AUDIT IBM 21-11-2013

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AUDIT OF ACCOUNTS AND

SETTLEMENT OF AUDIT PARAS

By

M. Arshad Baig

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Major areas



Finance and financial system in Govt.



Audit and audit objections



How to prevent, settle and take action

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3 Major Areas

Major Areas

:-

:-Introduction to Public Finance, Financial Introduction to Public Finance, Financial

System and Public Financial Management

System and Public Financial Management IncomeIncome

– Full Recovery_{Full Recovery}

– In-time Recovery_{In-time Recovery}

– Deposit on the same day or the next_{Deposit on the same day or the next} – Into the proper head of Income_{Into the proper head of Income}

– Promptly record the entries into books of _{Promptly record the entries into books of}

Accounts

(4)

Expenditure



Rates



Sanction of the Competent

Authority



Existence of Budget

Provision

(5)

Who is DDO and what he does?

Dimensions of DDOs in Financial

Matters

– Budget– Preparation, Frame Work & _{Budget– Preparation, Frame Work &}

Control

– Procurements_Procurements

– General Principles and Restrictions relating _{General Principles and Restrictions relating}

to expenditure

– According/Obtaining Sanctions_{According/Obtaining Sanctions}

– Payment Vouchers / Documentation_{Payment Vouchers / Documentation}

– Deductions on Payments_{Deductions on Payments}

(6)

DDO to deal with Cash matters



Maintenance of Accounts- Cash

Book



Reconciliation of Payments &

Receipts – Verification exercise



Stores account and fixed assets

matters



Auctions of surplus and obsolete

stores

Cont…

(7)

DDOs under accountability regime



Control Framework for Prevention

_{Control Framework for Prevention}

of frauds, losses, miscellaneous

irregularities bogus payments



Fraud and culpable negligence

_{Fraud and culpable negligence}

proceed able under Cr.Pc & PEEDA

Act simultaneously



Accountability through Audit

_{Accountability through Audit}

(8)

Cont…

Major AreasMajor Areas

:-

:-

DDOs In Administrative and

Service Matters



Social Dimension of DDOs Role &

Responsibility



Overview of DDOs Duties & Role

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Canons of Financial Propriety

 The officer incurring or authorizing The officer incurring or authorizing

expenditure from public funds should be

guided by high standard of financial

propriety.

 Every public servant is expected to exercise Every public servant is expected to exercise

the same vigilance in respect of expenditure

from public money, as a person of ordinary

prudence would exercise in r/o expenditure

of his own money.

 The expenditure should not be prima facie The expenditure should not be prima facie

more than the occasion demands.

9

(10)

Cont… Canons of Financial Propriety

 No authority should pass any order, which will be No authority should pass any order, which will be

directly or indirectly to his own benefits.

 Public money should not be utilized for the benefit of _{Public money should not be utilized for the benefit of}

a particular person or section of the community

unless:

– The expenditure involved is insignificant; or_{The expenditure involved is insignificant; or}

– A claim for the amount can be enforced in a court of law._{A claim for the amount can be enforced in a court of law.} – The expenditure is in pursuance of recognized policy or _{The expenditure is in pursuance of recognized policy or}

(11)

Cont… Canons of Financial Propriety



The amount of allowances granted to

meet expenditure of a particular type

should be so regulated that the

allowances are not, on the whole, a

source of profit to the recipient. The

amount of allowances granted to meet

expenditure of a particular type should

be so regulated that the allowances are

not, on the whole, a source of profit to

the recipient example TA/DA etc.

(12)

AUDIT –

‘TO HEAR’

_{‘TO HEAR’}



Critical and objective

appreciation of

accounts and services

and reporting thereof

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What is an Audit?



Audit is an independent examination of

financial statements of an entity that

enables an auditor to express an opinion

whether the financial statements are

prepared in accordance with an identified

and acceptable financial reporting

framework (e.g. international or local

accounting standards and national

legislations)

(14)

STATUTORY AUTHORITY

The Auditor General shall conduct the

audit of the Accounts of the Provincial

Government Departments in accordance with the Auditor General Ordinance,

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Cont..

Audit of the accounts of any Local

authority or Local body established by the

Province shall be performed by the

Auditor General or any other agency as determined by the Act of the Provincial

Assembly under which that Local

Authority / Local Body has been

(16)

Cont..

The reports of the Auditor-General

relating to the accounts of the Provincial

Government Departments shall be

submitted to the Governor of the Province, who shall cause them to be laid

before the Provincial Assembly in terms

(17)

17 17

Cont.. Audit Reports of Local Authority / Local Body:

(18)

NATURE OF AUDIT



Manner of Audit

_{(How to conduct the Audit)}_{(How to conduct the Audit)} 

Types of Audit



Object of Audit



Purpose of Audit



Principles of Audit



Functions of Audit

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TYPES OF AUDIT

 Regularity Audit / Compliance AuditRegularity Audit / Compliance Audit

 Certification Certification Audit Audit of of Appropriation Appropriation

Accounts

 Special StudiesSpecial Studies

 Commercial Audit (Financial Statements)Commercial Audit (Financial Statements)

 Internal Audit (Executive Arrangement)Internal Audit (Executive Arrangement)

(20)



Performance Audit (extended scope of

audit on the principle of Economy,

Efficiency, Effectiveness, Equity and

Environment-friendliness – to ascertain

how far the objectives were well

conceived, properly implemented and

sufficiently delivered)

(21)

Forensic Audit



Forensic auditing examines

individual or company

financial records as an

investigative measure that

attempts to derive evidence

suitable for use in litigation

(22)

Object of Audit



The object of Audit is detection of :

– Fraud, Embezzlements and Misappropriation_{Fraud, Embezzlements and Misappropriation}

– Technical Errors and _{Technical Errors and}

(23)

Purpose of Audit



The purpose of Audit is to assist the

Administration in the maintenance of

proper accounts and protection of their

funds against :

– Fraud_Fraud

– Embezzlements_{Embezzlements}

– Misappropriation_{Misappropriation}

– Other Irregularities, and_{Other Irregularities, and}

– Wastage_Wastage

(24)

Principles to Guide Audit Authority



The Audit shall be conducted with a view

to promoting the purpose of Audit;



All the cases of embezzlement,

misappropriation, fraud, loss, wastage or

misapplication of funds or property shall

be brought to light without fear and favour.



The Audit shall be educative.



Audit to act as technical advisor.

(25)

Functions of Audit



The functions of Audit are to verify the

accuracy and completeness of the

accounts and to ensure that:

– Provisions of rules have been observed,_{Provisions of rules have been observed,}

– Revenues have been brought to account _{Revenues have been brought to account}

under proper head,

– All the expenditure and disbursements are _{All the expenditure and disbursements are}

authorized, watched and correctly classified,

(26)

Functions of Audit

Cont…Cont…

–

_{The final accounts represent a}

complete and true statement of

financial transactions,

–

_{It purports to exhibit,}

–

All the matters which appear to involve

_{All the matters which appear to involve}

irregular expenditure, wastage of

funds or property and leakage in

revenue are brought to light.

(27)

POWERS OF AUDIT AUTHORITY



May require in writing the production

of the record



May require in writing any official

accountable for or having the custody

or control of record to answer any

question



Report his opinion to the quarters

concerned

(28)

CLASSIFICATION OF AUDIT

OBSERVATIONS/AUDIT PARAS

 Audit observation:Audit observation: Ordinary observation Ordinary observation

(reported to DDO)

 Advance Advance Para:Para: Serious Serious financial financial

irregularity / defalcation / embezzlement /

fraud / theft / damage. (reported to the

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29 29  Proposed draft Para (PDP):Proposed draft Para (PDP): Advance Advance

Paras reported to the Administrative

Secretary / DCO, as a last bid for

settlement before those are converted

into draft Paras.

(30)

 Draft Para:Draft Para: the Para reported by the the Para reported by the

Auditor General to the Governor of the

Province / Nazism of the District

Government, as the case may be.

Note:

Note: These Paras are classified by the These Paras are classified by the

Audit Office for preparation of Audit

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SETTLEMENT OF AUDIT PARAS

 Audit Observations:Audit Observations: Considered and settled Considered and settled

in Departmental Accounts Committee (DAC)

headed by Deputy Secretary or a field

officer in BS-20 and Rep of Audit & Finance

Department, as its members. In the District,

the District Accounts Committee (DAC)

headed by the DCO, and EDO (F&P), EDO

(Concerned Department) and rep of the

Audit, as its members.

(32)

 Advance Paras / Proposed Draft Paras:Advance Paras / Proposed Draft Paras:

Considered and settled in Special

Departmental Accounts Committee (SDAC)

headed by Administrative Secretary / Additional

Secretary, Rep of Audit and Finance

Department as its members. In the District, the

District Accounts Committee headed by DCO,

and EDO (F&P), EDO (Concerned Department)

and rep of the Audit as its members.

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 Draft Paras: Relating to: -Draft Paras: Relating to:

-– Provincial Government Departments are _{Provincial Government Departments are}

considered in PAC, under the constitution

and Rules framed there under.

– District Government are considered in Zila _{District Government are considered in Zila}

Accounts Committee (ZAC), under PLGO,

2001 and Rules framed thereunder.

(34)

– TMAs are considered in Tehsil _{TMAs are considered in Tehsil}

Accounts Committee (TAC), under

PLGO, 2001

– UAs are considered in Union Accounts _{UAs are considered in Union Accounts}

Committee (UAC), under PLGO, 2001

and Rules framed therunder.

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AUDIT PARAS CONTAIN

1.

Public loss by way of fraud or

negligence

2.

(36)

PROCEDURAL LAPSES –

(i)

(i) Mis-classificationMis-classification –– not charging the not charging the expenditure to its proper and specific

expenditure to its proper and specific

object of expenditure/receipts as per Charts

of Accounts (CAO).

(ii)

(ii) Incompetent Incompetent sanctions sanctions –– According According sanctions beyond Delegation of Financial

sanctions beyond Delegation of Financial

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(iii)

(iii) Advance Drawals –Advance Drawals – Drawal of money Drawal of money from Provincial Consolidated Fund

from Provincial Consolidated Fund

(PCF) without the sanction of the

Finance Department.

(iv)

(iv) Excess Payments –_{Excess Payments –} Expenditure made _{Expenditure made}

in excess of the Budget Allocations or

without allocation.

(38)

(v)

(v) Savings –Savings – Non-surrendering/retaining Non-surrendering/retaining the allocations beyond requirements or

the allocations beyond requirements or

non-utilization of funds demanded

during a financial year.

(vi)

(vi) Irregular _Irregular Re-appropriation _{Re-appropriation} –_– Re-

Re-appropriation made inconsistent to the

appropriation made inconsistent to the

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(vii)

(vii) Irregular Purchases –Irregular Purchases – Purchases made Purchases made without adopting the proper procedure.

without adopting the proper procedure.

(viii)

(viii) Improper Accountal - _{Improper Accountal -}

a)

a) Payments / Receipts not properly Payments / Receipts not properly accounted for in Cash Book.

accounted for in Cash Book.

b)

b) Actual Payees Receipts (APR) not _{Actual Payees Receipts (APR) not}

obtained.

(40)

c)

c) Log Books not maintained as Govt. Log Books not maintained as Govt. Vehicles Rules.

Vehicles Rules.

d)

d) Stores not entered in Stock Register. Stores not entered in Stock Register. (ix)

(ix) Levies not applied on payments - Levies not applied on payments -

a)

a) Deductions of Income Tax not Deductions of Income Tax not made

made

b)

b) Sale Tax not paid.Sale Tax not paid.

(41)

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RULES OF PROCEDURE OF

THE PROVINCIAL ASSEMBLY

OF THE PUNJAB 1997

* Rule 129 – Report of Auditor General –

The annual report of the Auditor-General

relating to the accounts of the Province of the

(42)

PUBLIC ACCOUNTS COMMITTEE

– AN IMPORTANT TOOL OF

ACCOUNTABILITY

 PAC directions come in the form of: -PAC directions come in the form of:

-– _{Stoppage of promotions where}_{Stoppage of promotions where} audit paras are pending against

audit paras are pending against

the Officers / Officials responsible

(43)

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– E&D Proceedings against the Officers / Officials _{E&D Proceedings against the Officers / Officials}

responsible

– Recovery from the persons responsible under land _{Recovery from the persons responsible under land}

Revenue Act

 Promotion of officers in Punjab Government has Promotion of officers in Punjab Government has

been linked with the certification of no gross financial

irregularities outstanding against the incumbent.

(44)

ROLE OF THE FINANCE

DEPARTMENT

 Finance Finance Department Department monitors monitors the the

settlement of audit Paras against the

Government Departments through Quarterly

Review Committee. The Committee has

been constituted with the approval of the

Governor, Punjab. The Committee is headed

by ACS and Administrative Secretaries are

its members. Incharge Monitoring Wing

(45)

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Cont..Cont..

 Finance Department is responsible for Finance Department is responsible for

seeing that the recommendations of the PAC

and SDAC / DAC are duly complied with.

 The The representative representative of of the the Finance Finance

Department in PAC and SDAC / DAC guides

these committees on the position of rules,

instructions and policies of the Government

on the relevant audit para under

consideration of these committees.

(46)

Cont…Cont…

 Finance Department, as an executive Finance Department, as an executive

organ of the Provincial Government,

regularizes the irregularities by invoking

rule 18.15 (aa), PFR Vol-I, at the instance

of the PAC and SDAC / DAC.

(47)

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Cont..Cont..

 Finance Department avoids regularizing Finance Department avoids regularizing

the draft paras and the advance paras /

proposed draft paras / ordinary

observations relating to appropriation

accounts until such paras are considered

by the PAC otherwise it would mount to

taking away the right of consideration by

the later.

(48)

Corruption



Abuse of office power for

personal gains or for the benefit

of the group to which one owes

allegiance.

Corruption

=

₌

M+D-A/E

_M+D-A/E

Monopoly + Discretion - Accountability / Ethics

(49)

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Pillars of Accountability

 Political WillPolitical Will  ParliamentParliament

 Administrative InspectionsAdministrative Inspections  The JudiciaryThe Judiciary

 The MediaThe Media

 Public AwarenessPublic Awareness  Audit AgenciesAudit Agencies

 Anti-CorruptionAnti-Corruption  NABNAB

(50)

Accountability Cycle

Legislature

Authorization of Budget

Allocation of Budget

Budget Execution by Department’s Audit Reports

PAC

(51)

HOW TO AVOID THE AUDIT OBJECTIONS

AND FINANCIAL IRREGULARITY

 The Administrative Secretary concerned The Administrative Secretary concerned

should strictly follow financial rules, laws

and delegation of financial powers.

 The DDOs, Controlling Officers should work _{The DDOs, Controlling Officers should work}

with approved authorization and financial

discipline.

 The comprehensive training should be given _{The comprehensive training should be given}

to budget makers and operators of budget.

 The Audit and Accounts staff on – job _{The Audit and Accounts staff on – job}

training to keep them abreast with the latest

policy instructions, Rules, Laws and correct

Interpretations thereof.

(52)

Challenges

 Capacity Issue – both human recourse compatible to _{Capacity Issue – both human recourse compatible to}

Volume of work for Timely Audit and in-capacity for

Proper Comprehension of Rules – more recruitments

/ professional trainings / enhancing the level of

reporting and representation in accounts

committees

 Updating of Regulations – Provincial Government to Updating of Regulations – Provincial Government to

take step

 Internal Audit – Provincial Government to remove Internal Audit – Provincial Government to remove

the grey areas

 Promotion linked with Gross Financial Irregularities _{Promotion linked with Gross Financial Irregularities}

– timely action to overcome implementation hiccups

 Enquiry Against Retiring / Retired Civil Servants- Enquiry Against Retiring / Retired Civil Servants-

Rules Position / Court Rulings – timely action by the

authority

(53)

(54)

How to Get Rid of Audit Paras?

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