Audit of Expenditure in Banking Sector

Bachelor of Commerce
Banking & Insurance
Semester-
(2010-2011)
Submitted
In Partial Fulfillments of the requirements for
the awarded Degree of Bachelor of Commerce -
Banking & Insurance.
DARSHANA .D. SAWANT
Roll no - I.309
KHAR EDUCATIONAL SOCIETY’S
College of Commerce and Economics
S.V Road (Khar West) Mumbai- 400052.

AUDIT OF EXPENDITURE
IN BANKING SECTOR.
A financial audit, or more accurately, an audit of financial
statements, is the review of the financial statements of
a company or any other legal entity (including
governments), resulting in the publication of an
independent opinion on whether or not those financial
statements are relevant, accurate, complete, and fairly
presented. Financial audits are typically performed by
firms of practicing accountants due to the specialist
financial reporting knowledge they require. The
financial audit is one of many assurance or attestation
functions provided by accounting and auditing firms,
whereby the firm provides an independent opinion on
published information. Many organisations separately
employ or hire internal auditors, who do not attest to
financial reports but focus mainly on the internal
controls of the organization. External auditors may
choose to place limited reliance on the work of internal
auditors.

Purpose
Financial audits exist to add credibility to the implied
assertion by an organization's management that its
financial statements fairly represent the organization's
position and performance to the firm's stakeholders
(interested parties). The principal stakeholders of a
company are typically its shareholders, but other parties
such as tax authorities, banks, regulators, suppliers,
customers and employees may also have an interest in
ensuring that the financial statements are accurate.

The audit is designed to reduce the possibility that a

material misstatement is not detected by audit
procedures. A misstatement is defined as false or missing
information, whether caused by fraud (including
deliberate misstatement) or error. "Material" is very
broadly defined as being large enough or important
enough to cause stakeholders to alter their decisions.

Audits exist because they add value through easing the

cost of information asymmetry, not because they are
required by law. For example, a privately-held company
that does not issue securities on a public exchange might
engage a firm to audit its financial statements in order to
obtain more desirable loan terms from a financial
institution or trade accounts with its customers. Without
the audit, the lending party would not have assurance as
to whether or not the company's financial position is
accurate. In turn, the lender could price protect against
this information asymmetry.

The exact form and content of the "audit opinion" will vary
between countries, firms and audited organizations.

In the US, the CPA firm provides written assurance that

financial reports are fairly presented, in all material
respects, in conformity with generally accepted
accounting principles (GAAP), where the threshold for
materiality is determined via auditor's judgment.
Audit of government expenditure

The earliest surviving mention of a public official charged

with auditing government expenditure is a reference to
the Auditor of the Exchequer in England in 1314. The
Auditors of the Imprest were established under Queen
Elizabeth I in 1559 with formal responsibility for
auditing Exchequer payments. This system gradually
lapsed and in 1780, Commissioners for Auditing the
Public Accounts were appointed by statute. From 1834,
the Commissioners worked in tandem with the
Comptroller of the Exchequer, who was charged with
controlling the issue of funds to the government.

As Chancellor of the Exchequer, William Ewart Gladstone

initiated major reforms of public finance and
Parliamentary accountability. His 1866 Exchequer and
Audit Departments Act required all departments, for
the first time, to produce annual accounts, known as
appropriation accounts. The Act also established the
position of Comptroller and Auditor General (C&AG) and
an Exchequer and Audit Department (E&AD) to provide
supporting staff from within the civil service. The C&AG
was given two main functions – to authorise the issue of
public money to government from the Bank of England,
having satisfied himself that this was within the limits
Parliament had voted – and to audit the accounts of all
Government departments and report to Parliament
accordingly.

Auditing of UK government expenditure is now carried out

by the National Audit Office. Sing industry (acting
through various organisations throughout the years) as
to the accounting standards for financial reporting, and
the U.S. Congress has deferred to the SEC.
This is also typically the case in other developed
economies. In the UK, auditing guidelines are set by the
institutes (including ACCA, ICAEW, ICAS and ICAI) of
which auditing firms and individual auditors are
members.

Accordingly, financial auditing standards and methods

have tended to change significantly only after auditing
failures. The most recent and familiar case is that of
Enron. The company succeeded in hiding some
important facts, such as off-book liabilities, from banks
and shareholders. Eventually, Enron filed for
bankruptcy, and (as of 2006[update]) is in the process
of being dissolved. One result of this scandal was that
Arthur Andersen, then one of the five largest
accountancy firms worldwide, lost their ability to audit
public companies, essentially killing off the firm.

A recent trend in audits (spurred on by such accounting

scandals as Enron and Worldcom) has been an
increased focus on internal control procedures, which
aim to ensure the completeness, accuracy and validity
of items in the accounts, and restricted access to
financial systems. This emphasis on the internal control
environment is now a mandatory part of the audit of
SEC-listed companies, under the auditing standards of
the Public Company Accounting Oversight Board
(PCAOB) set up by the Sarbanes-Oxley Act.

Imprest Expenditure Bank Account

Open / Increase Imprest Expenditure Bank Account (form)

Open / Increase Imprest Expenditure Bank Account

(instructions for completion)
Imprest Expenditure Bank Account - Request for
Reimbursement / Closure / Decrease (form)

Imprest Expenditure Bank Account - Request for

Reimbursement / Closure / Decrease (instructions for
completion)

Imprest Expenditure Bank Account Record (example)

[coming soon]

Imprest Expenditure Bank Account Reconciliation Report

(example) [coming soon]

Records Management - Payments to Vendors

Reference Guide - Reimbursement: Imprest Expenditure

Bank Account

An imprest expenditure bank account addresses one

alternative for handling small dollar purchases.

An imprest expenditure bank account operates in the

following way.

A separate bank account is established for the department

for expenditures of $500 or less. Refer to the Financial
Service Policy.

A designated amount is deposited to this account by the

Financial Services Department.

The department issues cheques from the account to pay

for small expenditures.
To replenish the account, the department processes a
petty cash reimbursement which also serves as the
mechanism for recording the expenditures in the
department's accounts.

This section sets out considerations in determining

whether an imprest expenditure bank account
represents the best solution to the department's needs
and explains the following:

Is an Imprest Expenditure Bank Account the best solution?

Key Requirements

Ineligible Payments

Establish an Imprest Expenditure Bank Account

Departmental Procedures for Financial Control

Imprest Expenditure Bank Account Record

Imprest Expenditure Bank Account Reconciliation Report

Reimburse an Imprest Expenditure Bank Account

Change Account Signators for an Imprest Expenditure

Bank Account
Increase the Amount of the Imprest Expenditure Bank
Account

Close an Imprest Expenditure Bank Account

Establish an Imprest Expenditure Bank

Account
Departmental Procedures:

Submit a request in writing to the Financial Services

Department, Banking Services, clarifying the following
information:

purpose of the account and type of expenditures,

amount of bank balance required, i.e. the total expected

monthly expenditures,

name of the intended custodian of the bank account, and

authorized cheque signators. It is recommended that a
minimum of three persons be designated as signators,
one of which is the custodian.

Financial Services Department Procedures:

Approve establishment of account where such an account

is determined to be the best solution for the
department's needs,

Forward to the department a signature card to be signed

by all signing officers,

Upon return of the signature card, establish a University

accounting record for the new imprest expenditure
bank account,

Communicate with the bank, and Inform the department in

writing of the amount, the bank account number, the
initial supply of cheques and cheque order form.

The earliest surviving mention of a public official charged

with auditing government expenditure is a reference to
the Auditor of the Exchequer in England in 1314. The
Auditors of the Imprest were established under Queen
Elizabeth I in 1559 with formal responsibility for
auditing Exchequer payments. This system gradually
lapsed and in 1780, Commissioners for Auditing the
Public Accounts were appointed by statute. From 1834,
the Commissioners worked in tandem with the
Comptroller of the Exchequer, who was charged with
controlling the issue of funds to the government.
As Chancellor of the Exchequer, William Ewart Gladstone
initiated major reforms of public finance and
Parliamentary accountability. His 1866 Exchequer and
Audit Departments Act required all departments, for
the first time, to produce annual accounts, known as
appropriation accounts. The Act also established the
position of Comptroller and Auditor General (C&AG) and
an Exchequer and Audit Department (E&AD) to provide
supporting staff from within the civil service. The C&AG
was given two main functions – to authorise the issue of
public money to government from the Bank of England,
having satisfied himself that this was within the limits
Parliament had voted – and to audit the accounts of all
Government departments and report to Parliament
accordingly.

Auditing of UK government expenditure is now carried out

by the National Audit Office. Sing industry (acting
through various organisations throughout the years) as
to the accounting standards for financial reporting, and
the U.S. Congress has deferred to the SEC.

This is also typically the case in other developed

economies. In the UK, auditing guidelines are set by the
institutes (including ACCA, ICAEW, ICAS and ICAI) of
which auditing firms and individual auditors are
members.
Accordingly, financial auditing standards and methods
have tended to change significantly only after auditing
failures. The most recent and familiar case is that of
Enron. The company succeeded in hiding some
important facts, such as off-book liabilities, from banks
and shareholders. Eventually, Enron filed for
bankruptcy, and (as of 2006) is in the process of being
dissolved. One result of this scandal was that Arthur
Andersen, then one of the five largest accountancy
firms worldwide, lost their ability to audit public
companies, essentially killing off the firm.

A recent trend in audits (spurred on by such accounting

scandals as Enron and Worldcom) has been an
increased focus on internal control procedures, which
aim to ensure the completeness, accuracy and validity
of items in the accounts, and restricted access to
financial systems. This emphasis on the internal control
environment is now a mandatory part of the audit of
SEC-listed companies, under the auditing standards of
the Public Company Accounting Oversight Board
(PCAOB) set up by the Sarbanes-Oxley Act.

Expenditure

Technical Advice on Accounting Matters:

The CGA provides advice to all Ministries/ Departments

and State Governments on various accounting matters.
The advice rendered by the CGA covers aspects related
to maintenance of accounts, accounting procedures for
new schemes/programmes or activities, collection of
receipts and its crediting into Government account,
release of payment and it’s accounting, creation and
operation of funds within Government accounts,
banking arrangements of making payments and
collecting receipts, etc.
Disbursement of pension:

The CGA is also responsible for disbursement and

accounting of pension payments to Government
employees retiring from all civil ministries. The
functions are discharged through Central Pension
Accounting Office (CPAO), which was created with the
primary objective of simplifying the procedure of
pension disbursement and accounting and providing
better quality service to the pensioners. The CPAO is
the central budgeting and accounting unit for the civil
pensions. It functions as a single point interface
between the Government, the banks and pensioners.
With the introduction of modern technology, CPAO is
able to serve over 6,00,000 pensioners spread all over
the country through the network of bank branches
specially authorised for pension disbursement.

Internal Audit:

The Internal Audit function is carried out with the help of

Internal Audit units in every Ministry, supervised by the
respective Controller of Accounts; the Inspection Wing
of CGA also provides guidance to the Controller of
Accounts on this subject. The CGA also brings out
annual review report based on the performance of
Internal Audit Wing of various Ministries/Department,
highlighting major irregularities, such as those
involving over payments, non-recovery of Government
dues, losses or infructuous expenditure, irregular
procurement, etc., observed during the course of
internal audit.
Capital Restructuring and Disinvestment of PSUs:

The Controller General of Accounts is responsible for

evaluating and processing the proposals relating to the
capital restructuring of various public sector
undertakings (PSUs) of the Union Government and its
submission to the Ministry of Finance. Generally the
proposals involve appraisal of the strategy proposed
for reviewing the unit. Each proposal is evaluated on
the basis of company specific options available. In
evaluating these proposals a clear distinction is made
between the Government’s role as a regulator and its
commercial interests as owner of an industry
participant. With the setting up of Board of
Reconstruction of Public Sector Enterprises, the Capital
Restructuring Cell in the Office of Controller General of
Accounts has been offering their comments on the
proposals for consideration of the Board as well as on
proposals for restructuring received from
administrative Ministries.

Centre of Excellence for Internal audit:

A Centre of Excellence for Internal audit has been
established in the Office of Controller General of
Accounts with the following objectives:
(i) Develop into a repository of technical resource and
guidance center for advising internal audit wings of line
Ministries on effective, independent and objective
internal audit functions, procedures, and "best
practices". The approach of
COE will be to cover important aspects of risk
management strategy and the management control
framework and practices;
(ii) Enhance the quality of internal audit so that the
result of internal audit become an input into the
processes of planning, project formulation and
implementation and
(iii) Provide an assurance to the management that the
"controls" in place provide adequate protection against
likely "risks".

Core Accounting Solution:

The office of CGA has taken initiative to achieve Core
Accounting Solutions in phases. This program aims at a
seamless electronic data transfer related to payment
and receipt information, accounting information and
reconciliation information in a secure environment. This
will establish a centralized database to enable the
organization to act as a single window for discussing all
information related to accounts and other MIS data for
decision making. By using Information Technology for
compressing the timelines for submission of audited
accounts and ensuring real time reporting of
revenue/expenditure data financial management in
Government is expected to improve significantly.

Human Resource Development:

The CGA manages the cadre of the Indian Civil

Accounts Service (ICAS) and the entire accounts
personnel deployed in civil ministries and is responsible
for the entire gamut of personnel management
including their recruitment, transfers, promotions,
training, and capacity building both within the country
as well as abroad, and periodical reviews of cadre
strength and distribution. 398 India 2010
Training:

The Institute of Government Accounts and Finance

(INGAF) has been setup in the year 1992 under the CGA
to meet the training needs of the Civil Accounts
personnel. The Institute has developed itself into a
centre of academic excellence in the field of
Government Accounts and Finance. It acts as a ‘think-
tank’ of the Civil Accounts Organisation providing
feedback to the Controller General of Accounts on the
training needs and various technical matters. Besides
training the officers and staff of the Civil Accounts
Organisation the Institute has also been training
personnel of various Ministries and Departments of the
Central as well as State Governments. INGAF also
provides consultancy services to various Government
and autonomous bodies. The Institute has been
conducting training for the accounts and finance
personnel of several foreign governments under the
Internal Technical and Economic Cooperation (ITEC)
programme of the Ministry of External Affairs and also
under bilateral cooperation. The Institute has its main
centre at Delhi and regional centres at Mumbai,
Chennai and Kolkata.

Parliamentary Financial Control:

Monitoring Cell in office of CGA is entrusted with
monitoring the progress of submission by Ministries of
remedial/corrective Action Plan Taken Notes on
recommendations of Public Accounts Committee (PAC),
as contained in their reports from time to time. It is
further entrusted with the task of coordination,
collection and monitoring the submission of Action
Taken Notes on various Paras contained in C&AGs
Report (Civil). Besides it is also responsible for
coordination, collection and timely submission to the
Public Accounts Committee of explanatory Notes by
Ministries/Deptts on "excess expenditure" and
"savings" of Rs. 100 crores and above appearing in the
annual appropriations accounts. In addition, the
Monitoring Cell monitors the reciept of Utilization
certificates from Grantee Institutions by various
Ministries/Deptt. of Government of India. Besides
training the officers and staff of the Civil Accounts
Organisations the Institute has also been training
personnel of various Ministries and Departments of the
Central as well as State Governments.

Central Plan Schemes Monitoring System:

The Plan Accounting & Public Finance

Scheme also known as Central Plan Schemes
Monitoring System is being implemented by Controller
General of Accounts w.e.f. 01-04-2008 to establish a
comprehensive decision support system and
Management Information System in respect of Plan
Scheme.
In the first phase of the implementation of the scheme,
every sanction issued by different Ministries of
Government of India for the releases of funds under
Plan Schemes is captured by generation of unique
Sanction ID in the specially designed CPSMS Portal of
CGA's website to facilitate the Tracking of funds release
to implementing agencies under a plan scheme. The
system thus created has been able to generate
grant/release/State wise report on disbursements for
plan schemes. Plans have also been conducted in
Karnataka or Punjab states for selected schemes to
capture component wise expenditure from the lowest
level of implementation.