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PRESENTATION ON PRE-AUDIT OF PAYMENT AREAS OF CONCERN

DIRECTED BY: CGDA

PRODUCED BY : SAVITUR PRASAD

WHY AUDIT IS REQUIRED?
“Whenever the advance of civilization brought about the necessity of one man being entrusted to some extent with the property of another, the advisability of some kind of check upon the fidelity of the former would become apparent.”
Richard Brown, The History of Accounting and Accountants, 1905

WHAT IS AUDIT?
Audit is “ the independent objective assessment by the Governance on the assessment of Government’s systems and practices, against criteria.

भारम न बाधिती त्वाम ?

भारम न बािते राजन यथा बाधिती बािते

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has defined “Audit means examination of accounts. the CAG of India. it refers to Audit Department as a whole or any part thereof as per context. 1971. transactions of records in performance of duties and exercise of powers of the CAG as prescribed in the Constitution of India and includes performance audit or any other type of audit determined by the CAG of India. When used as a noun.” ……. Powers and Conditions of Service) Act.continued .CAG ACT 1971 In pursuance of Section 23 of the Comptroller and Auditor General’s (Duties.

CONSTITUTIONAL PROVISION Audit report of the Comptroller General of India means a report of the CAG of India under Article 151 of the Constitution of India. .

regularity. economy. efficiency and effectiveness of financial management and public administration mainly through assessment as to: .As per the CAG Act 1971. “the broad objective of the audit are to ensure legality.

1. . Whether the financial statements are properly prepared. are complete in all respects and are presented with adequate disclosures (financial audit).

Whether the provisions of the Constitution. rules and regulations made thereunder and various orders and instructions issued by competent authority are being complied with (compliance audit).2. and . the applicable laws.

The extent to which an activity. programme or organization operates economically. efficiently and effectively (performance audit)”. .3.

These regulations. shall be as per the Constitution of India and the Act.” . guidelines and practice notes issued by the CAG shall guide the conduct of such audits. or on his behalf. standing orders.As per the CAG Act “all audits undertaken by the CAG.

WHAT IS PRE-AUDIT? .

WHAT IS PRE-AUDIT? Pre-audit is an upfront auditing procedure and the examination of documents supporting a transaction or series of transactions before these are paid for and recorded.Continued . ……….

assure that sufficient funds are available …. continued .determine that the proposed expenditure is in compliance with appropriation law and other specific statutory authority and regulations .WHAT IS PRE-AUDIT? Pre-audit operates to:..

initially determine that the transaction is not illegal. irregular. excessive.WHAT IS PRE-AUDIT? . unconscionable or unnecessary .determine that the transaction is approved by proper authority and supported by authentic underlying evidences. extravagant. .

PROCEDURES PRESCRIPTION FOR PRE-AUDIT : .

both in letter and spirit. 1971.PROCEDURES PRESCRIPTION FOR PRE-AUDIT : • As per CAG Act. • Whether the Authority is competent to authorize the payment. Audit of expenditure incurred from the Consolidated fund examines and verifies whether adequate. …… continued . proper and sound systems and procedures are in place and are being complied with.

…. continued . control and reporting as prescribed in Government rules. regulations. and • Monitoring.PROCEDURES PRESCRIPTION FOR PRE-AUDIT : • Compliance with the requirement of the applicable laws. of vouchers. payees’ • Accounting in the books of the Government . • Evidence by way acknowledgement etc. rules. orders and instructions in actual disbursement.

PROCEDURES PRESCRIPTION FOR PRE-AUDIT : As per CAG Act. . “Audit shall bring to light not only significant cases of irregularity and breach of rules. in the judgement of audit officer. extravagant or wasteful expenditure of public money and resources despite compliance with the rules. regulations and orders”. excessive. regulations and orders but also every matter which. appears to involve significant unnecessary.

. regulations etc.PROCEDURES PRESCRIPTION FOR PRE-AUDIT : • Copies all orders sanctioning expenditure issued by the Sanctioning Authority shall be endorsed to audit office as soon as these are issued. of • The orders shall cite reference to the authority by way of rules.

CONFUSION GALORE .

ISSUES • All revenue expenditure are incurred after concurrence by the IFA’s. • Audit of Sanction still a weak area. • Absence of periodicity / validity of IFA’s concurrence – Period for placement of order not binding on executive. .CONFUSION GALORE .

continued .PRE-AUDIT OF PAYMENTS AREAS OF CONCERN • Before making a payment the audit has to satisfy itself about the admissibility of the payment under reference. …….. • The rule 18 of Defence Audit Code allows the audit to call for any documents in relation the payment and ask the authorities necessary explanation as it may consider necessary.

PRE-AUDIT OF PAYMENTS AREAS OF CONCERN • However since the introduction of IFA system at command/unit level and Defence Purchase Manual the method of incurring expenditure and concurrence of sanction has undergone a change.continued . …….. • Under IFA system the IFA is concurrently associated with purchase procedures from RFP onwards till issue of sanction and placing of Supply Order.

8. • This suggest that if expenditure / sanction is concurred by IFA and documents as per above Para is submitted.4(b) has given the documents to be submitted for payment.continued . • The question here is whether a sanction concurred by IFA can be objected in audit by PCDA ……. the PCDA is bound to release the payment..PRE-AUDIT OF PAYMENTS AREAS OF CONCERN • The DPM vide Para No. 7.

. The question here is whether Audit can reject a bill of payment which has created liability for the Government through sanction order issued by an Authority. though no irregularity can be ascribed to him. who is not competent to do so. who is put to financial loss.PRE-AUDIT OF PAYMENTS AREAS OF CONCERN • The contractual obligations are statutory. • Whether any mechanism exist to redress the grievance of third party.

.Payment related to personal claims.AREAS OF CONCERN-CONTD • Broadly.Payment related to stores etc. payments can be from revenue head or capital head . payments can be categorised as under: . • Further.Payment related to imprest accounts. .

• Communication system provided to ships. submarines during sailing. • INMARAST leased line facility provided by TATA TELE Services for 77 terminals for 24 X 7 usage on global beam 64 E.AREAS OF CONCERN-CONTD • Some Case References INMARAST Bills. .

5.10) . • The rate charged by the service provider is on higher side compared with normal landline and mobiles ( Pulse rate for each second is Rs.AREAS OF CONCERN-CONTD • Facility provided for IN Ships for communication between command headquarters and ships on sailing through satellite.

• It is also observed that calls are also being made to foreign countries to private numbers. .AREAS OF CONCERN-CONTD • It is observed from the bills that majority of calls (90%) are on account of private calls to mobiles. residential phones etc. The monthly expenditure for some of the months is as under: .

59 cr. 34. Rs. 36. Rs. 22. Rs.02 cr. Rs. Rs.57 cr. . 220 cr. 16. 32.32 cr. 2012 ---------Sep. 2012 ----------Nov 2012 ----------Dec. 28.20 cr.56 cr. Rs.60 cr. Rs. 11. Rs. 9.AREAS OF CONCERN-CONTD Mar 2012 ---------Apr 2012 ---------May 2012 ---------June 2012 ----------July 2012 ---------Aug. 11.16 cr. Rs.84 cr. Rs.67 cr. 2012 ----------Oct. 2012 ----------Total ----------Rs. 17.

AREAS OF CONCERN-CONTD • Payment of Overtime to industrial employees • The practice of paying unlimited overtime to industrial employees of Naval Dockyard and other establishment has been successfully stopped by insisting on observance of allowance in accordance with Factories Act. resulting in saving of crores of Rupees. . Navy was accepted ultimately. • Matter was raised up to Secretary (Ministry of Defense) but the stand taken by PCDA. 1948.

. • Open violation of rules and regulations shall not be allowed under any pretext.AREAS OF CONCERN-CONTD • Payment of Overtime to industrial employees • The anomalous situation of wrongly interpreting the rule for years has been corrected but it is a matter of concern that such wrong practices continue in total violation of laid down provisions despite the Draft Para raised by Test Audit Authorities. Either the rule be modified or practice should not be allowed to continue.

.AREAS OF CONCERN-CONTD • Payment recommended for PSU like HSL/GRSE where case of extension for delivery period pending with MoD • Repair and Refit bills received from PSU’s for payment and recommended by units without valid delivery period extension for the contract concluded by the Ministry creates confusing situation where payments are insisted though case for approval of extension pending with Ministries for months/years.

4 Boats since have been supplied. . Whether to agree for release of further payment as and then next 4 boats are delivered in another few months time.AREAS OF CONCERN-CONTD • Various critical components including main engine of interceptor boat differ from the Maker name mentioned in the Contract.

..AREAS OF CONCERN-CONTD • Main Engine of Interceptor Boat • Contract for construction of 36 Interceptor Boats at a cost of Rs.976. of India (Ministry of Defence) and M/s Larsen & Toubro Ltd.95 crores was concluded between Govt. • The build specifications were laid down for important and critical equipments and the Makers name and Module number are specified in Appendix III of the Contract. Mumbai.

61 crores • Views of the participants are solicited on course of action to be adopted for 4 Helicopter Engines for KA 31 have been received by Navy. . • The copy of the Government of Sanction dated 25th of March 2011 is in next slide.AREAS OF CONCERN-CONTD • Procurement of 4 KA 31 Helicopter Engine for 22.

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Under which Clause of DPM. • Yet the payment has not been released so far. . • Reason: Procurement has been through “High seas Sales”.CONTD • Sanction appears to be in order. • CBI has asked for the papers and details. the payment can be released.

DHARTI DREDGING .

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in which sovriegn function of carrying out inspection test of submarine has been outsourced to private vendor by submarine overseas team (SOT) in prestigious P-75 Project (Scorpion Submarine). • Another case. .AREAS OF CONCERN-CONTD • Innumerable examples of irregularities of nature brought out above.

AREAS OF CONCERN-CONTD • Outsourced vendor is also supplier of stores item to MDL. • Case Concurred by IFA. • Whether payment can be released ? . Conflict of Interest. who is constructing the submarine.

NON LINKED FOREIGN STORES .

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RESTRAINT AND AFFLUENCE .

• Whistleblower programmes on the lines of Practice Followed in the Department of Defence (US) .WAY FORWARD • Defense Audit Tribunal .To cater to the matters involving litigation pertaining to payments of all types which are objected in Audit.

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DESPITE TURBULENCE. PCDA (NAVY) ENSURES DISCIPLINED PAYMENT .