Notes 1

AUDIT OBJECTIONS and Settlement of Audit Objections

SETTLEMENT OF AUDIT OBJECTIONS Audit objections are the observations which are
given by the auditor in the audit report. Whenever any irregularity is noted by the audit in
the course of audit the same is noted by the audit in the form of PARAS. When the audit
report is printed these paras are sent to the department for compliance. when the
department receives the audit paras and they think that the expenditure which has been
incurred by the department is according to the rules and regulations then it writes the
reply to the auditor about the irregularity. If the audit accepts the plea then the para is
settled at that time.

There may also be a situation in which audit has penalized any person of the department
and orders recovery of the expenditure. if the recovery is made by the department and the
plea of audit is accepted. then in this situation the audit objeciton is also settled.

But if the audit has identifed an irregularity but the concerned department has turned a
deaf year to it and did not pay any attention the same para by the audit goes to PUBLIC
ACCOUNTS COMMITTEE. The public accounts committee then takes up its own steps to
settle the paras.

79. Every Government servant, entrusted with the duty of making payments on behalf of
Government, should attend promptly to all objections and orders communicated to him by
the Accountant General, either direct, or through the Treasury Officer, by letters, audit
memoranda, etc. and return the audit memoranda or reply to objections within a fortnight
or send letters explaining the cause of delay.

NOTE—The fact that some of the objections are still under reference is no reason for
keeping back the statement. Such cases can be extracted for subsequent explanation.

80. Under Treasury Rule 31 if a Treasury Officer receives intimation from the Accountant
General that moneys have been incorrectly withdrawn and that a certain sum should be
recovered from a drawing officer, he shall effect the recovery without delay and without
regard to any correspondence undertaken or contemplated with reference to the
retrenchment order; and the drawing officer shall without delay repay the sum, in such
manner as the Accountant General may direct.

81. When the Accountant General disallows a payment as unauthorized, the Treasury
Officer must not only recover the amounts disallowed without listening to any objection or
protest, but also refuse to make further payments in future till the Accountant General
authorizes the payment to be resumed. That no warning slip has been received by the
Government servant affected, or that, being received, it has been answered, are facts with
which the Treasury Officer has no concern.
NOTES—(1) If a Government servant, from whom a recovery is ordered has in the
meantime been transferred to another district, the Treasury Officer should without delay
pass on the order of recovery to the other Treasury.

(2) Representation and protests against retrenchments ordered by the Accountant General
will not ordinarily be considered by the administrative authorities if submitted later than
three months from after the date of receipt of the intimation by the aggrieved Government
servant. An administrative authority competent to waive recovery may communicate any
representation or protest so received to the Accountant General who may at his discretion
postpone recovery pending a decision on the protest. This provision does not remove from
the Treasury Officer the duty of enforcing immediately recovery of a retrenchment order
under note (5) below.

(3) Recoveries may not ordinarily be made at a rate exceeding one-third of pay unless the
Government servant affected has (a) in receiving or drawing the excess, acted contrary to
orders or without due justification or (b) taken an advance for a specific purpose, not
utilised it for the purpose for which the advance was sanctioned within the prescribed
period and failed to refund the outstanding amount within the stipulated date.

(4) All retrenchments ordered by the Accountant General should be noted in the register
prescribed in paragraph 429 against the name of the officer concerned. The register
contains columns specifying the nature and amount of over payment and the method by
which the overpayment has been adjusted. The entries relating to retrenchments should be
inspected by the Treasury Officer in the last week of the month to see that all recoveries are
being made properly.

(5) A Treasury Officer must not when a retrenchment is ordered enter into any
correspondence with either the Accountant General or the Government servant affected by
the retrenchment ; it is his duty simply and promptly to carry out the orders he has
received and to leave to the person aggrieved to refer the case to Government through the
proper channel.

(6) If considered desirable, the recovery of a sum retrenched from a pay bill need only be
made from the next pay bill, and of a sum retrenched from a travelling allowance bill from
the next payment of travelling allowances, but retrenchments of travelling allowances must
be recovered in cash or from pay bills when the Government servant concerned does not
within a month present a travelling allowance claim from which they can be recovered.

(7) (a) In order to avoid unnecessary expenditure of time and labour on cases of a simple
and unimportant character, the Government have authorised the Accountant General and
certain other officers of his office to forego recovery of petty items of expenditure held
under objection.

(b) Subject to the prescribed limits and conditions, recovery of overpayments discovered
during local audits and of Government dues in cases where it is the duty of the Audit to
watch recovery, may also be waived by Audit Officers authorised for the purpose.
81-A. Recoveries of overpayments made to a Government servant who has proceeded on
leave out of India are, as a rule, not enforced until he returns to duty in India. If in any case
however it is considered necessary to ask the High Commissioner for India to make such
recoveries the Accountant General should forward the necessary documents in duplicate to
the Government for orders.

81-B. Ordinarily all personal claims are audited finally by the Accountant General within
one year from the date of payment. In cases, however, where payments on account of
personal claims are placed under objection more than a year after the date on which they
are disbursed, the Accountant General is required to obtain the orders of the Government
before demanding recovery of the amount under objection. But if the amount involved does
not exceed the prescribed limits and if the Audit Officer authorised for the purpose is
satisfied that it was drawn by the Government servant under reasonable belief that he was
entitled to it he may waive the recovery of the amount.

Notes 2

Audit Objections: Problems and Mitigation Procedures

Definition of Audit:

Audit includes an examination of the books of accounts, other documents, stores, assets etc.

relating to the receipts and expenditure of government, statutory public authorities and

public enterprises with a view to ensuring that rules and orders framed by the competent

authority in regard to financial matters have been followed; that sums due have been

properly assessed, realized and brought to account; that expenditure has been incurred
with due regularity and propriety; that assets have been properly utilized and safeguarded,

that public resources have been used economically, efficiently and effectively and that the

accounts truly represent facts.

Types of Audit:

(a) Financial Statement Audits: A financial statement audit is the examination of the

financial statements of an audited entity with the primary objective of expressing an

opinion on whether the financial statements truly present the expenditures and receipts in
 the case of accounts prepared on cash basis (Government Accounts). In the case of accrual

accounts the opinion shall be whether financial statements present a fair and true picture

of the financial position, results of operations, and cash flows.

(b) Regularity or Compliance Audits: A regularity or compliance audit is an examination

of the management of expenditures and receipts, and financial statements and transactions

of the audited entity to determine whether the entity has complied with specific applicable

laws, rules, regulations, procedures, etc. that apply to it.

(c) Performance Audits: A performance audit or value-for-money audit is an objective

and systematic examination of a public sector organization’s program, activity, function, or

management systems and procedures to provide an assessment of whether the entity in

the pursuit of predetermined goals has achieved economy, efficiency and effectiveness in

the utilization of its resources (the 3 Es).

Management of Audit:

 Audit Planning

 Audit Execution

 Audit Reporting

 Audit Follow-up

Constitutional and Legislative Authority:

 Articles 127-132 of the Constitution: Constitutional Provisions of authority

 Comptroller & Auditor General (Additional Functions) Act-1974

 Comptroller & Auditor General (Additional Functions) (Amendment) Act-1975

 Comptroller & Auditor General (Additional Functions) (Amendment) Ordinance 1983

Audit Observations:
1. Ordinary Audit Observations
2. Serious Financial Irregularities

Advance Para and Draft Para :

 Advance Para: Serious financial irregularities (SFIs) which are sent to the Ministry for

reply are called Advance Paras.

 Draft Para: When no reply is sent or the reply is not helpful to resolve the observations

then the Advance Para is developed into draft Para for incorporation in the report of the

Auditor General.

Different Process of settlement of audit observations:

1. a) Spot disposal during audit:

 Audit observations can be settled during audit when query is issued and when necessary
rectification is done by the auditee.

 Audit observations can be settled during seen and discussion meeting on the last day of the

audit by providing necessary reply along with required information covering, recovery,
adjustment rectification of errors or irregularities.

 b) Disposal in headquarter:

 Audit observations can be settled through broadsheet reply. Broadsheet reply can be sent

to audit directorate in respect of both ordinary audit observations and serious financial
irregularity.

 c) Disposal in the Meeting:

 Audit observations can be settled through the holding of bi- lateral and tri-partite meeting.

Bi- lateral meeting takes place between the audit directorate and the auditee. Tri-partite
meeting is attended by representative from the Ministry, Audit directorate and the auditee.

1. d) Disposal by the Public Accounts Committee (PAC):

 Public Accounts Committee scrutinizes the appropriation accounts and the annual finance
accounts of the government.

 Public accounts committee scrutinizes CAG’s Audit reports.

Audit experience in the field audit :

The actual experience of audit while undertaking field audit are as follows:

 Audit is not looked upon as an aid to management

 Auditee is generally uninterested in the work of the auditor

 Financial statement is not prepared on time by the auditee

 Financial statement is not prepared correctly

 Cash book is not maintained properly

 Delay in producing required vouchers, accounts, and relevant documents by the auditee
affects the progress of audit work

 Record keeping is not audit friendly

 Response to audit query is not immediate, detailed, and well documented. Sometimes reply
is not given at all.

 Discussion on Local Audit Report (LAR) takes place on the last day of audit program.
Experience shows that in many cases auditee does not want to discuss the report in detail.

 Instead of substantial answer to the Local Audit Report (LAR), the auditee responds by
saying that reply would be given in due course

 Recurrence of similar type of irregularities

 Correct information is not furnished to the audit party regarding the number of
outstanding paras in respect of the Organization.

 Sometimes accounts personnel are not well conversant with necessary rules and
regulations

 Physical verification is not encouraged

Problems regarding settlement of audit observations:

Audited:

 Broadsheet reply is not given on time and is not given properly. Sometimes it is not
supported by necessary documents.

 Similar reply is repeated over and over

 Actions are not taken against those responsible for irregularities

 Administrative and post facto sanction is not given

 Write off method is not resorted to

 Verified treasury chalan is not provided

 Corrective measures are not taken

 In case of DPA expenditure, statement of expenditure is not obtained from the development
partner

 Delay in sending minutes of bilateral and tri-partite meeting

 Lack of initiative on the part of Project Director to arrange bi-lateral meeting

 For serious Financial irregularities (SFIs) broad sheet reply is not given from the ministry
in time

 Department sends reply on SFIs directly, not through the Ministry

 Minutes of the tri-partite meeting is sent by the Department not by the Ministry which is
the acceptable system

 Audit Directorate

 Delay in taking action on the minutes of bilateral and tri-partite meeting

 Delay in the disposal of broadsheet reply received from the Ministry and the Department

 Delay in conducting physical verification following recommendations of bi-lateral and tri-

partite meeting

Streamlining the process of settlement of audit observations:

 Broadsheet reply received form Department and Ministry should be reviewed by the audit
Directorate without delay

 The list of audit observations should be updated project wise and year wise

 List of audit observations should be reconciled

 Bi-lateral and tri-partite meeting should be organized on a regular basis

 Minutes of bi-lateral and tri-partite meeting should be sent to audit Directorate within
three days

 Audit Directorate should respond to minutes of the meeting within three days
 Project Director should arrange bi-lateral meeting when the audit team is conducting audit

 Crash program should be taken with proper explanation and supported by appropriate
evidence

 Broadsheet reply should be given with proper explanation and supported by appropriate
evidence

 For SFIs, broadsheet reply should be given by the Ministry on every occasion.