Auditing Exposes Irregularities

Auditing Exposes Irregularities 

Auditing

The major goal of an Audit is to add value and improve the organization’s operations and provide reasonable assurance that the risks are identified and managed and the information in administrative and financial records is accurate and reliable as per proper compliance of policies, procedures, applicable laws and regulations. Every year, the organizations are either audited at their internal level or a team of auditors comes from outside or both internally as well as externally. An organization is always works to establish its priorities and the audit is particularly to evaluate for further deciding the action plans to achieve the organizational goals. The auditors perform independent evaluations and audited records are more trusted for the stakeholders with assurance of auditors that the records including financial statements present a true and fair view of the organization’s financial performance and position.

Internal Audit

The internal audit is decided by the Head of Departments / Chief Executive Officers to ensure financial controls in the organizational processes with the help of proper accounting and reframing of Standard Operating Procedures (SoPs). An internal audit is a self-assessment to determine the financial and administrative control in order to avoid irregularities.

Process of Auditing

At the time of audit, the following points are kept in mind:

a.  Findings of the prior audits

First of all, the files of prior audits are reviewed with the findings of each prior audit in an organization. It is possible only through meeting and building a rapport with the managerial people of the organization. The auditors observe the prime concerns and expectations of the managerial people from an audit, in case, request comes to audit a few organizational processes more sincerely, the same may be considered by the team of auditors.

b. Organizational processes to achieve its aim, objectives

Secondly, the auditors if required, may discuss and interact with the employees of the organization regarding their assigned duties and how they perform their duties as per the organizational functions. Thereafter, the financial records and departmental documents are tested whether adequate records are being maintained or not.

c. Budget documents of the organization

1. Grants from State Government
2. Grants from Central Government

d. Utilization of Budget, Approvals, Sanctions etc.

e. Revenue generated by the organization

1. Contracts of services

f. Process of incurring expenses in organization:

1. Cost of operations – Material, Labour, and Expenses

2. Ledger Accounts including Cash Book

3. Accounting Procedures either Manual or Computerized

4. Inventory Management System

5. Various functions of organization including Procurement of Goods / Services / Works, Salaries and Remuneration to Human Resources, Financial Statements, Taxation including Income Tax and GST, Organizational Codes and Policies etc.

g. Evaluation of internal control systems

1. Compliance of Laws, Acts, Rules, Policies, Instructions

In between and at the end of the audit, it is must to meet the managerial people informally and discuss on the findings of the audit. In case, the findings are misinterpreted then the same may be reframed after getting the clarity from the managerial people. However, the auditors are independent to write the audit objections if they disagree from the perspective of the managerial people.

2. Identifying Irregularities and corrective course of actions

3. Improving Efficiencies and Effectiveness of organizational processes

4. Safeguarding Assets from Wastes and Frauds

5. Promoting Accuracy and Reliability of Financial Records

The Audit report not only identifies the financial and administrative irregularities but also recommend the corrective course of actions to promote accuracy and reliability of the records.

h. Comments and Concerns of Administrators and Managerial people

Concern of Audit at Prime Minister Level in India:

The administrators looking after the efficient and effective use of public resources should be stricter than other employees working under them. The ministers elected to make decisions for their concerned ministries, should further restrict the administrators and themselves in using the public money with utmost prudence. In 2016, the Prime Minister of India, Sh. Narendra Modi worried and commented against the system in which Member of Parliament have right to decide or increase their own salary. He commented that the lawmakers (i.e. MPs) themselves should not decide their pay package*.

The member of parliament elected by the public in India, receives various benefits apart from the salaries i.e. housing and telephone facilities, travelling and daily allowances, medical facilities, allowances for foreign trips, constituency allowances, purchase of conveyance and office expenses. They are also eligible to get free accommodation, air tickets, free power and even pension after the term of five years.

The auditors only check the irregularities and the benefits passed in the parliament or assembly by the public representatives; cannot be questioned in audit.

Concern of Audit of Chit Fund Companies:

The chit fund companies are playing with the interests of investors and exposed when most of the investors have been affected adversely. The window-dressing of financial statements by the Multi-National Companies (MNCs) also affect the investors. In order to show higher net worth of company, the accounting is misused by the Chief Financial Officers (CFOs) of the company. In October 2018, Supreme Court of India, appointed Forensic Auditors to audit the accounts of Amrapli group of companies. The audit of account comprises the checking the errors in accounts as per the Accounting Standards framed by Institute of Chartered Accountants of India (ICAI).

Amrapali Group Diverted Money of Investors:

The Amrapali Group consist of 46 companies and the forensic auditors found that the directors of the Amrapali Group have been provided money in form of professional charges. It is also found that a few investors are refunded more amount due to non-allotment of flats. The forensic audit also detects the diversion of money within the bank accounts. As per provisions of Real Estate Regulation Act (RERA), it is must to utilize at least 70% of the amount received from investors in the concern real estate project and for this purpose, it is must to operate and maintain a separate escrow account for each real estate project. The developers if require to divert the money to other functions, then they require to take money out of the escrow account which can easily be audited.

Copyright © 2018 Dr. Lalit Kumar. All rights reserved. 
References:
*This information has been retrieved from Economic Times of 3rd May 2016 reported by Rakesh Mohan Chaturvedi & Ravish Tiwari; 'PM Narendra Modi against MPs deciding their own salary'.