CHAPTER 21
AUDIT OF
CONTINGENCY FUNDS
AND PUBLIC ACCOUNTING
21.1 Under section 13(b) of the Comptroller and Auditor General’s
(Duties, Powers and Conditions of Service) Act, 1971, the Comptroller and
Auditor General is responsible for audit of all transactions of the Union and
of the States relating to Contingency Funds and Public Accounts. Expenditure
under Contingency Funds has the same characteristics as any expenditure under
the Consolidated Fund except that authorization of such expenditure by the
concerned Legislature could not be obtained in advance. Public Accounts embrace
debt, deposits and remittances and suspense heads. Transactions under
debt/deposit heads comprise receipts and payments in respect of which
Government becomes liable to repay the moneys received or has a claim to
recover amounts paid together with repayments of the former and recoveries of
the latter. Remittances embrace all transactions which are taken to merely
adjusting heads of accounts, the debits or credits under which are eventually
cleared by a corresponding credit or debit either within the same or in another
circle of audit. Suspense heads accommodate temporarily, transactions which can
not be taken in to final heads or which represent amount due to or from others
and are cleared by transfer to final heads or recovery or payment as the case
may be.
(i) AUDIT OF CONTINGENCY FUNDS
(ii) AUDIT OF PUBLIC ACCOUNTS
21.2 The principles, scope and extent that
govern audit of expenditure from Consolidated Fund apply equally to audit of
expenditure met out of advances from Contingency Fund.
General Principles
21.3 The general principles and rules of audit
which govern audit of expenditure apply mutatis mutandis to disbursement s
under Debt, Deposit, Remittance and Suspense heads. In the case of a repayment,
Audit should check the payment against the original receipts and should satisfy
itself that the repayment is made according to the rules, regulations or orders
which govern the transactions. Similarly, in the case of a payment subject to
recovery, Audit should ascertain that the payment conforms to the authority
which governs it and has further to watch that the moneys are regularly repaid
by the debtor.
21.4 It is an important part of the duties of
Audit to review and verify the balances under Debt/ Deposit heads and the
outstanding under suspense and Remittance heads as disclosed in the books of
Accounts Officer at the close of the year. The first step in the process of
this verification is to see how far the final results of any detailed account
kept of the transactions work up to and agree with the balances in the ledger.
The next step is to ascertain, where necessary, whether the person or persons
by whom the balance is owed or to whom it is due, admit its correctness, and in
case of balances due to Government how far they are really recoverable.
Sinking Funds
21.5 In auditing the transactions connected with the Sinking Funds regularly constituted for the redemption of loans raised by Government, the Audit Officer has to satisfy himself that credits to these funds are in accordance with the undertaking given by Government and set forth in the prospectus of the loans and that the payments are eventually utilized for the purpose for which the funds themselves were created.
21.6 The general principles in accordance with
which the adequacy of the amortization arrangements should be examined are set
out below:
(1) Amortization arrangements for loans for
unproductive purposes may be related to some extent to the period of maturity
of the loans and also to the chances of growth of the particular type of
unproductive debt. It is however, sounder and more prudent to relate the
arrangements rather to the object of the borrowing than to the currency of the
actual loans. The period ought to be comparatively short where the expenditure
on unproductive purpose should more properly be met from revenue, where the
assets constructed from the loan are comparatively short-lived, or where the
total of the borrowings for the unproductive purpose is likely to increase
rapidly. Where material asset is produced the amortization period should never
exceed the life of the asset.
(2) The
arrangements for the amortization of loans for productive purposes must again
depend on the particular circumstances of each case. Where the net earning
power of an asset substantially exceeds the interest on the debt, it may not be
necessary to suggest amortization; it should be recognized however, that it is
sound and prudent financial policy to make amortization arrangements even in
connection with the most productive debt. In the case of borrowings to finance
loans to cultivators and others, the actual recoveries of principal may be
sufficient for debt repayment if used for that purposes provided all losses
etc., are written off to revenue. Where depreciation or renewal reserves are
constituted for the replacement of assets constructed from loan fund,
amortization is often omitted altogether or its rate scaled down; but here
again the remark made about productive loan is valid. Normally the rate of
amortization should be related to the life of the revenue producing asset for
the construction of which the debt was incurred.
Blogger'sNote: Reduction of Debt through SINKING FUND is call AMORTIZATION
Blogger'sNote: Reduction of Debt through SINKING FUND is call AMORTIZATION
🔲.
Reduction of debt through Sinking fund is called:
(A)
Balancing
(B)
Sinking
(C) Over
draft
(D) Amortisation21.7 In discharging the responsibility for audit of transactions connected with the Debt Redemption Scheme of the Union Government or of any such scheme adopted by a State Government, it should be seen that the conditions of the schemes are scrupulously observed that is, the annual debits against revenue under the scheme are calculated strictly in accordance with the approved programme, that the appropriations for reduction or avoidance of the debt are applied to the objects for which the money has been set aside and that liquidation of debt proceeds at the rate and on the lines prescribed.
Investment
21.8 Audit is responsible for keeping a watch
over investment of funds forming part of the Public Account of India or of a
State. It is to be seen in audit that the investments made on account of any
regularly constituted Sinking Fund or other fund administered by Government are
of the category authorized by the statutory provisions or instrument by which
the fund is governed. When there is no governing statutory provision or
instrument, proper authority for the investment should be demanded. The
principle also applies to the investment of cash balances of the Union or of a
State Government. The Audit Officer is required to take up promptly with the
Government any cases of investment which he considers to be unauthorized,
irregular or unsound. Any ascertained losses connected with investments or
unusual depreciation in the market price of any investment are also reported to
Government in a suitable manner with such comments as may be considered
appropriate.
Service and Provident Fund
21.9 The audit of transactions pertaining to
Service and Provident Funds controlled by Government mainly consists in seeing
that the transactions conform to the rules or regulations governing the
administration of each Fund and any subsidiary instructions issued thereunder.
Having first satisfied itself that subscriptions to a Service or Provident Fund
are received only from such Government servants as are either required or
permitted by the rules of the Fund to subscribe to it. Audit will watch that
subscriptions and any other dues recoverable under the rules of the Fund are
duly and regularly recovered from the Government servant concerned. In the case
of Contributory Provident Funds, Audit will also examine that Government’s
share is properly calculated and brought to account. Finally, Audit is to
verify that the accounts of the funds are correct both in total and in the
detailed accounts of the subscribers.
Reserves and Reserve Funds
21.10 There exist a number of Reserve and
Reserve Funds in the Deposit Section of the accounts of the Government of India
and the States which have been created for specific and well defined purposes
and are fed by contributions or grants from the revenues of the Union and the
State or from outside agencies. In relation to the transactions pertaining to
such Funds, Audit is required to see-
(1) that the transactions are classified and
accounted for according to the prescribed principles; and
(2) that the transactions conform to the rules
or orders governing the administration of each fund made by a competent
authority.
Audit should also verify the balance at the
close of the year standing in the account of each fund.
Deposits
21.11 In the case of moneys received to be held
as deposits with Government, Audit has to satisfy itself that the money can
properly be credited to the Public Account of India or of a State by virtue of
a statutory provision or of general or special orders of Government. Audit has
also to see that no item is credited as a revenue receipt or in reduction of
ordinary expenditure of that Government. In respect of repayments of deposits,
Audit is required to examine that there are proper vouchers in support of the
amount repaid and to check each repayment against the original receipt either
individually or against the total credit in a particular account in order to
see that repayments do not exceed the amounts originally received and credited
to Government. The check of individual items of repayments against original
deposits is done during local audit.
21.12 It is also the function of Audit to see
that balances in deposit accounts are correctly carried over from year to year,
that the balances at the close of the year in each account are acknowledged as
correct by the person or body concerned where necessary ad practicable and that
any deposits remaining unclaimed for such periods as may be prescribed by
Government in this behalf are duly credited as revenue receipts of Government.
Loans and Advances by Government
21.13 Government disbursed loans and advances to
public and quasi-public bodies and individuals. Some of these loans and
advances are made under specific laws, other for special reasons or as a matter
or recognized policy. Except in the case of loans and advances made under
special laws or in respect of which Government has issued any general rules or
orders, Audit may require that the reasons for making it as well as the
conditions on which it is made are stated in full in the orders sanctioning the
loan or Advance. Audit may also enquire the reason for any unusual condition,
e.g., remission of interest in an individual case. Audit should see that the
conditions of repayment of a loan or an advance are complied with by the debtor
and should exercise a close watch over payment of principal and realization of
interest, if any. In reviewing the outstanding loans and advances, Audit will
pay special attention to irregularities in repayment, acknowledgement of
balances and unrealisable and doubtful assets.
21.14 In respect of loans and advances the
detailed accounts of which are kept by him, the Audit Officer is required to
report without delay any default in payment, either of principal or of interest
to the authority which sanctioned the loan or the advance. If that authority
enforces any penal interest upon the overdue instalments of interest or
principal and interest it will be the duty of audit to watch its recovery.
21.15 Any information which may come to the
notice of the Audit Officer in the course of his official business in respect
of the financial position of a debtor should be communicated by him confidentially
to Government with such comments as he may think fit. This duty should be
performed by the head of the Audit Office personally with the utmost care and
discretion.
Suspense
Accounts
21.16 Under Suspense heads are recorded all such
transactions as are ultimately removed either by payment or recovery in cash or
by book adjustment.
Audit of
transactions under Suspense heads consists not only in applying the ordinary
procedure of audit of expenditure and receipts but also in seeing:
(1) that the unadjusted balances under these
heads continue to represent bonafide assets or liabilities of Government,
capable of being realized or settled, as the case may be, and
(2) that satisfactory action towards such
realization or settlement is being taken by the officers responsible therefor.
21.17 All balances under Suspense heads have to
be reviewed at short intervals so that it may be secured that no item remains
unadjusted longer than is reasonably necessary to bring about its clearance in
the ordinary course with due regard to the rules applicable to each case.
Remittances
21.18 In the audit of Remittance transactions it
has to be seen that debits and credits are cleared either by receipt or payment
in cash or by book adjustment under the relevant Service or Revenue heads of
account or have been paired off by corresponding credits or debits within the
same or in another account circle. An important Part of this audit is to
scrutinize the balances from month to month in order to effect their early
clearance and to determine the accuracy of the outstandings at the end of the
year.