Examination on Accounts and Audit Functions

 Examination on Accounts and Audit Functions

-Dr. Lalit Kumar Setia

The examinations of Accounts Officers, on Financial and Compliance Audit, Methods and Procedure of Auditing including auditing in Information Technology (IT) environment are very easy to attempt after going through the material available on my webpages. The Auditing standards are issued by Comptroller Auditor General in India, at the international level, these are issued by IFAC and INTOSAI.

The CPD test and syllabus focuses on the understanding of the Audit function. In Government, the Accounts Officer is Head of an office of Accounts responsible to ensure effective utilization of financial resources and compliance of rules in the department. The Audit officer is the head of an office of Audit. The Audit Officer and Accounts Officer, both are inter-related. An accounts officer performs functions as per financial rules while an audit officer checks and points out the irregularities while performing financial functions with recommendations to do the same work better.

To know the responsibilities of a Head of Accounts Office, the following article is a must-read.

https://drlalitsetia.blogspot.com/2021/08/responsibilities-of-head-of-accounting.html

From where do the funds/grants come in a Government office?

Article 267(1) of the constitution establishes Contingency Fund and an officer is designated as ‘Drawing Officer’ by the Central Government or Head of the Department; for drawing bills from this fund so that the financial functions may be discharged as per Government Accounting Rules 1990, Government Account (Receipt and Payment) Rules, 1983 and the orders or instructions issued latest in this regard.

How Haryana Treasuries are performing financial functions with the help of allotting Unique Code of Payee. Have a detailed reading of the following –

https://drlalitsetia.blogspot.com/2021/09/how-does-unique-code-of-payee-work.html

It is well known that an audit is an examination of accounting records which includes entries of financial transactions undertaken for performing the official duties by the officers of an office.

The PC-8 paper of Financial Rules and Principles of Government Accounts:

The Group II examinations for Subordinate Audit/Accounts Services (SAS) are particularly related to Financial Rules, Principles of Accounting in Government, Audit function, etc. The examination books are available on the web portal of CAG and the syllabus is also prescribed by the CAG, the sole authority entrusted with the responsibility of audit of accounts.

It is required to have a detailed understanding of Financial Procedures in Government, also explained in the following article –

https://managerialadministration.blogspot.com/2018/04/financial-procedures-in-government.html

Can an Executive Force Audit Officer modify audit findings?

This question is generally asked by the participants, Auditors in my class whether the Audit should be independent or not? It is interesting to clear that an Auditor General of State and Comptroller Auditor General in Central Government, is fully independent and there is no power in the hands of executive to direct the Audit Officers to modify or refrain from carrying out a fair audit, derive conclusions, and recommend to ensure proper utilization of the financial resources.

How the rules enforce the financial control and how the administration is held responsible if any irregularity stays for the long term –

https://managerialadministration.blogspot.com/2018/10/accounts-administration-and-prevention.html

Financial Audit

To verify whether the Government Accounts are properly prepared or not, whether the applicable laws and rules are compliance or not, whether there is a need to point out excess or shortfall in expenditure or not, and if there are any irregularities, what should be an action plan for sorting out the issues and timely completion and monitoring of the financial statements?

How to ensure effective financial administration –

https://managerialadministration.blogspot.com/2018/10/effective-financial-administration.html 

*Copyright © 2021 Dr. Lalit Kumar. All rights reserved. 

This article is written by Dr. Lalit Kumar Setia; a renowned author and trainer. He completed his Doctorate in Commerce from Kurukshetra University Kurukshetra and MBA in Information Technology from GJU, Hisar. He also wrote two books, 15 research papers, and organized more than 200 Training Courses during his working period since 2006 in Haryana Institute of Public Administration, Gurugram. The article was published on 8th October 2021 and last updated on 8th October 2021. The writer can be contacted on lalitkumarsetia@gmail.com 

Utilization Certificates of Grants and Funds

Utilization Certificates of Grants and Funds

The Comptroller and Auditor General (CAG) and Accountant General (AG) offices of State Governments; are entrusted to verify and audit the works of Government keeping in view the proper utilization of financial resources. The Government organizations are allotted budget on the basis of their proposals from time to time; on various projects and programmes. After utilizing the budget, the organizations required to submit Utilization Certificates of the allocated budget which comprises the amount sanctioned, amount utilized, and work or functions performed with the amount spent, also the balance unutilized amount (if any).

Audit of Organizations failed to submit Utilization Certificates (UCs):

The organizations which failed to submit Utilization Certificates (UCs) are taken very seriously by the Government. The special audit of such organizations is done by the Accountant General (AG) Auditors from time to time.

Why Grants are provided by Government?

The grants are provided after taking a serious view upon the demand of the organizations keeping in view, their primary functions, policies, programmes of Government and their actual requirements to spend money upon the activities. The grants are provided for specific purposes and required to be spent upon the same. In case, the money provided through grants is utilized for other functions, the utilization certificates be difficult to produce by the government organizations. The transfer of grant from one head to another cannot be done arbitrarily. The sanction of competent authorities is must for such cases.

Financial and Administrative Irregularities

The pending Utilization Certificates are most of the times, symptoms of financial and administrative irregularities in the organizations. The impression of the organizations become negative and such organizations also try to keep the information secret by not providing the replies of RTI queries in their offices. The inefficiencies in financial and administrative functions started to grow and ultimately, the organizations seem to be non-functional as per their mandate, vision, goals etc.

Training is the ultimate solution

The organizations with pending utilization certificates require training from Administrative Training Institutions (ATIs) like Haryana Institute of Public Administration (HIPA) in Haryana where financial and administrative skills are sharpen to minimize the inefficiencies, irregularities and the organizations start functions to attain their ultimate goals.  

Functions of Accounts Branch

Functions of Accounts Branch

On March 9, 2020; the Indian Express reported news concerning embezzlement by the staff members of the accounts branch in the Police Department of Chandigarh. A Special Investigation Team was constituted to probe the scandal through the transfer of allowances, Leave Travel Allowance into the salary accounts of 40 police personnel. The Superintendent of Police (S.P.) transferred the suspected employees to investigate whether they tampered with the accounting records or not. 
The organizations are governed by rules for utilizing the amount either provided by the Government (in case of public sector organizations) or raised from the market (in case of private sector organizations). The rules are taught in various training workshops at the Administrative Training Institutes of India. The private sector organizations showed their financial information and get it audited from the Chartered Accountants (CAs). In the case of public sector organizations, the accounts branch under the supervision of the Controller of Accounts i.e. Chief Accounts Officer or Drawing and Disbursing Officer; performs various functions.

Functions of Accounts Branch in Organizations of Government of India:

The Government of India Organizations i.e. Central Public Sector Organizations are supposed to perform various functions to ensure proper utilization of budget, funds, and monies realized for specific purposes.

(i) Consolidation of Accounting Information:

The Controller General of Accounts (CGA) working under the Department of Expenditure in the Ministry of Finance, Government of India; requires accounting information from each public sector organization after consolidation in their concerned office of Principal Accounts Office (PAO). Each Government organization process its payments through PAO and also deposits its receipts through PAO.

The Accounting Information is prepared in form of the appropriate Head of Accounts. The Annual Head Wise Appropriation Accounts and Statement of Transactions are prepared for the office and based on records of each office, consolidated statements are prepared of the Ministry.

(ii) Maintenance of Banking Records with Reconciliation of Accounts:

All transactions are not performed through Principal Accounts Office, in other words, the transactions which are related to payments and receipts in Banking Accounts, are required to be maintained separately. It is required to reconcile the cash with the balance of bank accounts every month.

(iii) Internal Audit:

For each Government Organization, it is required to ensure compliance with financial rules. The accounts branch keeps the accounting records as per the rules of the Government but to ensure the proper compliance of rules, it is required to conduct the internal audit are regular intervals.

For effective conduct of internal audit, the Head of Department deputes the Accounts Officers of one office to another office and vice-versa and directs to check the irregularities. The officers are trained by the Administrative Training Institutions (ATIs) in various skills relating to the internal audit including use of Information Technology, Rules, Effective Accounting Systems, and Policies.

(iv) Use of Computers and Information Technology:

The more the use of information technology, more the effective financial control will be. It is a must to use information technology for effective financial administration. The Government organizations of Central Government, are required to use the computers and information technology as per the directions from the Ministries. Nowadays, the organizations are utilizing the COMPACT Software and e-Lekha portal for computerizing the accounting records as well as for generating various types of consolidated statements of their offices.

(a) e-Lekha:

The e-Lekha software is used by the Principal Accounts Offices to generate accounting reports including Grant-wise Reports, Major Head-wise Reports, Revenue Receipts, Payments Records etc.

It is basically an initiative of the Government of India through which the e-Governance can be strengthened. By uploading daily abstracts of accounts through PAO offices, the ministries can easily access the payments and receipts of each office and ensure the proper flow of cash.

(b) Central Plan Scheme Monitoring System:

CPSMS (Central Plan Scheme Monitoring System) is another tool that helps Government to monitor the payments or disbursement of amounts under each Government scheme and ensure payments to real beneficiaries for whom the schemes are formulated. The schemes are incorporated into the software.

(v) Preparation of Reports for Government:

The Accounts personnel are committed to preparing the following reports for the use of the Government:

i. Appropriation Accounts
ii. Finance Accounts

iii. Appropriation Audit Register

iv. Put Through and PSBS Report

v. DDR Ledger Head

vi. IEBR (Internal External Budgetary Resources)

vii. Net Expenditure report

viii. Expenditure Reports of Income Tax, Interest, Pension, Loan, CGEGIS, etc.

ix. Quarterly reports of Pay & allowances of all PAOs employees.

x. SCT (Statement of Central Transactions)

xi. Progressive expenditure report.

xii. DDO wise Head of Account wise Budget monitoring (In PAOs)

xiii. Release of loans, repayment of loans & interest payment thereon.

*Copyright © 2019 Dr. Lalit Kumar. All rights reserved.

Next Page - Accounting and Finance With MS-Excel

https://managerialadministration.blogspot.com/2019/12/accounting-and-finance-through-ms-excel.html

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'.