time must beverified. In cases of machineries/equipment remaining idle, analyzereasons for it.

Verify impact of equipmentremaining idle i.e., whetherofficers/students working on theparticular project, were deprivedof knowledge/experience whichthey would have got otherwise.Whether completion of project wasdelayed, resulting in extraexpenditure etc.

l. Installation report of equipmentinstalled by the firm engineer isissued and certified by theconcerned project investigator/coordinator/Head ofDepartment/ Principal.

m.Sanction of the sponsoringauthority has been obtained forincurring expenditure.

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n. In the certificate furnished byAudit, the following pointsshould be covered:

� The actual expenditureincurred from the grantsreceived during the period forwhich utilization certificate hasbeen issued by the Universityauthorities.

� Whether this amount has beenutilized for the purpose forwhich it was granted.

�. Observations on irregular andinadmissible items ofexpenditure includingrecoveries, if any, should belisted-out, mentioning that thecertificate is issued subject tosuch observations.

B.8.24 Receipt from Bequest, Donation,Endowment

The points for verification in audit arethat:

a. A separate account for eachdonation/ endowment is openedand all the receipts andexpenditure are accounted underthe same head.

b. In the case of endowment, whetherthe corpus has been invested as perthe wishes of the donor/as decidedby the University.

c. The appropriation of theendowment amount has beenmade for other purposes of theUniversity.

d. The interest accrued has beenutilized for the purpose for which

it was intended to by the donor.

e. The unspent balance of interest, ifany has been added to the corpus.

f. In the case of donations, whetherthe amounts donated have beenutilized for the purpose for whichit was donated.

B.9. Expenditure

Expenditure involves submission ofa claim, disbursement of the moneyclaimed and incorporation of thetransactions in the accounts. Thedisbursing officer who is primarilyresponsible to admit a claim, to makedisbursement and to keep accounts of thetransactions should be fully aware of theconditions regulating the various typesof expenditure. The auditor who auditsthe accounts relating to such expenditure,on the other hand, should ensure inter-alia that the following requirements havebeen fulfilled:

a. That there is a provision of fundsin the form of a budget for theexpenditure, duly authorized bycompetent authority.

b. That the expenditure is inaccordance with a sanctionproperly accorded and is incurredby an officer competent to incur it.

c. That payment has been made tothe proper person and that it hasbeen acknowledged and recordedin such a way that a second claimcannot be preferred.

d. That the charge is correctlyclassified and recorded inaccounts.

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e. That the expenditure conforms tothe general principles which havefor long been recognized asstandards of financial propriety.

f. That the expenditure is not prima-facie more than the occasiondemands and that every employeeof the university exercises thesame vigilance in respect ofexpenditure as a person ofordinary prudence would exercisein respect of expenditure of hisown money.

g. That the university fund is notutilized for the benefit of aparticular person of thecommunity, unless:-

� A claim for the amount could beenforced in a court of law or

� The expenditure is in pursuanceof a recognized policy or custom;and

h. That the amount of allowances liketravelling allowance granted tomeet expenditure of a particulartype is so regulated that theallowances are not on the whole asource of profit to the recipients.

Implicit in the general principles offinancial propriety mentioned above isthe reciprocal duty of audit to verify everyfinancial transaction of the university withreference to provision of funds,regularity, sanction, propriety etc. Theresponsibility of watching theexpenditure against the budget grantdevolves on the university authoritieswho are ultimately responsible forkeeping the expenditure within the grant

or appropriations. Audit should howeververify whether such control has beenexercised and that expenditure conformsto appropriations made by the Syndicate.

The work of audit in relation toregularity is of a quasi-judicial character.It involves interpretation of the act,statutes, ordinances, regulations, rulesand orders. Such interpretation should bebased on the plain meaning of theprovision of the act, statutes etc., andwherever inconsistencies are observed itis the duty of audit to bring them to thenotice of the university for such correctiveaction as deemed fit. It may be borne inmind that the final powers ofinterpretation do not however rest withaudit. Audit should ensure that rules andregulations are observed not merely inthe letter but also in the spirit. Forexample, orders granting concessions toan employee or group of employees likespecial pay, remuneration or otherallowance should be questioned in auditif they conflict with the broad spirit ormain principles of service rules made oradopted by the university.

In relation to audit of expenditureagainst regularity, is the duty of audit toexamine all financial rules and orderaffecting expenditure to see that they areintra-vires. Audit should ensure thatthese rules are not inconsistent with anyprovision of the act or statutes and thatthe authorities issuing such rules andorders possess necessary rule-makingpower. Delegation of financial powersshould be scrutinized carefully wheneverthey are made and only after theiracceptance in total should form aguideline for audit.

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Another important function of auditin relation to the audit of expenditure isto see that each item of expenditure iscovered by sanction of the authoritycompetent to sanction it. Here audit hasnot only to see that the expenditure iscovered by a sanction, either general orspecial, but also it has to satisfy itself that:

� The authority sanctioning it iscompetent to do so by virtue of thepowers vested in it under the Actor the statutes and

� That the sanction is definite andneeds no further reference either tothe sanctioning authority or to anyhigher authority.

If the sanctioning authority is vestedwith full powers in respect of a certainclass of expenditure, a sanction accordedunder those powers can be challenged byaudit only on the grounds of propriety.

It is imperative that utmostimportance and attention should bedevoted to the work connected with theaudit of sanction to expenditure sinceonce sanction is accepted in audit,expenditure may have to be passedagainst it for a length of time.

B.9.1Sanctions

Sanctions refer to the powersdelegated by the Syndicate inconsultation with the Finance Committeeto various levels of officers of theUniversity to accord Sanction forincurring expenditure in connection withits affairs. The powers not delegated to asubordinate authority or officer shall vestwith the Syndicate.

Following are some of the points tobe considered at the time of audit ofSanctions:

a. Sanction to a particularexpenditure has been granted byan officer authorized by theSyndicate.

b. In case an officer is not authorizedfor a certain type of expenditure,check whether approval from thesyndicate is obtained prior toincurring the same.

c. Any power delegated to aparticular officer has not beentransferred to another officerwithout the prior sanction of theSyndicate.

d.In case of recurring expenditurecovering a specified term, ensurethat the sanction for the same isoperative for each year subject tothe appropriation of funds in eachyear.

e. When any authority accordssanction for expenditure, theamount shall always be expressedin words and figures.

f. Expenditure has not been incurredprior to date of sanction orderwhich is considered as the date ofeffect of sanction unless sanctionorder is effective from retrospectivedate.

g. All sanctions in existence for morethan 12 months from the date ofsanction order have beenspecifically renewed prior toincurring expenditure in relationto the same. If statute or byelaw

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framed b due provision has beenmade for all obligatory charge. ythe Syndicate prescribe any suchlimit and in its absence, provisionof KFC may be referred. A sanctionfor any fresh charge shall lapse, ifno payment, in whole or in part hasbeen made during a period oftwelve months from the date ofsanction, unless it is specificallyrenewed. The period of twelvemonths may be varied in contextby the Syndicate. Exceptions to thiscase are when tenders are acceptedor indents are placed within oneyear in case of sanction forpurchase of goods regardless ofdate of settlement of claims.

h. A copy of every order sanctioningexpenditure shall becommunicated to the FinanceOfficer and the Audit Office by theauthority which accords sanction.

i. All issues referred to the concernedSanctioning Authority and also theFinance Officer by the audit hasbeen resolved by providingsuitable explanations through theFinance officer and there is no openissue pending resolution.

Audit checks for some of expenditurewhich are available in all types of auditeeinstitutions can be referred to in theprevious Section which contains genericchecklist. Audit checks specificallyapplicable to Universities are mentionedin the section below with appropriatereference to the Common Audit Checksof Expenditure.

B.9.2Examination Remuneration Bills

Examination remuneration is paid forsetting question papers, printing ofquestion papers, proof reading, scrutinyand valuation of answer scripts,tabulation and supervision. The mainpoints for scrutiny in audit are that:

a. The remuneration is paid inaccordance with the ratesprescribed by the university.

b. Full particulars such as number ofquestion papers set, number ofpapers valued, number ofcandidates attended etc., arefurnished in the bill.

c. The appointments of ChiefSuperintendent, Deputy ChiefSuperintendent, clerical staff etc.,are in accordance with the scalesapproved by the university.

d. The bills are countersigned by theController of examinations.

e. Due acknowledgement of payeesare obtained on the bills as per therules.

f. Necessary certificates asprescribed are furnished in the billand

g. The claims are arithmeticallycorrect.

h. Advances related to meetingexamination expenses arranged byFinance officer is recorded inRegister of remunerationadvances.

i. Total expenditure on conduct ofexaminations as accounted in the

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accounts (Receipt-PaymentAccount or Income andExpenditure Account) agreed withthe General Ledger/computergenerated statements and otherinitial records and entries thereinwere supported by vouchers/payees’ acknowledgements.

j. For valuation of answer scripts, theremuneration was not paid to theevaluators who are drawing salaryin UGC scales. However TA/DAare admissible (GO no. ED90UNE2002 dated 27.01.2003)

k. Compare total expenditure onconduct of examination and totalfees collected. If expenditureexceeds the fees, verify the sourcefrom which excess expenditurewas borne. Examine criteria forfixing examination fees whether itis intended compensateexpenditure on conduct ofexaminations.

B.9.3 Establishment bills

Registers/ Documents

i) Audit Register.

ii) Scale Register

iii)History of Services

iv) Leave Account.

The general audit checks for theestablishment expenses are as discussedin Paragraph 1.1. Additionally, theauditor has to check if

a. Universities have complied withthe requirements of the InternalStatutes applicable to the

Universities. Internal statutes arethe bye laws framed within theuniversities. These byelaws areprovisions framed and approvedby the University Council and itoperates within the framework ofthe Acts. An auditor before thestart of the audit, has to be wellversed with the Internal Statutes ofthat University and check if theyhave complied with the same.

b. Service Registers of teaching staffmay be verified as follows:

i) Service registers of teaching staffas per UGC guidelines, Statutesand KCSRs.

ii) pay scales/ allowances /emoluments of employees ofuniversity were not modified bySyndicate. (section 29 (3) ofKarnataka University Act 2000)

c. Check service registers of non-teaching staff as per Statutes andKCSRs.

d. Compare expenditures on salariesof both teaching and non teachingstaff with students’ strengthseparately and determine the ratiobetween the same for 2 to 3 years.If there is huge variation in thisratio analyze the reasons for thesame. Verify whether this wasattributable to sharp increase ofstaff or decrease of students’strength. The analysis may beconducted faculty wise ordepartment wise. Refer to Sl. XIV(Annexure V/ Chapter 8)

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B.9.4Travelling allowance, leave travelconcession

The audit checks for Travellingallowance and Leave travel concessionare listed out in Paragraph 1.2

Additional checks to be performed fora university are

a. Check whether travel allowanceclaims of members of universityauthorities and employees wereprepared and countersigned by acompetent authority.

b. Check whether countersigningauthority maintain a register oftravelling allowance billscountersigned and all the billscounter signed by him wereentered therein.

c. Rates of TA/DA paid wereaccording to the relevant orders.

B.9.5 Medical Reimbursement Bills

The audit checks for medicalreimbursement expenses are listed out inParagraph 1.6. Additional checks to beperformed for a university are

a. That the bill has beencountersigned by the authorizedmedical attendant and the same isrecorded in the medicalreimbursement bills countersignedregister.

b. Expenditure on medicalreimbursement are regulatedaccording to statutes of theuniversity or KarnatakaGovernment Servants Medicalattendance rules 1965.

B.9.6Contingent Expenditure

The audit checks for contingentexpenses are listed out in Paragraph 1.7.Additional checks for the audit ofContingent Expenditure in case of auniversity are listed below.

a. That the expenditure incurred hasbeen duly taken to the contingentregister maintained and office cashbook.

b. Check whether all claims towardspayments for supplies andservices are preferred in DetailedContingent Bill and where detailsof claim is subject to submissionslater, claims are drawn on anAbstract Contingent Bill.

B.9.7 Audit of Sports Accounts

The following are the points to beobserved in audit

a. Whether the various receipts inconnection with the sportsactivities have been collected asapproved by the Syndicate

b. Whether such receipts have beenduly accounted for

c. Whether there is approval of thecompetent authority forconducting various sports

d. Whether the number ofparticipants are as approved by thecompetent authority

e. Whether the remuneration paid tothe participants is in accordancewith the rates prescribed in thisbehalf

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f. Whether the sports materialspurchased have been taken to stockand issues therefrom are dulyacknowledged by the concerned

g. Whether there is survey,segregation and disposal ofunserviceable and obsolete items

B.9.8 Scholarships

The following are the different kindsof scholarships awarded to the students.

1. Government of India scholarshipslike merit scholarship, defencescholarship, loan scholarship, Postmatric scholarship, etc.

2. State government scholarships likeSC/ST Scholarship, BackwardClass scholarship, scholarship tophysically handicapped and

3. Scholarship from private sources.

All these scholarships are on certainterms and conditions specified in thatbehalf. The points for audit to see whileauditing the accounts of scholarships areas follows:

a. Ascertain details of scholarshipssanctioned/released from varioussources (Department of CollegiateEducation, Social Welfare,Backward classes and Minoritiesetc.,) and verify that they are dulyaccounted for

b. Whether the disbursements ofscholarship have been made as perthe scheme of sanctioningscholarships

c. Whether the awardees haveexecuted agreements wherever

prescribed

d. Whether separate ledgers aremaintained for each type ofscholarship received

e. Whether the amount of scholarshipreceived has been credited in theledger in favour of the awardees

f. Whether any awardee is in receiptof more than one scholarshipexcept where it is providedotherwise

g. Whether there is necessary optionobtained from the awardees foracceptance of a particular type ofscholarships.

h. Whether scholarship bill preferredis properly filled up and thescholarship amount claimedagrees with the amountsanctioned.

i. Whether the dues, if any,outstanding against the awardeesare furnished in the bill and thatsuch amount has been recoveredfrom the scholarship amount.

j. Whether the payment has beenagainst a credit entry in the ledgerand whether reference to paymentis recorded against the name of theawardees in the ledger.

k. Whether the unpaid amount ofscholarship has been returned tothe source within a reasonable timeor within the time prescribed.

l. Whether the opening and closingbalances of receipts and paymentshave been correctly exhibited inthe ledger.

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m.Whether the scholarship amounthas been diverted for any purposeother than for which it is intended.

B.9.9Works Account/Contracts

For audit checks of Public Worksexpenditure, please refer Paragraph 1.4.All the checks and registers specific toUniversities are given below.

Audit of Registers relating to WorksAccount

In addition, the scrutiny of thefollowing registers is involved in theaudit or works account:

1)Register of sanction to estimate:

The point of verification is whether thesum total of detailed estimatecorresponds to the lump-sum provisionin the original estimate duly approved.

2) Register of sale of tender forms:

The points for verification are -

a. Whether the forms have beenissued beyond the cut-date;

b. Whether the sale proceeds havebeen duly accounted for; and

c. Whether the unsold forms havebeen duly returned to the sectionfrom which they have beenreceived.

3) Register of tenders received:

The points for verification is whetherthe following particulars have beencorrectly noted-

a. Date and time of receipt of eachtender; and

b. Closing time and date of eachtender

4) Register of Agreement:

a. To verify whether the detailsfurnished conforms to theagreement details.

5) Deposit Register:


a. Whether the EMD, FSD etc.recovered from the contractor havebeen reflected in this Register; and

b. In cases of closed accounts,whether the balance due to thecontractor has been reflected in thisregister after the closure of theworks account.

c. Whether the watch Register ismaintained for security depositfurnished by the successful bidderin respect of new tender (formKW1, KW2, KW3 and KW4) in theform of Fixed Deposit receipt/pledged NSCs/ Bank guarantee,since all these instrument are to bereleased after completion ofmaintenance period.

6) Contractors’ Ledger:


a. Whether all the payments due tothe contractor for works and all therecoveries made from him havebeen exhibited; and

b. Whether the work wise analysis inrespect of the same contractor asreflected in the Contractor’s ledgertallies with the entries in the workregister.

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7) Register of Material at Site Account:

The points for verification are -

a. Whether actual consumption isagainst total departmental issuesare correctly reflected; and

b. When unused materials arereturned to stores after thecompletion of the work, whether aminus entry has to be passed.

8) Works Register:


a. Whether the expenditure reflectedin the monthly accounts in respectof a particular work conforms tothe entries in the work register;

b. Whether the recoveries made fromthe contractors have been shown asadjusted;

c. Whether the entries have beenclosed every month and suspensebalance has been cleared;

d. Whether the expenditure is withinthe estimated amount sanctioned;

e. When unused materials arereturned after completion of work,whether the value has beencredited; and

f. Whether the works account hasbeen closed soon after thecompletion of the work

9) Nominal Muster Roll:

Where work has been executeddepartmentally, the following points willhave to be verified:

1) Ascertain the source from whichnominal muster rolls wereobtained by branches which usedthem (works branches, gardeningetc). Verify whether nominalmuster rolls were printed inuniversity printing press/privatepress.

2) Verify whether muster rolls aremachine numbered.

3) Verify that nominal muster rolls asand when supplied to userbranches were taken to stockregister of muster rolls indicatingmachine number of each musterrolls as recorded in the printinginvoice.

4) Verify whether machine number ofnominal muster rolls on whichwages were shown as disbursed,with those entered in the stockregister/printing invoices arematching.

5) Verify that there were no erasingsand over writings.

6) Engineer/officer in charge ofdisbursement has recordedcertificate of disbursement. In caseof works involving materials,verify the date of issue of materialis not later than last working dayas recorded in the Muster Roll.

7) Whether separate muster roll foreach work which has beenseparately estimated for, has beenmaintained;

8) Whether attendance of laborers hasbeen indicated as provided for inthe PWD Code;

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B.9.10 Audit of Contracts

The responsibility for ensuring thefulfillment of contractual obligations bycontractors and suppliers rests solelywith the University authorities; it doesnot preclude Audit from scrutinizing thetransactions vis-à-vis the contract oragreement to see whether any loss orwaste of money has occurred or whetherthe terms of agreement lend itself, prima-facie, to malpractice.

Verification of the following pointsconstitutes the audit of contracts:

a. The terms of contract must beprecise and definite and theremust be no room for ambiguity ormisconstruction.

b. Standard forms of contract shouldbe adopted wherever possible.

c. The terms of contract once enteredinto should not be materiallyvaried. In cases of materialvariation, it should be approved byan authority not inferior to thatwhich approved the originalcontract.

d. No contract involving an uncertainor indefinite liability or anycondition of an unusual charactershould be entered into withoutprior consent of the competentfinancial authority.

e. Even in cases where a formalwritten contract is not made, noorder for supplies etc., should beplaced without a writtenagreement as to price.

f. There should be provision in the

9) Whether muster rolls are checkedwith daily reports andMeasurement-Books;

10)Whether certificate stating that thelaborers mentioned in the musterroll were actually employed on thework has been recorded;

11)Whether the muster roll indicatesthe name of the work to which it ischargeable;

12)Whether the wages paid are inaccordance with the Schedule ofRates;

13)Whether all payments are madeon the original muster roll, withoutkeeping a duplicate thereof;

14)Whether the materials used by thelabour are entered on the musterroll and the issues are shown in therespective Stock Books;

15)Whether the amount due tolabourers are properly calculatedand disbursed under the certificateof the disbursing officer and underacknowledgements of thelabourers and unpaid balances, ifany refunded.

16)Whether the value of work turnedout compares favourably with thecost of labour employed

17)In addition, audit will have toverify whether numerical accountshave been maintained in respect oftools and plants. It is also to be seenwhether the contractor hasreturned the empty bags,containers, drums etc., as providedfor in the agreement

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i.Provident Fund (PF) Account

The following are the points to be seenwhile auditing the PF Account:

a. That the subscriptions andUniversity contributions are on thebasis of the rates prescribed.

b. That the ledger account has beenmaintained in respect of eachsubscriber.

c. That there is a separate Cash Bookin respect of such recovery andcontribution.

d. That such subscription andcontribution have been investedfrom time to time as prescribed inthe rules.

e. That the accrual of interest oninvestments is being dulywatched.

f. That nominations are obtainedfrom the subscribers and filed.

g. Those subscribers have beenfurnished with statements ofbalances periodically and theiracceptance obtained.

h. That loans have been given as perthe rules of eligibility and that theyhave been properly recovered.

i. That the subscription or thecontribution has not been divertedfor any other purpose.

j. That reconciliation between Cashbook and bank account has beendone every month.

k. That in the case of death of anemployee in harness required

contract for safeguardingUniversity property entrusted to acontractor.

g. Where, on review of standingcontract Audit has reason to believethat the rates accepted in thosecontracts are considerably higherthan the rates prevailing at the timeof review, such variations shouldbe brought to the notice of theUniversity Authorities. Refer topara 1.4.3 also.

B.9.11Audit Checklist for Funds

The following are the different fundaccounts operated in the University:

i) Provident Fund Account

ii) Pension Fund Account

iii) Endowment and Donation FundAccount

iv) Reserve Fund Account

v) Group Insurance Fund Account

vi) New Pension Scheme Account

vii) Any other fund created from timeto time under proper sanction ofthe University.

The funds which do not originate fromor form part of the University funds likethe Hostel Fund, Sports fund, ReadingRoom fund, Association Fund etc. do notcome within the purview of audit by theKarnataka State Audit & AccountsDepartment except where such audit isspecifically entrusted by the competentauthority.

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formalities have been observedwhile making payments to thelegal heirs.

ii. Pension Fund

The following are the checks to beexercised in the audit of pension fundaccount:

a. pension fund has been establishedand contribution to it is beingmade promptly and regularly atthe rates prescribed by theUniversity.

b. in respect of a person who was asubscriber to the contributory PFprior to his option for pensionrules, the University has stoppedcontributing its share of PF fromthe date from which option takeseffect.

c. the accumulated PF amountcontributed by the Universityincluding the interest accruedthereon till the date of optiontaking effect has been credited tothe Pension Fund.

d. in the case of deputation ofemployees from the service of theUniversity, Pension and LeaveSalary Contribution have been gotreimbursed from the foreignemployer at the rates prescribedfor the full period of deputation.

e. the anticipatory pension andgratuity granted are as per scalesduly prescribed and that they areadjusted when the final paymentof pension and gratuity aresanctioned and paid.

f. the PPO is authorized and issuedby the appropriate authority andthat the amount of pension fixedis correct.

g. the amount of pension drawn is notin excess of the amount sanctioned.

h. the rate of DA allowed is inaccordance with the rulesprevailing from time to time.

i. the claim is duly supported by alife certificate of a pensioner oncein a year.

j. the prescribed certificatesregarding non-employment,marriage or remarriage arefurnished in evidence of the titleto pension wherever they arenecessary.

k. in the case of demise of apensioner, the payment is stoppedfrom the date following the date ofdeath and that the PPO has gotsurrendered and cancelled.

l. the claims to arrears of pension aresupported by the sanction ofcompetent authority.

m.the balance of gratuity is releasedonly after no-due certificate isissued.

n. in the case of payment to the legalheirs in the event of the death ofthe employee, requisite formalitieshave been observed beforepayment is made to the legal heir.

o. all other conditions relating topayments of pension, gratuity,commutation etc. are duly

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fulfilled.

p. the cash book relating to pensionfund has been reconciled with thebank account.

q. disbursement from pension fundare made to discharge pensionliability. Only cases of utilizingpension fund for other payments,if any, may be commented in thereport.

iii.Endowment and Donation Fundaccount

This fund consists of donations frommembers of the public invested in thebanks or in Government Securities asdecided by the Syndicate, the interestaccrued being used for the purpose ofgiving gold medals and cash prizes toeligible students as per the wishes of thedonors.

The following are the points to be seenin audit

a. That record of history of eachendowment is maintained.

b. That the revenues due in respectof each endowment are properlywatched and promptly released.

c. That income and expenditure inrespect of each endowment arenoted in the endowment register.

d. That the surplus balances ofendowments are promptlyinvested in Fixed Deposits orGovernment securities as decidedby the Syndicate.

e. That in the event of medals orprizes not being awarded in any

particular year, the interestaccrued has been added to thecorpus.

f. That the wishes of the donors havebeen fulfilled as per agreement.

g. That the transactions are reflectedin a separate cash book.

iv. Reserve Fund Account

Reserve fund is created in theUniversities for specific and well definedpurposes and contains contributions orgrants from the University fund or fromthe State Government or from otheragencies. The auditor is required to see:

a. That the transactions are classifiedand accounted for according toprescribed principles.

b. That the transactions conform tothe rules and orders governing theadministration of each fundinstituted by the competentauthority.

c. That the balance at the close of theyear standing in the account iscorrect.

v. Depreciation Fund Account

The fund is created to provide a coverof depreciation for buildings, machinery,equipments etc., according to thepercentage prescribed for each. Thepoints for verification are:

a. That the transfer of moneys to thefund is as decided by theSyndicate.

b. That the amounts have beeninvested as determined by theSyndicate.

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c. That accrual of interest has beenproperly watched.

d. That the fund has been utilized forthe purpose for which it has beencreated.

e. That ledger account has beenmaintained in respect of each fund

vi. Group Insurance Fund Account

The points for verification in audit are

a. Whether the employee has filedhis nomination as prescribed.

b. Whether the employee’scontribution as per the scalesprescribed has been credited to thefund.

c. Whether the transactions arerouted through the cash book.

d. In case of demise of the employee,whether the dues includinginsurance portion has been paid asper the rules.

e. In the event of the death of theemployee, whether the paymenthas been made to the legal heir afterestablishing legal heirship asprovided for under the rules.

f. In the case of retirement whetherthe payment made conforms torules.

g. Total contribution recovered as persalary bills was credited to thefund account. Amount shown inthe balance sheet against this fundagreed with initial ledger/ Bankaccount, if funds are kept inseparate bank accounts. The

correctness of balance for thecurrent year may also be verifiedby adding total receipts anddeducting disbursement underthis fund during the year asaccounted in income andexpenditure account of currentyear, to the balance shown in thebalance sheet for previous year

B.9.12 Library Accounts

The verification involved in the auditof Library accounts are two-fold, namelythe correctness of the accounting of thebooks purchased and the due accountingof fines levied and collected fromdefaulters. The points for verification inconnection with the purchase of books areas follows.

a. The tenders have been called forin cases of purchases from all non-governmental publications inaccordance with KTPP Act. Alsoascertain whether University hasframed any byelaws/procedure/constituted committee for selectionand purchase of books.

b. The description of the booksreceived conforms to thoseindented for and placed with thefirms.

c. The prices paid correspond to theprices quoted.

d. Whenever discounts are available,they have been availed.

e. If payments are based onconversion rates, the conversionratio fixed by the officesCommittee from time to time hasbeen adopted.

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f. The books purchased find a placein the Accession Register and eachbook is assigned Accessionnumber.

g. In case of supply of periodicalsand journals, the cost of journalsnot received has been deductedfrom subsequent advancepayments.

h. Proper register has beenmaintained to watch the receipt ofperiodicals and journals.

i. The disposable items have beensurveyed, segregated anddisposed of to the best advantageof the University.

j. The physical balance on the basisof the stock-take corresponds tothe book balance as per theAccession Register.

k. In respect of missing books, thecost has been recovered from theconcerned person.

l. In case of write off of the cost ofmissing books if any approval ofthe competent authority has beenobtained.

m.The Library equipments such asfurniture, racks, almirahs etc., havebeen purchased (out of grantsgiven by the UGC for this purpose)after observing due formalities likecalling for quotations, acceptanceof lowest rates etc., and that sucharticles have been duly accountedfor in the stock registers.

n. Annual Verification of Stock hasbeen conducted under due

certification.

o. Verify that Library Books wereissued only to students,membersand Staff of the University.

p. Verify the books issued areentered in the issue register afterverification of identity.

With regard to the accounts related tothe collection of fines from defaulters, thepoints for verification are whether:

a. The number of days of delay hasbeen correctly worked out.

b. The fine levied is as per the ratesfixed by the University.

c. A receipt has been issued for theamount collected.

d. The amount collected is reflectedin the fine register and the cashbook.

e. The amount has been remitted tothe University funds promptly.

f. The collections and remittanceshave been counter-checked by anyresponsible officer.

g. The system is such as to give roomfor any leakage of the amountscollected. If so, necessary changesin the system should be suggestedby audit.

B.10Audit checklist for Assets

a. Asset Register

University may acquire, hold andcontrol both movable and immovableproperties (Section 29(e) KarnatakaUniversity Act 2000)

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Auditor may ascertain details ofproperties acquired/sold during theperiod covered by audit. For thispurpose, auditor should

a. Review schedule of assets andbalance sheet for two or three yearspreceding year of audit andidentify additions/deletions ofproperties.

b. Ascertain whether university hasframed any statutes foracquisition/ disposal by way ofsale, lease etc. In the absence of anybyelaw/statutes, verify whetheracquisition of property by way ofpurchase /construction wereaccording to provision of KTPPAct/Rules.

c. Identify from schedule of assets(land and building) total numberof building utilized and those notused. In respect of such buildingsnot used, comment on it,quantifying number of buildingsand expenditure incurred onconstruction or purchase, and lossof revenue in case of commercialbuildings if any.

d. Check whether all the lands,buildings are entered in theregister as prescribed in KPWDcode.

e. Verify whether details of newconstructions are entered in theregister immediately after handingover of the building to theuniversity.

f. Check whether any land orbuildings are given to any other

institutions without priorpermission from the Government.

g. Ascertain total extent of land thatbelongs to university from the titlerecords (Khatha, originalAllotment letter or award of land,etc) as entered in the Register ofImmovable Property. Verify totalextent of land occupied by all typesof buildings, roads, agriculture/horticulture/forest, vacant land,land leased etc match with the totalland belonging to university. Anyvariation may be analyzed withdiligence.

B.10.1Procurement of Stores and StockAccount

Audit checks mentioned in para 1.4.6are applicable mutatis and mutandis

B.10.2Deposits

a. As regards deposits, it should beseen that no item is credited as adeposit in the accounts of theUniversity which could becredited as a revenue receipt.

b. The receipt should be traced fromthe cash book to the ledger.

c. All deductions made fromvouchers on account of deposits aswell as all items of receiptscredited in the accounts asdeposits should be brought on theledger and all deposits refundedor adjusted should be debited.

d. The deposits refunded should betraced from the vouchers to theledger against the original entryensuring in particular that refund

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does not exceed the amountreceived originally and noamounts are debited to final headof account and kept in depositswith a view to avoiding lapse ofbudget provision and claimingreimbursement from Government.

e. It should be seen that correctbalances are carried over. Thebalances in the ledger should beproved after agreeing the totalcredits and debits shown in theclassified registers, adding thereceipts to the opening balance anddeducting the repayments from thetotal.

f. It should be seen in particular thatthere is no undue delay inadjustment of deposits. A list ofoutstanding deposits should beprepared annually.

g. It should also be seen that thedeposits remaining unclaimed forsuch period as may have beenprescribed in the rules are dulycredited to the University Fund.

B.10.3 Investments

It should be seen in audit thatinvestments of surplus balances, fundamounts, endowments etc. conform to theprovisions of the Act and that properaccounts of such investments aremaintained. In checking the InvestmentsRegister, it should be seen:

a. That the register is maintainedproperly and is kept up-to-date.

b. It is reviewed periodically asrequired by rules and a certificateof verification is recorded thereon.

c. The interest due on investments isregularly realized and credit to theproper accounts.

d. The securities are in custody of aresponsible officer.

e. That the investments are made inauthorized securities only andwith the sanction of the competentauthority.

All the securities in hand should bechecked physically during audit. Casesof irregular investments should bebrought to the notice of the Universityauthorities.

B.10.4 Loans & Advances

The points for verification are

a. Whether the advances paid areadmissible under the rules and ifso, whether the prescribedprocedures have been followed ingranting them.

b. Whether they have beensanctioned by the competentauthority.

c. Whether steps have been taken tosafeguard the interest of theUniversity in respect of certainadvances like House BuildingAdvance, Motor Car Advance etc.

It should further be seen that:

a. Correct balances are broughtforward from the previous years,giving full details of date, vouchernumber, purpose of advance andname of the person to whom it wasgranted.

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b. The advances paid during the yearare entered in the ledger and thatno advances are kept out ofaccount. All the advances paid,recoveries and adjustments madeas appearing in the cash book andadjustment register should betraced to the ledger.

c. There is no undue delay in theadjustment and adjustments arenot rushed in the month of Marchalthough accounts have beensubmitted earlier.

d. The ledger is balanced annuallyand initialed by a responsibleofficer.

e. No advance is drawnunnecessarily and refunded incash and that no new advance isdrawn for the purpose of repayingone which is outstanding.

f. No amounts are debited to finalhead of account with a view toavoiding lapse of budgetprovision and claiming grantsfrom Governments.

g. The total of credits and debits arearrived at and the closing balancesare correct.

h. Ensure that advances shown asoutstanding in the balance sheetwas correct and agreed with initialrecord. Analyze advancesoutstanding year wise andcomment on such advances notadjusted/recovered afterprescribed period.

B.10.5Revolving Funds

Check whether

a. The revolving funds are given asper the circular/ office order.

b. Receipt and payment statementshowing the status of theRevolving Fund has been issuedto the drawing officer inprescribed intervals as per theguidelines issued.

c. A separate bank account has beenopened for the concernedrevolving fund, and all the receiptsand payments concerning thisaccount has to be transacted onlythrough this account.

d. The amount given in the form ofRevolving fund are shown asLoans and Advances in the booksof accounts.

e. The amounts granted are utilizedonly for the expenditurementioned in the order and anydeviations in the expenditureneeds to be reported.

f. The Principal amounts have beenreturned at the end of the agreedperiod. If it has not been paid,check whether permission has beensought for the extension forrepayment and the satisfactoryreasons have been provided.

g. In case the funds are advanced toprofit oriented projects, check ifany amounts of profits are sharedwith the universities.

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B.10.6Suspense Account

Under the suspense head are recordedall the transactions that are ultimatelyremoved either by payment or recoveryin cash or by book adjustment. Audit oftransactions under suspense headsconsists not only in applying the ordinaryprocedure of audit of expenditure andreceipts but also in seeing:

� That the adjusted balances underthese heads continue to representbonafide assets or liabilities,capable of being realized orsettled, as the case may be.

� That satisfactory action towardssuch realizations or settlement isbeing taken by the officersresponsible thereof

All balances under suspense headshave to be reviewed at short intervalswith a view to ensuring that no itemremains longer than is reasonablynecessary to bring about its clearance inthe ordinary course with due regards tothe rules applicable to each case.

B.11Audit checklist for verification ofCommon Registers

Audit involves verification of thefollowing common registers in variousoffices:

i. Cash Books

While examining the cash book, itshould be seen that: --

a. All sums for which receipts havebeen granted according to thecounterfoil book and DDs/Cheques received in all

Departments have been promptlytaken to the Day book and the Totalof the day book is entered in thecash book correctly. Amountsdrawn on self cheques are alsotaken to cash book.

b. The sums have not been receivedwithout the grants of receipt.

c. There has been no avoidable delayin the remittance to the bank.

d.The receipts are remitted into thebank and that no portion thereofhas been utilized directly forexpenditure.

e. The payments appearing in thecash book are supported by propervouchers.

f. The details work up to the totaland the closing balance is correctlyarrived at.

g. Wherever there are dailytransactions, it is closed daily

h. The cash book is closed at the endof each month and balancecertified.

i. All amounts shown as remittedinto Bank are supported by validchallan and receipt is verified inBank pass book/sheet.

j. All corrections are attested by thecompetent authority.

ii. Day Book of Collections andExpenditure

a) It has to be seen that that all sumsfor which receipts have beengranted according to the

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counterfoil receipts have beenpromptly and correctly taken to theday book of receipts.

b) That all items of expenditureincluding adjustments supportedby vouchers are reflected in theday book of expenditure and thatdaily total has been correctlyarrived at.

iii.Stock Account of Receipt Books


a. Whether the opening balance,receipts, issues and closing balanceof receipts are properly andcorrectly exhibited.

b. Total quantity of receipts booksprinted as recorded in printinginvoice was taken to stock register.

c. Whether issues are dulyacknowledged by the cashier

d. Whether page-count certificate hasbeen recorded on every receiptbook and whether more than onebook is issued at a time; and

e. Whether receipts are issued underthe signature of the Head of theOffice except where it is speciallyprovided otherwise.

iv.Remittance Register/RemittanceChallans


a. Whether the cash totals of the DayBook correspond to the entries inthe remittance register; and

b. Whether the remittances have beenduly acknowledged by the banks

v. Register of Contingent Charges

In addition to the Audit check listmentioned in para 1.3.C, the auditorshould see:

a. That the allotments have beencorrectly noted;

b. That voucher-wise expenditurehas been correctly exhibited;

c. That expenditure incurred iswithin the allotment; and

d. That wherever there is any excessexpenditure, proper sanction isobtained

e. In the case of imprest account itwill have to be verified whether ithas been recouped from time totime.

vi. Log Book of Vehicles

The following points have to be seenregarding maintenance of vehicles :

a. History sheet of vehicle has beenmaintained.

b. The vehicle has been insuredcomprehensively and in particularagainst riot.

c. The driver of the vehicle is inpossession of a driving licenserenewed up-to-date.

d.If there are frequent major repairsand replacements, whether thebonafides are apparent fromrecords;

e. Tyres and tubes replaced are inaccordance with the rules in force;

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f. Reimbursement at prescribed rateshave been enforced in case of useof vehicles by private personsfrom University officers/staff forprivate use.

g. The released parts have beenaccounted for, utilized or disposedof to the best advantage of theUniversity

h. The Kilometers are totalled upcorrectly;

i. The purpose of journey is clearlymentioned and the entries areattested by the officer performingthe journey;

j. There is no unusual variation inthe distances mentioned betweentwo same places; and

k. The entries regarding repairs andreplacements are correctlyrecorded.

A random check of mileages given byeach vehicle per litre of fuel andwherever they are found to be short ofthe general limit, such cases should bebrought to the notice of the Universityauthorities.

Where vehicles are hired by theUniversities for a considerable length oftime, audit will have to verify whether itis economical and in the best interest ofthe University.

vii. Register of Laboratory Equipments


a. The equipment has been taken tostock, duly furnishing the detailssuch as specification, cost, invoice

number and date of purchase etc.

b. The equipment has been insuredwherever the cost involved.

c. There is annual stock-take andrecoupment of cost of losses anddamages.

d. There are frequent major repairsand if so, the reasons furnished arebonafide as apparent from records.

e. There were proposals/indents forpurchase of equipments fromconcerned departments.

f. Verify whether laboratorye q u i p m e n t / m a c h i n e r i e spurchased were relevant to thecourses offered in the collegesmaintained by university.

g. Verify that wherevercommissioning/installation of anyequipment is involved, the sameis done without delay, andsupplier has demonstrated theworking of the equipment.

h. Sufficient warranty was providedand any replacements/repairsrequired was carried out by thesupplier during the warrantyperiod.

i. Review resolutions of Syndicate/Academic Council approvingpurchases of assets.

j. Procedure/provisions of KTPPAct/Rules and Government orderswere followed for purchase ofequipment.

k. Equipment were kept idle andanalyse reasons and period for

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which it remained idle andcomments on its impact.

viii.Register of Consumables

In the verification of Register ofconsumable items used in chemistry andother laboratories, the points forverification are

a. Whether the receipts are dulyaccounted for.

b. Whether issues are supported byacknowledgements.

c. Whether the balance arrived atafter taking into account theopening balance, if any,corresponds to the actual physicalbalance as certified by the officerconcerned.

d. Verify whether there were indentsfrom user departments/laboratories for supply of variouschemicals/consumables, andquantity purchased was accordingto such indents.

e. Verify with reference to purchaseinvoices the period ofpreservations if any and date ofmanufacturing are also entered inthe stock register besides quantity.

f. Verify whether there wasaccumulation of huge stockbalance of any consumables/chemicals due to slowconsumption or frequentpurchases and identify such itemslosing their potentiality due toretention in stock and comment onwasteful expenditure.

g. If date of manufacturing/period ofpreservation is not recorded instock register the lapse may bementioned in the audit report. Ifthese details are not available instock register, period duringwhich chemicals/consumables areto be utilized/lose theirpotentiality may be ascertainedthrough Controller of Drugs/Health and Family WelfareDepartment.

ix. Register of Advances Drawn on A.C.Bills

It should be seen:

a. Whether all AC Bills are reflectedin accounting records.

b. Whether amounts have beendrawn on matured claims andwhether they have been paid soonafter drawal;

c. Whether accounts have beenrendered soon after the transactionsare over; and NDC bills aresubmitted within the stipulatedperiod in which amount is drawnon A.C. Bills.

d. Whether the unspent balanceshave been refunded to theUniversity; and

e. Whether the amount has beenspent for the purpose for which itwas drawn.

x.Stock and Issue Register of StationeryArticlesThe points for verification are:

a. Whether the receipts are dulyaccounted for;

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b. Whether issues are supported byacknowledgement;

c. Whether the balance arrived atafter taking into account theopening balance, if any,corresponds to the actual physicalbalance.

xi.Dead Stock Register

It should be seen that:

a. All the dead stock articles receivedfrom time to time are dulyaccounted for with description

b. They have been physically verifiedat the end of each financial year andcertified to that effect;

c. Losses, if any, have been reportedto the competent authority and thecost thereof has either beenrecovered or got written off as perrules; and

d.Unserviceable and obsolete itemshave been disposed off afterfollowing the prescribedprocedure.

xii. Scale Register

a. It has to be seen that a scale registerhas been maintained furnishingdetails of the various sanctionedposts, the working strength undereach category of post andvacancies, if any, to be filled up.

b. It is also for verification whether inthe event of increase or reductionof the sanctioned or workingstrength, necessary entries arerecorded.

c. The working strength mayspecifically be verified to see thatit does not exceed the sanctionedstrength at any time.

xiii.Classified Abstract Register (CAR)

The various classifications in theAnnual Accounts are based on the entriesmade in the CAR on the basis of the dailytransactions.

a. The entries in the CAR should notonly agree with the dailytransactions but also should be soposted as to evolve correctclassification under each head.

b. The point for verification in theCAR is to ensure that alltransactions are classified correctlyunder attestation of FinanceOfficer.

xiv.Workshop Accounts

The auditor should see that:

a. All the job orders are entered in theJob Order Register and a job cardis prepared and entered in a JobSheet Register.

b. A separate page is allotted to eachjob in the Job Sheet Register

c. At the close of the year, unfinishedjobs are carried over to the newyear’s Job Sheet Register.

d. Wages of labour for the work doneas per daily work register and jobcards are correctly carried over tothe Job sheet register against thejob concerned.

e. The materials issued from the Stock

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Ledger is correctly carried over tothe job card and Job Sheet Registerof the particular Job.

f. Material is issued from the StockLedger against job indents and thatthe job indent number is dulyrecorded against the issueconcerned

g. Surplus material is returned tostores by means of return slips andis accounted for in the stock ledger

h. On completion of the job, the valueworked out as per the job card andJob sheet register is carried over tothe register of credit sales made inthe job delivery register.

i. Amounts due from variousdepartments of the University asper register are duly adjusted.

j. A profit and loss account isprepared at the end of the financialyear.

xv.Printing Press

The audit of press accounts involvesthe following items of work

1. Verification of the system of costaccounting

2. Verification of attendance and thecorrectness of overtime allowancepaid.

3. Price audit and

4. Audit of proforma accounts

In addition, audit has to see that:

a. The use of stationery articlesincluding paper is in accordancewith the actual requirements andis not excessive.

b. The requirements for each job asregards paper etc are properlyassessed.

c. Issues are based on indents by theproper authority

d. Proper accounts are maintained inrespect of each kind of bookprinted

e. The price fixed covers the cost ofmaterial, labour, overheadcharges, depreciation etc.

f. Unused papers etc, are returned tostores and accounted for

g. Wastage of material does notexceed the scale fixed by theuniversity and not in case in excessof the scale prescribed by theGovernment if any.

h. Waste paper is disposed of underdue orders of the competentauthority

i. The overtime allowance paid is inaccordance with the ratesprescribed by the university andnot in any case in excess of the ratesprescribed under factorylegislation

j. An inventory and history sheets ofall the machineries have beenproperly maintained

k. The differences between book

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balance and stock if any, found onactual count have been properlyexplained and adjusted andcompetent sanction is obtained forthe write-off, if any.

xvi.Prasaranga

a. The issues are correctly enteredwith reference to the invoices ofsales.

b. The sums realized by sales arebrought on to the cash book

c. The concessional and free suppliesof publications, if any, are coveredby proper sanction;

d. The annual verification has beenconducted, result certified andfurther action, if any, has beentaken.

e. The payment of royalty to theauthors for publication andreprinting are covered by propersanction.

f. The rates allowed to privateprinters, if any, are according tospecification of work and based onthe rates duly approved by thecompetent authority.

g. No book has been reprinted whenthere was sufficient stock in hand.

h. The sale proceeds of the books sentto different centers for exhibitioncum sale, if any, have been dulyaccounted for

i. In the case of credit sales, propersecurity deposits have beenobtained.

xvii.SC/ST Amelioration Committee/Cell Account

The points for verification are whether:

a. The purchase rules have beenobserved in the purchase of books,dead stock.etc.

b. Certificates have been obtainedand filed from the variousColleges/ Departments regardingthe correctness of the balances ofbooks and furniture as verified inthe actual count at the end of eachfinancial year

c. In the case of loss of books orfurniture, the cost has been gotreimbursed.

d. The remunerations paid to theteachers conducting classes are inaccordance with the ratesprescribed by the university.

e. The amount earmarked for thispurpose has been utilized directlyor indirectly for any otherpurpose.

xviii. Directorate of Correspondence/External Sources

The points for verification are whether

a. The lessons prepared areaccounted for in the register ofmanuscript lessons

b. The printed lessons have beentaken to stock

c. The lessons have been sent to onlyregistered students

d. The lessons printed is far in excessof the number of registeredstudents.

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e. The balance in the stock accountrepresents the total number oflessons printed as reduced by thenumber dispatched

f. The quantity of paper supplied toprivate printers is based on areasonable assessment ofrequirement and excess supply, ifany, has been duly returned.

xix.University Health Centres

The points for verification are that:

a. Medicines are purchased locally,observing due purchase rules,only when they are not availablein the stores of the University.

b. The receipts are accounted for inthe stock register, medicine-wise.

c. Issues shown in the stock accountcorrespond to the totals of thedaily issue register, medicine wise.

d. The description and the quantityof medicines issued to eachpatient are distinctly mentioned inthe issue register under attestationof the Medical Officer.

e. Medicine wise weekly/ monthlyabstract in the issue registercorrespond to the entries of issuesin the stock account.

f. Yearly stock-take has beenconducted and the book balancetallies with the physical balance

g. The book balance in respect ofmedical instruments, equipments,linen, etc, tally with the physicalbalances and certified to that effect.

h. Rates at which medicine werepurchased, were not higher thanthose fixed in the rate contract ofHealth and Family Welfaredepartment and purchaseprocedure was followed.

xx.Compliance Register

It is to be checked if all the auditcompliances are monitored regularly.

B.12 Audit Report

Soon after completion of the audit ofaccounts of a department or office anAudit Note containing the result of suchaudit should be prepared in four sets.The first copy should be sent to theRegistrar with a covering letter to obtainreplies from the concerned departmentor office and to furnish the same to auditwithin a period of two months from thedate of receipt of the Audit Notes. Thereplies received to the Audit Notes eitherdirectly from the department or office orthrough the Registrar or Finance Officer,either with or without their remarks,should be reviewed expeditiously andfurther remarks intimated directly to thehead of the concerned department oroffice, mentioning Para numbers of thereplies accepted and settled in audit.

A copy of the Audit Notes should alsobe sent to the head of the concerneddepartment/office and also to theFinance Officer while sending the maincopy to the Registrar. A separate noteshowing paragraphs which areconsidered fit for inclusion in the AnnualAudit Report will have to be preparedsimultaneously and enclosed to the officecopy of the Audit Notes. Paras for whichsatisfactory replies are received and

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accepted will however be reduced fromthe list while compiling Annual AuditReport. The details of the Audit Notesissued from time to time should find aplace in the Check Register of AuditNotes.

After issue of the Audit Notes inrespect of all the offices/departments ofthe University, the Annual Reportcontemplated in the Karnataka StateUniversities Act, 2000 will have to becomplied. While writing the AnnualAudit Report, the following points are tobe borne in mind:

i) A certificate will have to berecorded at the appropriate placementioning that the AnnualAccounts of the University aregenerally correct. This will, ofcourse, be subject to the variousobservations made in the auditReport.

ii) Irrespective of the fact whetherirregularities have been noticed inone office/ departments, each typeof irregularity has to be broughtunder a different heading. If in anyUniversity, there are transactionsof a particular type which are notcovered by any of the headings ofthe Annexure, they should bebrought under a separateappropriate heading in the properplace.

iii)Objections which have beensettled on the spot should beincluded in the Audit Report ifthey are of a serious nature orinvolving any defects in procedureor errors in principle. Whereverinfringements of rules are

observed it is advisable to quoterelevant rules or orders. Aftercompilation of the Draft AnnualAudit Report it should bediscussed with the Director(Audit), Karnataka State Audit &Accounts Department beforeapproval.

Thereafter, the final Audit Reportshould be prepared in 5 copies for beingsent to the following authorities:

a. The Vice Chancellor / Registrar(The main copy should be sentwith a covering letter requesting tofurnish replies to all the paraswithin two months from the dateof receipt of the report);

b. The Finance Officer;

c. The Director (Audit), KarnatakaState Audit & AccountsDepartment (two copies should besent to the Director (Audit),Karnataka State Audit & AccountsDepartment one copy for beingforwarded to Government in theEducation Department).

On receipt of replies to the variousobservations made in Annual AuditReport, the procedure mentioned inrespect of Audit Notes of Institutionsshall be observed.

Draft report of central and unit audit:- The Regional office shall as soon as theaudit of the accounts of the University iscompleted and not later than 15th of Julyeach year send a report on the results ofaudit of the grants sanctioned by the StateGovernment to the Director (Audit),KSA&AD.

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Annual local audit programme ofUniversity Institutions: - On or before the30th April of each year the Regional officeshall send a programme of local audit insuch form as may be prescribed by theDirector (Audit), KSA&AD from time totime on the accounts of the Universitiesfor approval.

B.13 Audit charges:

The entire charges on account of theaudit of establishment will have to beinitially met from the Government fundsubject to reimbursement fromUniversity fund by way of audit charges.The audit charges comprise of thefollowing items:

1. Gross actual cost of the service;

2. Leave salary contribution based ongross actual cost of service;

3. Pension contribution based onactual cost;

4. Actual expenditure on T.A.medical reimbursement, and officecontingencies.

Note: Wherever there are dues ofAudit Charges, it may be brought to thenotice of Government while certifyingextra cost for recovery while releasinggrants.

C.Audit Checklist for Audit of GramPanchayats

C.1. Introduction

The Constitution (Seventy thirdAmendment) Act 1992 which came intoforce with effect from 24 April, 1993 wasenacted by Parliament with a view mainlyto strengthen and revitalize the

Panchayat Raj Bodies. It envisagedcertain broad guidelines in regard to theconstitution; composition, powers andfunctions of a three tier Panchayat RajInstitution (PRI) i.e. Gram Panchayats(GP) at village level, Taluka Panchayat/Panchayat Samithi at Block Level andZilla Parishads at district levels and alsospecifying the 29 functions to be carriedout by the PRIs, as provided in theEleventh Schedule of the Constitution.The state governments were alsoexpected to frame suitable laws in respectof maintenance of accounts and audit ofPRIs. The main objective of theamendment act was to ensure democraticdecentralization of powers and functions,accountability and transparency in all theactivities of the PRIs.

The Government of Karnatakaenacted ‘The Karnataka Panchayat Raj(KPR) Act, 1993’ to implement thedirections given in the 73rd AmendmentAct, 1992 of Constitution of India,establishing Zilla Panchayats (ZPs) atDistrict Level, Taluk Panchayat (TPs) atTaluk level and Gram Panchayats (GPs)at grass root level. The functions of thesePRIs are enumerated in Annexure 1 to 3of the Act. Besides, various Rulespertaining to ZPs, TPs, and GPs havebeen framed by the State Governmentunder relevant provisions of the Act.

Karnataka Gram Panchayats areestablished under Section 3 of theKarnataka Panchayat Raj Act 1993. APanchayat constituting a village or agroup of villages is called a VillagePanchayat and a Panchayat declared tobe a Panchayat town is called a TownPanchayat.

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C.2 Audit Mandate for GramPanchayat

According to Section 246(1) of theKarnataka Gram Panchayat Act 1993, theaccounts of every Gram Panchayat shallbe audited each year by such officer asmay be authorized by the Director (Audit)of Karnataka State Audit & Accounts.

Submission of Report- According toSection 246(5) of the Karnataka GramPanchayat Act 1993, the auditor shall,within one month after the completion ofaudit, forward a copy of the audit reportto the Gram Panchayat and to theExecutive Officer.

Audit Report Follow-upCompliance- According to Section 246(6)of the Karnataka Gram Panchayat Act1993, on receipt of the audit report, theGram Panchayat shall either remedy anydefect or irregularity which has beenpointed out in the report and send to theExecutive Officer within three months anintimation of its having done so, or shallwithin the same period furnish to theExecutive Officer any further explanationin regard to such defects or irregularities

Charge and Surcharge: As per Section246(8) of the Karnataka Panchayat Raj Act1993, the Executive Officer may, aftermaking such enquiry as he may considernecessary, disallow any item ofexpenditure which appears to him to becontrary to law and surcharge the amountthereof on the person making orauthorizing the illegal payment and aftertaking the explanation of the personconcerned, the Executive Officer maydirect by an order in writing that suchperson shall pay to the Gram Panchayatthe amount surcharged along with

interest at fifteen percent per annum onthe amount due, from the date from whichit became due and if the amount is notpaid within two months from the date ofsuch order, the Executive Officer shalltake steps to recover it as an arrears ofland revenue and credit it to the GramPanchayat Fund.

C.3Method of Accounting Prescribed

The Government of Karnatakadecided to introduce an “accrual basis,double entry accounting system” in GPs,and replaced the Karnataka PanchayatRaj (Gram Panchayats Accounts andBudget) Rules, 1995 with a new set ofaccounting and budgeting rules, namely,Karnataka Panchayat Raj (GramPanchayats Budgeting and Accounting)Rules, 2006. These rules, which came intoeffect from 1-4-2007 prescribemaintenance of double entry, accrualbasis accounting, and also prescribe theaccounting procedures to be followed,books of accounts and forms to bemaintained and formats of financialstatement and budgets. The new rules2006 mentioned above will be applicableto all GPs in the State.

C.4Financial Reporting

The financial statements are preparedannually. There are three main financialstatements namely:

a. Balance Sheet (Form 56 - Rule109(4))

b. Income and ExpenditureStatement (Form 55 - Rule 109(3))

c. Receipts and Payments Account(Form 53 - Rule 108)

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C.4.1Computerization of Accounts

National Informatics Centre (NIC) hasa pivotal role in the Information andCommunication Technology initiatives ofRDPR department. Based on the Doubleentry system and Panchayat Raj(Budgeting and Accounting) Rules, 2006an accounting system called Panchatantrahas been developed by the NationalInformatics Centre (NIC) in consultationwith the RDPR department. Panchatantrais a web based software and hostedcentrally from the NIC State Data Centreat Bangalore. The software can beaccessed using various communicationtechnologies.

Following are the salient outputs ofPanchatantra

a. Database of Properties

b. Grants Received, Released

c. Expenditure under schemes, localexpenses

d. DCB (Property Tax, Water rates,Cess, and other taxes and revenuesetc.)

e. Statutory MIS Reports

f. Ledger, Cash book, Trial balance,Balance sheet, etc.

Since the accounts are prepared in thePanchatantra, it would be convenient forthe auditor to perform his auditprocedures with the help of theseaccounting applications. It would helpthe auditor to do away with checking themanual records. The key aspectsinvolved in the audit done through thehelp of computer applications are givenin Paragraph A.3.(viii)

C.5.Audit Checklist for Budget

It should be seen that

a. the budget is prepared by theSecretary of Gram Panchayat asper Section 241 of the KarnatakaGram Panchayat Act, 1993 andRule 11 of Karnataka PanchayatRaj (Gram Panchayat Budgeting &Accounting) Rules 2006 andplaced in the meeting of the GramPanchayat elected body.

b. the expenditure made in excess ofthe limits specified in the budgetsis checked. If such expenditure isnot covered by re-appropriationsanctioned, the amount may beheld as an objection in the auditreport.

c. the changes made in the sanctionof grants are as per Section 242 ofthe Karnataka Gram Panchayat Act1993.

d. The manner of preparation andformats of budget estimates aredone as per the Rules 11 & 12 ofthe Karnataka Panchayat Raj (GramPanchayat Budgeting andAccounting), Rules 2006.

e. provision has been made for thedischarge of liabilities in respect ofloans taken by Gram Panchayatsand all other commitments,

f. all variations between the figuresof Budget year and those of theprevious year have beenadequately explained,

g. all the items of expenditure areincluded in the Budget and that

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any amount of expenditure madewithout Budget allotment shall betreated as expenditure contrary toLaw.

h. sanction of Government or anyother authority required under therules for incurring expenditure,though the provision is made forsuch expenditure in the budget,has been obtained.

i. no part of allotment remainingunexpended at the end of the yearshall be reserved or appropriatedby transfer to deposits or any otherhead of department in advance inorder to avoid lapse of funds anddisbursement after the end of theyear,

j. Other rules/instructions issued onbudgeting are followed whereverrequired.

k. GP fund was utilized for purposesspecified in Section 58 and 59 andSchedule I of KPR Act. Also referto Section 213 of KPR Act andverify whether funds earmarkedfor welfare activities not less than25 percent thereof, pertained towelfare of scheduled caste/scheduled tribe.

l. GP Fund was deposited in aschedule Bank and that Bankaccount is jointly operated by theofficer/authority, authorized byGovernment. Refer Rule 10 of GPBudgeting and Accounting rules2006.

m.Sufficient budget allocations weremade for incomplete works of

previous years and allocation offunds were made for worksapproved by Gram Panchayat. Theauditor must collect details ofworks remaining incomplete forover two to three years from theregister of works and analyzereasons for the same. Checkwhether sufficient funds wereallocated to such works whileapproving budget.

C.6Audit checklist for Revenue Items

The following areas need to be givenspecial attention by the auditor as theseare considered to be areas of highpotential risk. Attention and Vigilance isrequired for the audit for the followingareas mentioned below:

� Collection of Tax on building

� Cess Collection

� Public Works

� Utilization of Centrally SponsoredSchemes/Grants

� Audit of Procurement & Stores

C.6.1General Checks for all Categoriesof Revenue

The Auditor should ensure that thechecks mentioned below have beenfollowed by the G.P scrupulously andany deviation should be brought to thenotice of the competent authority andmade a note in the Audit report. Thefollowing are the general checks thatneed to be adopted for the audit ofrevenue items.

a. All moneys received should bepaid in to the Gram PanchayatOffice daily.

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b. The moneys received should befirst brought into account andremitted into Gram PanchayatFund and utilized for itsexpenditure.

c. The capital receipts, such as saleproceeds of land, buildings ormachinery should not be appliedto ordinary expenditure withoutthe previous sanction of thecompetent authority.

d. Every servant of GP or theExecutive Officer entrusted withthe collection of GP revenues onbills previously issued in the GPOffice should be supplied with acollection book.

e. Collection of taxes and revenuesmade by bill collectors or otheroutdoor subordinates or villageheadman should be remitted intoGP Office through a collectionregister maintained in the GPOffice.

f. Receipts in the prescribed formsigned by the executive authorityshould be given for all the moneysreceived from the public in the GPOffice.

g. Refer to Rule 21 and 22 of GP BAR2006 regarding use of receiptbooks. The auditor should:

1) Collect details of receipt books(book number, date of issue,number of books etc) issued toGram Panchayat either from ZillaPanchayat or Government press.Compare book number with thoseactually used by Gram Panchayat.

2) Verify that only printed receiptbooks obtained from ZillaPanchayat or Government printingpress are used.

3) Check that receipt books printedin private press are not used.Check that receipt books are issuedin serial order and only one bookis in use at a time.

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C.6.2 Tax on Buildings and Lands

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Check Whether:

a. Any survey has been conducted toidentify the total number of taxablebuildings and lands within limitsof Gram Panchayat. Compare thenumber of buildings or lands fromwhich tax was assessed/recoveredas against total number of taxablebuildings/lands. Any variationbetween the two may be analysedand suitably commented.If there isno data of taxable buildings/lands, comment on nonmaintenance of such vital data.Refer to rule 28 (2) of GP BAR 2006.

b. A demand register in Form No 11Ahas been maintained in accordancewith the instructions contained inRule 30.

c. The demand posted from theassessment list, collections postedfrom the day book and thebalances are recorded correctly.

d. The rate of taxes levied is as perthe schedule of rates fixed andnotified. Auditor has to verify if thedemand corresponds to the type ofland and building the asseseeholds.

e. An annual abstract is recorded inthe demand register and theamount of total demand in theassessment list agrees with thetotal demand in the demandregister after making allowance forspecial revisions of assessment.

f. The total amounts of collections inthe Demand Register in Form 9agrees with the total amount ofcollections in the Day book inForm 7 of Rule 24.

g. Bills for payment of tax on landand buildings have been issued inForm No 7A.

h. The amounts have beenacknowledged by the issue ofreceipts in Form No 3 and takeninto account in the day book inForm No 7.

i. Every person making payment ofa tax has been given a receiptthereof containing the followingdetails signed person dulyauthorized in that behalf

� The date of payment of Tax,

� The name of the person bywhom the tax is paid,

� The tax in respect of whichproperty the payment has beenmade,

� The period for which paymenthas been made,

� The amount paid.

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C.6.3 Assessment and Collection ofTaxes

a. It should be seen whether the GPAuthority has levied all the taxesordered to be levied under thisAct.

b. The Executive Authority hasdetermined the Tax to which eachperson or property is liable.

c. In the case of taxes payable byexecutive authority, theassessment is made by the GramPanchayat.

d. After the tax payable by a personis determined for the first timeunder this Act, a notice in the

prescribed manner has beenserved to the person.

e. In case there is a dispute in the taxsettlements, check if any steps havebeen taken to recover or settle thecollections due.

f. Verify the age-wise analysis of theamount of taxes due

g. In case of inadequate assessment,or omission from the assessmentbook relating to any tax or in caseof clerical or arithmetical error inthe books, the said books areamended by the executiveauthority on the directions of theGram Panchayat, after giving aspecial notice to person where itinvolves an increase in theassessment.

C.6.4 Advertisement Tax

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This tax is collected from the personon every Advertisement, which is withinthe limits of the local authority.

The following points should beverified:

a. Verify if it has been resolved in theGram Panchayat to levy the taxand the rate at which it has beenlevied and has been approved byGram Sabha.

b. Verify if the rates are in accordancewith those specified in schedule IVof the KPR Act 1993.

c. Verify if any exemptions providedpermission have been obtainedfrom the relevant authority.

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C.6.5 Entertainment Tax�

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The Entertainment Tax is collected inrespect of entertainments held within thelimits of any local authority. With respectto the collection of entertainment tax thefollowing points should be verified:

a. Verify if the necessary approvalshave been taken by the personconducting the entertainment show

b. Ensure that the tax has beencollected in advance, ifentertainment is for a limitedperiod, and there should be noscope of any arrears ofEntertainment Tax. If theentertainment show is onpermanent basis, tax is to becollected in advance at thebeginning of the month (Rule 36GPBAR 2006)

c. Verify the period for which thepermission has been sought forconducting the entertainment.

d. Verify that the collection ofentertainment tax was accurate bymultiplying the number of showsper day at the actual rateprescribed.

e. Verify that recovery ofentertainment tax is watchedthrough the register and gotcredited to the funds of GP.

C.6.6Rent from Buildings & Lease ofLand

C.6.6a.Acquisition, disposal of Movable/Immovable properties by sale/leaseetc., (Rules 69 & 110 of GPBAR 2006and Section 209 and 210 of KPR Act1993.

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The following points should beconsidered in verifying the authenticityof the lease/sale agreements enteredinto:

a. Provision of Section 209 and 210 ofKPR Act and GP (acquisition andtransfer of movable andimmovable) Properties Rules 1996were complied with whileacquiring, selling and lease of suchproperties

b. Sanction of the competentauthority was obtained asprescribed in Section 210 of KPRAct 1993 and GP (Acquisition andTransfer of Movable andImmovable Properties) Rules 1996for acquisition and disposal by saleor lease etc.,

c. Wide publicity was givenregarding sale/lease of anyproperty specifying periodallowed for filing bids

d. Application without payment ofEarnest Money Deposit (EMD)was rejected.

e. Sale/lease was confirmed infavour of highest bidder and thathighest value was not less thanmarket value of the property andexpenses of registration of sale/lease deed was borne by thepurchaser/ lessee.

f. In the case of sale/lease, if thehighest bidder fails to executesale/lease deed within the periodspecified in the notice invitingbids, EMD was forfeited andcondition to this effect wasincluded in the notice.

g. An agreement has been enteredinto by the competent authorityand that a necessary lease deed,setting forth the conditions subjectto which the lease is granted, isexecuted, in format as prescribedin GP (Acquisition and Transfer ofMovable and ImmovableProperties) Rules 1996.

h. the deed specifies –� duration of the lease� the amount of each instalment

of the rent� The compensation or penal

interest payable in the case ofdelay in the payment of anyinstalment

� the liability of the lessee tomake good any loss caused tothe leased property of GramPanchayat

� the amount of initial deposit/adequate security wasobtained to guard against lossof lease rent

� purpose for which leasedproperty may be used

i. The lease deed is duly stampedaccording to the Indian Stamp Actand signed by the Competentauthority and lessee in thepresence of witnesses andregistered in cases where theperiod of lease exceeds one year(Section 17 of Registration Act)

j. Every lease deed contains anexpress condition that the lesseeshall be liable to pay such groundrent as the competent authoritymay fix from to time.

241


k. that no person is allowed to enjoythe lease until he has executed thelease deed;

l. Any installment due under thelease is not paid within agreedtime on which it becomes payable.If so, verify whether the executiveauthority has forthwith reportedthe matter to the Gram Panchayatwhich should terminate the leaseand managed by itself at the riskof the lessee till it is resold, if aresale is ordered.

m.Penal interest is calculated andrecovered or written off with thesanction of the competentauthority;

n. When a resale is conducted orwhen a lease is terminated onaccount of the default of the lessee,necessary legal steps are taken forthe recovery of the loss from theoriginal lessee;

o. All the arrears of rent have beentracked and the reasons for thenon-collection have beenaddressed.

p. No member or employee of GPwith duty to perform in connectionwith sale of movable or immovableproperty has participated in theauction sale (Section 285 of KPRAct)

C.6.6 b Land and Fixed Assets

The following are some of the pointsthat should be kept in view andexamined in the audit of Fixed Assets.

Verification of Purchase Procedure ofFixed Assets:

a. Verify if GP which purchases aFixed Asset enters the purchase inthe register of Fixed assets.

b. Check for the procurement order,budget availability etc.

c. Verify all the documents and ifentries are made in the relevantFixed Assets Register.

d. Check if the assets are physicallyverified periodically.

e. Check if the assets have beenadequately insured covering thevalue of the asset and timelyrenewals are made at regularintervals.

C.6.7Income from markets, slaughter-houses, etc.

Check:

1. Revenue yielding properties andrealization (refer to Rule 34 ofGPBAR 2006)

2. Total number of revenue yieldingproperties as entered in the register(Form No 15)

3. Procedure for giving widepublicity was followed in respectof revenue yielding assets likemarket yards, garden lands or anyvacant lands, for any revenuecollection

4. Whether auction was confirmed infavour of highest bidder andsecurity deposit of 3 months

revenue was obtained.

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Market fees/ Fee for Slaughter Houses�

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As per the following sections of the Karnataka Panchayat Raj Act, 1993, Gram Panchayat shall levy tax or fees at such rates as the Gram P anchayat may by bye -laws determine but not exceeding the maximum speci? ed in Schedule IV and in such manner and subject to such exemptions as may be prescribed � �

199(3) (e) - Market fees

199(3) (f) – Registration fee for sale of cattle

199(3) (g) – Fees on buses, taxies and auto and stands

199(3) (f) – Fees on Grazing cattle in the grazing lands��

a. that the owners/occupiers ofprivate market have been issuedtickets for collection made dailyfor use of such market and receiptsfor collection made periodically,

b. that the rates to be charged havebeen displayed boldly atconspicuous place of the market

c. that the ticket books are printedseparately for each rate of feescharged

d. that a register of collections ismaintained in Form - 7 given in theAppendix to the Rules,

e. that the registers, tickets andreceipt books are checked by theExecutive Authority once in everymonth and the Executive Authorityhas recorded his remarks thereinabout the correctness of theaccounts maintained,

f. That a statement of the receipts andcharges relating to the markets forthe previous year has beenfurnished with the application forrenewal of licence to keep open themarket.

g. That every Gram Panchayat mayprovide places for use as publicslaughter houses and charge rentsand fees at such rates as may befixed by the Gram Panchayat.

For Licence fee for private bus/cartstands

a. Verify if all the new bus/privatecart stands have obtained thelicence from Gram Panchayat

b. Check whether they have renewedthe licence every year.

Cattles Fees/ Fees from Grazing land

a. It should be verified that in case ofcommunity cattle sheds providedby Gram Panchayat, the fees arecollected from the owners of theCattle subject to the ratesprescribed by Gram Panchayat.

b. Verify if the prescribed fees arecollected in case the cattle havebeen allowed for grazing ingomala lands.

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Cattle pounds

The audit should check:

a. Whether the cattle pound ismanaged in accordance with byelaws framed.

b. Whether impound receipts inGram Panchayat Form No 19 ofRule 37 are issued to personsimpounding cattle and releasepasses are issued to personsreleasing the cattle.

c. Whether fines and feeding chargesat the rates prescribed in the byelaws have been recovered.

d. The daily totals in the palm registershould be checked and traced intothe remittance register and generalcash book.

e. It should be seen whether theamounts realized by the sale ofstray cattle are credited to thedeposit account and adjusted tothe miscellaneous revenueaccount.

C.6.8 Water Charges/Water Connection charges

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a. The Gram Panchayat collects feesevery month for water connectionsecured by the house ownersunder the protected watersupply scheme.

b. Verify if the water rates arecollected as per the ratesprescribed by the GramPanchayat.

c. In case the amounts are collectedas per the fixed tap rates, verifyif the amounts are collected as perthe tap rates prescribed.

C.6.9 Fees for Issue of Certificates

The inhabitants of Gram Panchayatsare provided with many services andthey are charged fees for the issue of

a. Certificates of value of property

b. Birth and Death certificates.

The audit should verify :

1. if the fees collected are as per therates prescribed

2. if the certificates issued aremaintained in a separate registeralong with the relevant details of

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the persons to whom thecertificate is mentioned.

3. if the certificates issued areserially numbered and with thehelp of such serial numbers, verifyif the number of certificates issuedcorrespond with the amountscollected.

C.6.10 Jatra Fees

The audit should verify the following:

a. If in respect of any fair or festival,tax or toll is levied, it should beseen in audit that the proceeds oftax or toll are spent in the mannerindicated.

b. Verify whether adequatesanitation facilities are providedfor in such fairs from the fundscollected and promoting thecomforts and convenience of thepersons resorting to the fair orfestival.

c. Verify if there is balance in theadvance/fees collected, if any,after providing for the purposementioned above, onimprovements to and repairs ofthe roads leading to the fair orfestival Centre.

d. The residue if any for the benefitof the local area in such manneras may be determined by the localauthority.

C.6.11 Fines, Penalties and Recoveries

Section 200 of KPR Act 1993, providesfor levy of penalty for delayed paymentsof taxes fees, fines etc.,

Audit should verify whether

a. The penalty of 10% is collected incase of tax, rate and fees not paidwithin 30 days from the date of theissue of notice. Also check if thenotices are issued and therecovery made for the same hasbeen checked and entered in therelevant registers.

b. The value of damage to thePanchayat properties has beenrecovered from the persons liablein accordance with the provisionsof Section 288 of KarnatakaPanchayat Raj Act 1993.

c. The fees paid for the followingitems by the Gram Panchayathave been recovered

� Distraint sale

� Issue of the notice of demand

� Cost of maintaining anylivestock seized.

d. All the fines imposed by themagistrate under the Act or therules and bye-laws made underthe Act have been credited to thePanchayat fund in accordancewith the Section 287 of the Act.

e. If any member of the Panchayathas incurred penalties underSections 27 & 28, 31B, 39 and 278of the Act, the fact may berecorded in the Audit report.

If the Gram Panchayat is preventedfrom exercising its powers and functions,it is empowered under the relevant rulesto impose fines and penalties as per therelevant sections of the Act. It shall be

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seen in audit that the fines and penaltiesimposed are collected and credited to thefunds of the Gram Panchayat.

C.6.12 Warrant/Distraint Fees (Section199(4), 265 & 266 of KPR Act 1993)

If the amount of any tax demanded isnot paid within prescribed time from thedate from which it becomes due, theexecutive authority shall recover bydistraint under his warrant and sale of themovable property of the defaulter, theamount due on account of such taxtogether with the warrant fee and thedistraint fee and with such further sumas will satisfy the probable charges thatwill be incurred in connection with thedetention and sale of the property sodistrained.

Register /Documents

i) Register of warrants.

ii) Register of distrained property.

iii) Warrants.

iv) Inventory of distrained properties.

v) Sale list of distrained properties

Warrants:

Audit should verify:

a. That warrants are consecutivelynumbered and issued to parties.

b. That the warrant fee has beencollected for each warrant issued.

c. That there is no undue delay in theexecution of warrants.

d. That the collection of warrant feesis duly brought to account.

e. That warrant numbers are notedagainst the correspondingassessment numbers in thedemand register.

f. That the blank forms of warrantsare not signed by the executiveauthority and left with the billcollector to be filled up andexecuted on his own initiative.

g. That fee on warrants once issuedhave been collected or written offwith the sanction of the GramPanchayat.

Note: It is permissible to write offthe warrant fee when tax for whichthe warrant was issued has beencollected.

h. That the postings of collection ofwarrant fees in the current andArrear Demand Register are madeas in the case of Property Tax.

C.6.13 Inventory and Register ofDistrained Property

Audit should verify

a. That in every case of distraint fornon-payment of tax, a warrant hasbeen issued.

b. That the several columns in theregister of distrained property areproperly filled up.

c. That a list of property distrainedis made out in each case and thefoil of inventory furnished to theparty.

d. That the distraint fees, etc., due arecollected in accordance with therules fixed by the Gram Panchayat.

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Note: The warrant fee should includethe amount of tax for the purpose ofcalculating the distraint fees.

e. That the signature of the party istaken in the register when theproperty is returned to the owner.

f. That the surplus sale proceedshave either been refunded to theparty or credited to deposits andthat in the former case the refundhas been duly acknowledged bythe party;

g. That the amounts credited todeposits are adjusted to GramPanchayat funds as lapsed whenno claim is made within theprescribed period.

h. That sale lists are forthcoming inall cases of sales;

i. That there are no undue delays inthe disposal of distrainedproperty;

j. That there is evidence ofexamination of the distrainedproperty by the executiveauthority from time to time.

k. That the demand, collection andbalance struck in the warrant anddistraint Registers agrees with thecorresponding figures in theDemand Collection balancestatement furnished with theAnnual Account.

l. That the total collections of thewarrant and distraint fees as perthe Registers agrees with thecorresponding figures in theGeneral Ledger and Trial Balance.

C.6.14Cess Collections

i. Land Cess

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The Audit should check the following:

a. Verify if the land cesses havebeen collected as per Section 204of the Gram Panchayat Act.

b. Such cesses collected are inaddition to the land revenuepayable in respect of the landconcerned

c. Verify if the entire amountcollected in the form of cesses hasbeen collected and passed in tothe Gram Panchayat of that area.

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ii. Library Cess

�

Under Section -30 of the Karnataka Public Libraries Act 1965, levy of library cess by Gram Panchayat is obligatory and the Library cess has to be collected as a surcharge at the rate of six paise for every rupee on the

a. tax on land and buildings

b. tax on entry of goods into the local area for consumption, use or sale

c. tax on vehicles

d. tax on professions, trades, calling and employments. G.O.ED.124.LIB 93.dtd.26-3-1994

It should be collected with the house tax and remitted into the treasury to the credit of the Local Library Authority at the end of every month.

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The auditor should:

a. Verify if library cesses have beencollected as per Section 30 of theKarnataka Public Libraries Act,1965.

b. Verify if the entire amountcollected in the form of cesses hasbeen passed on to the localLibrary Authority of that area.

c. Verify if the amount of cessespayable to the district libraries areafter deducting 10% as the cesscollection charges.

iii. Other cess

Verify whether Beggary Cess, HealthCess have been collected as perG.Os/rules and credited torespective Heads of Accounts of theconcerned departments.

C.6.15. Trade Licence Fees (Rule 35 ofGPBAR 2006/Section 66 to 70 of KPR Act1993)

Trade licence fee is levied by theGram Panchayat for issue of licence forusing any place for carrying on any oneor more trades specified, within theGram Panchayat limits.

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i) Noti?cation of the Gram Panchayat ?xing the rates of fees for the various trades.

ii) Register of Miscellaneous licences.

iii) DCB Registers.

iv) Register of Establishments.

� ��

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The following checks need to beperformed in case of audit of tradelicence fees:

a. The Licence fees are collectedbefore a licence is granted orrenewed.

b. In case a licence applied for by aperson or its renewal is refused,verify if the fee paid by himalong with his application isrefunded.

c. The miscellaneous licence bookissued for stock have beenaccounted for by way of used orunused books

d. That the balances outstanding inthe annual lists are transferred tothe arrear demand register andthat a demand collection andbalance statement is worked out;

e. The collections in the yearly listhave been totaled and talliedwith General ledger.

f. The total collections as shown inthe abstract should be talliedwith the gross collections as perChitta after allowing for advancecollections of subsequent year,arrear collections.

g. The total balance in the currentDemand list and the ArrearDemand Register is traced in theArrear Demand Register of thenext year.

h. The brought forward items aretotaled and the figure agreeswith the total balance of arrearsas per Demand, Collection and

Balance (arrear and current)

i. Proportionate fees are recovered;there is provision for the same inthe notification.

j. The period is specificallymentioned in the application forlicences.

k. Check that licences are not issuedfor any period beyond the end ofthe year.

l. A permission of the GP isobtained for constructing orestablishing any factory,workshop or work place in whichit is proposed to employ steampower, water power or othermechanical power or electricalpower or to install in anypremises any machinery ormanufacturing plant driven bysteam, water or other power

m. The fees fixed by the GP for thepurpose are collected.

n. The monthly reports of personswho have not taken out therequisite licences are regularlyreceived

o. The applications for licences areduly affixed with the court feestamps to the required value andare filed in consecutive order.

p. The rate at which fees arecollected is in accordance withthe rate in the notificationpublished by Gram Panchayatand the description of the tradeor industry corresponds with thenotified classification.

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q. The fee collected on each licencehas been recorded in register ofmiscellaneous licences inchronological order.

r. The number of the licence isnoted in the annual list and thelicence is issued in all cases.Separate registers (in form No.76)are maintained for each kind oflicence issued and renewalwatched through the register.

C.6.16. Building Licence Fees (Section 64of the KPR Act 1993/ Panchayat Raj (GPtaxes/fees) Rules 2013.

Every person who constructs,reconstructs or alters or adds to abuilding other than hut shall submit anapplication to the Gram Panchayat for theapproval of the site and for permissionto execute a construction. Applicationshould be accompanied by site andbuilding plan. The Gram Panchayat willissue building licence as per the rules andregulations and recover the prescribedfees.

It should be seen in audit that

a. The conditions prescribed in therules have been satisfied by theExecutive authority.

b. The applications received fromthe parties have been entered inthe register of application inchronological order.

c. The licence fee fixed by the GPhas been levied.

d. Fresh plans have been receivedin cases of deviations from theoriginal approved plan.

e. The plan has been prepared byapproved licence holder.

f. The licence has been issued at thefirst instance for the period ofthree years and thensubsequently renewed properly.

g. The approved buildings havebeen brought to Property Taxassessment immediately oncompletion of the building.

h. The fees due to be receivedthrough Demand Drafts havebeen remitted to the concernedauthorities without any delay.

Note – The check Register should bescrutinized by the Executive Authorityonce in a month and report ofunauthorized construction should besent to the revenue section and thereports recorded in a special registermaintained in the revenue section andscrutinized by Executive Authority. Theobservance of the above instructionsshould be seen and lapses commentedupon. Specific mention should be madein the Audit Report, wherever theassessment particulars are not entered inthe check register.

i. Extracts from the register arefurnished to the outdoor officersfor reporting the date ofcompletion or occupation;

j. The extracts bear evidence ofperiodical inspection of thebuildings;

k. The dates of completion oroccupation are noted in them andthat they are reported to theGram Panchayat office in themonthly list for necessary action.

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l. There is evidence of the registerhaving been checked by theExecutive Authority.

m. If the buildings have not beenconstructed or reconstructedwithin the time fixed in thelicences, then verify if thoselicences have been renewed.

C.6.17. Licence Fees for Use of Places forSpecified Purposes (Section 67 and 70 ofKPR Act 1993)


a. When the Gram Panchayatnotifies for the first time that theplaces within the limits of thevillage should not be used forcertain specified purposeswithout a licence issued by theExecutive Authority, duepublicity is given to it bydisplaying it in the Notice Boardof the Gram Panchayat and alsoin three important places in thevillage and the notification isgiven effect only after expiry ofsixty days from the date ofnotification,

b. That the fee is charged andcollected for prescribed period inadvance.

C.6.18 Sales by Auction

All sales of the following must beeffected by public auction

� The produce of usufruct trees

� Wind fallen and withered trees

� Sweepings

� Tools and plants

� Old Stores and materials

Lease of buildings and landsbelonging to Gram Panchayat should beeffected by public auction.

It should be seen

a. That the public auction isconducted by the executiveauthority or by a person dulyauthorized by him.

b. That full publicity is given aboutthe proposed auction.

c. That the bids are placed by theexecutive authority before GramPanchayat.

d. That the G.P. has accepted thehighest bid and where the bidaccepted is not highest, thereasons for rejecting a bid or bidshigher than the one accepted arerecorded in writing.

Gram Panchayat may with theprevious sanction, dispense withpublic auction in the case of leaseof lands and buildings when it isadvantageous to renew the leasein favour of the person to whomit was originally granted.

e. That adequate security has beentaken, which should not berepaid unless and until the lesseehas satisfactorily complied withthe terms of lease, but the amountmay be adjusted towards the lastinstallment due under the lease.

f. The articles sold are not allowedto be taken possession of by thesuccessful bidder until he haspaid the full amount payable byhim.

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g. That all sales are shown in theregister of miscellaneous salesand that all realizations ofamounts are entered therein.

C.6.19 Revenue Leased Out

a. It should be seen whether apreliminary notice setting forththe conditions of the lease hasbeen published and whether thelessee has given adequatesecurity for the fulfillment of theconditions of the lease.

b. It should be checked whether thelease deed is duly stamped andwhether it contains details ofconditions and duration of thelease, the amount of eachinstallment to be paid and therate of penal interest to be paidin case of default.

c. The files relating to auctionsshould be examined and thereceipts traced to the day bookfor the entire period.

d. It should be seen whetheramounts received on the accountof revenue leased out areacknowledged by the issue ofreceipts

e. The amounts of demand,collection and balance areentered in miscellaneousdemand register.

f. The checks exercised in the caseof receipts and the demandregister of tax on land andbuildings may be applied in thecase of this revenue also.

g. It should be seen whether allitems of miscellaneous demandare entered in the register andadequate action taken to recoverthe amounts within theprescribed period.

h. The annual abstract figures ofdemand, collection and balancein the register should be verifiedin audit.

C.6.20 Income from Endowments andTrusts

All properties, endowments andfunds belonging to the institutions shallbe held by the Gram Panchayat in trustfor the purpose for which such property,endowments and funds were lawfullyapplicable at the time of such transfer.

It should be seen

a. That the Gram Panchayat hasmaintained separate set ofincome and expenditure accountin respect of such institutions orexecution or maintenance of anywork for a period of two yearsand the accounts shall be placedin every meeting of the GramPanchayat,

b. That up to date record of everyendowment or trust managed bythe GP is maintained,

c. That a register of endowmentsand trusts is maintained showingin separate pages the yearlytransactions relating to each suchendowment or trust.

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C.6.21CentrallySponsored schemes/ Grants

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Karnataka Panchayat Raj Act, 1993 deals with two types of grants, namely (a) Maintenance grants by the state government for meeting electricity charges, maintenance of water

supply schemes, sanitation and other welfare activities (Section 206) (b) Discretionary grant received from the State Government for speci?c purposes and for speci?ed

terms and conditions (Section 208) In addition, GPs may also receive grants from Central Govern ment, and grants under various schemes of Central and State Government. A few prevailing schemes are: � Sampoorna Grameena Rozgar Yojana (SGRY) � NREGS � Swacchatha Abhiyan � Mini- Water supply scheme � Kugrama – Suvarna Gram Yojana � Indira Awas Yojana � Swarna Jayanti Grama Swarozgar Yojana

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It should be seen in audit that:-

a. these funds are utilized as perthe guidelines thereof

b. Separate account has beenopened in case of grants receivedunder schemes.

c. the funds are utilized for thepurpose for which they aresanctioned

d. the amounts are spent within thetime limits

e. Unspent balances, if any, arerefunded

f. Utilization Certificate in Form 46is furnished to the Grantsanctioning Authorities.

g. If any deductions have beenmade for any dues by GP to thegovernment.

h. Audit observations of AG/CAare attended.

i. The Central Finance Commissionconstituted by CentralGovernment allocates fundsevery year on the basis ofpopulation of Gram Panchayat.It should be seen in audit thatthese funds are utilized as perthe guidelines thereof.

C.6.22. Lapsed Deposits and OtherForfeiture (Rule 100 of GPBAR 2006)

The deposits, which are not claimedfor more than three years lapse to theGeneral Funds with the approval of GramPanchayat. Such amounts have to betransferred from Deposit Account toGeneral Fund Account by passing aTransfer Entry Voucher. The audit shouldverify that no item of receipt/revenuewas accounted as deposits.

Registers/ Documentsi)Form of Utilization Certificate (Form 46- Rule 99)

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C.7 Audit Checklist for ExpenditureItems

Audit checks for some of expenditurewhich are available in all types of auditeeinstitutions can be referred to in theprevious Section which contains genericcheck list. General Audit checks forexpenditure specifically applicable toGram Panchayat are mentioned in thesection below with appropriate referenceto the Common Audit Checks ofExpenditure.

a. The payments made by the GPare supported by a bill or avoucher as per the requirementof Rule 43 of (GPBA) Rules 2006.

b. The items of expenditure arecovered by the Budget provisionor by re-appropriation fromanother head as the case may be,and a certificate to that effect isfurnished on the voucher.

c. The bill has full particulars suchas nature of claim, amount,period to which the claim relates,etc.

d. In case of purchase of supplies/materials, check if a certificate isgiven that the material is receivedin good condition (QualityCertificate)

e. The bills are prepared in theprescribed manner and verifiedand passed by the Secretary, andsent to President for the approvalbefore making the payment.

f. The accrual entry has beenpassed on the admittance for

payment, by treating them asliabilities.

g. The payments to the bill aremade in accordance with Rule 49of GPBA Rules 2006 and all suchpayments are made onlythrough cheques

h. The cheques are signed by theSecretary and President andmade through account payeecheques.

i. An acknowledgement hasbeen taken for the PaymentVoucher

j. The mode of payment “paidby cheque” or “paid byadjustment” has been noted onthe voucher.

k. There are no erasures and thatany alterations in the total areattested by the officer concernedas many times as they are made.

l. Check of monthly accounts andother initial records (Refer toRule 19 – 25, Rule 43 – 54, Rule62 – 68, Rule 85, Rule 104 – 110of GPBAR 2006)

2. All receipts issued in proof ofreceiving of money may betraced to day book of collectionsand cash book

3. All remittances shown asremitted into bank or treasurymay be checked in cash book/remittance register and tracereceipt entry in Bank pass book/personal deposit schedule/passbook of Treasury.

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4. All payments are routed throughcash books are supported byvalid voucher/proof ofdisbursements

5. Check whether at the end of eachday, cash book was closed andclosing balance certified by thePanchayat DevelopmentOfficer/Secretary of GramPanchayat

6. Check whether the closingbalance at the end of each monthwas reconciled with bank passbook/treasury schedule

7. Whether General ledger hasbeen maintained in Form 52 andonly printed books are used.Check whether separate folios/pages are allotted to account forevery receipt and payment.Check entries in General ledgerwith cash book/and otheraccounts records.

8. Verify whether General ledger isclosed every month and total ofreceipts (credits) and payments(debits) are correct.

9. Verify if monthly total of receiptsand payments as posted againstrelevant items/head of accountsin the monthly accounts arecorrect, compare the postings inmonthly accounts with Generalledger and other accountingrecords and verify for correctnessof data.

10. Check if monthly accounts wereapproved by Gram Panchayathand furnished to Chief Accounts

Officer, ZP and Sr. DeputyDirector/Joint Director, LAC.Verify if any remarks werecommunicated from the ChiefAccounts Officer, ZP on suchaccounts. Posting were madecumulatively every month andtrace entries to annual accounts.

11. Non production of vouchers:

In cases where vouchers/proofof disbursement are notproduced as required, actionmay be initiated under Section246 (4) of KPR Act 1993 read withcircular No GraPa /29/LePa/2006 dated 18/4/2007. Besidesmentioning the fact of nonproduction of vouchers, thefollowing verifications may bedone:

(a) Identify the work/programme/scheme to which it (vouchers notproduced to audit) pertained andwhether such works wereincluded in the list of approvedworks.

(b) Verify whether there are anyentries/record of the transactionpertaining to vouchers notproduced, in any of theaccounting records/registers likeRegister of works, Register ofContingent charges, StockRegisters, Cash Book, Generalledger, etc.,

(c) Check whether such amount(pertaining to vouchers notproduced) was drawn on selfcheque or cheque drawn infavour of contractor/supplier as

255


may be available in Bank passb o o k / t r e a s u r y / P e r s o n a lDeposit Schedule

(d) If there are no entries at all orrecords of transactions pertainingto vouchers not produced toaudit, the fact may be reportedto higher authorities besidesmentioning it in the audit report.

Major items of expenditure have beenmentioned below along with audit

checks specific to each such item.

C.7.1Establishment Expenses

Salary consists of the following:

i) Basic Pay

ii) Dearness Allowance

iii) House Rental Allowance

iv) Leave Encashment Allowance

v) Other allowances and benefits

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i) Detailed statement of Permanent/ Temporary Establishment (Form 22- Rule 57)

ii) Scale Register (Form 23- Rule 58)

iii) Pay bill of Establishment (Form 24- Rule 59)

iv) Periodical Incremental Certi?cate (Form 25- Rule 39)

v) Last Pay Certi?cate (Form 26- Rule 59)

vi) TA Claim (Form 27- Rule 61)

Apart from the audit checksprescribed in Paragraph 1.1, the followingadditional checks applicable specificallyto Gram Panchayat need to be performedby the auditor.

a. The pay bills are prepared inGram Panchayat Form No 24 inaccordance with instructionscontained in Rules anddisbursements of pay made

b. Proper acknowledgements areobtained in the acquittance rollsfor all payments, affixing receiptstamps

c. The thumb impressions areobtained on the acquittance rollsin acknowledgement of amounts

paid to illiterate employees andthe thumb impressions attestedby the disbursing officer.

d. Pensionary and leave salarycontributions are paid onaccount of Government servantsdeputed to the Panchayat andother employees who may beentitled to pension benefits.

C.7.2Travelling Expenses to President,V-P and Members of GP

The President, Vice-President andMembers of Gram Panchayat are eligiblefor TA and DA. The general checks forthe audit of travelling allowance are listedin Paragraph 1.2. Other checks for

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Travelling Expenses specific to GramPanchayat are listed below.

It should be seen that:

a. If the tours undertaken arewithin the Gram Panchayats, noTA and DA are allowed,

b. The President has drawn sittingfees for attending GramPanchayat meetings at the ratesadmissible under the relevantrules from Gram PanchayatFunds only,

c. The President does not utilize theGovernment vehicle for journeysoutside Gram Panchayatjurisdiction.

d. The places are connected bytrain, the journey was performedby train and where the President,Vice-President or Memberperforms journey by motor cycleor car between such placesmeeting the propulsion chargesfor himself, the claim is limitedto the train fare entitled or thepropulsion charges whichever isless,

e. The following permissions areobtained:

� Prior permission of competentauthority was obtained forjourneys outside GramPanchayat jurisdiction but withinDistrict,

� Prior approval of competentauthority was obtained forjourneys outside the District,

� Prior approval of Director (PR)was obtained for journeysoutside the State.

f. The claim was preferred withintwelve months from the last dateof the journey, regarding timelimit for preferring TA claimsrefer to audit check in genericchecks (Para 1.2)

g. The TA Bills were admitted forpayment only after they werescrutinized and countersignedby EO (Taluk Panchayats).

C.7.3Travelling and Conveyance forPanchayat employees

Verify whether

a. The travelling allowances aredrawn for the Panchayatemployees at the ratesprescribed and in accordancewith the Provisions of GramPanchayat Rules.

b. The travelling allowances drawnby the Chairman and members ofthe Panchayat are appropriate asper the rules.

c. The travelling allowances havebeen claimed on bills in GramPanchayat Form No 27 of Rule 61and whether the distances notedand the fares claimed are correct.

d. Proper acknowledgements havebeen obtained for the amountspaid. The amounts may be tracedto the general cash book.

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C.7.4Programme Expenses

It should be seen in audit –

a. that proper vouchers areobtained for the amounts spent,

b. that the items purchased areentered in a separate register tobe maintained for the Scheme,

c. that proper receipts are obtainedfrom the participants in theprogrammes to whom paymentswere made,

d. That the details of programmesconducted are produced foraudit and expenditure incurredconformed to norms/guide linesof programme/scheme besidesstatutory provisions.

C.7.5 Audit of works expenditure:

Check that

(a) All developmental worksexecuted out of GP Fund werewithin functional jurisdiction ofGP and works executed werewithin scope of Section 58 of KPRAct/Rule 71 of GP BA Rules2006. Expenditure on works notwithin scope of these provisionsmay be suitably commented.

(b) All works were technically andadministratively sanctioned bycompetent authorities. Refer torule 77 and 80 GP BAR 2006.

Designation

G.P. Engineer

Assistance Executive Engineer of ZP sub division

Executive Engineer

Superintending Engineer

Financial Limit

Up to Rs. 25000

Exceeding Rs. 25000 but below Rs.

4 lakhs

Exceeding Rs.4 Lakh but below Rs. 10 lakh

Rs. 10 lakhs and above

Financial Power to accord administrative approval

Designation Adhyaksha of G.P.

Grama Panchayat C.E.O. of ZP Government

Financial Limit

Not Exceeding Rs. 5000

Exceeding Rs. 5000 but does not exceed

Rs. 10 lakh

Exceeding Rs. 10 lakhs but

does not exceed Rs. 30 lakh

Rs. 30 lakhs and above

�

Financial power to approve estimates are as follows (Rule 77 and 80 of GPBAR)

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(c) Estimate was not split into smallervalues to avoid sanction andscrutiny from higher authorities.

(d) Estimates were prepared inaccordance with the procedure ofPublic Works Department byadopting schedule of rates anddetailed report was enclosed tothe estimate, containingjustification for the work. Referto rule 74 of GPBAR 2006

(e) Gram Panchayat has compliedwith rules/regulations ofGovernment and KTPP Act1999/ Rules 2000, werecomplied with in tendered worksunless exempted. Refer to para1.4 and 1.4.10 of this manual.Refer to Rule 84 of GPBAR 2006.

Auditors may also verify whether

(f) Payment for tendered works aremade at accepted rate and inrespect of departmental works atScheduled rates. Refer to rule 88of GPBAR 2006.

(g) Statutory deductions like

royalty, Sales Tax, Income Taxwere made and remitted toconcerned authorities.

h) EMD was obtained with Tenderdocuments. Also SecurityDeposit at 7 ½ % of estimatedcost is recoverable, 2 ½ % at thetime of receiving tender andbalance 5% from running accountbills (rule 89 of GP BAR 2006).

(i) Final Bill was passed forpayment after furnishingcompletion report by GramPanchayat/Engineer. EMD andsecurity deposit are refundableafter three months of furnishingcompletion report (Rule 92 of GPBAR 2006).

(j) Check measurement of work -Compare the quantity of work asentered in the measurementbook with the work bill and rates,with contract agreements. Verifyif works were check measured tothe extent prescribed in rule 86of GP BAR 2006 as detailedbelow:

Adhyaksha and Engineer of Gram

Panchayat

Works below Rs. 25,000

Adhyaksha of Gram Panchayat and

AEE of PRED Sub division

Works costing more than

Rs. 25000 but below Rs. 4 lakhs

Adhyaksha of GP and Executive

Engineer of PRED Division

Works costing more than

Rs. 4 lakhs

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(k) As substantial funds aredisbursed through nominalmuster rolls due to execution ofworks departmentally andlabour oriented schemes/programmes, Auditor may verifythese payments in greater detailas given below: (Refer to rule 87of GP BAR 2006) MGNREG Actand Rules/MGNREGS –Karnataka (Notification No: RDP41 NRE 06, Dated:28-03-2007,RDP 98 EG 2008, Dated:16-01-2013)

1. Check whether only printedmuster rolls are used as use ofwhite paper with columns drawnmanually are prohibited. Verifythat NMRs were machinenumbered and such numbers areentered in Stock Register.

2. Entries are made legibly and nooverwriting/ erasures are made.

3. Acknowledgment of labourersare obtained in proof ofdisbursement.

4. Rate of wages are admissibleaccording to orders issued fromtime to time check total amountof wages in respect each labourerand total amount of NMR iscorrectly worked out andcompare it with amount drawnon cheque for each NMR (Section6 of MGNREG Act)

5. That wages were disburseddirectly to the concerned personsin the presence of independentperson of the community on pre

announced dates (Section 23(4) ofMGNREG Act).

6. Engineer in charge of the workhas certified the fact ofdisbursement in the muster roll.

7. If payment of wages has beenlinked with completion of workand engineer in charge of thework has furnished completionreport (para 18 of NREGSKarnataka and Rule 92 of GPBAR2006)

8. That works on which labourerswere engaged were approved byGram Panchayat/othercompetent authority.

9. That works were inspected as perprescribed pattern, anydeficiency in inspection may behighlighted.

10. Wages are disbursed normallyonce in a week, while attendanceof labourer is taken daily.Compare daily attendance reportwith muster roll and verify thatnumber of days for which wageswere shown as disbursed agreewith attendance report. Check theactual date of disbursement ofwages and last date of engaginglabourer as recorded inattendance report/NMR anddate of issue of material (Section3 of MGNREG Act)

11. Check that total wages paid wascommensurate with quantity ofwork. Work executed has to bemeasured and entered in part IIof muster roll. Auditor may work

260


out total cost of the work as perscheduled rate of PWD andcompare it with total wages paidand cost of material used. Hugevariation may be indicative ofengaging either excessivelabourers or suspiciousdisbursement of wages. Suchcases may be analysed in detailand recommended for suitableenquiry/investigation (Para 16and 17 of Schedule 1 of MGNREGAct 2005)

12. Check that only such muster rollforms as supplied by theprogramme officer (PanchayatDevelopment Officer/ExecutiveOfficer) are used for payment ofwages under the programme.

13. Check whether each such musterroll form supplied by theprogramme officer, has a uniqueidentity number and signed bythe programme officer and eachwork has unique identitynumber. Any other muster rollformats not supplied and notsigned by programme officer, nothaving unique identity numbermust be treated as unauthorized(Para 15a of schedule 1ofMGNREG Act 2005)

14. Check that labourers engagedhave job card. Compare detailsin job card with details availablein muster roll (age of labourer,name, address etc.) (para 10 ofNREGS Karnataka and schedule2 of MGNREG Act)

15. Besides providing employment,

durable assets are also to becreated. Check whether anydurable asset was in fact created.Check whether labour materialcomponent was in the ratio of 60and 40 respectively at GramPanchayat Level (para 2(2) and13(3) of NREGS Karnataka andpara 20 of schedule 1 ofMGNREG Act)

16. Check whether inspections ofworks were conducted accordingto prescribed scale as in para 22of NREGS (Karnataka). Details ofinspection to be conducted are asfollows:

Taluk Level Officers - 100%

District Level Officers - 10%

State Level Officers - 2%

17. Check that wages weredisbursed through individual orjoint savings account opened ineither post office or bank unlessso exempted (Para 30 ofSchedule II of MGNREG Act2005).

18. Check that money spent on roadworks does not exceed 10% oftotal value of all works and aminimum of 20% of totalexpenditure pertained toplantation programme (para 12of NREGS Karnataka)

19. Ascertain total length of roadswithin the jurisdiction of theGram Panchayat. Verify, totallength of roads on whichmaintenance/repair works were

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shown as executed, over a periodof two or three years andcompare it with total length ofroads. Analyse reasons/justification for effecting suchworks repeatedly on the samestretch/chainages and commenton quality of work. Check

whether such works in particularwere inspected.

C.8 Audit checklist for Assets

Major items of assets have beenmentioned below along with auditchecks specific to each such item.

C.8.1 Land and Fixed Assets

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a. Stock Register of Movable Properties (Form 29 –Rule 69) b. Register of Movable Properties (Form 29 A) c. Register of Land (Form 30 –Rule 69) d. Register of Immovable Properties (other than land) (Form 31- Rule 69) e. Schedule of Assets & Liabilities (Form 57- Rule 110)

The following are some of the pointsthat should be kept in view andexamined in the audit of fixed assets.

(i) Verification of Purchase Procedure ofFixed Assets:

a. Verify if GP which purchases aFixed Asset enters the purchasein the register of Fixed assets.

b. Check for the procurement order,budget availability etc.

c. Verify all the documents and ifentries are made in the relevantFixed Assets Register.

d. Check if the assets are physicallyverified periodically.

e. Check if the assets have beenadequately insured covering thevalue of the asset and timelyrenewals are made at regularintervals.

(ii) Disposal/Sale of Fixed Assets

Where fixed assets are disposed off bysale either through auction or otherwise,check whether the stated procedure asunder has been followed -

a. The GP will normally collectEMD from the bidders, and afterthe auction is over, the EMD willbe refunded to the unsuccessfulbidders. The EMD of thesuccessful bidder will beadjusted towards the sale valueof the asset and the balanceamount will be collected fromhim. The accounting of collectionof EMD and sale value of theasset shall be done in the sameway.

b. Verify if the details of bidsreceived, EMDs collected,outcome of the bid, refund ofEMDs etc. are recorded in

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Register of Miscellaneous Sales/Auction.

c. Check whether the details of thedisposal of the asset shall benoted in the relevant Fixed AssetRegister, under attestation by theconcerned officer.

d. Check if the appropriateauthority has granted permissionfor disposal of Fixed Assets.

C.8.2 Investments

Register of Investments (Form 41- Rule95) Verify that

a. The registers show allinvestments belonging to the GPwith details of dates of maturity,interest due, etc.

b. The interest due has beenrealized on the due dates and thatthe investments matured havebeen realized or reinvestedunder proper authority,

c. The total amount of theinvestments has been verifiedannually by the ExecutiveAuthority and a certificate ofverification appended in theregister,

d. The totals of investments madeas shown in the register agreewith the figures in the postingregister and the annual account.

e. The interest on investments isrecognized as and when due. Atperiod-ends, the interest hasbeen accrued proportionatelyirrespective of whether it has

been received or not at the endof the year.

f. Income on investments madefrom Special Fund and Grantsunder Specific Scheme arerecognized and credited toSpecial Fund and Grants underSpecific Scheme respectively,whenever accrued.

g. The amount of investment asreported in accounts agreed withactual documents such as fixeddeposit receipts share certificatesetc. These documents should beverified physically.

h. That only surplus cash isinvested in a bank to whichGovernment Treasury Businessentrusted including a scheduledbank or co-operative bank (Rule10 of GPBAR 2006)

C.8.3Loans & Advances

The following aspects relating toLoans and advances should be examinedin the audit (Rule 98 of GPBAR 2006)

a. Loans to others are entered in the‘Loans to Others Register’ and ona monthly basis; the amounts asper the register are reconciledwith the amounts as per theLedger Accounts.

b. The interest accrued at the periodends is entered in the registersreferred above and the interest onloans as per the registers isreconciled with the amount asper interest ledger.

c. At the end of the year, an abstract

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of ‘Loans to others’ is madeshowing the loans outstanding atthe beginning of the year, loanslent during the year, totalinterests accrued during the yearand total amount of recoveries/adjustments during the year.

d. Register of Loans contains recordof all loans borrowed andconfirmation statement as perprescribed format is sent to thelender every year.

e. Check if the loans and advancesgranted are made by theappropriate authority.

f. Check if any sinking fund iscreated for the repayment ofloans and advances.

g. Check that all advancesdisbursed by GP to others wererecovered/ adjusted within 3months. Such advances notrecovered/adjusted within thestipulated period, ChiefAccounts Officer of concerned ZPshould address the concernedbank not to honour chequespresented by such GP. Auditormay review disbursement andrecovery of advances.

C.8.4Cash and Bank Balances

Review of the following aspects ofinternal control relating cash and bankbalances must be done by audit.

a. Segregation of duties relating toauthorization of transactions,handling of cash/ issuance ofcheques and writing of books of

account, and rotation of theduties periodically;

b. proper authorization of cash andbanking transactions;

c. daily recording of cashtransactions;

d. safeguards such as restrictivecrossing of cheques, use of pre-printed, pre-numbered forms;

e. periodic reconciliation of bankbalances;

f. reconciliation of cash-on-handwith book balance on a dailybasis or at other appropriateintervals, including surprisechecks by higher authorities;

g. Safe custody of cash, chequebooks, receipt books, etc.

h. Cash /fidelity insurance.

(i) Verification of Cash Balances

a. Physical verification may becarried out, on a surprise basis,at any time during audit.

b. If IOUs ('I owe you') or othersimilar documents are foundduring physical verification, theauditor should obtainexplanations from a seniorofficial of the entity as to thereasons for such IOUs/ othersimilar documents remainingpending. It should also beensured that such IOUs/othersimilar documents are notshown as cash-on-hand andsettled on a timely basis.

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c. Where postdated cheques are onhand on the balance sheet date,the auditor should verify thatthey have not been accounted foras collections during the periodunder audit.

(ii) Verification of Bank Balances

a. Verify if the bank balances as perthe ledgers reconcile with thebalances in the bank statements.

b. Examine the bank reconciliationstatement prepared andreviewed as on the last day of theyear. Also examine thereconciliation statements as atother dates during the year.

Further, it should be examined whether

a. cheques issued by the entity butnot presented for payment havebeen noted

b. Cheques deposited for collectionby the entity but not credited inthe bank account, have been dulydebited/credited in thesubsequent period.

c. Special emphasis on those itemsin the reconciliation statementswhich are outstanding for anunduly long period. Ascertainthe reasons for such outstandingitems. Also examine whether anysuch items require anadjustment/write off.

d. There are any inoperativeaccounts and have remainedstagnant, but transactions mayhave taken place in that accountduring the year.

e. In relation to balances/depositswith specific charge on them, orthose held under therequirements of any law, verifythat suitable disclosures aremade in the financial statements.

f. In respect of fixed deposits or anyother type of deposits withbanks, the relevant receipts/certificates, duly supported bybank advices, should beexamined.

g. The auditor should examine thatsuitable adjustments are made inrespect of cheques which havebecome stale as at the close of theyear.

C.9. Audit checklist for Liabilities

Major items of liabilities have beenmentioned below along with auditchecks specific to each such item.

C.9.1Borrowings

Important points to be looked into inthe course of audit:

a. Whether GP has obtained priorapproval of Government underSection 214 of KPR Act

b. Ensure that the borrowings areregulated as to not to exceed thelimits, if any, fixed from time totime and the conditions laiddown in this regard are dulyobserved.

c. In the case of loans raised, ensurecompliance with the conditionsimposed (if any) by thecompetent authority while

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giving consent to their raising theloans or guaranteeing theirrepayment, or while granting aloan to them.

d. Ensure that the proceeds fromborrowings have been properlybrought to account and havebeen expended only on theobjectives for which the loanswere raised or to whichborrowed moneys may properlybe applied in accordance with thesound principles of publicfinance.

e. Examine whether adequatearrangements have been madefor amortization of the debt andbring to light instances in whichthis requirement has beenignored or the arrangementsmade appear prima facie to beinadequate.

f. Verify that the conditionsgoverning the Borrowings arescrupulously observed. Itshould be seen, in particular, thatthe annual debits againstrevenue under the specificborrowings are calculated strictlyin accordance with the approvedprogrammes, that theappropriations for reduction oravoidance of debt are applied tothe objects for which the moneyhas been set aside, and that theliquidation of debt proceeds atthe rate and on the linesprescribed.

g. Outstanding loan at the end offinancial year as reported inaccounts (Balance sheet)reconciled/agreed with recordsof lending agencies/loan ledgerof GP.

C.9.2 Sinking Funds

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In auditing accounts of Sinking Fundcreated by a GP under the relevantprovisions of Act and Rules for theredemption of loans raised, within theperiods prescribed,

The following points should beverified:-

a. A separate account is maintained.

b. The Fund is sufficient to repaythe principal and interest by theprescribed due date/dates.

c. Credits to the Fund are made ininstallments regularly from theGP funds debiting Revenue inaccordance with the prescribedprocedures.

d. Payments from the Fund aremade only for the purpose forwhich it is created.

e. Accumulations in the Fund areinvested in such securities asmay be prescribed and suchinvestments are sound.

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f. A Register for Sinking Fund ismaintained, posted up to dateand the balances as per theRegister agree with accountbalances

C.9.3 Write off of Irrecoverable amount(refer to Section 245 of KPR Act 1993.

Auditor may verify whetherexhaustive/comprehensive efforts weremade by GP before writing off any tax,fees, rates and other sum due to it beforetreating such amount as irrecoverable andwritten off. Amounts written off by GPdid not exceed Rs. 1000/-. Wheneveramounts written off exceed Rs. 1000/-,audit should verify whether approvalfrom TP was obtained.

D.Audit Checklist for Hindu ReligiousInstitutions, and CharitableEndowments

D.1Introduction

Karnataka Hindu Institutions andCharitable Endowment Act, 1997 hasbeen introduced in order to bring abouta uniform law to provide for theregulation of all Charitable Endowmentsand Hindu Religious institutions inKarnataka state. Such an Act wasintroduced to create a common pool fundout of the surplus funds of the NotifiedReligious Institutions, donations, etc. forthe maintenance and improvement ofneedy institutions, managed by theindependent committee.

D.2 Mandate

Audit by KSA&AD - As per Section37(2) of the Karnataka Hindu Institutionsand Charitable Endowments Act 1997, ifthe gross annual income of the institution

is five lakh rupees or more, it shall getthe accounts audited by the Director(Audit), Karnataka State Audit &Accounts Department.

D.3Audit Report Follow-up/Compliance

In the absence of provisions of Auditreport follow-up compliance inKarnataka Hindu Religious Institutionsand Charitable Endowment Act, 1997, thehand book on “Speedy Settlement ofaudit observations, inspection reports,speedy disposal of audit paragraphs andtimely action on matters pertaining to thePublic Accounts Committee, Committeeon Public Undertakings” states that “theaudit observations/ notes received fromthe auditor normally needs to be repliedto within a fortnight from the date of thereceipt of the report and in no case, itshould exceed three months.”

D.4General Instructions for Audit

Auditors should acquaint themselveswith the relevant Sections of theKarnataka Hindu Religious Institutionsand Charitable Endowments Act 1997 andrules framed thereunder. A copy of thescheme, if any, settled for theadministration of the institutions eitherby a court or by EndowmentsDepartment should also be called for.

It should be seen in audit –

a. That every item of income of aninstitution is collected regularlyon due date.

b. Trustee or the Executive Officer,as the case may be, is responsiblefor making all collections ofincome, whether in cash or kind.

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c. That receipt is granted by theexecutive authority for all itemsof income and for all offeringsand gifts received by him in cashor kind for the institution.

Note: Temporary receipts are grantedby the officer of the institution whomakes collections and such collectionsare not utilized directly by such personbut they should be brought to accountimmediately.

d. Those collections should behanded over to the executiveauthority immediately and inany case within the time limitsprescribed by KFC in case anemployee is entrusted withcollection outside the villagewhere the institution is situated.

e. Permanent receipts should begranted by the Trustee orexecutive authorityacknowledging receipt for thecollection made by the employeeinterested with collection workas soon as he received collectionsentrusted.

f. Those temporary or permanentreceipt books with receipts induplicate bearing printedmachine numbers aremaintained.

g. That the signature of the personto whom a receipt is issued istaken with date on the reverse ofthe duplicate carbon copy of thereceipt in token of havingobtained the receipt and that thesignature of the person not

capable of signing, his attestedthumb impressions shall betaken with date on reverse of theduplicate or carbon copy.

h. That all collections are broughtto account by the executiveauthority without delay.

Note: No person other than the trusteeor executive authority is competent togive a valid discharge of any claim of theinstitution.

i. That Budget expenditure whichis not sanctioned in the budgetis incurred only with theprevious sanction of theAssistant Commissioner/Deputy Commissioner or theCommissioner as the case maybe. The auditor should:

� Verify that Budget provisiontowards salaries of templestaff (Archakas, templeservants) does not exceed35% of gross income andsalary of Executive Officerdeputed from StateGovernment is not includedin this limit. Gross incomedoes not include donationsmade as contribution to thecapital and amounts realisedby sale of immovable ormovable assets.

� Verify whether budget ofinstitution was approved byAssistant Commissioner(upto annual income of Rs. 5lakhs), DeputyCommissioner (annual

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income exceeding Rs.5 lakhsbut below Rs. 25 lakhs) andCommissioner (annualincome exceeding Rs. 25lakhs).

� Verify whether 5 percent or10 percent of net income inrespect of institutions whosegross annual income exceedsRs. 5 lakhs but does notexceed Rs. 10 lakhs andexceeding Rs. 10 lakhsrespectively, and unutilizedportion of Government grantfor repairs/renovations andgrants received fromGovernment are transferredto common pool fund(Section 17 and 18 of the Act)by such institutions.

� Verify that expenditure onterminal benefits of staff ofthe institution (Archakas/temple servants) are debitedto common pool fund to theextent of deficiency of fundsin account of Institution(Section 19 of the Act).

j. That expenditure is incurred onlywith the written orders of thetrustee or executive authority.

k. That the expenditure has beenincurred by the trustee or theexecutive authority according tobudget on satisfying himself ofits necessity and that theexpenditure relates to Pooja andfestivals in the case of religiousinstitutions and to feeding andother objects in the case of

charitable institution orendowment and the sanctionprovided in the budget in othermatters.

l. Those disbursements in cash orkind or by means of cheques arenot kept out of the accounts evenfor a day beyond the date ofdisbursement.

m. That a duly signed bill containingthe details of the claim and thedate on which the claim fell dueis presented by a person havinga claim against the institution.

Note: The correctness of the claim hasto be verified by the trustee or theexecutive authority before payment.

n. If any disbursement is made bya person other than the trustee orthe executive authority, suchperson is personally responsiblefor such disbursement, in case thesanction of the executiveauthority is not obtained for thesame.

o. That receipts for all paymentsmade on behalf of the institutionhave been obtained and thatstamped acknowledgements areobtained.

p. That all purchases of articles aresupported by dealer’s bills dulyreceipted.

D.5 Receipts

The main source of revenue of thereligious institutions is collections intemples, mutts or specific endowmentsand lands. Income is also derived for

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services rendered to the public, whichvary in some cases from temple to temple.

The following are the various sourcesof receipts:

D.5.1 Income from Sale, exchange,gift, mortgage and lease of immovableproperties other than agricultural land(Refer to section 62 of HRICE Act 1997and Rule 25 and 28 to 31 of HRICE Rules2002)

Following issues need to be verifiedin audit

a. Proper record/Register of allImmovable properties aremaintained as prescribed in formI (Rule 25).

b. Sanction of State Governmentwas obtained before effectingsale, mortgage, gift and lease ofany immovable properties.

c. All sales, leases of immovableproperties were made throughpublic auction/tenders aftergiving wide publicity, specifyingdate, time, place and earnestmoney deposit (EMD) No personwho failed to pay EMD wasallowed to participate in auctionsale/tender proceedings.

d. Notice giving publicity for sale/auction lease was published innotice board of the institution,Gram Panchayat, taluk office,office of the AssistantCommissioner, DeputyCommissioner, Town / Citymunicipal council / corporationof concerned jurisdiction.

e. All cases of sales/auction leaseare held in the premises of theinstitution in the presence ofmembers of the committee incase of the auction lease/Tahsildar in case of the sales.

f. Expenses of registration of sale/lease deed were borne by thepurchaser/lessee in whosefavour, sales or lease wasconfirmed and confirmation wasin favour of highest bidder. Suchhighest bid was not less thanmarket value of the property.The lease deed was registered ifperiod of the lease exceeded 12months (Section 17 of theRegistration Act).

g. The duration of the lease wasspecified in the lease deed andthe same did not exceed 30 yearsin the case of vacant land and 5years for buildings.

h. In case of rental agreements, rentfixed was not less than prevailingmarket rent in the locality andprovided for increase of 10 %every year. Correctness of rentfixed may be verified byascertaining details from urbanlocal bodies and revenueauthorities.

i. Monthly rent was paid by 5th ofevery succeeding month andinterest was levied at 18% fordelayed payments.

j. Advance equal to 6 months rentwas recovered from lessee whichwas adjustable against rent forlast 6 months of the lease period

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and also non refundablegoodwill as determined by stateGovernment at the time enteringinto agreement,

k. In the case of lumpsum leaseamount the same was recoveredbefore execution of agreement.

l. In the event of lessee failing torestore lease hold property afterexpiry of lease period, damagesat twice the rate of monthly rentfor first 3 months and thereafter,twice the value of damages wasrecovered.

m. The shops and buildings underthe purview of the institutionshall not be leased to clubs forplaying cards and other alliedgames, bar-shops, mutton shopsand other entertainments.

n. The purpose for which the shopor building is taken for leaseshall be mentioned clearly in thelease deed.

o. The rules, and regulationsgenerally observed by the localbodies like Corporations,Municipalities, Panchayats etc.,for leasing out their shops andbuildings shall also beconsidered and followed by theExecutive Authorities whileleasing out the buildingsbelonging to the institution in sofar as they are not inconsistentwith the provisions of HRICE Actand Rules.

D.5.2 Rents from Choultries,Guesthouses, Travelling Bungalow-Rent Register etc.

It should be seen that-

a. A separate register is maintainedfor all the rooms in the choultries,Guest houses etc., for theoccupations of which rents arecharged.

b. Register contains full particularsregarding the name and addressof the occupants, the exact timeand date of occupation andvacation by the parties.

c. Rent due has been collectedcorrectly with reference to therates fixed and the period ofoccupation.

d. Receipt in the prescribed form isissued for all the amountscollected.

e. The party’s signature has beenobtained on the reverse of thecounterfoil of the receipts.

f. Number and date of themiscellaneous receipt on whichthe rent was collected have beennoted against the concerned itemin the register.

g. The amounts collected have beencorrectly credited to templefunds.

h. The amounts paid are correctwith reference to the duration ofhalts and the fees fixed.

i. The amounts have been remittedto temple funds by the watcher,

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if any, without any undue delay.

D.5.3 Hundi Collections

The Hundi should be opened in themanner prescribed in the scheme, if any,or as per the directions of the AssistantCommissioner/Deputy Commissioner/Commissioner or in the presence ofrespectable persons, who are notconnected with the administration of theinstitution, as the case may be.

Kanukas in the Hundi are generallyreceived in the shape of –

a. Cash (Current Coins and notes)

b. Uncurrent Coins

c. Valuables like gold, Silver,precious stones etc.

d. Articles like wrist watches,fountain pens etc.

e. Documents like prize Bonds,investment Bonds etc.

f. Miscellaneous items like grainsetc.

All the items received in Hundishould be sorted and recorded in theHundial Assortment Register.


a. Collections of various items inHundi are assorted, counted andcorrectly entered in this registerwith the cash and other itemsseparately duly indicating fullparticulars of cash collectionsand full description and weight,wherever necessary, of gold,silver, jewels, brass or copperware etc., and of other articles.

b. Certificate as provided underRule 35(1)(g)/ Form X (i.e.certified that seal of the hundialswere verified before opening andfound to be intact and they wereopened in our presence andcontents as recorded above) isfurnished in the said register andsigned by the persons whoconducted verification ofHundial and executive officer.

c. Cash as certified in Form 11 (Rule35 (1)(h)), was taken to cashbook/day book of collectionsand remitted to Bank account.Verify the entry in Bank passbook.

d. The entries in this register notedas contents have not been erasedor altered without the attestationof the persons in whose presencethey were opened.

e. The cash obtained in Hundi iscredited to the cash book afterobtaining a miscellaneousreceipt thereof.

f. The receipts in the shape ofvaluables are taken to stock in theregister of kanukas under therespective heads noting thesource on receipt in the registeras ‘Hundials’.

g. In respect of uncurrent coins, thenature and the weight of thesecoins as recorded in this registeris transferred to the register ofuncurrent coins.

h. Documents like prize bonds,investment bonds as recorded in

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this register are transferred to theconcerned register.

i. Miscellaneous items like grainsetc., as recorded in this registerare transferred to the respectivestock registers.

D.5.4 Kanukas and Ubhayams/Registerof Kanukas

Kanukas are generally received incash, valuables such as gold, silver,precious stones, vessels, utensils andother articles of metals, grains, livestocketc. (Rule 35(1)(J)/ Form No. XIII


a. Printed counterfoil receipts havebeen issued to the parties for allkanukas received, and entered inthe register of Kanukas

b. The particulars regarding thenature of the article tendered askanukas, the number, thequantity or weight ormeasurements have beenrecorded on the back of thecounterfoil receipt and dulyattested by the party.

c. The cash receipts towardskanukas have been accountedfor in the same way as otherreceipts in cash are treated.

d. A reference to the page numberand item number of the stockbook is given at the back of thecounterfoil receipt.

e. The register has been verifiedperiodically by the Executiveauthority under his signatureagainst each category.

f. Separate sets of pages have beenallotted for each category toKanukas such as gold, silver,cloths, vessels etc., with a clearindex of the contents at thebeginning of the register.

g. The kanukas received aredisposed of by sale undersanction of Administrativeauthorities or transferred to theRegister of jewels and valuables,stock register of permanentarticles other than jewels andvaluables, stock register ofprovisions etc. as the case may beand the page number, itemnumber in the stock book areinvariably given.

h. The register is verified by theExecutive authority at least everyhalf year and at the end of eachyear and also at the time ofhanding over to a successor andthe result recorded.

Note: It should be seen that thesignature or thumb impression of thetenderer of Kanukas is invariablyobtained on the miscellaneous receiptissued for the purpose and detailedparticulars of the Kanukas such as itsmeasurement, weight, quantity etc., havebeen noted in the miscellaneous receipt.

Ubhayams are of two kinds:

a. Ubhayams received without anyconsideration, and

b. Ubhayams received for theperformance of special Pooja

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The following checks should beapplied in respect of receipts underUbhayam:

a. That paper receipts have beenissued to the parties.

b. That particulars regardingquantity, amount, purpose, etc.have been clearly indicated inthe reverse of the counterfoilreceipt and got attested by theparty,

c. That Ubhayams received in kindhave been taken to the respectivestock registers,

d. That a reference to the pagenumber etc., is given at the backof the counterfoil receipt,

e. That the cash receipts towardsubhayams have been accountedfor as in the same way as otherreceipt in cash.

f. That the expenditure incurred forthe performance of special Poojahas not exceeded the amountsreceived from the parties towardsUbhayams falling under thesecond category.

D.5.5 Sale of Human Hair Collections

If the right of disposal of human haircollections is leased out, checksprescribed for the lease of revenueshould be applied to this kind of leasealso. If the sale is conducted by theinstitution, it should be seen that-

a. A separate stock account for thehuman hair collected ismaintained showing the

particulars of weight of haircollected each day separately.

b. The human hair collected hasbeen disposed off in publicauction periodically inaccordance with the rulesprescribed for auctions ofmiscellaneous sales.

c. The sales proceeds have beencorrectly brought to accountwithout delay.

d. The value of quantities of hairshown as driage has been writtenoff.

D.5.6 Sale of Darsanam, Arathi, Archanaand Other Services

In case where the collection of anyrevenue such as sale of Archana, Arathiand other tickets for similar services atfixed rates is managed departmentally,the following checks should be exercised:

a. Receipts having a fixed valueprinted on them have beenissued for collection. The totalnumber of each kind of receiptsissued should be ascertained andthe amount realized arrived at bymultiplying the number ofreceipts by the rate thereof. Anabstract should be made of theseveral totals and agreed with theamount shown in the ledger orposting register.

b. The counterfoils of the receiptsissued should be examined indetail with a view to ascertainwhether there are any shortcredits or delays in credit etc.

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c. A proper record in form No. XVIIas prescribed in rule 35(1)(VI) ismaintained to account for specialArchanas/ Sevas provided topilgrims and prescribed fees wasrecovered on each such occasion.

The balance number of booksboth in hand and in use shouldbe verified.

If any of them are notforthcoming, the matter shouldbe brought to the notice of theExecutive authorityimmediately.

In the absence of satisfactoryexplanation, the matter should bebrought into the audit report.

d. Whether the books have beenmachine-numbered and stampedwith the common seal of theinstitution in the presence of theExecutive authority and the totalnumber of pages that each bookcontains, is certified by theExecutive authority or any otherresponsible officer.

e. Whether proper collectionregisters are maintained by theofficers entrusted with thecollections.

f. Whether the remittances shownas made by them have all beenbrought to account in the officeand miscellaneous receiptsgranted to them.

g. Whether the office has exercisedproper check over therealizations.

h. Whether the balances of books inthe office have been verified withreference to the account atregular intervals by theExecutive authority or by anyother officer authorized by himand the fact of such verificationrecorded by the verifying officerin that account.

i. Whether adequate security hasbeen taken from the personsentrusted with collection work.

Note:

� The original receipts granted tothe parties for the performance ofthe services indicated thereinshould be collected and defacedby the subordinate performingthe service immediately onreceipt and returned to the office.

� The correctness of the number oftickets so returned should beverified on receipt by thesubordinate in charge of the stockbook with reference to thenumber of tickets sold and thenthe relevant entries in stock bookposted.

� In case any shortage is noticed inthe receipt of the used tickets, thereasons for the loss together witha certificate to the effect that the“used tickets not produced havenot been misused” should berecorded under the signature ofthe Executive authority in theremarks column after satisfyinghimself about the loss beingbonafide.

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� The used tickets should then befiled in the order of date of saleseparately for production toaudit.

D.5.7Sale of Prasadams/ Registers ofPrasadams (Form No. XXII/Rule 35(1)(x)

If the right of sale of Prasadams isleased out, the checks prescribed for thelease of revenue should be applied to thiskind of lease also.

If the sale is conducted by theinstitution, the following checks need tobe exercised:

a. From stock register, collectdetails of quantity (by netweight) of various raw materials(inputs) used for production ofprasadams. Compare totalquantity (weight) of all types ofraw material used with quantityof prasadam produced asrecorded in the Stock Register ofPrasadam. Weight of (quantity)of prasadam would be more orat least equal to total quantity(net weight) of all types of rawmaterials used. This would beindicative of fair assessment ofquantity of prasadam produced.If huge variation is noticedbetween computed quantity andactual quantity as recorded in thestock register, the same may beanalyzed further andcommented. Similar check mayalso be conducted for valueaccounts of raw material(expenditure on raw material)used, prasadam produced(income generated by its sale).

If prasadam is purchased fromoutside sources, verify that tenderprocedure for procurement was followed.

b. That the prasadam is sold topilgrims at the rates prescribedby the competent authority.

c. That the sales have been recordedin a separate register maintainedfor the purpose.

d. That the sale proceeds have beencorrectly brought to accountwithout delay.

e. That the balance of stock in hand,if any, is periodically verified bythe executive authority and acertificate to that effect isrecorded under his signature.

Note: If there is any undisposed stockof prasadam not realizable at the end ofthe day, the fact should be recordedunder the signature of the executiveauthority with a note as to how it wasdisposed off.

D.5.8 Sale of Pictures and Publications

It should be seen whether:-

a. A correct stock account ismaintained for the publications,pictures, etc.

b. The publications, pictures, etc.,are sold to the public at the ratesfixed.

c. The amounts realized are correctwith reference to the sales asrecorded in the stock register.

d. The sales proceeds are promptlyremitted to the funds of thetemple without delay.

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e. The balances of stock in handhave been physically verified bythe executive authority and acertificate to that effect recordedin the stock register.

f. The institution printed pictures/books and published them andprocedure as prescribed in KTPPAct/ Rules was complied withfor entrusting printing work toprivate agency.

g. Revenue realised by sale ofpictures or publications at leastcompensated expenditureincurred on printing of pictures/books and huge accumulation ofpictures/books remainingunsold for long time may becommented quantifying theexpenditure incurred on suchunsold books.

D.5.9Sale of Immovable Property

In respect of sale, exchange ormortgage of the immovable propertybelonging to or given or endowed for thepurpose of any charitable or religiousinstitution or endowment, the followingpoints should be verified:

a. The sale of immovable propertyis sanctioned by Government.

Refer to Section 62 of the Act andrule 28 and 29 of HRI&CE Rules2002. According to Section 62 ofHRI and CE Act, sanction fromState Government is necessaryfor sale, exchange, mortgage,lease or gift of immovableproperties and theCommissioner can effect thetransaction.

b. That the sale of any immovableproperty by public auction/tender-cum-publication isconducted by the Executiveofficer of the institution.

c. In the absence of the Executiveofficer, sale is to be conducted byChairman of the Board ofTrustees in the presence of theAssistant Commissioner inwhose jurisdiction the propertyis situated.

d. That the sale of immovableproperty situated outside theState is conducted in the presenceof such officer, authorized by theCommissioner,

e. That the conditions of sale havebeen approved by theCommissioner.

f. That the expenses for registrationof sale are borne entirely by theperson or persons in whosefavour the sale exchange ormortgage is effected.

g. That immediately after the saleis effected, the EO or theChairman of the Trust Board hasinvested the amount covered bythe sale proceeds in the interestyielding deposits in such firmsor bank or Treasury keeping inview the provisions of Income-Tax Act and as per the rules inforce.

h. That the said investments are sentto the authorities for safe custodyas specified in the bye laws/rules/orders after making

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necessary entries in the Registerof Investments.

D.5.10 Other Miscellaneous Receipts

It should be seen that–

a. Sales of old and unserviceablearticles and stores are conductedby the Executive authority withthe sanction of the competentauthority;

b. The sales are conducted in publicauction;

c. The bids accepted are the highest,if not the reasons are forthcomingfor acceptance of bids other thanthe highest;

d. Earnest money deposit is taken,and

e. Sale proceeds have been realizedwithout delay and generallybefore the successful bidders areallowed to take possession ofarticles sold.

D.6.Expenditure

Audit checks for some of expenditurewhich are available in all types of auditeeinstitutions can be referred to in theprevious Section which contains genericcheck list. Audit checks specificallyapplicable to Hindu Charitable andReligious Institutions and Endowmentsare mentioned in the section below withappropriate reference to the CommonAudit Checks of Expenditure.

D.6.1Dittam

Dittam as defined in rule 2 (b) ofHindu Religious Institutions and

Charitable Endowments Rules 2002means schedule of articles or scale ofexpenditure and other requirements forperforming daily or on specialoccasions/poojas, customs, rituals intemples. Expenditures have to be enteredin Register of Dittum maintained in FormXVI, with all details.

Auditors may verify whetherapproval has been obtained on everyoccasions and actual expenditure iswithin approved estimate, proper stockaccount of materials purchased/used ismaintained, expenditure is supported byvalid vouchers.


a. The Trustee of a religiousinstitution or endowment hassubmitted proposals to theCommissioner, DeputyCommissioner or AssistantCommissioner as the case may befor fixing the dittum in theinstitution and the amounts to bespent thereon.

b. Provision has been made withdue regard to the establishedusage if any, the performance ofthe ceremonies and services andthe observance of festivals,worship and the like,appropriate to the institution.

c. A copy of the order passed on theproposals, is communicated tothe trustee by the Commissioner,Deputy Commissioner orAssistant Commissioner, as thecase may be.

d. The dittum has been scrutinized

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periodically and submitted tothe Commissioner, DeputyCommissioner or AssistantCommissioner as the case may bewith proposals for altering thedittum, together with the reasonsthereof.

e. The dittum, for the time being inforce, has not been altered by thetrustee.

f. Provision and other materialsetc., required for various poojasand festivals are purchased inaccordance with the provision inthe sanctioned dittum.

g. The various items of purchaseshave been utilized for thepurpose for which they werepurchased and a certificate to theeffect furnished in the concernedbills by the executive authority.

h. The various items purchasedhave been accounted in therelevant stock register and acertificate to that effect furnishedin the bills by the executiveauthority.

i. Stamped acknowledgement,where necessary has beenobtained from the payees.

j. Total number of specialoccasions/poojas/customs etc.,actually performed andexpenditure thereon do notexceed allocations in theapproved budget. If there arehuge variations between numberof special occasions and fundsprovided as per approved

budget/Register of Dittum andactual number of occasions/expenditure, the same may beanalysed and commented.Auditor may review the Registerof Dittum approved budget,meeting proceedings, Register ofContingent charges/vouchers toidentify such occasions approvedand actually performed.

k. Management of notifiedinstitutions have to submitproposal from time to time forfixing standard rates ofexpenditure for Dittum andsanction obtained. Refer to 69Cof the Act. Proposal for suchsanction has to be sent to theprescribed authority, within 6months of commencement of theAct.

l. If no proposal has been sent/sanctions obtained, comment onthe lapse. Compare theexpenditure on Dittum incurredby one temple with anothertemple of the same categoryregarding number of specialoccasions of similar nature andscale of expenditure etc., withinthe same taluk or district, if thereare huge variations commentsuitably linking with failure toprescribe standard rates ofexpenditure.

D.6.2Pay of Establishment

Apart from the audit checksprescribed in Paragraph 1.1, the belowmentioned checks applicable to HinduCharitable Institutions and Endowments(Muzrais) should be performed by the

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auditors.

a. The pay and allowances ofemployees are in accordancewith the schedule ofestablishment approved by theAsst. Commissioner, DeputyCommissioner, Commissioner,as the case may be.

b. The allowances drawn from timeto time are in accordance with therates sanctioned by the Asst.Commissioner, DeputyCommissioner, andCommissioner, as the case maybe.

c. The bills are prepared in theprescribed form.

d. The pass order is recorded onevery bill.

e. The increment certificates dulysanctioned by the Pay drawnOfficer are enclosed to the billsfor the incremental pay drawn.

f. In the absence of specificprovision in HRICE Rules 2002regarding delay in preferringclaims and its condonation,ensure compliance withprovisions as prescribed in KFC.

g. A certificate of disbursement ofall the payments is recorded bythe executive authority in theacquittance register.

h. Maximum credit of earned leaveof temple staff (Archakas, templeservants) does not exceed limitprescribed in rule 15 HRI and CErules which at present is 60 days.

i. Total expenditure on salary ofstaff of the institution is withinlimits prescribed in rule 8 (2)HRICE Rules / Section 36 (2) ofthe Act which is 35 percent ofGross total income. At present,gross total income does notinclude donations to the capitaland amounts realized by sale ofjewels, movable and immovableproperties.

j. Payment of terminal benefits tostaff who retire after minimumservice of 10 years is withinlimits prescribed in rule 16 ibidi.e., Fifteen days salary for everycompleted year of service subjectto maximum of Rs. 50,000,without benefits of ProvidentFund and insurance fund or Rs.30,000 with the benefits ofProvident Fund and InsuranceFund. For this purpose, salarymeans only pay.

k. In cases of death of an employeeof temple after completion of 3years but before 10 years,terminal benefit of Rs. 30,000/- oramount calculated at rate of 15days’ salary for every completedyear of service, whichever ismore, was paid.

l. The number of temple staff(Archakas, temple servants) forwhom salary was drawn, weresame as in the Register of TempleServants (Rule 6 & 9 /Section 13of Act), and all appointmentswere approved byCommissioner.

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m. Ascertain total Temple staff forwhom salary drawn/expenditure thereon for twoconsecutive years. Compare it(Number of Staff/Total Salary)with Income realized/expenditure incurred. If there ishuge variation between thesetwo, analyse and comment.

D.6.3 Travelling Allowance bills

Travelling allowances are admissibleto non official members of RajyaDharmika Parishat and Zilla DharmikaParishat at rates mentioned in rule 21 and21A of Hindu Religious Institutions andCharitable Endowments rules andpersons appearing in inquiry asprovided in rule 38 ibid.

All the general checks applicable forthe audit of travelling allowance bills arelisted in Paragraph 1.2. The Audit checksspecific to Muzrais are listed below.

D.6.4. TA & DA of Trustees


a. The travelling and otherallowances are allowed totrustees at rates as per prescribedrules for journeys made by himin connection with the businessof the institution or endowment.

Note:

� Mileage is admissible as perprescribed rules where thereis no public conveyance.

� Not more than one DailyAllowance should be drawnin respect of each period of

twenty-four hours of halt atthe place where the meetingis held or the work isperformed.

� In the case of a charitable orReligious Institution orEndowment with more thanone trustee, TA and dailyallowances are admissible toonly one of the trustees whoundertakes the journeys inconnection with theinspection of properties of theinstitution or attending courtson behalf of the institution asdecided by theCommissioner, the RegionalJoint Commissioner, theDeputy Commissioner or theAssistant Commissioner asthe case may be.

� If an Executive officer of aCharitable or ReligiousInstitution or Endowment isappointed as a trustee or a fitperson of some otherinstitution, such trustee or fitperson is entitled to drawtravelling allowance from outof the funds of suchinstitution, in accordancewith the prescribed rules.

b. The countersignature of theauthorities is obtained for the TAbills of the trustees, as may beprovided in the byelaws/circulars.

c. No claim for travelling allowanceis preferred after the periodspecified as per KFC (Art. 18 to22).

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D.6.5 TA bills of paid officers andservants of the institution:

It should be seen -

a. That the TA, DA and mileage etc.are allowed in accordance withthe provisions of the prescribedrules

b. That the TA claims are preferredwithin the time limit prescribedby KFC.

D.6.6 Transfer TA to officers andServants Attached to the Institutions:

It should be seen –

a. That the officers and servantsattached to institutions areallowed joining time andTransfer TA as admissible toGovernment servants of thecorresponding cadre under theprescribed rules.

b. That the pay for the period oftransit and TTA is paid from thefunds of the institution fromwhich the individual has beentransferred.

D.6.7 Contingent Bills


a. Bills are prepared in theprescribed forms and register ofcontingent charges is maintainedin form no.XXI.

b. The suppliers’ bills dulyreceipted are forthcomingwherever necessary.

c. Quotations or tenders have beeninvited and the lowest accepted.

d. Stock accounts (form No. XXII orXXIII as the case maybe) aremaintained in respect ofpurchases made.

e. The scale of purchases is inaccordance with the provision inthe dittam approved if any, inthis regard.

f. Pass order has been recorded bythe Executive authority.

g. The valuables of gold, silver andsilk purchased are entered in theinventory register.

h. The articles of a permanentnature other than valuables andjewellery purchased are enteredin the stock register of articles ofpermanent nature other thanjewels.

i. The payments to Vakils aresupported by proper accountsobtained in this behalf from themand are posted in the suitsregister.

j. Higher sanction, if any, neededunder the rules has beenobtained in respect of any suit orlegal proceedings.

k. The sanction of AssistantC o m m i s s i o n e r / D e p u t yCommissioner/ Government, asthe case may be, has beenobtained for payment of fees topleaders or for incurringexpenditure in connection withlegal proceedings.

l. The receipt of provisions etc.,supplied to Archakas towards

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paditharam is acknowledged bythem.

m. In the case of advance payments,necessary agreements have beenobtained from the payees toindemnity against any possibleloss to the institution.

n. In the case of money value forms,entries of receipts of such formsare made in the register of moneyvalue forms.

o. The expenditure has notexceeded the budget allotment.

p. The sub-vouchers have beenduly cancelled so as to preventtheir fraudulent use again.

q. All payments exceeding Rs.1000are made through cheques (Rule35(3)).

D.6.8 Bills relating to Maintenance ofCars and Vans

The checks for this expenditure aredone using following registers

In the absence of specific provision inHRICE Rules 2002 verify whether anybyelaws were framed by the committeefor maintenance of vehicles. If not, ensurecompliance with provision of KFC/MCE.

Log Book


a. All the entries in the relevantcolumns in the Log Books aremade.

b. The entries in the Log Books arenoted by the Officers using thevehicle in their own handwriting

the mileage at the start and at thecompletion of their trips afterverifying milometer.

c. Sufficient details are recordedregarding movements andpurpose to indicate that thejourneys are on official business.

d. The Log Book in respect of eachvehicle is closed at the end of themonth and a summary preparedin the Log Book showing detailsof duty and non-duty journeyperformed during the month inthe prescribed proforma.

e. The quantity of petrol, diesel oilpurchased and expenditure hasbeen entered in the Log Book ofthe respective Vehicle andcertificate recorded on thevoucher regarding accounting ofpetrol/diesel in the log book.

f. The hire charges collected as perhire charges payment registerhave been entered in theconcerned Log Book.

g. The Log Book is scrutinizedpersonally by the ExecutiveOfficer once in a month and hissignature appended therein andabstract indicating number ofkilometers run and kilometersper liter is recorded.

h. Details of repairs, replacementsof spare parts and expenditureare recorded in part III of the logbook.

i. Necessary recoveries were madefrom the parties concerned whoused vehicles for non duty

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journeys and the amountscredited to the institution.

j. Whenever vehicles wereprovided to private persons, hirecharges at prescribed rates arerecovered and credited to templefunds.

D.6.9 Register of Inventory ofEquipment


a. The nature of equipmentpurchased has been entered inthis register together with thedate of purchase and price etc.,as per voucher.

b. The inventory of equipment hasbeen checked by the ExecutiveOfficer personally every monthand a certificate to that effect hasbeen recorded therein.

c. The loss if any, arising out ofnegligence or fault of any personhas been recovered and creditedto the funds.

D.6.10 Receipt Book


a. Receipts are issued for theamounts of hire charges collectedfrom the persons who used thevehicles for non-duty purposes.

b. All the amounts collectedthrough these receipts areentered in the hire chargespayment register.

D.7 Advances/Register of Advances

In the absence of specific provision inHRICE Rules 2002, verify whether anybyelaws were framed by the committeeregarding advances. If not, ensurecompliance with provision of KFC.

Bills relating to Payment of advancesare generally of two kinds.

1) Permanent advance; and

2) Other advances.

It should be verified in audit that –

a. The payment of advances hasbeen sanctioned by thecompetent authority and thesanction of advance is otherwisein order.

b. No fresh advance is sanctionedwhen an advance of a similarnature drawn previously ispending adjustment.

c. Proper acknowledgements,stamped where necessary, areobtained from the payees.

d. While checking the bills relatingto permanent advancesanctioned to subordinateOfficers, it should be seen inaudit that the permanentadvance has been sanctioned bythe Board of Trustees and thenecessary entries have beenmade in the Register ofPermanent Advance.

During the course of audit of thebills relating to advances, theauditor should also examinethat:

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e. Advances for purchase of anycommodity or supply of anygoods are not given unless thetransaction is approved by thecompetent authority as per therules prescribed.

f. No second advance towards TAhas been given to an employeeunless the first advance is fullyadjusted.

g. No advance to the contractors ispaid for execution of any workunless the work is not technicallysanctioned, agreement isexecuted, and the stages ofexecution are not measured andrecorded in Measurement Book.

h. An advance given to anemployee or drawn on self by theExecutive Officer or Trustee formaking any purchases isadjusted within such period asprescribed under byelaws of theinstitution or provisions of KFC.

i. All the advances made withreference to the paid vouchershave been entered in this registerwith full particulars. In order toensure that all cases ofdisbursement of advances areentered in this register, drawal ofmoneys through cheques frombank or cash may be reviewedand payment advancesidentified.

j. All adjustments or recoveries ofadvances have been correctlyposted in this register.

k. The monthly totals of

disbursement and recoveriesagree with the correspondingfigures shown in the postingregister.

l. An abstract of opening balance,receipts, payments and closingbalance is worked out in theregister at the end of the year.

m. The balances are carried forwardto the next year (these itemsshould be initialed by theauditor).

n. That no amount is allowed tobecome time-barred for recovery.

Note: If any advance has not been soclassified by the Executive authority, theauditor should himself transfer suchitems and effect necessary entries in thisregister. A suitable paragraph should beincorporated in the draft audit reportgiving particulars of outstandingadvances.

D.8. Investments/ Register ofInvestments (Refer to Section 61 ofHRI&CE Act 1997)

Investments should be audited to seethat –

a. The amounts not required forimmediate expenditure/surplusfunds only were invested inaccordance with the provisions ofthe Act. Funds were invested inany nationalized banks or withsanction of government in anyScheduled bank or bankinginstitution.

b. The document i.e. bonds,certificates promissory notes,

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F.D. receipts etc, are obtained andentered in the respective registerof investments giving fulldescriptive particulars of thedocuments and checked by theOfficers.

c. Documents in support ofinvestments are available andverified and amounts investedare reflected in the annualaccounts. Investment documents(Fixed Deposit receipts etc.,) arephysically verified.

d. Interests due have been realizedon the due date and credited tothe funds of institution (Rule 40-A) or endowments. If any, lossis caused due to delay inremittance of interest, it has to berecovered from Chairman/Manager and officers who areresponsible for remittance.

e. Investments made out ofearmarked funds i.e., specificendowment funds, etc, have beenreinvested, if the amount is notrequired for expenditure.

f. In the case of investments writtenoff by sale or otherwise, theamounts of sale proceeds havebeen duly credited in theaccounts or if the sale was bytransfer of investments, it issupported by proper vouchers.Investments are not encashedprematurely except when fundsare required but not availableand with sanction from budgetsanctioning authority (Rule 40 (2)of HRICE Rules 2002)

g. Particulars of investments madehave been noted in a register ofinvestments and the realizationof interest watched.

h. Interest due from investments ofspecific endowments has beenrealized on the due dates andcredited to the respectiveendowment account;

i. Timely action has been taken torealize the matured investmentand to reinvest the moneyswithout loss of interest.

j. All investments made as seenfrom the paid vouchers arecorrectly entered in this registerwith full particulars.

k. The investments are not inpersonal name of the Executiveauthority but in the name of theinstitution.

l. Investments made out ofearmarked funds viz. specificendowments fund, loan fund,sale proceeds of the capitalassets, security deposits ofsubordinates, contractorsdeposits and P.F. balances etc.have been reinvested, if theamount is not required forexpenditure.

m. Interest due but not realized atthe end of the year has beenbrought forward to the next year.

n. No investments have beenpledged, encashed or withdrawnwithout the specific permissionof the competent authority.

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o. An abstract showing the namesof the securities held, the amountinvested during the year, theamount realized and the balanceof investments on hand at theend of the year is prepared andgot attested by the Executiveauthority.

D.9.Lending and Borrowing of Moneys

Section 57 of HRI & CE Act prohibitsborrowing and lending by the institution.Any decision/action on borrowings orlendings may be analysed andcommented.

D.10 Registers

(i) Immovable and Movable propertiesof Institution/ Register of Properties

Refer to Section 31 of the Act andRule 25 of HRI & CE Rules:

Verify whether:-

a) All Immovable and Movableproperties of notified institutionshave been surveyed byEndowment survey officer andreport sent to State Government.

b) On the basis of such report,Government has published list ofall Immovable and Movableproperties in the Official Gazetteas on the date of commencementof the Karnataka HinduReligious Institutions andCharitable Endowment Act(Amendment Act) of 2011 or onsubsequent dates to which suchreport relates.

e) All Immovable and Movable

properties as mentioned in thepublished list are accounted inseparate Register prescribed inForm I (Immovable properties)and Form II (Movable properties)and certified by Chairman/Executive Officer and inspectedby Deputy Commissioner/Assistant Commissioner.

f) Statement of propertiesindicating additions or deletionsor alteration (Rule 25 (3)) sent tothe Assistant Commissioner atthe end of each financial year.

g) Assistant Commissioner haschecked correctness of theStatements with reference toRegister (Form I & II) by physicalverification of all properties andcertificate recorded to that effectin these registers.

h) In respect of deletion of anyproperty due to sale / exchange/ mortgage, gift, the procedureprescribed in Section 62 of the Actand Rule 30 and 31 are followed.If there are deletions due to otherreasons, the same may beanalysed. In case of additionsdue to purchase/donation etc,verify if the procedure forprocurement was followed.

i) In respect of land, verify if landoccupied by all types ofbuildings (temples, choultries,guest houses, lodges, officesquarters, store houses, shops etc)roads and vacant land includingagricultural land agree with totalarea of land as entered in

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Register of ImmovableProperties and statement sent toAssistant Commissioner.

j) In respect of agricultural land,ascertain whether anyagricultural operation/cultivation of crops isundertaken.

Verify actual yield obtained as enteredin stock register (maintained in Form 15,Rule 35 (d)) with expected yield (detailsof expected yield may be obtained frompackage of agricultural practices ofUniversity of Agricultural Sciences orfrom Assistant Director of Agriculture).Huge variations between the two may beanalyzed.

(ii) Demand Collection and BalanceRegister

The demand, collection and balanceof all items of revenue like income fromlands, buildings, sites, other movable andimmovable properties, contributions anddecretal amounts, both under arrear andcurrent should be watched by means ofDemand Collection Balance Register.Each lease should be entered in Separateportions of a page or pages should be setapart for each of the above kinds ofrevenue. Each lease should be shownseparately in this register. DCB registeris maintained in Form no.7 (Rule 35 (d),While checking this register, it should beseen that-

a. All items of revenue farmed out,leased, given on rent etc. andpayable in fixed installments arerecorded therein.

Note: This should be verified withreference to the properties noted in theRegister of revenue yielding properties,or the Register of properties.

b. The lease amount, amount ofsecurity taken, the date of theagreement, the amount ofinstallment of kist due, the duedate of payment and the rate ofpenal interest leviable are notedin this register with reference tothe auction lists, lease deeds, rentdeeds, etc.

c. The collections are posted fromthe miscellaneous receiptsregister, counterfoils ofmiscellaneous receipts andchallans and recoveries frombills, if any, payable by thelessee.

Note: Separate totals should be madefor all items coming under the same headof receipt and the same should be agreedwith the corresponding total figures in theledger or posting register.

d. The amount of security depositnoted in the MiscellaneousDemand Register agrees withthat shown in the deposit registeragainst the lessee concerned.

e. The security deposit has beenadjusted towards the last threeinstallments of kist or towardsany installment of the leaseamount overdue from the lesseeand towards loss if sustained bythe resale or managed byinstitution.

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f. When a resale is conducted orwhen a lease is terminated onaccount of the default of thelessee, necessary legal steps aretaken for the recovery of the lossfrom the original lessee.

g. The balances outstanding at theend of the year are correctlyworked out and noted in theappropriate column of theregister and brought forward asopening balance for next year.

h. The penal interest due andrealized and the balanceoutstanding at the end of everyyear are correctly worked out andrecorded in the columnsprovided thereof.

Adequate action has been takento realize the outstandingrevenue due within the periodprescribed.

i. A Demand Collection andBalance statement in respect ofeach kind of revenue has beenworked out and certified by theexecutive authority.

j. The balances at the end of theyear are correctly transferred tothe Miscellaneous DemandRegister for the next year.

k. The amounts decreed towardskists, costs etc. are noted in thisregister and their recoverywatched.

(iii) Register of Properties

It should be seen that -

a. All the movable propertiesbelonging to the institution likeall jewels, permanent articles liketools and plant etc. have beenentered in this register asverified from other subsidiaryregisters like Inventory of Jewels,Register of permanent articlesother than jewels and valuables,register of immovable propertiesetc. and particulars ofEndowments etc.

b. Annual statement of additions,omissions and alterations havebeen prepared, got approved bythe Assistant Commissioner andappended to this register.

Note: The correctness of this statementshould be verified during the audit withreference to the transactions audited andany discrepancies in it should be pointedout in the audit report.

(iv) Register of Miscellaneous Sales


a. All miscellaneous sales such asold stores materials,unserviceable vessels, gold andother valuables and other articlesof Kanukas etc. other than casesin which contract agreements aretaken, find a place in this register.

b. Particular of sale, the proceeds ofwhich are realized in oneinstallment are entered undersignature of the highest bidder inwhose favour the sale is knockeddown.

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c. Separate pages have been setapart for each class of revenueand that necessary entries havebeen made as soon as orders areissued for sale.

d. Each item of sale is supported bysale lists which are signed by theofficer conducting the sales.

e. Sales have generally beenconducted by public auction.

f. Prepayment has been generallyinsisted upon in all cases and thatarticles sold have not beenremoved before payment.

g. Receipts have been granted for allsale proceeds.

h. The total collection on account ofeach class of revenue agrees withthat noted in the register ofmiscellaneous receipts.

i. The items of sales pending andthe sale proceeds not collectedwithin the close of the year havebeen transferred to the register ofthe next year.

(v) Register of Uncurrent Coins

It should be seen -

a. That the uncurrent coins with thenature and the weight of thesecoins as recorded in the HundialAssortment Register istransferred and counted for inthis register.

b. That the disposal of these coinsis watched from the entry in thisregister.

c. That the orders of the AssistantC o m m i s s i o n e r / D e p u t yCommissioner as the case may beare obtained for the disposal ofuncurrent coins if foundunrealizable.

(vi) Auction Register


a. All sales, leases etc., conductedin public auction are entered inthis register instead of on loosesheets of papers.

b. The auction is held at the properplace referred to in rulesprescribed

c. Only those who have paid theearnest money deposit areallowed to bid at the auction.

d. The name of the bidder and theamount for which the bid isknocked down has been enteredat the end of the auction.

e. The signature of the highestbidder and one of the trusteespresent or the Officer of theEndowment Department, if any,deputed to attend the auction isalso obtained in the register.

f. Acknowledgements have beenobtained from the other biddersto whom earnest money depositshave been refunded.

g. The earnest money deposit of thesuccessful bidder has beencredited to deposits.

h. The amounts for which the bidsare knocked down have been

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correctly noted in themiscellaneous demand registeror the miscellaneous salesregister as the case may be.

(vii) Register of Deposits

In the absence of specific provision inHRICE Rules 2002, verify whetherbyelaws were framed by the committeeregarding deposits. If not, ensurecompliance with provision of KFC.

Deposits of religious institutions willbe of the following kinds viz.

a. Deposits by renters i.e. those whoform out the revenues of thereligious institutions i.e., lessees.

b. Deposits by contractors i.e. whoundertake to execute work orsupply materials.

c. Earnest money deposits andsecurity deposit of tenderers orbidders, security deposit fromtemple staff.

d. Unclaimed contractors’ dues.

e. Other miscellaneous items suchas the proportionate share ofamount due on the realization ofreceipts under ‘archanas’, feeslevied for tendering the Kanukasin the temples and the like andpayable to the different serviceholders in accordance with thecustom in vogue.

f. While checking the register itshould be seen that -

� Separate sets of pages are setaside for each of the aboveclasses of deposits.

� Each part of the register isopened with the details ofthe previous year’soutstanding balances asshown in the previous year’sregister.

� Deposits received during theyear are entered in thisregister whenever eachtransaction occurs.

� All advances collections oflease amounts for thesubsequent years are shownin this register andsubsequently adjustedduring the year to which theamounts relate.

� No deposit is kept out ofaccount. In order to ensurethat all receipts and refundsof deposit are posted in thisregister, the auditor shouldreview register of auctions,lease/rental agreementscash book receipt books/day books of collection andstatement of annual accountsand identify the cases ofdeposits. He should alsoverify if the total receipts ofdeposits and refunds asrecorded in annual accountsagrees with register ofdeposits. No item ofrevenue should beaccounted as deposit.

� Day-to-day posting underreceipts are made from theentries in the MiscellaneousReceipt Register.

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� Proportionate share ofamount due on therealization of receipts inwhich the staff such asarchaka, sevadarakas, etc.,have a share, are correctlyentered in this register in thefirst instance andsubsequently adjustedwhen payment is made.

� The total of the depositsreceived during the year isagreed with thecorresponding figures in theposting register.

� The repayment of depositsthrough cheques or bytransfer is noted againstoriginal credit in the columnfor the month in which therefund is made.

� The several Pass Books andpromissory notes etc., havebeen duly endorsed to, andpledged in favour of theinstitution.

� The return of the pass booksand other documents areduly acknowledged by theparties to whom they aresaid to have been madeover.

� Earnest money deposit/security deposits wererefunded when they becamedue for refund. Cases ofpremature refund may beidentified and commented.

(viii) Security Register of Subordinates

In the absence of specific provision inHRICE Rules 2002, verify whetherbyelaws were framed by the committeeregarding Security deposits fromSubordinates. If not, ensure compliancewith provision of KFC.


a. Security has been furnished byall the subordinates who areentrusted, whether permanentlyor temporarily, with the custodyof cash or stores or valuablesbelonging to the institution orentrusted with the collection ofrevenue.

b. The amount and nature ofsecurity has been fixed by theappointing authority andapproved by the AssistantC o m m i s s i o n e r / D e p u t yCommissioner/Commissioneras the case may be.

c. The amount of security fixed ineach case is noted in the registerwith the number and date of theorders of the authority fixing it.

d. The security furnished is in oneof the following forms:

1. Cash or Promissory notes ofthe State Government or anyother State Government or UnionGovernment or municipaldebentures or port Trust bonds,or2. Stock certificates of StateGovernment or any other State,Government or the UnionGovernment or

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3. Post Office Savings BankDeposits, or

4. Post Office Cash Certificatesand National SavingsCertificates or

e. Security bonds have been takenand the security bond is executedin name of the institution.

f. The security fixed for the post isfurnished within 15 days of thereceipt of the order ofappointment.

g. Where security is furnished inthe form of cash, it has beeninvested as prescribed in rule.

h. The interest derived from suchinvestment is paid to the personsconcerned byelaws provided forthe same.

i. The Savings Bank Pass booksare forthcoming in all cases whereSavings bank deposits have beenfurnished as security.

j. The Pass Books and promissorynotes etc., have been dulyendorsed to, and pledged infavour of the institution.

k. The return of the pass books andother documents is dulyacknowledged by the parties towhom they are said to have beenmade over.

(ix) Register of Investments


a. That all investments made asseen from the paid vouchers are

correctly entered in this registerwith full particulars.

b. That the investments entered inthis register is not written offunless it has been disposed offabsolutely by sale or otherwise.

c. That the investments are not inpersonal name of the Executiveauthority but in the name of theinstitution.

d. That the interests due have beenrealized on the due dates and arecredited to the accounts andcorrectly posted in this register.

e. That investments made out ofearmarked funds viz. specificendowments fund, loan fund,sale proceeds of the capitalassets, security deposits ofsubordinates, contractorsdeposits and P.F. balances etc.have been reinvested, if theamount is not required forexpenditure.

f. That interest due but not realizedat the end of the year has beenbrought forward to the next year.

g. That the investments andpromissory notes for loans paidare forthcoming for verificationin audit.

h. That no investments have beenpledged, encashed or withdrawnwithout the specific permissionof the competent authority.

i. That all the investments whichmatured have been promptlyencashed and reinvested.

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j. That amounts paid by theinstitution to the ElectricityDepartment towards securitydeposit for service connectionsare also entered in this register.

k. That an abstract showing thenames of the securities held, theamount invested during theyear, the amount realized and thebalance of investments on handat the end of the year is preparedand got attested by the Executiveauthority.

l. That a Demand CollectionBalance statement for the interestis prepared and got attested bythe Executive authority.

(x) Service Register (Form no. XIX (B))

In the absence of specific provision inHRICE Rules 2002, verify whetherbyelaws were framed by the committeefor maintenance of service registers. If not,ensure compliance with provisions ofKCSRs.

It should be seen

a. Whether a separate ServiceRegister has been maintained forevery employee borne on theestablishment of the institution.

b. Whether the record of service ofeach Officer is complete.

Note: When examining establishmentbills, it should be seen that all leave,increments etc., have been recorded in theservice register.

c. Whether it bears evidence ofhaving undergone annual

verification at the hands of theexecutive authority.

Note: The auditor should see that allomissions or inaccuracies noticed by himin the registers are rectified, if possiblebefore the completion of the audit.

d. Whether leave accounts havebeen maintained for each Officer.

Note: Whenever an employee’sleave salary comes up for audit,the leave account should bereferred to and the eligibility forleave verified.

e. The auditor should check theleave account to see that theentries of leave, earned leavetaken and the balance at credit arecorrect.

(xi) Register of Suits/Litigations (formno.20)/realisation of decretal amountsand legal expenses (Refer to Rule 70 to74 of HRIC Rules 2002)


a. All the suits to which theinstitution is a party are enteredin the register to watchrealisation of decretal amounts.

b. Separate pages are allotted foreach suit and that appeals areentered separately giving a crossreference to the original suit.

c. The expenditure incurred on asuit is entered with full details inthe appropriate columns of theregister.

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d. Advances made to vakils andtheir adjustments on receipt ofdetailed bills are noted in itagainst the suit concerned.

e. Particulars regarding the resultsof the suits, the sum decreedtowards suit, costs etc., are notedin the appropriate columns of theregister against each suit.

f. Recoveries made are also notedin it.

g. Decrees are not allowed tobecome time-barred and thatexecution petitions have beentaken in time.

h. The progress of suits, executionof decrees and recoveries ofamounts decreed are watchedthrough this register.

i. Amounts decreed have beennoted in the demand collectionbalance register with a view towatch their recovery.

j. The register has been reviewedby the Executive authorityperiodically and a certificate tothe effect recorded by theExecutive authority.

k. No court fee was paid in respectof any suit, petition orapplication filed under this Actby Assistant Commissioner orDeputy Commissioner in officialcapacity.

(xii) Acquittance Register (Form no. VIII)

In the absence of specific provision inHRICE Rules 2002, verify whetherbyelaws were framed by the committee

regarding maintenance of AcquittanceRegister. If not, ensure compliance withprovisions of KFC.

This register would have beenchecked while auditing the pay bills, TAbills etc. of the establishment. It shouldbe seen that –

a. The names of the employees areentered in the acquittanceregister in the same order asshown in the concerned bills.

b. The acknowledgements havebeen obtained in the case of allamounts disbursed.

c. The undisbursed amounts, ifany, have been remitted back tothe funds of the temples.

d. There has been no delay indisbursements.

e. The Executive authority hasrecorded a certificate ofdisbursement with datedsignature at the end of each dayafter disbursements.

f. When amounts are disbursed toany person other than the originalpayee, it should be seen that theauthorization is in proper formand that stampedacknowledgement has beenfurnished by the original payee.

(xiii) Postage Stamp Account


a. That the stamps purchased havebeen entered in the stampaccount.

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b. That the balances are correctlystruck (the balance of stampsshould be verified by the auditorduring audit.)

c. That the stock is verifiedperiodically by the executiveauthority.

(xiv) Register of Specific Endowmentsand Kattadies and Ledger ofTransactions Relating to SpecificEndowments and Kattadies (Refer toform no.12)


a. The particulars of eachendowment have been correctlynoted with reference to entries inthe register, Endowment deedsetc.

b. The history and conditions ofeach endowment withparticulars of its sources ofincome and its assets and thenature of expenditure usuallyincurred from it, together withthe sanctioned dittum for theexpenditure, are recorded in theregister.

c. All income due from eachendowment as recorded in theregister is vouched through theDemand collection balanceRegister and registers ofinvestments and prompt actiontaken for their early realization.

d. All such income is earmarked forthe purpose for which theendowment was created.

e. The income from the specific

endowments has been utilizedonly for the purpose for which itis intended and is not divertedfor other expenditure.

Note: In order to watch that specificendowment funds are appropriated onlyfor the purposes for which theendowments were created, a separateregister showing in separate pages, theyearly transactions of each endowmentshould be maintained.

g. Surplus balances not required forexpenditure in the near futurehave been invested in approvedinterest-fetching securities.

h. An abstract showing the totalreceipts and charges is preparedfor all the endowments at the endof the year.

i. The closing balance arrived at theend of the year is carried over asopening balance of the respectiveendowment accounts for the nextyear.

j. The total collection as shown inthe abstract is agreed with thefigures noted under collectionsin the Demand CollectionBalance statements and in theregister of investments.

k. The total of receipts andexpenditure is agreed with thefigures in the posting registersuch as day book of collections/register of contingent charges.

(xv) Stock Account of Tickets


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a. That all the ticket books issuedto the subordinates as seen fromthe issues in the register ofmoney value forms are enteredin this register.

b. That the total value of tickets soldhas been correctly worked out.

c. That the total collections madehave been remitted promptlyinto the temple office.

d. That the total value of the ticketsentrusted at a time to asubordinate is within the securityfurnished by him.

e. That the balance of tickets withthe subordinates has beenperiodically checked by theExecutive authority.

f. Ascertain whether ticket booksare printed in a private press. Ifso, verify whether tenderprocedure for entrusting theprinting work was complied.Verify payments made toprinters.

g. All ticket books ordered forprinting are taken into stockregister, denomination wise.Compare receipt entries in thestock register with invoicesfurnished by the printer. Verifywhether entries were attested byManager/Executive Officer.

h. Issue of ticket books as enteredin issue register, and issue ofticket books are acknowledgedby the officials to whom it isshown as issued. Ascertain total

number persons of temple staffwho were issued with ticketsbooks.

i. Officials who have been issuedticket books have handed overcash realised from sale of ticketsand that it agrees with number oftickets sold. Also verify if personreceiving cash issued properreceipt and remittance was madeto the Bank account of theinstitution within the stipulatedtime.

(xvi)Inventory Register of Jewels andOther Valuables


a. The pages are numbered and thenumber of pages in the registerhas been certified to.

b. The correct description, weightand estimated value of all jewels,Gold vessels, Silver vessels andother valuables and fullparticulars of gems, if any, havebeen entered.

c. The sanction of theCommissioner, DeputyCommissioner or AssistantCommissioner, as the case maybe, has been obtained for alteringrepairing, replacing, selling ofjewels etc., as required under theprescribed rules.

d. A jewel or vahanam has beenmade only with the prior sanctionof the Commissioner, DeputyCommissioner or AssistantCommissioner, as the case maybe.

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Note: The entries in this registerwould have been checked while checkingthe register of Kanukas and vouchers onwhich, payments have been made forpurchase of jewels and other valuables.

e. The entries in this register agreewith the entries in the registermaintained under Section-35form XXIV of the Act and theannual statements sent under theprescribed rules.

f. Periodical verification has beenmade and a certificate to thateffect has been recorded by theExecutive authority with hisdated signature.

g. An abstract showing the value ofarticles as at the commencementof the year, those purchased ordisposed off during the year andthose on hand at the close of theyear, is prepared over thesignature of the Executiveauthority and statementincluding such details are sent tothe Assistant Commissionerwhich are verified by the latterand certificate recorded.

(xvii)Stock Register of Fodder,Stationery, etc.

In the absence of specific provision inHRICE Rules 2002 verify whetherbyelaws were framed by the committee,for maintenance of Stock Register ofFodder, Stationery, etc. If not, ensurecompliance with provisions of KFC/MCE.


a. The register contains a complete

record of all articles under theheading of the register;

b. All the articles purchased duringthe year according to paymentvouchers, have been shown in theregister;

c. The issues are in accordance withthe scale, if any prescribed;

d. Articles are not stocked largelyin excess of requirements;

e. The stock of paper and otherstationery articles has beenverified and certified in theregister periodically by theExecutive authority.

(xviii)Stock Register of Tools and Plant

In the absence of specific provision inHRICE Rules 2002, verify whetherbyelaws were framed by the committee,for maintenance of stock register of toolsand plants, etc. If not, ensure compliancewith provisions of KFC/MCE.


a. The register contains a completerecord of all tools, furniture,vahanams, metal vessels etc.;

b. All tools and plants etc.,purchased during the yearaccording to payment vouchers,have been shown in this registerand purchase rules/procedurewere followed.

c. Tools and plant and sales whichare declared as unserviceable aredone with competent sanction;

d. Issues are noted only in case ofsales and losses;

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e. No entry is made for issue ofarticles for use;

f. Credits are traceable in theaccounts for all sales proceeds ofunserviceable tools etc.;

g. The certificate has been furnishedby the Executive authority as tothe actual verification of thebalance on hand;

h. Separate registers or separate setsof pages in a register are set apartfor recording tools and plant invarious subordinate institutions;

i. The value of tools and plantfound short at the time ofverification is recovered from theperson responsible or is writtenoff with the sanction of thecompetent authority;

j. Articles of tools and plant foundin excess at the time ofverification are brought toaccount;

k. The balance of stock at the endof the year has been entered in afresh register.

(xix) Stock Register of Provisions (Formno.22/ Rule 35 (3) of HRICE Rules)


a. That with reference to the paidvouchers and miscellaneousreceipts, all the provisionspurchased and received fromdonors have been entered andseparate pages are allotted foreach kind of stores.

b. That issues made for variousservices are entered correctly

under the concerned heads ofservices.

c. That totals are struck at the endof every month and the totalissues under each service arecommuted into money value.

Note: In respect of stores received inkind, the market rate should be adopted.

d. That the stock register has beenverified periodically and acertificate to that effect has beenrecorded under each articleunder the dated signature of theExecutive authority.

e. That byelaws or norms wereprescribed to determine quantityof food grains required daily forproviding free meals to thepilgrims. If not, audit maydetermine average quantity offood grains required for each dayon the basis of quantity issuedduring the previous year.Compare the daily issues withreference to such average. If thereis large variation between suchaverage and daily issues, thesame may be analysed / reasonsascertained and suitablecomments, if any, included in thereport.

(xx) Choultry and Travellers’ BungalowRent Register


a. The rates have been fixed and gotapproved by the AssistantCommissioner, DeputyCommissioner or Commissioner,

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as the case may be.

b. The amounts paid are correctwith reference to the duration ofhalts and the fees fixed.

c. That the amounts have beenremitted to temple funds by thewatcher, if any, without anyundue delay.

d. A notice, embodying the rulesand regulations governing thechoultry and the rest house andthe scale fixed by the competentauthority for the occupation ofthe rooms, is exhibited in aconspicuous place in thechoultry for the information ofthe travelers.

Note: This should be checked withreference to the entries of remittancesnoted in this book and the creditsappearing in the miscellaneous receiptRegister.

(xxi) Register of Works


a. It shows the amount provided inthe estimate and the actualexpenditure by sub-heads.

b. The several money columns havebeen totaled at the end of the yearor on completion of the work soas to enable a comparisonbetween the total expenditureand the amount of estimate orcontract being made.

c. The total of the year’sexpenditure on each work hasbeen recorded in the register ofestimates and allotments.

d. Excess over estimates orallotments, either under sub-heads or in the total expenditureon the works are covered bysanctions obtained on thedeviation statement orcompletion reports or otherwise.

e. In the case of incomplete works,the necessary entries have beenbrought forward from year toyear until the works are eitherfinally completed or abandoned.

f. The register has beenperiodically examined andinitialed by the executiveauthority.

(xxii) Register of Estimates andAllotments


a. That all estimates and allotmentshave been entered in thisregister.

b. That when an estimate has beenrevised, the value of the revisedestimate has been noted afterstriking the original value neatly.

c. That the total of the year’sexpenditure has been recordedwith reference to the entries inthe register of works.

(xxiii) Contractor’s Ledger


a. A separate folio is opened foreach contractor in the personalledger.

b. The entries are made in the folioin the personal ledger of each

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contractor against the value ofwork done.

c. The account embraces alltransactions to which thecontractor is a party, whetherrelating to one or several worksor to materials purchased fromhim.

d. The account shows the numberand amount of each passed billand certificate with a brief entryof the name of work, the numberand amount of each bill orcertificate and the balance due toit from the contractor on accountof each work not settled in full.

e. The contractor has signed theaccount at convenient intervals intoken of the acknowledgement ofthe correctness of his account.

(xxiv) Measurement Book

In the absence of specific provision inHRICE Rules 2002, verify whetherbyelaws were framed by the Committee,for measurement/check measurementsof works. If not, ensure compliance withprovisions of KPWD code/KTPPActs / Rules


a. All measurements of work done,whether by means of dailylabourer, by contract and ofmaterials received or issued,have been recorded in themeasurement book.

b. The arithmetical calculation andtotals in the measurement booksare correct.

c. Corrections, if any, are attestedby the Officer concerned.

d. There are no undue delays inmeasurement and checkmeasurement of work done.

e. All entries which have beentranscribed into the bills havebeen neatly crossed out in ink.

f. There are no erasures orunattested alterations.

g. Pencil entries have not beeninked over except in the contentscolumn, which should invariablybe in ink,

h. Reference is given in all cases tothe vouchers on which paymentswere made,

i. The book has evidences aboutcheck at the hands of the checkmeasuring officer.

j. The used up books have beenreturned to the institution andthat they are carefully filed.

k. The measuring officer hasauthenticated each set ofmeasurements by his signatureor initials.

l. The rules issued byGovernment regardingmeasurement and checkmeasurements of works ofreligious institutions have beenobserved.

D - 11 Execution of DevelopmentalWorks of Notified /declared institutions:

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Rule 40 (A) of Hindu ReligiousInstitutions and Charitable EndowmentRules 2002 prescribes the procedure forexecution of any development work(construction, repairs, renovations,reconstruction, conservation ofbuildings).

The following checks may beconducted

a) Verify whether previous sanctionof the State Government wasobtained before execution of anydevelopment work of notified/declared Institutions.

b) Verify whether estimates werescrutinized by Public WorksDepartment in accordance withthe provisions of KPWD Code.Verify whether adequatejustification was furnished forthe proposed works in theaccompanying report.

c) As stipulated in rule 40 (A)(4),Government has to notifythrough notification, differentauthorities for approvingestimates. Ascertain details ofsuch authorities and verifywhether authority whoapproved the estimates wasnotified by Government.

d) Verify whether works wereexecuted through Public WorksD e p a r t m e n t / G o v e r n m e n tAgency/expert committee.Verify if executing agenciescomplied with the provisionsKTPP Act 1999/Rules 2000,while executing works.

e) Verify whether third partyinspection was conducted andreview such reports. If anydeficiencies/sub standardquality of work is reported,verify whether adequate action asprescribed in rule 40 (A)(7) of HRIand CE Rules 2002 was taken bythe Commissioner and loss, ifany, caused to the institution wasrecovered from the executingagency.

D -12 - Check of Accounts

Rule 35 of Hindu ReligiousInstitutions and Charitable EndowmentsRules prescribes various registers toaccount for all transactions of receipt andexpenditure. These registers may bechecked to ensure correctness of annualaccounts.

The following checks may beconducted:

a) Verify that all receipts issued inproof of receiving moneys(including moneys receivedthrough sale of tickets) areaccounted in cash book correctly(date of issue of receipt, amountas entered in receipt and daybook).

b) Verify amounts shown asremitted in cash, with remittanceregister/challans and trace thereceipt in the Bank pass book andensure correctness of amounts asentered in receipt book, cashbook, Bank pass book and daybook of collections.

c) Verify that for every paymentshown as paid in cash book and

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register of contingent charges,there exists valid voucher.

d) Cash book is closed regularlyevery day and cash balancecertified by Manager/ExecutiveOfficer and closing cash balanceat the end of each month isreconciled in the Bank records.

e) Verify the correctness of postingsof receipt in the day book ofcollection.

f) Verify correctness of posting ofreceipts and expenditure. Ensureexpenditure amount as enteredin individual vouchers andRegisters of contingentexpenditure are same. Similarlychecks may be conducted in

respect of receipts also byverification of posting of figuresof receipt in the day book ofcollection.

g) Verify that figures ofexpenditure and receipt aretotalled correctly for each day/month as prescribed, and totalsfor the year is correctly arrived.

h) Check Annual account preparedin Form 33. Verify that total ofexpenditure and receipt asrecorded and posted correctlyunder various items/head ofaccount in the annual account.

Amount up to which write-off is permissible Authority

Upto Rs.10,000 in respect of ‘C’ category institutions Assistant CommissionerExceeding Rs10,000 but not Rs.25,000 in respect of ‘C’ category and upto Rs.25,000 in respect of ‘B’ category institutions

Deputy Commissioner

Exceeding Rs.25,000 but not Rs.50,000 in respect of ‘B’ & ‘C’ institutions, not exceeding Rs.50,000 in respect of ‘A’ institutions

Commissioner

Exceeding Rs.50,000 in respect of all institutions State Government �

D.13. Write off of irrecoverable dues, loss of stores/properties (Refer to Rule 37/formXXIX of HRICE Rules)

a. Verify that value of dues, loss of stores and properties written off, were withinthe limits prescribed in Rule 37 which are as follows

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D.14 Cases of Charge and Surcharge(Refer to section 39 & 40 of HRICE Act)

Any authorities/staff of institutions isfound to be responsible for any loss ormisappropriation as reported in the auditreport or report of Deputy Commissioneror Commissioner on his own assessmentmay order recover of such loss or amountmisappropriated after followingprescribed procedure. Auditor mayreview such files and comment on non-recovery/delay in recovery of suchamounts.

E. Audit checklist for audit of UrbanDevelopment Authorities

E.1 Introduction

With a view to speeding up planningand development of land in urban areasin the State, it was felt desirable to have

b. Verify whether there was adequatejustification and exhaustive effortswere made to recover dues/lossbefore sanction of write-off. In caseof loss of stores/properties, it maybe verified whether adequatestorage and security arrangementswere in place. Verify whethercomplaint was lodged with policeand ‘B’ report was furnished beforesanction of write off.

c. In the case of dues, loss of revenue,etc, verify whether, penalmeasures were taken andcircumstances under which the lossoccurred were enquired into. Alsoverify if security deposit amountobtained was adequate andresponsibility on temple staff wasfixed.

for each urban area a single agency forperforming functions both as a PlanningAuthority and as Development Authority.Hence a separate Act, The KarnatakaUrban Development Authorities Act,1987 was passed. The main functions ofany Urban Development Authority(UDA) would comprise activities like

A. Planning Functions

� Preparation of developmentplan

� Preparation of schemes

� Approval of developmentplans for group housing andlayouts

� Approval of building plans

� Other statutory functionsunder the KTCP Act.

B. Development Functions

� Planning and implementationof schemes for residentialsites, commercial sites,industrial sites, civic amenitysites, parks and play grounds

� Construction of commercialcomplexes

� Development of majorinfrastructure facilities

The Act becomes effective from suchdate as may be notified by StateGovernment for each urban area. If for anyurban area, Urban DevelopmentAuthority is constituted under Section 3of KUDA Act, planning authority forsuch areas stand abolished and UDAperformed all functions of planning

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observations, inspection reports, speedydisposal of audit paragraphs and timelyaction on matters pertaining to the PublicAccounts Committee, Committee onPublic Undertakings” states that “theaudit observations/ paras received fromthe auditor normally needs to be repliedto within a month from the date of thereceipt of the inspection report and in nocase it should exceed three months.”(Paragraph 2.3 of handbook)

The following areas need to be givenspecial attention by the auditor as theseare core functions of planning/ urbandevelopment Authority.

a) Land acquisition anddevelopment

b) Allotment /Lease of Sites

c) Grant of permission undervarious provisions of the Acts

E.3 Receipts

a) Sources and Application ofurban development funds/Planning Authority funds (refersection 43 of KUDA Act/Section68A of KTCP Act 1961

(i) Verify whether borrowings byUDA/ Planning Authority, fundsreleased by Government,contributions from Localauthority, betterment taxcollected, proceeds of sale oflands, sites, buildings and otherproperty, and all charges, feesreceived for administration ofKTCP & KUDA Act werecredited to the fund called UrbanDevelopment Fund/ PlanningAuthority funds.

authority (Section 81D of KTCP Act 1961and 80D of KUDA Act). Any area isdeclared as planning area under section2b of KTCP Act 1961 development ofsuch area would be regulated under theprovisions of KTCP Act 1961.

E.2 Mandate for Audit

As per Section 68(C) (2) of theKarnataka Town and Country PlanningAct, 1961, the accounts of every PlanningAuthority shall be subject to auditannually by the Director (Audit) ofKarnataka State Audit & Accounts.

As per Section 68(C) (3) of theKarnataka Town and Country PlanningAct, 1961, the accounts of every PlanningAuthority as certified by the Director(Audit) of Karnataka State Audit &Accounts together with the audit reportthereon shall be forwarded annually tothe State Government and the concernedAuthority.

As per Rule 24 of Karnataka PlanningAuthorities Rules, 1965 , the accounts ofthe Planning Authorities shall from timeto time and at least once in every year beaudited by the Director (Audit) ofKarnataka State Audit & Accounts andalso by such other agency, if any, as maybe appointed by the Government.

The accounts of urban developmentauthority is subject to audit by an auditorappointed by state government (Section48 of KUDA Act).

In the absence of provisions of Auditreport follow-up/compliance inKarnataka Urban DevelopmentAuthorities Act, 1987, the hand book on“Speedy Settlement of audit

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(ii) Funds were utilized for thepurposes of the Act i.e., planning,promoting and securingdevelopment of urban area/planning area. This includesacquisition of land, formation oflayouts/sites, andimplementation of townplanning / DevelopmentSchemes, providing amenities,construction of buildings,salaries of staff of the authority.Refer section 41 and 42 of KUDAAct 1987/Section 68A of KTCPAct 1961.

(iii) Verify that expenditure incurredout of urban development fund/Planning Authority fund forvarious purposes assigned, wasconfined to urban area/ Planningarea as defined under Section2(S) of KUDA Act 1987/Section4A of KTCP Act 1961

(iv) Verify such other expenditure asState Government may direct.

(v) Examine details of each item ofreceipt and expenditure are asprovided in annual statement ofaccounts. (Form no.1, Rule 21 ofPlanning Authority Rules/Section 43 of KUDA)

(b) BorrowingBorrowings

Section 40 of KUDA Act 1987 andSection 68 of KTCP Act 1961 enables theurban Development Authority/ PlanningAuthority to borrow funds required forpurposes of the Act.

Verify whether:

(i) Urban Development Authority

had obtained previousapproval of State Governmentbefore borrowing funds.

(ii) Borrowings were guaranteed byState Government and guaranteefees due from time to time werepaid to Government by theUDA/planning authority.

(iii) Verify whether borrowings weremade by hypothecation of anyassets of urban development orplanning authority. Reviewconditions of hypothecation ofassets and comment, if anyconditions are detrimental to theinterest of the authority.Compare the amount ofborrowing and the market valueof the asset hypothecated.Comment if there is a hugevariation between the amount ofborrowing and value of assets.

(iv) Borrowed funds were utilized forthe specific purpose for which itwas borrowed.

(v) Payment of installment ofprincipal and interest weredelayed resulting in penalties/penal interest and analyzereasons for delays.

(vi) Loan records/ledgers aremaintained properly, indicatingdetails of loans, due date for there-payment and balanceoutstanding at end of each yearand reconciled with lendingagency. There were any instancesof lending agencies invokingguarantee clause for recovery ofloan and interest due to failure

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UDA/planning authority torepay the same, reasons/circumstances that led to thissituation may be analysed andcomment suitably.

(vii)Borrowings and its re-paymentwere properly accounted instatement of annual accounts andthe outstanding loan agreed withthe records of lending institutionand the initial records of theauthority.

E.4 Preparation of Budget and AnnualStatement of Accounts:

Refer to section 43 to 48 of KUDA Actand Section 68 A to 68 C of KTCP Act1961.

Verify whether,

i. UDA/planning authorityprepared an estimate of incomeand expenditure by not later than1st day of February each year andobtained sanction of StateGovernment.

ii. Expenditure was incurredwithout provision in the budget,except for unforeseencircumstances not exceeding Rs.10,000/- and Such cases wereincluded in supplementarybudget and approved byGovernment (Section 4 of KUDAAct)

iii. Commissioner, PlanningAuthority, prepared annualstatement of accounts in Form 1and annual reports (Section 68 Cand 68 D of KTCP Act 61), andUDA prepared annual statement

of accounts.

iv. Receipts and expenditure asshown in the annual statement inrespect of each item agrees withvarious accounting records.

v. Entries in cash book weresupported by valid challans(receipts, vouchers) and monthlyreconciliations of cash balancewith Banks statements/passbooks were done. Check generalledger, Register of Contingencycharges, Register of works etc.Details of receipts andexpenditure as shown in theledger, etc, were correct andposted properly in the annualaccounts.

vi. Statement of annual accountsdisclosed correctly expenditureincurred on salary, contingencies,vehicles, repayment of loan andinterest/penal interest, surveystationery, printing of maps,notification expenses, cost ofacquisition of land,improvement works/development schemes, etc.

vii. There were large variationsbetween estimated receipts andexpenditure and actuals asrecorded in approved budgetand statement annual accountsrespectively. If so, commentsuitably.

viii. Expenditure was incurred onany scheme / works outside thelimits of urban / planning areaif so comment suitably.

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E.5 Recovery of fees, expenses, fines andpayment of compensation etc., inconnection with grant of permissionsunder various provisions of KTCP Act1961/KUDA Act 1997.

a. Every Planning Authorityprepare and publish master planfor development of the planningarea under section 10 of KTCPAct after survey and approval ofmaster plan by the StateGovernment (Section 9 & 13 ibid).Once the final master plan ispublished, Planning Authoritymake and publish town planningschemes for implementation ofproposals of master plan (Section26 and also town planningscheme published under section14 of KTPC Act 1961.)

Similarly, urban developmentauthorities also prepare and publishschemes for development of urban area.

Once the final master plan/ townplanning schemes / developmentschemes are published by relevantauthority, no change with regard to useof land/site/building/development/any work can be made withoutpermission from the Authority andpayment of fees prescribed under therules. Whenever such permissions aregranted and conditions of permission orprovision of the Acts contravened,Authority should levy fees/ penalty/fine/recover expenses incurred onremoval of work executed in violation ofrules / permissions.

Audit has to verify and ensure thatlevy and recovery of fees expenses, finesetc., conformed to relevant provisions.

b. If change of land use neededconversion of land fromagriculture to non agriculturalpurpose, verify whetherpermission was obtained by theAuthority under Land RevenueAct, which requires payment ofconversion fees (Section 14 ofKTCP Act 1961).

c. Verify whether permission wasgranted to change use of land ordevelopment (carrying out of abuilding etc) from commercial orindustrial to residential or fromindustrial to commercial, afterpayment of prescribed fees(Section 14 of KTCP Act).

d. In cases where owner of any sitein the area surrenders land freeof cost to the authority and isgranted development rights inthe form of additional floor area,verify such benefit did notexceed 1½ times of the areasurrendered (Section 14 (B).

e. In the event of contravention ofprovisions of Section 14 of K TCPAct (change in use of land orbuilding, development withoutproper permission) if Authorityhad to remove or pull down anywork to restore the land tooriginal position, verify whetherexpenses incurred for such actionwas recovered from such person(section 15(4) (5) of KTPC Act1961.

f. Verify whether fees as prescribedunder rule 36 of KarnatakaPlanning Authority rules 1965

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was recovered for grant ofpermissions to sub divide a plotor make layout or a private street(Section 17 (b) of KTCP Act)Despite refusing permission, ifany person does any work(change in use of land) Authoritymay remove such works andrestore the land to originalposition, and recover expensesincurred on removal of suchwork from the concerned person(Section 17).

g. If permission is granted forchange of land use ordevelopment of land or buildingunder Section 14 A, Section 14 Bor Section 15 or Section 17 ofKTCP Act and such change iscapable of yielding betterincome, check that Authorityrecovers fees not exceeding onethird of estimated increase(Section 18 (1)).

h. Ascertain whether authority(UDA/erstwhile planningauthority) has prescribed anynorms/guidelines for estimationof income in respect of casesreferred in Section 18 (1) of KTCPAct, 1961.

i. In the absence of such norms/guidelines, ascertain whetherany other criteria was adopted forestimation of income after andbefore such permitted changesand ensure that income wasestimated in fair and transparentmanner, whether facts likelocation of land/building,availability of civic amenities/

infrastructure facilities, purposefor which land and building usedi.e. residential/commercial/industrial, investment, etc, oneffecting changes and variousother factors if any, wereconsidered for estimation ofIncome.

j. Verify whether the fees at the rateof Rs.10,000 per acre wasrecovered for grantingpermission under Section 18(1) ofKTCP Act in respect of anyinfrastructure projects notifiedby the Government (Rule 38 ofKarnataka Planning AuthorityRules)

k. In cases of permission fordivision of plot or making alayout or a private street underSection 17 (1) of KTPC Act, verifyadditional fee of Rs. one lakh peracre was recovered forrejuvenation of lakes and waterbodies [(Section 18 (1) (A)].

l. Auditor may cross check totalamount of additional feescollection under Section 18 (1) (A)of KTCP Act with expenditurefor rejuvenation of lakes andwater bodies as reported inannual statement of accounts orgeneral ledger/other relevantrecords and identify diversion offees, if any. Works onDevelopment of lakes/waterbodies are executed by LakeDevelopment authorities also.

m. Auditor may verify whether anyexpenditure by UDA / Planning

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Authority were shown asincurred on the same lakes/water bodies on which LakeDevelopment Authority had alsospent money. Auditor mayenquire whether UDA/ PlanningAuthority verified this aspect andobtained any confirmation fromLake Development Authority inthis regard. If not, expenditureon these works by UDA/Planning Authority may be crosschecked with Lake DevelopmentAuthority. For this purposeauditors may collect list of lakeand water bodies developed byUDA/planning authority andlake development authorityseparately from each of theseagencies and cross check thesame for 2 to 3 years precedingthe period of audit. If there areany cases of both agenciesincurring expenditure on thesame lake /water bodies duringthe same or different periods itmay be analysed in detail andcomment.

n. Check that cess/surcharge wasrecovered while grantingpermission for development ofland or building, not exceeding1/3 of market value of land orbuilding excluding boards/bodies constituted by StateGovernment or Government ofIndia and infrastructure projectsapproved by State or CentralGovernment (Section 18A ofKTCP Act)

o. Auditor may ascertain whetherany criteria was prescribed by

authority for fixing market valueof land and building and marketvalue assessed in fair andtransparent manner. Comparemarket value fixed by theauthority with the market valueadopted for assessment ofproperty tax under section 45 ofStamps Act.

p. Cases where Authority removesany work/repairs to building/addition to the building made onor after declaration of intentionto make a town planning scheme/ issue of notification by StateGovernment under Section 31 ofKTCP Act to make a scheme,without permission of theAuthority, verify that expensesincurred on such action wasrecovered from the personconcerned (Section 35 (1)).

No compensation was paid to anyperson for any damages/loss/injury resulting from action takenunder section 35(1) of KTCP Acti.e, for removal of any works/repairs to building or landexcept such works whichcommenced or contracted earlierto declaration of intention tomake town planning scheme(Section 35(2))

q. Compensation for any propertyor right of a person which wasinjuriously affected by townplanning scheme wasdetermined on the basis ofmarket value prevailing on thedate of notification issued undersection 35(2) of KTCP Act. No

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such compensation was payableif the same was admissible underany other law applicable to thearea (Section 60 &61 of KTCP Act)

Audit may verify whetherauthority ensured beforesanction of compensation undersection 35 (2) of KTCP Act that itwas not admissible under anyother law and certificate to thateffect or adequate evidence /document was on record.

r. Expenses incurred for removal ofany work /building which wassuch as to contravene final townplanning scheme was recoveredfrom the concerned person(Section 47of KTCP Act).

s. Compensation was paid only tothe extent of such expenditureincurred by any person for thepurpose of complying with finaltown planning scheme whichwas varied/revokedsubsequently rendering suchexpenditure abortive (Section 50of KTCP Act).

t. Cost of town planning schemeincluded expenses on all relatedcomponents as stipulated insection 55 to 58 of KTCP Act.

u. Verify that UDA recovereddeposit amount from suchpersons on whose behalf newlayout /formation of extensionworks were executed. Audit mayensure that such depositrecovered was not less thanexpenditure incurred by UDA on

such works (Section 32 (5) ofKUDA).

v. Verify that UDA levied andcollected fine up to Rs.10,000 asprescribed in section 32(9) ofKUDA Act from such personswho constructed a building/layout/extension not inconformity with provisions ofthe acts/byelaws in cases wheresanction was deemed to havebeen granted.(UDA failed tocommunicate either the sanctionor refusal within 6 months of thedate of application by a person)

w. Verify that UDA recovered thecost of formation of any layout /extension from the person whowas granted permission underSection 35 of KUDA Act butfailed execute works and in theopinion of UDA it was necessaryto execute such works (Section 34of UDA Act)

x. Auditor may obtain list of filesrelating to grant of permission tochange use of land, buildingdevelopment, and recovery ofexpenses for removal of works/addition under variousprovisions of the KTCP Act andKUDA Act. With a view toensuring that all files are madeavailable for audit, crosscheckthe list of such files, with otherregister wherein receipt ofapplications seeking permissionare recorded. Review the meetingproceedings of Authorityaccording permissionsmentioned above and also

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annual administrative reports asprepared under rule 29 ofPlanning Authority rules/section68 (d) of KTPC Act & section 49of KUDA Act, which containsdetails of various activities, andgather information relevant toaudit. In regard to recovery ofexpenses incurred by theAuthority for removal of worksexecuted by any person incontravention of provision of theActs /permissions, it may beverified that cost of labour,supervision charges, hire chargesof equipment and cost ofmaterials, if any, were correctlyincluded in the amount ofexpenses recovered.

y. Check if amounts collected are asper the rates prescribed. The feecollected has to correspond to thetype of activity intended to beperformed on the particularland.

z. Check if such funds are creditedto “Urban Development Fund/planning authority funds" as thecase may be.

E.6 Betterment Taxes

If the Urban Development Authorityis of the opinion that as a result of anyintroduction of a development scheme,the value of the land has increased, it canlevy a betterment tax on the owner of theland. (Refer to Section 17 to Section 26 ofKUDA Act 1987)

a. Ascertain details of developmentscheme proposed/ implementedand in progress during the year.

b. Verify whether developmentschemes were sanctioned byState Government and any suchscheme has led to increase invalue of land. Any increase invalue of land was determined asprovided in section 20 (2) of theKUDA 1987 i.e. amount by whichestimated value of land oncompletion of developmentscheme exceeds value of landprior to execution of the saidscheme and that betterment taxwas calculated at one third ofsuch increase in value of land.

c. In case the development schemeshave substantially advanced,check whether the levy ofbetterment taxes have beendetermined and the authority haspassed a resolution to that effect.(Refer Section 21 of the KUDAAct)

d. Verify if the collection of suchbetterment fees has not exceeded5 installments as per Section 22of the Karnataka UrbanDevelopment Authority Act,1987.

e. Verify if full amounts ofbetterment taxes have beencollected along with interest incase the land owner has defaultedin payment of any twoconsecutive installments or anythree installments for whole year.(Section 23 of the KarnatakaUrban Development AuthorityAct, 1987).

f. In case of any default in thepayment of taxes, verify if the

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Commissioner has taken steps torecover the amounts by way ofsale of land following theprocedure prescribed in Section23 of KUDA Act.

g. Verify whether betterment taxcollected in respect of anydevelopment scheme, on therecommendations and out of thefunds provided by any localauthority, was credited to thatlocal authority. Details ofr e c o m m e n d a t i o n / f u n d sprovided by local authority maybe ascertained from the localauthority and verify compliancewith Section 26 of KUDA Act1987.

E.7. Income from Lease /Allotment ofsites

E.7.(1) Lease of civic amenity sites

Refer Section 39 of KUDA Act 1987 andRules 2 to 11 of KUDA (Allotment of civicamenity sites) Rules 1991, regardingleasing of civic amenity sites to anyinstitutions. Ascertain total number ofcivic amenity sites available from

approved layout plan/ Records ofdevelopment scheme etc., meetingproceedings and annual administrativereports and Registers of sites for eachlayout.

Verify whether

(a) Due Publicity was given in notless than two daily news papersin English and Kannada, givingdetails of location, dimension ofthe site and purpose and last datefor submission of applicationand such other conditions as maybe prescribed by theCommissioner, for leasing ofsuch sites. Auditors may verifywhether newspapers in whichpublicity was given were leadingdailies with large publicationfrom the Director of Publicity andInformation.

(b) Every Institution beforeapplying for civic amenity sitewas registered in Form 1 with theUrban Development Authorityon payment of registration feesas prescribed which are asfollows:

Area of the

site in square

meters

1000 and

below

Above 1000

but below

2000

Above 2000

but below

4000

4000 and above

Registration

fee in Rs.

1000 2000 5000 7000

�

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(c) In case of allotment of CA sites,registration fees was notadjusted or refunded.

(d) After excluding such civicamenity sites mentioned inSection 39 of KUDA Act 1987(sites reserved for parks, playgrounds, etc), 18 percent and 3percent of balance sites reservedto institutions establishedexclusively to the benefits ofScheduled Caste and Tribesrespectively. The remaining civicamenity sites were leased toinstitutions.

(e) Lease amount fixed by the UrbanDevelopment Authority was notless than the rate per squaremeter as applicable to largestresidential site in the area.Largest site available in the areamay be identified from theapproved layout plan/otherrelevant records such asallotment list of sites, Registersof sites etc.

(f) Maximum period of lease wasnot more than 30 years from thedate of registration of lease deed,and approval of StateGovernment was obtained forrenewal of lease for furtherperiod of 30 years and leaseamount refixed as per rule 8(1)/10(1). Lease rent fixed forextended period was more by50% of original lease amount.

(g) Concession of 50 percent of leaseamount fixed by UrbanDevelopment Authority was

given only to Institutionsestablished for welfare ofphysically and mentallyretarded, educationalinstitutions running school inKannada medium and schoolsestablished by Central/StateGovernment corporations/Bodies of State/CentralGovernment.

Auditor may verify thedocumentary evidences likeregistration certificates, annualreports and financial statementsof the institutions, inspectionreports by concernedadministrative departments etc.,to ensure their entitlement forconcession.

(h) Only Registered Institutionssubmit applications in Form IIwith initial deposit at 10 percentof notified lease amount in formof Demand Draft or in such formas prescribed. Applicationsreceived after prescribed lastdate were rejected.

(i) Interest at 12% or 18% wascharged if lease amount is paidin 5 annual installments or morethan 5 respectively.

(j) Several conditions stipulated inrule 10 (1) to 10 (14) of KUDA(Allotment of Civic AmenityRules 1991) were complied with,which interalia includefollowing:

� Forfeiture of registration fee andinitial deposit and cancellationof allotment in the event of

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allottee failing to pay leaseamount or first annualinstallment of lease amountwithin 90 days or extendedperiod 60 days (total 150 days).

� Forfeiture of 12 ½ percent of leaseamount paid by the lessee,revocation of the agreement andeviction of the lessee, from site,in event of lessee failing toconstruct the building within amaximum period of 10 years.

� Site was utilized for purpose ofproviding particular civicamenity for which site wasleased.

� Lessee did not get ownershiprights during the lease period.

� Annual amount is paid as perlease agreement and lease deedwas registered.

� The possession of site was givento the lessee within 90 days ofregistration of lease agreement atthe cost of lessee.

E.7(2). Disposal of commercial andcorner sites by urban developmentAuthority (Refer UDA (Disposal ofCorner and Commercial sites) Rules1991)

(i) Ascertain total number ofcommercial and corner sitesavailable. Approved plans of alllayouts/extension areas,Records of developmentschemes/meeting proceedingsmay be reviewed and availablenumber of corner/commercialsites obtained.

(ii) Verify the number of such sitesdisposed/retained. Reasons fornot disposing of such sites evenafter completion of developmentscheme/lapse of reasonableperiod and comment on non-realisation of revenues adoptingapproved rate.

(iii) Regarding disposal ofcommercial/corner sites,procedure as prescribed in rules3 to 8 of KUDA (Disposal ofCommercial or Corner sites)Rules 1991 was complied whichinter alia include the following:

(a) All commercial and corner siteswere disposed of by auction sale;wide publicity was given at leastin two daily newspapers in theconcerned urban area, in Englishand Kannada having largecirculation. Auditor mayascertain whether dailynewspapers in which publicitywas given was indeed leadingdailies with large circulation,from the Department ofInformation and Publicity.

(b) All bidders had depositedprescribed amount (not less thanRs 5000/-) beforecommencement of auction.

(c) Auction sale was confirmed infavour of highest bidder and thehighest bid was not less thanmarket value.

(d) Successful bidder offeringhighest bid amount, paid 25% ofsuch amount immediately onspot, failing which his amount

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deposited beforecommencement of bidding wasforfeited and site re-auctioned.

(e) Balance amount of bid was paidwithin 45 days of receipt ofintimation in Form I, bysuccessful bidder.

(f) Interest at 18 or 21 percent waslevied if the Period for paymentof balance of bid amount wasextended by Commissioner, notexceeding 60 days in the firstinstance and a further period of30 days, respectively.

(g) In the event of failure of auctionpurchaser (highest bidder) to paybalance amount before expiry ofextended period, amount alreadypaid by him is forfeited, andexpenses for conduct of freshauction sale is also recovered.

(h) In the event of allottee failing toconstruct building on such sitewithin two years or suchextended period, allotment iscancelled and site is resold, andtwenty five percent of moneyalready paid by allottee wasforfeited, besides recoveryexpenses on conducting resale ofsite.

Auditors have to ascertaininstances of failure of highestbidder (auction purchaser) toconstruct house within thestipulated period from review ofauction files and other connectedrecords (meeting proceedings,number of commercial/cornersites as per approved maps) and

from concerned Urban LocalBody (CMC/ TMC/Corporation) and action taken onsuch cases.

Ascertain whether UDA has putin place a system to monitorcompliance with theseconditions such as periodicalsurvey/inspections, etc. If not,comment on lack of system toensure compliance withconditions of sale.

(i) The site was conveyed to auctionpurchaser only after constructionof building and expenses ofregistration was borne bypurchaser.

E.7(3). Karnataka Urban DevelopmentAuthority may allot sites in accordancewith KUDA (Allotment of sites) Rules1991 formed in any layout/extension.The following issues inter alia need tobe verified in audit, in this regard:

i. Wide publicity was given inEnglish and Kannada dailies(Rule 3 (2))

ii. All applicants were registeredwith UDA after payment ofprescribed Registration feeswhich is non refundable/nonadjustable (Rupees 250 for 350sq. meters and above, and Above250 sq meters but below 350sq.mtr,Rs.50 for economicallybackward and SC, ST categories-and less than 225 sq. mtrs (Rule9).

iii. a) Deposit equal to 10% of valueof site was paid along with the

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application in the form ofdemand draft or challan in proofof deposit in authorized banks,deposits was paid at 3% in caseof SC/ST, Ex-servicemen.(Rule10)

b) Allotment committeeconsisting of 5 members wasconstituted and recommendedallotment of sites to the UDA.Relevant records such as meetingproceedings of the saidcommittee/Register of sites, etc.,may be reviewed (Rule14)

iv. Concession of 50 percent of valueof site not exceeding 50 sq. mtrswas given only to economicallybackward classes. Documents inproof of applicants belonging tothis category may be reviewed toensure entitlement for concession(Rule 5) and total number of sitesfor which concession allowedwas within 30% of sites availablein a layout.

v. If allottee fails to pay balancevalue of site after deductinginitial deposit within theprescribed/extended period(totally 180 days) from the dateof receipt of allotment letter,subject to payment of interest at18% for last 30 days) registrationfee was forfeited and allotmentcancelled.(Rule 10)

If the allottee belongs to SC/STor family of handicapped orfamily of deceased defencepersonnel and dimension of sitewas 6x9/9x12/12x8 meters,

amount was paid in 36installments during the period ofthree years.(Rule 19)

vi. On allottee failing to execute saledeed after expiry of lease periodof 10 years, UDA itself executedthe same and cost thereof wasrecovered.(Rule 7)

vii. On allottee failing to constructbuilding on the site allotted byUDA within 5 years or suchextended period from the date ofexecuting agreement, allotmentwas cancelled, lease determined,agreement revoked, and alsolessee evicted and 12 ½ percentof value of site paid was forfeited(Rule 6).

viii. Auditor may ascertain whetherany system is in place or surveyconducted from time to time tomonitor compliance with theseconditions, requiring allottee toconstruct building within theprescribed period. If not,comment on lapse of UDA onmonitoring compliance withconditions.

Auditor may review allotment ofsites during the preceding 5years, cross check Register ofallotment/files etc with Registerof building licences maintainedby Local Authority (CMC/TMC)in respect of intermediary sitesand identify cases of notconstructing building within thestipulated period, comment onfailure of the authority to forfeit12% of site value from such

317


allottees and cancellation of theallotment if any.

ix. Permission was granted by theUDA to an allottee, who hasconstructed building on the siteallotted to him, to sell it forreasons beyond his control afterpayment of 12 percent of sitevalue per annum.(Rule 20)

x. Penalty/fees at 50 percent or 25percent of the registered value incase of direct sale of site with orwithout building beforecompletion of the lease period of10 years or after expiry of leaseperiod without obtaining the saledeed respectively, wasrecovered from the purchaser ofsuch site and thereafter sale deedissued to purchaser. Refer toRule 20 (3) (a) and (b) KUDA(Allotment of Sites) Rules 1991.

Auditor may ascertain whether UDAhas made any arrangements such asinsisting of no objection certificate by SubRegistrar of concerned jurisdiction and torefer such cases to Urban DevelopmentAuthority, when such site purchasersapproached for registration. Auditor maycollect details of sale/purchase of sitesfrom the office of Sub-Registrar pertainingto sites allotted by UDA and check levyof penalty/fines stipulated under Rule20 (3) (a) or (b). If not, comment on lack ofsystem to monitor compliance with theseconditions.

E.8. Expenditure

The predominant Expenditure inUrban Development Authorities /

Planning Authority is:

1. Land Acquisition Payments.

1. Preparation of master plan, townplanning scheme, developmentschemes formation of layout/allotment of sites.

2. Electricity, water supply anddrainage works

3. Lake Development Works.

4. Salary and allowances and othermaintenance etc.

Audit checks for some of expenditurewhich are available in all types of auditeeinstitutions can be referred to in theprevious Section which contains genericcheck list. Audit checks specificallyapplicable to Urban DevelopmentAuthority/Planning Authority arementioned in the below section withappropriate reference to the CommonAudit Checks of Expenditure.

E.8.(1) Land Acquisition (Section 69 to71 of KTCP Act/ Section 35,36 & 19(7) ofKUDA Act)

UDA /planning authority maypurchase/acquire land for the purposeof KTCP Act/ UDA Act. In this regardfollowing issues needs verification byaudit:

a. UDA/ planning authorityconducted any demand surveyfor sites, before purchases/acquisition of land.

b. Land was purchased from anyowner entering into agreementafter obtaining sanction fromState government and land was

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within urban or planning areaand the sale was registered.

c. Cost of the purchase of land wasin excess of market value /guidance value as determined bythe revenue department if sooffer suitable comments.

d. The acquisition of the landotherwise than by agreementwithin or without the urbanarea/planning area is regulatedby the provisions of the LandAcquisition Act, 1984.

e. Authority has not de-notified /re-conveyed any land withoutthe approval of StateGovernment. Even if such de-notifications were approved,expenditure incurred, if any, onsuch land until the stage of de-notification results in wastefulexpenditure, comment suitably.

f. Ascertain cases of purchase andacquisition of land andexpenditure thereon for pastthree or four years, from relevantrecords (Register of Assets,Receipt and Payment Account,Schedule of Assets, etc) forformation of new layouts.

g. Lands purchased/acquired inthe past have remained, withoutany development work andformation of layout resulting inblocking up of capital funds/unfruitful expenditure onpurchase/acquisition land.Comment on such expenditureincluding avoidable payment of

interest on borrowings for theperiod for which lands remainedunutilized.

E.9 Sanction and Execution ofDevelopment Scheme: UrbanDevelopment Authority/ PlanningAuthority has to prepare detaileddevelopment schemes/townplanning schemes for developmentof urban area/ planning area.Development scheme comprisesacquisition of land, formations ofsites, roads and construction ofbuildings, drainages, sanitaryarrangements, supply of water andelectricity etc necessary forformation of layout. Refer Section15, 16, 17, 18 and 19 and 27 KUDAAct 1987 and Section 29 to 35 ofKTCP Act 1961.

Audit checks to be performed are asfollows:

i) Previous sanction of StateGovernment was obtained for alldevelopment schemes/townplanning schemes.

ii) Complete plans, estimates andcost of the scheme wereprepared.

iii) Declaration as required underSection 19 of KUDA Act/Section29 of KTCP Act was publishedgiving full particulars of landrequired.

iv) Entire land purchased / acquiredwas utilized for formation oflayouts /sites formed wasaccording to relevant norms. Anyportion of the land not utilized

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may be identified and commentquantifying extent of such landand cost.

v) If Sanctioned developmentscheme has lapsed due to failureof UDA to implement itsubstantially (section 27 ofKUDA Act) within a period of 5years from the date ofpublication of declaration(regarding acquisition of land)under Section 19 ibid, ascertaindetails of schemes that lapsed.Review register of sanction ofdevelopment scheme andidentify such scheme and analysereasons. Comment on wastefulexpenditure, if any, on account ofschemes getting lapsed.

vi) Provisions of KTPP Act 1999/Rules 2000 and variousnot i f icat ions/Governmentorders issued in this regard werecomplied with, while executingdevelopmental works, such asformation of roads, electricityand water supply works,construction of buildings,procurement of goods etc, asUDAs/ planning authority arecovered within the procuremententities as defined in said Act/Rules. Audit checks contained inPara 1.4 of this manual may beapplied.

vii) Sanction accorded byCommissioner and UDA,approval of tenders and contractentered, were within value of Rs.5 Lakhs and 25 lakhs only(Section 10 of KUDA Act)

respectively. Verify whethertenders were split into smallervalues to avoid sanction andscrutiny by higher authorities.

E.10 Lease, Sale, Transfer of properties(Section 38 of KUDA Act)

UDA can effect lease, sale, and transferof movable and immovable properties.Audit checks in this regard are as follows:

1. It should be seen in audit thatagreement for sale or leaseshould be entered includingcomprehensive conditions.However, no such conditions,which may be detrimental to theinterest of lessor, was included.

a. Sale/lease was conductedthrough public auction aftergiving wide publicity andadequate time for bidders. Noticeinviting bids/tenders shouldinclude conditions for paymentof earnest money deposit, placeof auction, date and other details.Process of sale/lease wasconducted by the officersauthorized in this behalf.Applications without payment ofEMD were rejected.

b. Expenses of registration of sale/lease deed were borne by highestbidder in whose favour sale/lease was confirmed and thehighest bid was not less thanmarket value of the property. Incase highest bidder failed toexecute deed within specifiedperiod, EMD was forfeited.

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c. In case of lease, verify that detailssuch as period of lease, due datefor payment of rent monthly /annually, penalty for default inpayment of rent and purpose forwhich leased property may beused were specified. In the caseof lumpsum amount/annuallease, the property was leasedafter lease amount was paidcompletely. Lease deedcontained clauses for revision ofrent periodically.

d. Adequate security depositshould be obtained to guardagainst loss/damage to theproperty.

e. Lessee vacated property afterexpiry of lease period unlessextended.

2. Recovery of rent were properlyaccounted.

3. In order to ensure that files/records of sales /lease are madeavailable to audit, auditor mayobtain list of properties sold /leased and verify the same withreference to relevant records(Register of properties, meetingproceedings of the authority,annual report and annualaccounts.)

4. Ascertain total number ofproperties available for beingleased/ rented by verification ofRegister of immovableproperties/schedule ofbuildings etc and identifybuildings not put to use / not

leased or rented. If there are suchcases, comment suitablyindicating number of buildingsand loss of rent etc.

5. The agreement provided forrecovery of the cost of damagescaused to the property during theperiod of lease.

E.11 Establishment Bills (Section 51 ofthe KUDA Act/section 4 (c) of KTCP Act)

For the audit of Establishmentexpenses of the Urban DevelopmentAuthority/Planning Authority, theauditor has to perform the audit checksprescribed in Paragraph 1.1. Additionally,auditor also has to verify if UrbanDevelopment Authority/PlanningAuthority has complied with the internalstatutes/ byelaws applicable.

It may be verified in audit whetherUDA submitted to Government scheduleof officers and servants from time to timeand obtained sanction, and salary andallowances paid were according tosanctioned schedule and no modificationwere made without approval of theGovernment.

In the case planning authority, it maybe verified whether staffing pattern /grades were according to the sanction(Section 4 C of the KTCP Act 1961).

Compare the expenditure on totalstaff and officers borne on theestablishment of UDA and PlanningAuthority with volume of transactions /activities (receipts from various sources,expenditure on development worksnumber of layouts formed and sitesallotted etc for 2 to 3 years preceding the

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year of audit.) If there is huge variationin the ratio between expenditure onestablishment and revenues/development expenditure, commentsuitably.

E.12 Travelling Allowance, Leave TravelConcession

For the audit of travelling expensesand Leave travel concession of UrbanDevelopment Authority, the auditor hasto perform the audit checks prescribed inParagraph 1.2. If any rules are applicablefor a particular UDA/Planning Authority,auditor has to verify if such provisionsare also complied.

E.13 Charge and Surcharge of IllegalAmounts (27 & 28 of KarnatakaPlanning Authority Rules 1965)

Any item of expenditure which appearto be contrary to law, loss and damagescaused due to negligence or misconductcan be charged /surcharged on anyperson responsible for the same by StateGovernment. It may be verified whetheramount held under objection /expenditure not in conformity with Acts/Rules as mentioned in the audit reportswas brought under the purview of theprovision. Auditor may review theconcerned files and comment onabnormal delays if any, in deciding thesecases.

F.Checklist for Audit of Public Libraries

F.1.Introduction

To cultivate a taste for knowledge byreading about the establishment of thesystem of free education, public librariesin the state under Karnataka Public

Libraries Act in 1965, was designed andlaid the foundation for the developmentof a network of public libraries.

The libraries are operated at differentlevels such as:

a. Central Library at the state level,

b. District Central Library at theDistrict Level,

c. City Central Library, TownLibrary, Gram Panchayat Librarydepending upon population.

Monitoring of their implementationplans are done by the respectiveauthorities in their jurisdiction.

Audit Mandate:

As per Section 22(1) of the KarnatakaPublic Libraries Act, 1965, the accountsof the State Library Fund and the City andDistrict Library Funds shall be auditedby the auditors appointed by the Director(Audit) of the Karnataka State Audit &Accounts Department of the StateGovernment.

In the absence of provisions of Auditreport follow-up/compliance inKarnataka Public Libraries Act in 1965,the hand book on “Speedy Settlement ofaudit observations, inspection reports,speedy disposal of audit paragraphs andtimely action on matters pertaining to thePublic Accounts Committee, Committeeon Public Undertakings” states that “theaudit observations/ notes received fromthe auditor normally needs to be repliedto within a fortnight from the date of thereceipt of the report and in no case itshould exceed three months.”

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F.2. Budget (Refer Rule 30 to 33Karnataka Public Libraries of AccountsRules 1975)


a. The Budget submitted by theLibrary Authorities has been gotapproved by the Director ofPublic Libraries.

b. No part of any allotment/remaining unspent at the end ofthe year has been reserved orappropriated by transfer to thedeposits or any other head inorder to avoid lapse of budgetand for disbursement duringnext year.

c. All expenditure incurred duringthe course of a year has beenregulated strictly in accordancewith the allotments made in thebudget for the year as approvedby the Director

d. In cases where an allotmentunder any head of account issubsequently found necessary, arevised or supplementarybudget has been framed by re-appropriation from other headsand got approved by thecompetent authorities.

e. Details of loans raised,investments made by libraryauthority and contributions dueto it from state government areenclosed to the budget.

It should be seen that the LibraryAuthorities/District Library Authoritieshas not diverted, even temporarily, the

following earmarked funds for purposesother than those for which they arecollected or allotted, without theprevious sanction of the Director of PublicLibraries.

a. Fund collected for themaintenance of libraries.

b. Special grants sanctioned forspecific purposes.

c. Receipts derived from the sale ofcapital assets.

d. Funds relating to institutions andworks transferred by theGovernment;

e. Donations and contributionsreceived from the Public in anyform for specific purpose; and

f. Loan funds.

F.2.1 Library Authority Fund (Section 32of the Act/Rule 47 of Accounts Rules)

Every city, district and state libraryauthority has to maintain a fund calledLibrary Authority Fund which may bekept in treasury or bank. The followingpoints need to be verified:

1. All moneys received such as cesspaid by local authority grantsfrom State Government,contributions, gift, income fromendowment, lapsed depositsand sales proceeds are creditedto this fund.

2. All payments for purposes of theAct are paid from the libraryfund. This includes purchase ofbooks, periodicals, equipmentsand salary to staff appointed by

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library authority for security andgardening purposes etc. withapproval of Director of PublicLibraries.

3. Auditors may review treasuryschedules/bank pass books/challans in proof of deposit offunds into the Library AuthorityFund and vouchers forpayments. Each item of moneyshown as deposited into the fundare supported by challans andentries in the cash books/ Bankpass books.

4. Each item of withdrawal ofmoney from the fund issupported by proper voucherand entries in the cash book andexpenditure supported byproper sanction.

5. Expenditure from the city/district/state library authorityfund on various itemsconformed to Rule 47 of PublicLibraries Accounts Rules 1975.

F.3 Receipts (Rule 7 & 8 of Library Rules)

The receipts of Library Authoritiescomprise the following:

a. Library cess levied under Section30 (1) and its collection under subsection (2) of section 30 ofKarnataka Public Libraries Act1965. Library cess leviable onvarious items as mentioned inSection 30 (1) (a) and (b) ofKarnataka Public Libraries Act1965 has been increased to 6 paisefor every rupee. Ref. G.O. No.ED 124 LIB 93, dated 26-03-1994.

The audit should:

i) Ascertain source from whichreceipt books are obtained.Verify whether receipt books areobtained from Governmentprinting press/through privatepress/supplied centrally fromthe Director, Department ofPublic Libraries.

ii) Verify stock register of receiptbooks by comparing quantity,number of receipts, in each booknumber of each receipt asentered in the stock register, withthe supply invoice.

iii) Verify whether number ofcounter foil of receipt is traceableamong entries in the stockregister.

b. Contributions, Gifts, and incomefrom Endowments made toLibrary Authorities for thebenefit of Public Libraries.

c. Special grants, which theGovernment may make for anyspecified purpose, connectedwith the libraries and SpecialEducation.

d. Funds and other amountscollected by Library Authoritiesunder any Rule or bye-lawsmade under the Act.

e. Grants released by Governmentfrom time to time.

f. Amount realized by sale of oldarticles, Books, Magazines,Newspapers etc.

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g. Deposits including Membershipdeposits and

h. Interest on investments.

F.3.1 Library Cess (Section 30 of the Act)

Library cess in the form of a surchargeshall be levied in the area within thejurisdiction of every City LibraryAuthority under the relevant lawsrelating to local authorities providing forthe levy of such taxes, at the ratesprescribed. It will be levied on-

a. tax on lands and buildings;

b. tax on entry of goods into thelocal area for consumption, useor sale therein;

c. tax on vehicles;

d. tax on professions, trades, callingand employments;


a. Miscellaneous demand Register

b. Annual account of Receipts andexpenditure

c. Treasury pass book and Cashbook

It should be verified that:-

a. The library cess is levied by therespective Gram Panchayat/Municipalities/ CorporationAuthorities in its area in the formof surcharge on the property taxor house tax levied in such areaunder the relevant lawsproviding for the levy of suchproperty tax or house tax, at therate of 6 paise for every rupee of

the tax so levied.

b. The cess has been collectedpromptly by the local authoritiesand has been remitted by the saidlocal authorities to the TreasuryAccount of the LibraryAuthorities concernedimmediately after the close of thefinancial year

c. Treasury challans in support ofthe amounts remitted by localauthorities are forthcoming andthe amounts so remitted areentered in the cash book and theTreasury Pass Book.

d. A miscellaneous demandregister showing the amounts ofcess due from the various localauthorities has been maintained,

e. That the library cess DemandCollection and the balance hasbeen prepared at the end of theyear with reference to theparticulars obtained from thelocal authority, and from theTreasury challans received insupport of the collections forevery year.

f. That the failure of any localauthority in prompt remittanceof library cess collected, has beenreported to the Director ofMunicipal Administration in thecase of Municipal Councils orMunicipal Corporation and tothe District Collector in the caseof Gram Panchayats.

g. The total amount of library cesscollected, agrees with the

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amount noted in the Annualaccount of Receipts andexpenditure.

F.3.2 Contributions, Gifts and Incomefrom Endowments


a. Register of Contributions andgifts

b. Register of Endowment


a. A Register of Contributions andgifts has been maintained;

b. The particulars showing thenames of the persons and theamount of contribution or giftsand its history are recordedtherein;

c. Correctness of the amount ofcontribution or gift has beennoted with reference to therelevant papers and properreceipts given to the parties:

d. Prompt realization of theamounts is watched; and

e. The amounts are spent only forthe purposes for which they havebeen contributed or gifted.

In respect of Endowments, it shouldalso be seen:

a. A Register of Endowment hasbeen maintained,

b. That the history of endowment isproperly recorded therein,

c. That the particulars of receipts

and expenditure are recordedcarrying forward the unspentbalances to the subsequent year;and

d. That no portion is appropriatedeven temporarily to any otherobject.

Note: No gift or endowment of animmovable property should be acceptedby the Library Authorities without theprevious sanction of Government.

(Provision under Section- 26(2) of theKarnataka Public Libraries Act, 1965.)

F.3.3 Special Government Grants


a. Miscellaneous Demand Register

It should be verified that –

a. The grants sanctioned are enteredin the Miscellaneous DemandRegister and their realization andadjustment to the credit ofLibrary Authorities fund /District Library fund is watched.

b. The grants admitted to LibraryAuthorities/District LibraryFund are taken to cash book;

c. The expenditure has beenincurred only for the purpose forwhich the grant has beenspecifically sanctioned;

d. There is no delay in theutilization of the grant and acertificate of utilization furnishedto the appropriate authority; and

e. The special grant sanctioned hasbeen credited to the funds of the

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Library Authorities/DistrictLibrary without delay.

F.3.4 Other Miscellaneous Receipts

This includes Funds and otherAmounts collected by LibraryAuthorities/District Library Authoritiesunder any rules or bye-laws made underthe Act.

It should be verified that theprovisions in the Act and Rules and Bye-laws are strictly followed and that theamounts collected under miscellaneousitems are in accordance with the ratesapproved therein.

Care should also be taken to see:-

a. that the Miscellaneous receiptsare granted for all the amountscollected;

b. that the amounts realized areaccounted for in the cash bookand remitted to Library Fund,and

c. that the fines, if any, on theLibrary books returned by themembers after the due date oftheir return, have been collectedat the prescribed rates andbrought to account.

Note: The Register of Books issued tomembers should be cursorily verified forthis purpose.

F.3.5 Sale of Old Articles, Books, newsPapers and Magazines


a. The approval of the LibraryAuthorities/District Library

Authorities has been obtained forcondemnation of the old andunserviceable articles.

b. The old and unserviceablearticles and old newspapershave been disposed off in publicauction after due notification andthe sale is knocked down infavour of the highest bidder.

c. The sale has been approved bythe Library Authorities/DistrictLibrary Authorities and the saleproceeds credited to the Fundsof Library Authorities/DistrictLibrary Authorities withoutdelay.

d. The sale amount has beencollected from the bidder andremitted to Library Fund on thesame day or the next day in thenearest Sub-Treasury.

e. The Library Authorities/DistrictLibrary Authorities havemaintained a register in theprescribed form to watch thedisposal of papers in time.

F.3.6 Deposits


a. The amounts collected towardsdeposits have been collected atthe rates fixed from the readersand noted in the Register ofdeposits with particulars ofmiscellaneous receipt and datesin chronological order.

b. Earnest Money Depositsobtained in connection withprinting and purchase of

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stationery have been refunded tothe unsuccessful tenderersimmediately,

c. EMD of the successful tendererhas been taken to the depositRegister and refunded after duefulfillment of the contract. Theother checks prescribed for theaudit of deposits in theMunicipalities shall be followed.

d. Register of deposits ismaintained in Form LA 28.

e. Deposits which remainunclaimed for more than threefull accounting years lapsed toLibrary Authority Fund. Ifclaimed subsequently, the samewas refunded with the approvalof Authority and accounted asmiscellaneous expenditure.

f. All items of receipt (cess, fines,fees etc) are accounted asdeposits.

F.3.7 Interest on Investments

It should be seen that the sums notrequired for immediate use have beeninvested in Government securities orBanks with the sanction of the Director ofPublic Libraries and interest thereonrealized at frequent intervals and gotadjusted to the credit of LibraryAuthorities/District Library Authoritiespromptly.

F.4 Expenditure

Audit checks for some of expenditurewhich are available in all types of auditeeinstitutions can be referred to in theprevious Section which contains generic

check list. Audit checks specificallyapplicable to Libraries are mentioned inthe section below with appropriatereference to the Common Audit Checksof Expenditure.

F.4.1 Establishment Bills

For the audit of EstablishmentExpenses of the Libraries, the generalchecks prescribed in Paragraph 1.1 needto be performed by the auditor. Apartfrom the general checks prescribed, thefollowing checks are applicable to theestablishment expenses and allowancesof staff appointed by city/district/statelibrary authority with approval ofdirector:

a. In the case of an Officer orservant lent by the Governmentor transferred from any otherLibrary Authority, the first payafter such loan or transfer isdrawn only after the receipt of thelast pay certificate in the properform granted by the Head of theformer Office;

b. The pay and allowances inrespect of an employeetransferred from a LibraryAuthority are paid by the saidLibrary Authority to the date ofhis relief and a last pay certificateshould be sent to the LibraryAuthority to which he istransferred.

c. Before joining, the new post hasbeen sanctioned by thecompetent authority in theLibrary Authority to which he istransferred

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d. His transit pay and transfer T.A.are borne by the LibraryAuthorities/District LibraryAuthorities

e. The leave applied for by anemployee other than a Secretary,Grade-1 Librarian, after gettingrelief from the former LibraryAuthorities/District LibraryAuthorities and that the leavesalary of such an employee isborne by the former LibraryAuthorities/District LibraryAuthorities, provided there issufficient leave to his credit;

f. In the case of the last payment ofan employee, pay andallowances and in case he isfinally quitting the service of theLibrary Authorities/DistrictLibrary Authorities at the end ofany leave granted to him, the lastpayment of his leave salary hasbeen made only on ascertainingthat there are no demandsoutstanding against him and thata certificate to the effect signedby the Secretary is attached to thebill in which such pay andallowances are claimed.

g. Expenditure on salaries of staff(Guards/Gardeners, etc.)employed by the LibraryAuthority for specified period,with the approval of the Director,contingencies, PF contributionwas within 25 percent and 45percent respectively of librarycess and debited to LibraryAuthority Fund. It may bechecked and ensured that

salaries of regular/permanentofficers/staff of the library,drawn from Governmentthrough treasury/HRMS werenot debited to Library AuthorityFund or there was no overlapping (Refer rule 47 ofKarnataka Public LibrariesAccounts Rules 1975).

F.4.2 Contingent and Special Charges


� Register of Tools and Plant

� Stock Register

In cases where a Library Authority hasincurred contingent charges like Rentsand Taxes, Postage, Stationery, Printingand Binding, Telephone charges, Waterand Electricity charges, uniforms etc, itshould be seen that.

a. Special and usual charges aresupported by competentsanction,

b. Budget allotment has not beenexceeded,

c. Several sub-vouchers andreceipts are all forthcomingwhenever necessary,

d. Sub-vouchers have been dulycancelled so as to prevent theirfraudulent use again

The following special points alsoshould be noted in connection with thecharges falling under the several headsmentioned below:

a. Tools and Plant: The purchasesshould be traced into the Register

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of Tools and Plant

b. Supplies to branch libraries onAccount of furniture and LibraryBooks


a. Charges have been drawn oncontingent bills supported bysupplier’s invoices and Payee’sacknowledgements stampedwherever necessary.

b. Payments made have notexceeded the contract rates, ifany.

c. Articles purchased have beenentered in the Stock Registerconcerned of the main office.

d. Distribution of stocks made tothe branch libraries is noted in themain Stock Register andacknowledgements of the BranchLibrarians obtained and filed inthe Stock Register. The list ofarticles distributed should beprepared by the main office andsent to the branch concerned.

e. Expenditure on equipment andrent, purchase of books,periodicals were limited tomaximum of 15 percent and 45percent of library cessrespectively (Rule 47 ofKarnataka Public LibrariesAccounts Rules)

F.4.3 Library Books

Accession Register


a. That the books purchased havebeen selected from the list ofbooks approved from time totime by the Government.

b. That the allocation of amounts forpurchase of books andperiodicals language-wise hasbeen made as prescribed by theDirector of Public Libraries.

c. That the allocations of theamounts language-wise andsubject-wise for purchase ofbooks, have been posted in aseparate register and theprogress of expenditure watched,and deviations in allocations ofthe amount have been made withthe approval of the Director ofPublic Libraries.

d. That quotations for purchase ofbooks have been invited fromreputed publishers and book-sellers with regard to discountand terms of supply and that thediscount rate has not been lessthan that agreed to by the book-trader and communicated by theDirector of Public Libraries.

e. That books purchased have beenduly entered in the stock registerknown as Accession Register ofthe Central Library inchronological order with thedetails of the name of the bookand author of the book, cost of the

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book, voucher No. etc., andsupported by supplier’s invoice.

f. That acknowledgement of thepayee stamped wherevernecessary is obtained andenclosed to the contingent bill.

g. That in the Accession Register ofthe Central Library, the details ofdistribution of the number ofbooks to each of the Branchlibraries in the district arerecorded duly supported byreceipted acknowledgements ofthe branch libraries.

h. That the books distributed to thebranch libraries have beenentered in their AccessionRegisters as per the list of bookssupplied to them by theSecretary, Library Authority.

i. That the books lost or damagedby the member have either beenreplaced or the cost of the booksrecovered.

j. That a certificate of verificationof books at the end of the year hasbeen recorded.

k. In cases of missing or lost librarybooks, verify that values, writtenoff were within limits prescribedin rule 28 of KPL Rules.

l. That the receipt of periodicalsand newspapers is watchedthrough a separate registermaintained and payment ofmonthly, quarterly, half-yearly orAnnual subscriptions regulatedaccordingly.

m. That the old newspapers andmagazines are disposed off inpublic auction and salesproceeds credited to the funds ofthe Library Authority.

n. That in respect of binding ofbooks, quotations have beencalled for and the work entrustedto the person offering the lowestquotation after obtaining thesanction of the Library Authority.

F.4.4. Travelling Allowance Bills

For the audit of travelling expenses,the auditor has to perform the auditchecks prescribed in Paragraph 1.1. Apartfrom the above, some specific checks forTA of libraries are listed here below.


a. The allowances paid areadmissible against LibraryAuthorities funds under therules in force.

b. The members working in thepublic libraries maintained byLibrary Authorities should begranted T.A. admissible toGovernment servants from timeto time.

c. Director of Public Libraries hasexercised the powers conferredon Government and heads ofDepartments by the KarnatakaTravelling allowances Rules inrespect of the employees. TheT.A. and D.A. should be paidfrom the library fund of theLibrary Authority.

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d. The distances for which mileageis claimed are correct as far ascan be ascertained and thatRailway fare, etc., is properlycalculated.

e. The bills have been dulycountersigned and are in order.

f. Expenditure not exceeding 15 %of State Library Authority Fundon travelling allowance ofmembers of the library authoritywas debited to the State LibraryAuthority Fund (Rule 47)

F.4.5 Expenditure - Registers

Before the audit of the paid vouchersis commenced, the following registersand records should be obtained and keptready.

Contributions or Grants-in-Aid to theaided libraries


a. That if the aid given by theLibrary Authorities-DistrictLibrary Authorities is non-recurring, it has been grantedonly to meet the capitalexpenditure of buildings,furniture and fittings.

b. That in the case of recurring aid,it has been given to meet thecurrent expenditure on all or anyof the following items:

�purchase of reading materialsand kindred materials relatingto other activities connectedwith public library serviceincluding social education;

� binding and preservationof reading and kindredmaterials;

� payment to the staff;

� deputation allowance forstaff deputed for professionaltraining at institutionsapproved by the LibraryAuthorities-District LibraryAuthorities for the purpose;

�other office expenses;

c. that the grant-in-aid is sanctionedto the aided libraries at the ratesprescribed by the Director ofPublic Libraries and subject toconditions laid down

d. That the recurring and non-recurring grants sanctioned arewith reference to the terms andconditions laid down

e. That the grants-in-aid is given tothose libraries that are declaredeligible by the Director.

Cash books, pass books and Chequebooks


i. Office cash book, in form LA 8and General cash book in FormLA 9 are maintained (Rule 34 and35 of KPLAR/1975).Transactions relating to amountreceived through cheques but notremitted on the same day totreasury or bank are recorded onreceipt side of office cash book.After remittance to Bank orTreasury or disbursement, the

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same is shown on payment side.

ii. Office cash book is closed dailyand cash balance as per Bank passbook/Treasury verified andcertified. Balances in the cashbook are carried forwardcorrectly.

iii. Transactions with Bank/Treasury are recorded in Generalcash book (Form LA 9). Allreceipts received through cash,cheques money order andpayments relating to LibraryAuthority Fund are recorded inthis cash book (Form LA 9). TheGeneral cash book is closed atthe end of every month andclosing balance reconciled withTreasury / Bank and recordedunder the signature of theSecretary, Library Authority.

iv. Confirmation was obtained fromthe treasury in respect ofamounts deposited andpayments through treasuryrelating to Library AuthorityFund (rule 25).

v. Monthly and annual accountswere prepared in Form LA 5 andannual reports were preparedand sent to Director (Refer rule38 of Karnataka Public LibrariesAccounts Rule 1975).

vi. Vouchers have been recorded inserial order for the entire year.

vii. Payments by cash and bank arenoted in the respective columnsunder payments.

viii. Amounts drawn on self-chequeshave been entered in the cashcolumn of the cash book on thereceipt side.

ix. Page totals have been taken tothe end of the month underreceipts charges and totals struckfor the month.

x. The opening balance under cashand bank at the commencementof the year agrees with theclosing balance of the previousyear under the respective Heads.

xi. All payments through bank aremade by cheques and thatadjustments made are noted inred ink.(Rule 19)

xii. Closing balance at the end of theyear has been carried over to thenext year correctly under cashand bank columns.

xiii. Closing balance in the cash bookat the end of the year agrees withthe closing balance in the annualaccount.

xiv. The receipts are written withreference to the challan from thetreasury and correctness verifiedwith reference to the entries inthe pass book.

xv. Bank transactions under chargesare traced into the pass bookthrough cheques and theircorrectness verified.

xvi. The cheques have been signed bythe Secretary and countersignedby the Chairman or in his absenceby a member of the Library

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Authority authorized by theDirector of Public Libraries.

Note 1: All the counterfoils of chequesfor the period of audit should be tracedto the cash book.

Note 2: If a cheque includes theamounts due for payment on more thanone voucher, the totals should be checkedto see that the amount drawn on a chequeis correct.

xvii.All the cancelled cheques areforthcoming.

Note 1: The cancelled cheques shouldbe destroyed in audit. It should be seenwhether a note has been recorded on thecounterfoil of the cheques under theinitials of the Drawing Officer.

Note 2: The cash balance on the dateof audit has been arrived at and verifiedphysically and certified to that effect inthe cash book under the initials of theauditor.

F 4.6 Public Works

Provisions of Karnataka Public WorksDepartmental code and Accounts codesand KTPP Act 1999/Rules 2000, andvarious notifications/GovernmentOrders issued in connection procurementof goods and services have to befollowed by Library Authority. Specificprovisions regarding power to sanctionadministrative approval are given in Rule59 of Karnataka Public Library AccountsRules 1975. In this connection, thefollowing checks may be exercised.

i) Check that sanctions accorded byLibrarian (Secretary, LibraryAuthority), Library Authority,

Director, were within Rs. 1000,Above Rs. 1000 but below Rs.10000, Above Rs. 10,000 butbelow Rs. 50,000 respectively

ii) Estimate above Rs. 50,000/- weresanctioned by State Government

G. Audit Checklist for Command AreaDevelopment Authority

G.1 Introduction

The Command Area DevelopmentProgramme is an integrated areadevelopment approach towards thecommand areas of major and mediumirrigation projects in the country. Theprogramme is aimed at bridging the gapbetween created irrigation potential andits utilization in the command area.

The Programme involves execution ofon- farm development works likeconstruction of Field channels and Fieldsdrains, land levelling and shaping andconjunctive use of surface and ground-water. Warabandi or the rotational systemof water distri¬bution is undertaken witha view to ensuring equita¬ble and timelysupply of water to the farmers.

Adaptive trials, demonstrations andtraining of farmers are encouraged todisseminate technical know-how amongthe farmers for establishing suitablecrop¬ping patterns and improvedfarming practices and for maintainingsoil health. Preparation of plan of inputsupply for credit, seeds, fertilizers,pesticides etc.; up-dating of land records;construction of roads; promotingancillary activities like marketing,process¬ing facilities, animal husbandry,farm forestry etc. are other features of

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command area development.

The approved activities of theCommand Area Development Authority(CADA) for achieving optimumutilization of irrigation potential are:-

a. Construction/Lining of fieldChannels

b. Adaptive trials/DemonstrationPlots

c. Training of Farmers

d. Training of Technical Staff

e. Participative IrrigationManagement

f. Evaluation Study

g. Monitoring and evaluation

Some of the activities are explainedhere below.

i) Construction/lining of fieldchannelsCommand Area DevelopmentAuthority looks after ‘on farmdevelopment’ for the selectedirrigation projects. While fixingthe alignment of linedwatercourses, the views andcomments of the irrigators areaccounted for. The schemes arebrought to the knowledge of thefarmers and these are finalizedafter ascertaining their views. Assuch, alignment of watercoursesis made on technically soundbasis with slight adjustments tosatisfy the farmers whose

holdings are divided.

ii) Laying of Demonstration Plots/Adaptive Trials

The demonstration plots are laidover the farmers’ fields to changethe cropping pattern as per typeof soil, climate and availability ofwater in the Command areas. Allinputs are being provided byCADA for such demonstration.

iii) Training Programme of FarmersThe farmers of the area aretrained regarding adoption ofmodern techniques of farming,water management practices andother agronomical practices byorganizing farmers meeting/camps conducting , study toursof farmers to AgricultureUniversities of other states andresearch institutions and holdingSeminars, etc.

iv) Training to technical staff Training programmes are

conducted to train the personnelengaged in CAD Programme torefresh their knowledge andexpose them to latest technologyin order to improve theirefficiency in carrying out CADactivities for providing necessaryon-farm infrastructure to thefarmers for optimal use ofirrigation water. These activitieshave considerably increased theutilization of existing irrigationresources.

The major source of revenue fora CADA is through grants.

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Through these grants alone theycarry on the activities mentionedabove. Since the majority of theactivities come under the ambitof Public Works, and KPWDbeing applicable, the auditchecks for the verification ofworks are detailed here below.

G.2 Mandate for Audit

As per Section 24(2) of the KarnatakaCommand Areas Development Act, 1980,the accounts of the Authority shall besubject to audit annually by the Director(Audit), Karnataka State Audit &Accounts Department and the accountsas certified by the Director (Audit) ofKarnataka State Audit & Accountstogether with audit report thereof, shallbe forwarded annually to the StateGovernment.

In the absence of provisions of Auditreport follow-up/compliance inKarnataka Command AreasDevelopment Act, 1980, the handbook on“Speedy Settlement of auditobservations, inspection reports, speedydisposal of audit paragraphs and timelyaction on matters pertaining to the PublicAccounts Committee, Committee onPublic Undertakings” states that “theinspections reports/paras received fromthe auditor normally needs to be repliedto within a month from the date of thereceipt of the report and in no case itshould exceed three months.” (Para 2.3of the handbook of the instructions)

G.3 Receipts

The major receipts for the CommandAreas Development Authorities are in the

form of grants.

G.3.1 Grants

The following are the auditcheckpoints to be observed at the time ofauditing the grants:

a. The grants are utilized for thepurposes for which they arereleased.

b. The amounts are spent as per theguidelines issued in the orderwherein the grant is released

c. The amounts are spent within thetime stipulated by Government.

d. Seek explanations for amount notutilized for the specified purposeand consider their treatment to beundertaken as per the stipulatedrules.

e. The unspent amount has beenrefunded to the grant releasingauthority

f. The grant releasing authority hasbeen addressed forreimbursement of the excessexpenditure, if any.

g. Grants registers have beenupdated for the receipt andutilization of grants.

Note: The auditor should make a noteof the reasons for:

� not utilizing the grant in full

� not refunding the unspent grant

� Excess expenditure under the

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grant not getting reimbursed.

G.4.Expenditure

a. Predominant Expenditure inCommand Area DevelopmentAuthorities is in the area ofPublic Works. Since KarnatakaPublic Works Accounts code isfollowed for Public worksaccounting, the checklistsmentioned below are applicablefor all the public works done inthe state following the KPWD/KPWA Code.

Audit checks suggested undergeneric checklist andprocurement of goods andservices /public works applymutatis and mutandis.

b. With regard to annual Budget/accounts prepared by CADA, theaudit should:

I. Verify that receipts of grants/contribution/other fundsreceived from stategovernment and othersources were accountedcorrectly in the accountingrecords/annual accounts.

II. Verify that all paymentswere supported by vouchersand total expenditure onvarious items as posted inannual accounts agreed withinitial Registers /GeneralLedgers.

III. Verify utilisation certificatesand the amount shown asspent was supported by

valid vouchers.

IV. Verify whether grants drawnon payees’ receipts fromtreasury was parked in bankaccounts for long time.Comment on such cases, ifany.

V. Verify the interest earnedfrom such bank accountswere accounted correctly inthe annual accounts. Theinstruments of investmentssuch as fixed depositreceipts may be verifiedphysically.

Note:- Grants from State Government/ others are the main sources of funds formeeting expenditure. It is thereforeimportant to verify and ensure that entiregrants released from Government areaccounted properly. For this purposeauditors may ascertain heads of accountsunder which grants are released andobtain the details of the grants actuallydrawn from the treasury (list of paymentsof concerned head of account) and tracethe same in various accounting recordsand annual accounts and also verify itsutilisation.

H. Audit Checklist for Financial AttestAudit

H.1 Audit checklist for Revenue Items

This section lists down the financialaudit checklists for all the common headsof revenue items across all the auditeeinstitutions.

H.1.1 Revenue from Rent/Lease Income

Verify if:-

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a. The natures of rental/ leaserevenues are susceptible toeither revenue or cash basis ofaccounting.

b. Verify if the other collectionssuch as the following are notedin appropriate account heads

1. Amount of security taken

2. The amount of installmentdue,

3. Date of payment and the rateof penal interest leviable

c. The amount of security depositin the respective register agreeswith that shown in the depositregister against the lesseeconcerned;

d. All the changes in demand oradjustments of advances toaccounts and the necessarychanges have been made in theaccounting entries.

e. In case of any rent amounts notrecoverable, verify if the write-offs are done based on validjustifications and with thenecessary approvals by thecompetent authority.

H.1.2 Interest/ Dividend Income

a. Interest on investments shall berecognized as and when due. Atperiod-ends, interest shall beaccrued proportionately.

b. Verify the documents relating toBoard Resolutions andGovernment Orders to verify theactual approvals.

c. Dividend on investments shall berecognized on actual receipt.

d. Income on investments madefrom Special Fund and Grantsunder Specific Scheme shall berecognized and credited toSpecial Fund and Grants underSpecific Scheme respectively,whenever accrued.

e. Verify the amounts with theInvestment register and all thedocuments relating to theinvestment like certificates.

f. Profit/loss, if any, arising ondisposal of investments (net ofselling expenses, such ascommission, brokerage, etc.)made from the Special Fund andGrants under Specific Schemeshall be recognized andcredited/debited to SpecialFund Account and Grant underSpecific Scheme Accountrespectively.

g. However, interest or gains froman investment made from grantsreceived as reimbursements,shall be credited to the GrantAccount.

H.1.3 Grants

a. Check if the grants are recognizedas income on actual receipt.

b. Grants received for specificpurposes shall be treated asliability till they are fully spentfor the purpose for which theyare sanctioned.

c. After spending part or full

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amount of grant, the liability tothe extent of grant spent shall betreated as an asset created andthe required Journal entrieschecked.

d. If the grants are for maintenanceworks, the liability shall bereduced to the extent ofutilization of the amount and thecorresponding amount is shownas income and such journalentries need to be checked.

e. Grants in the form of non-monetary assets shall beaccounted for on the basis ofacquisition cost. In case a non-monetary asset is received free ofcost, it shall be recorded at anominal value. (Rs.1)

f. If the amount of grant is used forcapital expenditure, the amountof grant shall be treated as“Deferred Income” and shall beallocated to income inproportion to the depreciationcharged on the fixed assetscreated out of the grant.

g. Verify the reconciliation donebetween the General Ledger andthe grant register and check whatsteps have been taken in case ofany discrepancies.

h. In case of specific grants check ifthe reconciliations have beenmade between the grant registerand the balances in the specificbank accounts.

H.2Expenditure items

This section lists down the financialaudit checklists for all the common headsof expenditure items across all theauditee institutions.

H.2.1 Public Works Expenditure

Verify if:-

a. The public expenditure has beenhas been categorized under thefollowing heads

� Capital Works

� Repair Works

� Deposit Works

� Delegated Loan works

b. Expenditure on Capital work isaccounted as “Capital Work inprogress” and capitalized oncompletion of the work.

c. The cost of asset includes moneyspent on acquiring or installingor constructing fixed assets.

d. Interest paid on borrowingsattributable to acquisition orconstructions of qualifying assetsare capitalized up to the date ofcommissioning of the assets.

e. Any additions or improvement tothe fixed assets that result inincreasing the utility or capacityis capitalized and included in thecost of the asset and all theexpenditure incurred to maintainthe asset is passed to revenueexpenditure.

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f. The relevant depreciation on thecapitalized asset is charged fromthe date of capitalization.

g. In case of Deposit works, verifyif the amount paid to PublicWorks Department (PWD) of theState Government is treated asadvance and the expenditureincurred by PWD are adjustedagainst the advances paid andtransferred to Capital Work inprogress.

h. In case of delegated loan works,verify if the amount of loan istreated as advance to the agency,and also the loan from thegovernment or as public issue ofsecurities.

In the above case check if theamount of expenditure incurredby the agency is adjusted againstthe advances to the agency andis transferred to capital Work inprogress. Verify if the payments/

adjustments made towardsrepayment of loan is reducedfrom the loan liability.

H.2.2 Purchase, Issue and Consumptionof Material

a. Check if the material purchasedin bulk for usage over a longperiod, say, more than a year isaccounted as stock-in-hand.

b. Check if issue of material forconsumption, the value ofmaterial issued is charged to thework for which it is issued.

c. Check if any material at site, if

any, after completion of work isreduced from consumption, andtaken back to stock.

H.2.3 Establishment Bills It should beseen if

a. The expenses on pay, wages andallowances are accounted onaccrual basis at the end of everymonth.

b. The statutory deductions havebeen recognized as a liability inthe same period in which thecorresponding liability/pay isrecognized as an expense.

c. The terminal benefits payable bythe institution such as leaveencashment are accounted as andwhen they are due for paymentto employees.

d. Interest accruing for the year onloans or advances given toemployees, shall be recognizedas revenue at the beginning ofthe year and entered in therelevant register.

e. The wages of temporary staff hasbeen accounted on accrual basis.

f. Loans and advances granted toemployees, interest thereoncharged and calculated is inaccordance with the policies setforth for the same. In case theemployee who receives anyloan/advance gets transferred toanother institution, whether thetransferee institution has settledthe loan/ advance of thetransferred employee to thetransferor institution.

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H.2.4 Rent

a. In cases where a lump sumsecurity deposit is obtained inlieu of periodic rental payouts,whether the same is categorizedas deposits and no duplicaterental payouts are charged toProfit & Loss Account.

b. In case of any permanentdamage to the rental property,check if there is any liabilityarising to the lessor on accountof the same. If so, check if aprovision/contingent liability(as applicable) has been made/disclosed in the books.

H.3 Assets

This section lists down the financialaudit checklists for all the common headsof asset items across all the auditeeinstitutions.

H.3.1 Fixed Assets

Verify if:

a. Every purchase of fixed asset hasbeen accounted for and journalentry is passed as per the invoiceand after approval.

b. Of the fixed assets are be carriedat historical cost lessaccumulated depreciation. Thecost of fixed assets shall includecost incurred/money spent inacquiring or installing orconstructing fixed asset, intereston borrowings directlyattributable to acquisition orconstruction of qualifying fixedassets up to the month of

commissioning of the assets andother incidental and indirectexpenses incurred up to itsintended location and conditionfor use.

c. The additions to orimprovements to fixed assets thatresult in increasing the utility oruseful life of the asset iscapitalized and included in thecost of fixed asset.

d. Assets under erection/installation on existing projectsand capital expenditures on newprojects (including advances forcapital works and project stores)are first shown as "Capital Work-in-Progress") and transferred toFixed Assets after completionand commissioning.

e. All costs incurred till the year endin accordance with the cut-offprocedure for expenditure(approved up to 30th April), isincluded in the valuation of theasset.

f. In respect of first and final billreceived along with completioncertificate, verify if the totalamount has been directlydebited to the respective fixedasset.

g. The fixed assets, which have beenacquired free of cost or in respectof which no payment has beenmade, are recorded at nominalvalue of Rupee One.

h. An asset received at aconcessional rate is accounted at

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the cost of the asset (concessionalcost).

i. All the assets costing less thanRs.5000 (Rupees Five thousands)are expensed / charged toIncome & Expenditure Accountin the year of purchase.

j. The assets recorded in theRegister, but not physicallyavailable is written-off after aspecified period as defined bythe State Government.

k. The respective Acts or Rules alsodefine the authority levels forauthorizing the writes-off

l. The entry for sale of assets ismade

m. Assets under dispute/litigation- Whether the fixed assetsaccounted in the books which areunder dispute or litigation isdisclosed in the financialstatements along with notes/remarks that these are underdispute and also the status of thelegal case as at the reporting dateof the financial statements.

H.3.2 Depreciation of Fixed Assets

Verify if:-

a. The depreciation worksheetsprepared by the concerneddepartments been verified anddepreciation been calculated forall the assets recorded inRegisters of Immovable/movable properties maintainedby them.

b. The depreciation has beenprovided at the estimated usefullife and rates prescribed inaccordance with the policiesprescribed.

c. The depreciation on all fixedassets (except Land) is providedconsistently on Straight LineMethod.

d. Check if the depreciation socalculated is checked by theAccounts Superintendent/Accountant before accounting.

e. The Registers of Immovable/movable properties is beingupdated with the amounts ofdepreciation, accumulateddepreciation, and written downvalue as at the end of the year,for each of the assets, by theconcerned Department.

f. The entries for depreciation havebeen checked by the AccountsSuperintendent before finalizingaccounts for the year.

g. The depreciation is provided atfull rates for assets, which arepurchased / constructed beforeOctober 1 of an Accounting Yearand half rates for those purchase/constructed after October 1st ofan Accounting Year.

h. Also check if the depreciation isprovided at full rates for assets,which are disposed on or afterOctober 1 of an Accounting Yearand is provided at half the ratesfor assets, which are disposed

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before October 1 of anAccounting Year.

i. In respect of fixed assets whoseestimated useful life is over, theassets are carried at nominalvalue of Rs. 1 and no furtherdepreciation is charged on them.

j. Leasehold lands acquired aretaken as a part of assets at a totalvalue payable as lease chargesover the entire lease period andamortized equally over the leaseperiod.

H.3.3 Revaluation of Fixed Assets

Check if:-

a. The revaluation of a class ofassets results in the net bookvalue of that class being greaterthan the recoverable amount ofthe assets of that class. If so, checkif such a revaluation has beenreversed.

b. The revaluation reserve has beenreduced by the transfer ofequivalent amount ofdepreciation charged on therevalued portion of the cost of thefixed asset.

c. In case of any increase in netbook value arising onrevaluation, verify if it is creditedto a reserve account under'Revaluation Reserve Account'.Check if any decrease in net bookvalue arising on revaluation offixed assets is charged to Incomeand Expenditure account under“Fixed Asset written off”account.

d. Depreciation is calculated onrevalued assets on the value afterrevaluation, at rates necessary tocharge off the asset over theremaining useful life of the asset.It is to be noted that theestimated useful life of the fixedasset remains unchanged onrevaluation.

e. In case an asset that is revaluedis disposed off, check whetherthe balance in the revaluationreserve is transferred to “AssetDisposal Account”.

H.3.4 Investments

It needs to be verified if theinvestments of surplus funds by theinstitutions are invested in any one of thefollowing categories.

a. Securities of the Government ofIndia

b. Securities of the Government ofKarnataka or any other StateGovernment

c. Bonds or other securities formoney issued by or on behalf ofany local authority

d. A security expressly authorizedby an order of the Governmentin this behalf

e. Verify if the investments areclassified based on the maturityperiod.

H.3.5 Short Term Investments

a. Verify if all the investmentswhich are intended to be held fora period not more than 12

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months are classified as “shortterm Investments”.

b. Short term investments arevalued at cost includingacquisition charges such as fees,brokerage, duties etc. or marketvalue (if quoted), whichever islower.

c. Verify if the dividend oninvestments and interest on shortterm investments are recognizedon actual receipt.

d. Verify if the amount has to beprovided towards diminution ordecline in value of short term-investments.

H.3.6 Long Term Investments

a. All the investments that do notfall under the category of shortterm investments are classified aslong term investments.

b. Verify if the long terminvestments are recognized atcost of investment. The cost ofinvestment shall include costincurred in acquiring theinvestment such as brokerage,duties etc.

c. Check if all the cost of all long-term investments shall be carried/ stated in the books of accountsat their cost.

d. In case of any permanentdiminution in their value as onthe date of Balance Sheet, verifyif these are reduced from the costof the Investments.

e. Verify if the diminution in valueis accounted as reduction invalue is accounted as charge(expenses) to the Income andExpenditure Account in the caseof General Fund Investment orrespective funds account as thecase may be.

H.3.7 Interest Accrual

a. Verify if the interest oninvestments is recognized as andwhen due. At period-ends, verifyif the interest has been accruedproportionately irrespective ofwhether it has been received ornot at the end of the year.

b. Whether income on investmentsmade from Special Fund andGrants under Specific Scheme arerecognized and credited toSpecial Fund and Grants underSpecific Scheme respectively,whenever accrued.

H.3.8 Profit/Loss on Disposal ofInvestments

a. Verify if the Profit/loss, if any,arising on disposal ofinvestments (net of sellingexpenses, such as commission,brokerage, etc.) made from theSpecial Fund and Grants underSpecific Scheme shall berecognized and credited/debited to Special Fund Accountand Grant under Specific SchemeAccount respectively.

b. Whether, interest or gains froman investment made from grantsreceived as reimbursements, iscredited to the Grant Account.

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H.3.9 Stores

a. Verify if all the materialpurchased are accounted on theadmission of the bill by theinstitution and is treated as“stock in hand” till it is issued.

b. Verify if the issue of the stores isaccounted on the basis of First inFirst out method

� If material is issued tocontractors as per agreement,check if it is treated asadvance.

� If the material is issued forCapital works, check if it isaccounted as “Capital workin progress”.

� If the material is issued toother departments, verify if itis recognized as expense.

c. Verify if the amount of stationerypurchased is treated as anexpense irrespective of theamount of stationery procured.

d. In case of disposal of stores,verify if the revenue is accountedon actual receipt.

H.3.10 Loans & Advances

a. Check if the loans given tobeneficiaries under any schemeis accounted as assets, and isreduced by payments receivedor recovery made towardsrepayment of such loans.

b. Check if the advances given byGP to its employees, contractors,suppliers, or any other persons

is accounted as assets, andreduced by payments receivedor recovery made towardsrepayment of such advances.

c. Check if the interest on loans andadvances is recognized onaccrual basis as and when itbecomes due.

d. Verify if Interest on loans tobeneficiaries under a scheme, tothe extent to be remitted to thefunding agency, is treated as aliability as and when collected.

e. Check if provision against badand doubtful loans is made inaccordance with the provisioningprinciple based on norms orguidelines issued by the StateGovernment in this regard.

H.3.11 Cash and Bank Balances

Verify if the post-dated cheques areissued and that any cheques pertainingto the subsequent period have not beenaccounted for as payments during theperiod under audit.

H.4 Audit Checklist for Liabilities

This section lists down the financialaudit checklists for all the common headsof liabilities across all the auditeeinstitutions.

H.4.1 Earmarked Fund

a. Verify if an Earmarked Fund istreated as a liability and aseparated fund has been createdin the books of accounts of thefund to which it pertains.

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b. Verify if the income oninvestments made from anEarmarked fund, and profit/losson their realization is added tothe Earmarked fund.

c. Also check if any expenditure ofa revenue nature, which isincurred specifically on thescheme/project for which theEarmarked fund has beencreated, shall be charged to thatfund.

d. Whenever any capitalexpenditure is incurred out of anEarmarked fund, verify if anequivalent amount is transferredfrom the Earmarked Fundaccount to the Earmarked FundUtilized account.

e. In case of any recoveries aremade in the contractors bills,verify if such recovered amountis transferred from theEarmarked fund accounts toGeneral Fund.

H.4.2 Borrowings

Verify if:-

a. A borrowing against the securityof tangible asset or assets isconsidered as a secured loan, anda borrowing without the securityof any tangible asset or assets isconsidered as an unsecured loan.

b. The expenses incurred on raisingloans are treated as “DeferredRevenue Expenditure”.

c. Such deferred revenueexpenditure is charged off as

expenses in equal installmentsover the tenure of the loan.

d. The interest on borrowings isrecognized on accrual basis, andunpaid interest is treated as aliability.

e. All the interest up to the date ofcommissioning of the asset iscapitalized with the value of theasset.

H.4.3 Sinking Funds

a. Entries for repayment of loan andpayment of interest from theEscrow Account shall be thesame as explained earlier. Theonly difference being that, thepayment will be out of theEscrow Bank Account instead ofthe Main Bank Account.

b. Verify if the loan issue expensesis amortized in equalinstallments over a period of5years or the tenure of the loan,whichever is lower.

H.5 Financial Audit Checks for UrbanLocal Bodies

H.5.1 Revenue

Verify whether:-

a. The accounting entry passed atthe beginning of the year withreference to KMF No 13 receivedfrom the concerned departmentsto ascertain that the accrual entryhas been passed for all applicablecategories of revenue in thecorrect period, for the correctamount and under the correctaccount codes.

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b. Totals as per KMF 13 match withthe totals as per:

� Demand and collectionregister KMF No 24 (forproperty and advertisementtax)

� KMF No 25 (Water chargesand rent)

� KMF No 26 (Other Incomes)

� KMF No 26A (Licence fees)

c. The monthly accounting entriesfor changes to the annual accrualentry with KMF No 13A toascertain that the accrual entryhas been passed in the correctperiod, for the correct amountand under the correct accountcodes.

d. The totals as per KMF 13A matchwith the totals as per theStatement of demand andadjustments in KMF No 27

e. the entries for collection matchwith the registers

� KMF No 18 (Summary ofdaily cash collection)

� KMF No 19 (Summary ofdaily cheque collection)

� KMF No 20 (Summary ofdaily register through bank/treasury)

f. The entry for collection is set-offagainst the respectivereceivables account.

g. For the sample selected, verifythe transactions in the Demand

register with the base documentsspecifically applicable for thosecategories of Income.

h. All amounts such as taxes, fees,charges, bills of contractors,suppliers etc. shall be passed forthe nearest rupee. However,amounts debited/ credited bybank towards bank charges,interest etc. shall be accountedwithout rounding off theamounts.

H.5.2 Property Taxes

Verify whether:-

a. The taxes collected for theprevious year's which were notassessed earlier have beentermed as prior period Income.

b. In case the rebate is allowed forthe self-occupation, then check ifthe net amount is accounted asthe property tax.

c. In case the rebate is allowed forthe advance payment of taxes,then it needs to be checked if thegross amount is accounted asproperty tax and the rebateallowed is treated as expenses.

d. The collection made is (whileaccounting) segregated properlybetween Property Tax Accountand ‘Cess Control Account’.

e. 90% of the Cess collected istransferred from the ‘CessControl Account’ to respective‘Cess Payable Account’.

f. The balance 10% of the Cesscollected is treated as “Collection

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charges” for collecting the cessamount and accounted asrevenue.

g. Excess collection (differencebetween assessed amount andcollected amount) is treated asrefund payable and is transferredto ‘Refund Payable Account’.

h. The refunds pertaining to theprevious years have been treatedas a prior period item.

i. There is Property taxes receivedin the advance i.e. not pertainingto the current year and verifywhether the same is accounted in‘Advance Collection of RevenuesAccount’.

j. Review Property tax SuspenseAccount to validate whethercollection with insufficientdetails only are appearing in theaccount.

k. The provision is created forreceivables as per rule 58 ofKMAB Rules 2006.

l. Obtain details of write offs for thecurrent year and verify whetherthe write offs are based on properjustifications and approvals. Alsocheck whether any amounts havebeen allowed to become barredby limitation of time without anyaction having been taken for theirrealization in time.

H.5.3 Service Charges in lieu of PropertyTaxes

a. Check if the service chargecollected is accounted in similar

lines as per the property taxesand has been accounted underthe head ‘Service charge in lieuof property tax’.

b. Verify if the cesses have not beenadded with the collection of theservice charges.

H.5.4 Stamp Duty Surcharge Collectedby State Government

a. Verify if the total Stamp dutysurcharge amount has beenaccounted in a separate account“Stamp duty surcharge collectedby State Government”.

b. Verify if the entries have beenpassed on cash basis at the timethe amount gets credited to thetreasury account.

c. In the year end, check if theaccrual entry has been passedbased on the advice receivedfrom District Registrar (DR).

d. Reconcile the total Stamp dutysurcharge collected in the KMFNo-20 with the advice receivedfrom the DR’s office.

H.5.5 Revenue from Rent/Lease Income

a. Additional to the checksmentioned in Paragraph H.1,perform the following checks forthe financial attest audit of leaseincome of Urban Local Bodies.

b. Verify if all the propertiesmentioned in the OBS-2 areconsidered for the accrual ofrental income.

c. Verify that the lease amount

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collectible on a monthly basis isrecorded in KMF No 25

d. Verify if the following collectionsare noted in KMF 26

� amount of security taken

� the amount of installment due,

� date of payment and the rateof penal interest leviable

e. Verify that the amount ofsecurity deposit noted in theKMF No 26 agrees with thatshown in the deposit registeragainst the lessee concerned;

f. Verify if all the changes indemand or adjustments ofadvances to accounts are done inKMF No- 27 and the necessarychanges have been made in theaccounting entries.

H.5.6 Financial Attest Audit ofExpenditure Items

The following are the auditcheckpoints that need to be performedfor the audit of expenditure

Check whether:-

a. The accounting entry passed forbooking of expenditure based onKMF No 23/60 either on cash oraccrual basis has been passed inthe correct period, for the correctamount and under the correctaccount codes

b. The amounts for entriesaccounted on cash basis matchwith the totals as per KMF No 23(Register of bills received)

maintained by the accountsdepartment and the entriespassed on accrual basis matchwith the totals of KMF No 60(Register of bills pendingapproval).

c. For the sample selected for eachclass, check the transaction typeand amount as per KMF No 23and check if it matches with theparticulars mentioned in theauthorized pay order as per KMFNo 22.

d. The total amounts in KMF No 23(Register of Bills) maintained byaccounts department matcheswith the total amounts in KMFNo 21 (Register of Bills)maintained by the concerneddepartments.

e. On a sample basis, verify thecorrectness of entries in KMF No21 or the Pay order in KMF No22 matches with the Basedocument/ Invoices.

H.6 Financial Audit Checks forUniversities

H.6.1 Attest Audit of Revenue Items

Following are some of the points tobe kept in view /checks to be performedin audit of accrual entries. These checksare required to be applied along withspecific checks identified for each item ofrevenue.

a. The receipts are not appropriatedtowards expenditure except incases where there is a specificexemption from the Syndicate.

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b. In respect of payments made atthe college counter, the amountsare reflected in the day book ofcollection and expenditure aswell as office cash bookmaintained.

c. If the amount is remitted to thebank, verify whether it passesthrough the Remittance Registermaintained. Also check whetherthe cheques and DDs receivedhave been entered in the Registerof Instruments received.

d. At the end of the month, check ifthe office cash book is maintainedand entries are reconciled withthe bank scrolls.

e. As regards the payments madeby students through banks,verify whether the transaction isaccounted for in the day book ofcollection and expenditure aswell as office cash bookmaintained on the basis of thechallan counterfoils received.

f. Fees by students have been paidthrough the following modes: (a)Payment of fees through bankdrafts (b) Payment of feesthrough authorized banks andwhether the bank drafts havebeen drawn in favour of theUniversity.

g. An acknowledgement has beenissued to the students and theaffiliated colleges for receipt offees and whether the counterfoilfor the receipts issued matchesthe total amount of fees collected.

h. A Refund Voucher has beenprepared in case of refund tostudents and affiliated collegesand also whether such refund hasbeen accounted as “Deductrefund of fees” under therelevant receipt head pertainingto the fees refunded.

i. The Finance section prepares anInstrument Remittance Statementand remits the instruments to thebank within the next working dayof the receipt of instruments fromother departments in aremittance challan. Also, checkwhether details of instrumentsremitted to the bank have beenentered in General cash bookmaintained.

j. In case of payment of feesthrough authorized banks, checkwhether the fees as perUniversity copy of the receiptmatches the actual fees collected.Also check whether banks submitdaily Collection statementtogether with the supporting pay-in challans to the Finance Officerand monthly statement ofreceipts, transfers/withdrawalsand balance at the end of themonth.

k. The reconciliation of the items isdone on the basis of the bankscroll received at the end of themonth.

l. A classified Abstract Register ismaintained wherein the amountsrealized each month is reflectedunder the various major, minor

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sub heads provided for in thebudget estimates.

m. Also verify if the AnnualAccounts are compiled on thebasis of the entries in theclassified abstract register.

n. For items which have been leftuncollected and ascertainreasons for the same. Also checkwhether in case of amounts thatappear to be irrecoverable,orders of the competent authorityhas been obtained to waive thesame.

o. Consolidated remittancestatements with challans arereceived from the concernedBank.

p. Also to check whether theseconsolidated figures areaccounted in the cash book.

q. In case the universities haveInternet/core banking facilities,check if the remittances of feeshave been made appropriately.

H.6.2 Attest Audit of Expenditure Items

The audit should verify if:

a. The pay order recorded on thevoucher is signed by thecompetent authority.

b. Separate cheque books are usedfor payments from various fundsoperated by the university andwhether register of chequesreceived from bank is maintainedto record the serial number ofcheques received and Register of

cheques drawn. Separateregisters have to be maintainedfor different bank accounts.

c. The amount passed for paymentagrees with the amountauthorized in the cheque andnoted in the cheque issuedstatement.

d. The voucher bears cheque paidseal duly attested by thecompetent authority.

e. The classification recorded on thepay order is correctlyincorporated in the chequeissued statements.

f. The total of each day under thehead “Salary andEstablishments” and “Otherheads” is correct.

g. Whether necessary stockcertificates have been recordedon the vouchers relating tosupply bills.

h. Whether every drawing officer/drawing and disbursing officershall maintain a bill register torecord therein the bills submittedto Finance section for payment.

i. Also verify if the AnnualAccounts are compiled on thebasis of the entries in theclassified abstract register.

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H.7 Financial Audit Checks for GramPanchayats

H.7.1 Attest Audit of Revenue Items

Check if:-

a. The incomes in respect of GramPanchayats for which the right toreceive arises in regularperiodicity, and for which theDCB registers are maintained areaccounted on accrual basis.

b. The accrual entry is passed for allaccruable income in thebeginning of the year, is based onForm-48 prepared by theSecretary.

c. The revenue items like Tax onLand and Buildings, rent fromshops, entertainment tax, vehicletax, advertisement fromhoardings etc. are accounted onaccrual basis.

d. The amount of interest on Shortterm fixed deposits areaccounted on accrual basis onrespective due dates.

e. Any increase/decrease indemands during the course of theyear on account of rent on newbuildings, a rented buildingfalling vacant, new waterconnections etc. are being passedat the end of the year.

f. All the accruable incomereceived in advance shall betreated as a liability.

g. The Cess payable to thegovernment, the amountcollected along with the tax on

land and buildings or any othertaxes or fees, payable to thegovernment has been recognizedas a liability.

h. Check if all the unrealizablereceivables in respect of any tax,fees, rates or any accruableincome have been written-off.

i. The incomes in respect of GramPanchayats for which the right toreceive is established only on theactual receipt, has beenaccounted on cash basis.

j. The revenue items like Buildinglicence fees, Income from Cattlepounds, jatra fees, grazingcharges, fines and penalties,income from sale of fruits, grassetc. are accounted on cash basis.

H.7.2 Attest Audit of Expenditure Items

a. Check if all the expenditure isaccrued on their admittance topay them by treating them asliabilities.

b. In case of establishment bills,check if the journal entries areprepared as per the pay billprepared in Form 24.

c. In case of accounting ofsuppliers’ bills for consumables,check if the items purchased isaccounted under categories likestreet cleaning material, healthrelated items, street lightingitems, stationery etc.

d. Check if all the relevant statutorydeductions are made beforemaking the payments.