Chapter IX-

IX-Statutory Audit

901 Comptroller and Auditor General of India.- Comptroller and Auditor General of
India is an authority sui generis created by the Constitution of India for conducting audit
of the accounts of the Union, the States and the Union Territories. His functions are
derived in the main from Articles 149 to 151of the Constitution and these have been
further defined by the Comptroller and Auditor General's (Duties, Powers and
Conditions of Service) Act-1971 which came into force from 15th December, 1971 and

the amendment Act, 1976 which came into force from 1st March, 1976, This enactment
lays down in, detail his duties, powers and conditions of service. According to these
Acts his duties are-

(a) to audit all expenditure from the Consolidated Fund of India and of each State and of
each Union Territory having a Legislative Assembly and to ascertain, whether the
moneys shown in the accounts as having been disbursed were legally available for, and
applicable to, the service or purpose to which they have been applied or charged and
whether the expenditure conforms to the authority which governs it;

(b) to audit all transactions of the union and of 'the States relating to Contingency Funds
and Public Accounts

(c) to audit all trading, manufacturing, profit and loss accounts and balance sheets and

other subsidiary accounts kept in any Department of the Union or of a State and in each
case to report on the expenditure, transactions or accounts so audited by him.
902 It is also the duty of the Comptroller and Auditor General to audit all receipts which
are payable into the Consolidated Fund of India and of each State and of each Union
Territory having a Legislative Assembly and to satisfy himself that the rules and

procedures in that behalf are designed to secure an effective check on the assessment,
collection and proper allocation of revenue and are being duly observed and to make for
this purpose, such examination of the accounts as he thinks fit and report thereon.

903 He also has authority to audit and report on the accounts of stores and stock kept
in any department of the Union or of a State.

904 He has, in connection with the performance of his duties, authority-

(a) to inspect any office of accounts under the control of the Union or of a State,
including treasuries and such offices responsible for keeping of Initial or subsidiary
accounts, as submit accounts to him

(b) to require that any accounts, books papers and other documents which deal with or

form the basis of or, are otherwise relevant to the transactions to which his duties in

respect of audit extend, shall be sent to such place as he may appoint for his inspection
;

(c) to put such questions or make such observations as he may consider necessary. to

the person in charge of the office and to call for such information as he may require for
preparation of any account or report which it is his duty to prepare.
905 The Act of 1971 read with amendment Act, 1976 also contains provisions about
audit by Comptroller and Auditor General of authorities and bodies substantially
financed from the revenues of the Union or States or the Union Terriories. It also

specifies his functions in the case of grants or loans to outside authorities or bodies. It
also provides for entrustment to him of audit of accounts of authorities or bodies by the
President, the 'Governor of a State or the Administrator of a Union Territory subject to
certain conditions. His duties and powers in relation to audit of the accounts of
Government companies are defined in the Companies Act 1956. He conducts audit of
the accounts of Corporations established by or under law made by Parliament in

accordance with the provisions of the respective enactments.

906 Under Article 150 of the Constitution, the accounts of Union and State

Governments shall be kept in such forms as the Comptroller and Auditor General of

India may, with the, approval of the President, prescribe. Article 279 of the Constitution
provides that the Comptroller and Auditor General of India shall ascertain and certify the
"net proceeds" of any tax or duty collected by the Government of India but which are
assigned partly or in full to the States in term of Part XII of the Constitution of India.
(Taxes on Passenger fares collected by the Railways, for instance).

907 His oath of office requires him to uphold the Constitution and the laws and to
discharge his duties without fear or favour, affection or ill-will. The Constitution
safeguards the independence and freedom of the Comptroller and Auditor General in a

variety of ways. Article 148 of the Constitution provides that the Comptroller and Auditor
General shall be appointed by the President under his hand seal and shall only be
removed from office in like manner and on the like ground as a Judge of the Supreme
Court. It also provides that he would not be eligible for any other office either under the
Government of India or the Government of any State and that the administrative
expenses of his office, including all salaries, allowances and pensions payable to or in

respect of persons serving in that office, shall be charted, upon the Consolidated Fund
of India.

908 The scope and extent of audit are determined by the Comptroller and Auditor
General at his discretion.

909 Railway Accounts- Separation from Audit - As stated in para104, the Process of
separation of accounting and auditing functions on the Railways was completed in 1929

as a sequel to one of the recommendations of the Acworth Committee. Under this

arrangement, the Comptroller and Auditor-General has been relieved of the
responsibility for compiling the accounts of Railway department. His responsibility for
statutory audit of the accounts of Indian Railways is the same as that for the other
departments of the Government of India.

910 Director of Railway Audit.-The responsibility of the Comptroller and Auditor

General for audit of Railway accounts is discharged through the Additional Deputy
Comptroller and Auditor-General of India (Railways) and ex-officio Director of Railway

Audit, who conducts the audit on behalf of and under the direction of Comptroller and
Auditor General. He is assisted by Chief Auditors posted at head-quarters on each of
the zonal Railways and a Chief Auditor for the Railway Production Units.
911 One important object of statutory audit for the Railways is to ensure that the
system of accounts adopted and used in the Accounts Department of the Railways, is
suitable and that the check by the internal check mechanism is sufficient, that the

accounts are maintained and the checks applied with accuracy and that arrangements
exist in the Railways Accounts offices to ensure attention to the financial interests of
Railways. This object is secured by a test check applied to the vouchers and connected
accounts records of the Accounts Department and by Inspections on the spot of initial
records and documents in the offices in which the transactions originate. The Railway
officers should afford all facilities to statutory Audit officers in the discharge of their

duties.

912 The Additional Deputy Comptroller and Auditor-General of India (Railways), and

ex-officio Director of Railway Audit, is responsible for scrutinising the adequacy and

suitability of all instructions governing compilation of the accounts of Railways and the
internal check procedures, whether those Instructions be in the form of Codes or
otherwise. He is to satisfy-himself that such Instructions are consistent with the relevant
statutory rule and facilitate conduct of an effective audit thereof. He is also responsible

for scrutinising the Railway portion of the Finance Accounts of the Union Government

including Annual Review of Balances Compiled by the Railway Board (Accounts). He

also examines the Appropriation Accounts prepared by the Railway Board for certifying
the their accuracy and prepares the Audit Report (Union Government-Railways) of the
Comptroller and Auditor – General of India.

913 The Additional Deputy Comptroller and Auditor-General (Railways), and ex-
officio Director of Railway Audit, is responsible for audit of-
(i) sanctions, having financial effect, accorded by Government of India other than those
pertaining solely to an individual railway or railway accounts office

(ii) sanctions regarding financial rules and general orders issued by the President which
are not of a general nature but are applicable exclusively to the Railway Department ;

(iii) tenders invited and accepted by the Railway Board for purchase of materials;

and

(iv) accounts maintained in the office of the Railway Board (Accounts Branch).

914 The Chief Auditor of a Railway is responsible for detailed audit of the accounts of

that Railway and for conducting inspections of the records of the various offices of that
Railway. This responsibility extends to all expenditure and receipts of that Railway
whether under construction or open to traffic and to the account of stores, stock and
manufacture. He audits interalia (1) the financial sanctions, pertaining to his Railway
and offices under his audit, accorded by the various Railway authorities, (2) allocation of
estimates sanctioned by those authorities, (3) general orders issued by the General

Manager, (4) all sanctions pertaining to local traffic, (5) sanctions issued by the Railway
Administration relating to interchange traffic between two railways.

915 The cost of Railway audit is borne by the Railway revenues and is debited to the
minor head 'Statutory Audit including Pensionary charges etc.' under the Major heads
"345-Indian Railways-Policy Formulation Direction Research and other Miscellaneous
Organisations". The cost of the Railway audit wing of the office of the Comptroller and
Auditor-General is treated as charged expenditure in accordance with Article 112 (3) of
the Constitution. Payments of all charges relating to Railway audit offices are made by
the Railway Accounts Officers (of the respective Railways) who function as treasury
officers and accounting officers for expenditure of the Railway Audit Department and

exercise such checks as are prescribed from time to time by the Ministry of Railways in
consultation with the Additional Deputy Comptroller and Auditor-General of India
(Railways).

916 Communications from Audit - Ordinarily, the results of statutory audit are
communicated through-

(1) Specific reports of the more important and serious irregularities discovered in the
course of audit of accounts and departmental offices and station records.

(2) Audit notes detailing minor irregularities discovered in the course of audit of
accounts office records.

(3) Inspection reports showing the results of audit of the initial records of executive
offices and stations.

Note.- A record of petty objections not formally raised is also maintained by Chief

Auditors and sent periodically, as may be arranged, to the Financial Adviser and Chief
Accounts Officers for scrutiny and review.

917 Disposal of Audit Objections.-All audit objections and notes should be promptly
attended to by the Accounts Officer. Audit objections may either relate to matters which
can be disposed of by the Accounts Officer himself without reference to the executive or
to matters which can be elucidated only by the executive. In the former case, no
reference should ordinarily be made by the Accounts Officer to the executive except to
advise disallowances, if any, arising out of the audit objections. For the latter, the
Accounts Officer should arrange to elicit necessary information for disposal of the audit

objection: and, if in his opinion, the audit objection should be upheld, he should arrange
to see that suitable action is taken. The Accounts Officer should generally take the
same action on defects and irregularities brought to notice by the Chief Auditor as he
would take if they had been discovered in the course of Internal check exercised in his
own organisation.

918 Audit Notes and Inspections Reports.-An inspection report consists of two parts,
Part I dealing with the more important matters and Part II dealing with the rest,
containing minor routine matters. Audit notes detailing the results of monthly test-audit

similarly consists of two parts and should be dealt with by the departments and
accounts officers without delay. -

The final disposal of Part II of the audit notes and inspection reports, whether on the
accounts or executive offices, rests with the Accounts Officer, and no formal reply to the

Chief Auditor is necessary. The disposal of such audit notes and inspection reports
should, however, be made available to the Chief Auditor.

Replies to Part I of inspection reports and audit notes and specific reports on the more
important irregularities should be sent to the Chief Auditor as soon as possible showing
clearly the action taken thereon.

A record of the specific reports, audit notes Parts I and II and inspection reports, Parts I
and II received from audit and dealt with or outstanding should be kept and reviewed
periodically to ensure their prompt disposal. The connected records on which objections
have been raised should not be destroyed till the objections are settled.

919 Replies to inspection Reports :- Replies to inspection reports of executive offices

should be send by those offices to the Accounts Officer. In scrutinizing them, the
Accounts Officer should call for further information, if necessary, and consult the head
of the division or department, where desirable, before giving a reply to the Chief Auditor.

The Accounts Officer should, in giving replies to the communications to the Chief
Auditor, act in close collaboration with the administrative authorities concerned, so that
the information given to audit may be an authoritative statement of facts on behalf of the
Railway Administration, and there may be no possibility of any dispute at a later stage.

920 Disagreement between the Accounts Officer and the Chief Auditor - If the
Accounts Officer is unable to accept the views of the Chief Auditor, he should, if
requested by the latter, make a reference to the General Manager. When making such
a reference, the Accounts Officer should send a verbatim copy of the Chief Auditor's
objection and a statement of his own views. The General Manager should be requested

to obtain the orders of the Railway Board if the matter is beyond his Competence to
decide. However, when the question is one of accounts procedure, the matter should be
referred to the Railway Board.

921 Audit Objections and Provisional Payments - If the Chief Auditor objects to any
payments of a recurring nature and it is considered necessary to continue them pending
settlement of the objection, they may, if the objection is not on ground of violation of a
law or a statutory rule, be made provisionally and subject to recovery, the payee being
so informed. Unless there are strong reasons to the contrary in the view of the Financial
Adviser and Chief Accounts Officer and the General Manager, if the audit view appears

to be prima facie acceptable to the Accounts Officer, he should act upon the audit
objection provisionally pending receipt of formal orders from higher authorities, if
necessary. Under this procedure, where it is considered necessary to continue the
payments, these should be treated as provisional and action taken to get the objection
answered satisfactorily as early as possible.

922 Rectification of mistakes in Accounts disclosed by Audit.-If the audit scrutiny

discloses any inaccuracy in the accounts compiled by the Accounts Officer the following
procedure, which is equally applicable to mistakes detected in-internal check, should be
adopted :-

(1) If the accounts of the year have not been finally closed the mistake should be
rectified through the accounts of the month in hand.

(2) Mistakes and misclassifications noticed after the March accounts have been closed
should be rectified before the Capital & Revenue Accounts and Finance Accounts are
prepared and intimated to the Railway Board by the first week of August either through
a revised account or through corrections to accounts already submitted.
(3) Mistakes and misclassifications noticed after the submission of the Capital &
Revenue and Finance Accounts should be dealt with in accordance with the following
rules :-

(a) No correction need be made, if the item properly belongs to one revenue or service
head but is wrongly classified under another, a suitable note against the original entry
being sufficient. If, however, the error affects the revenue or expenditure of another

railway, or a branch line company or another Government Department or a capital head

outside the Revenue Account or a debt or remittance head, it must be corrected.

(b) If the corrections, or transfers affect capital major heads, unless they affect the

accounts of different Governments or represent readjustment of less important

misclassifications of a previous year, they should usually be effected by altering the
progressive figure of capital outlay without financial adjustment i.e. , without passing the
debit and credit entries through the accounts of the year’s financial transactions. This
would prevent unnecessary inflation of the current year's accounts and the voting of
grants which the inclusion of the correcting entries in the current accounts would
otherwise involve.

(c) If the error affects a debt or remittance head, the procedure should be as follows :-

(i) Item taken to one debt or remittance head instead of another:-The correction should
be made by transferring it from the one to the other. Such corrections affecting the

heads for which grants are obtained should, be made as plus credit or minus credit
under the heads concerned, instead of as minus debit or plus debit.
(ii) Item credited to a debt or remittance head instead of a revenue head, or debited to a
debt or remittance head instead of to a service head.-The correction should be made by
transferring it to the head under which it should originally appear.

(iii) Item credited or debited to a revenue head instead of to a debt or remittance head-

The correction should be made by minus crediting or minus debiting the revenue head
and crediting or debiting the proper head.

(4) If the rectification of a mistake would lead to an excess over a grant or grants voted
by the Parliament or an appropriation sanctioned by the President or to a considerable

change in the dividend payable during the year to general revenues, the orders of the
Financial Commissioner, Railways must be first obtained.

923 Audit Report – Railways - The Additional Deputy Comptroller and Auditor-General

of India (Railways) and ex-officio Director of Railway Audit is responsible for preparation
of the Report of the Comptroller and Auditor-General of India, Union Government

(Railways) which also includes comments on the Appropriation Accounts of Railways

complied by Ministry of Railways (Railway Board).

924 All important cases coming to notice of Audit during inspections or regular audit

which, in the opinion of the Chief Auditor, merit inclusion in the Report of the
Comptroller and Auditor-General are, ordinarily, brought to the notice of the Railway
Administrations through special letters, notes of objection or factual statements issued

to the Heads of Departments/ Financial Adviser and Chief Accounts Officers by the
Chief Auditors of the Railways. The Railway Administrations should take up with
promptitude the scrutiny of the facts brought out therein and send their replies to the
Chief Auditor within the time prescribed for the purpose. Since these special letters,
factual statements, etc., form the basis of the material for the Report of the Comptroller

and Auditor General, the Railway Administrations should deal With them at a sufficiently
high level and bring out their point of view in a convincing manner so that the Chief
Auditors may have the full presentation of the Railway's case before they proceed to
prepare a draft paragraph for incorporation in the Audit Report.

925 The Chief Auditors sends the draft paragraphs to the General Manager. He also
he also sends simultaneously advance copies of the draft paragraphs with connected
correspondence, to the Financial Adviser and Chief Accounts Officer, the Head of the
Department concerned, the Additional Deputy Comptroller and Auditor-General of India

(Railways) and the Director (Accounts), Railway Board to facilitate prompt action and

detailed examination of the points brought out in the draft paragraph. The General
Manager should send the reply to the draft paragraph to the Chief Auditor, duly
approved by the Ministry of Railways,(Railway Board), within eight weeks,
simultaneously endorsing copies to the Additional Deputy Comptroller and Auditor-

General of India (Railways), and Director, Accounts (Railway Board). To enable the

Railway Board to approve the draft reply prepared by the Railway Administration, the
General Manager should furnish the following additional information to the Railway
Board along with the proposed reply to draft paragraph. :-

(i) A history of the case with copies of relevant correspondence not covered in the Chief
Auditor's letter.
(ii) Sentence-wise comments on the draft para specifically verifying /correcting the facts
and figures quoted therein.

(iii) A chronological summary of the case where there has been unusual delay in dealing
with the subject matter.

(iv) Remedial action called for or taken to avoid similar cases in future.

(v) Disciplinary aspects where individual lapses have been brought to light.

Any aspects which the Railway Administration, may wish the Chief Auditor to consider
before sending the final reply should, as far as possible, be settled by personal
discussions so that the-time limit may not be exceeded.

926 Draft paragraphs on matters arising from the scrutiny of Railway Board's
contracts, schemes and sanctions etc., are issued by the Additional Deputy Comptroller
and Auditor-General of India (Railways) addressed to the Railway Board. In such cases
the material which is required to be furnished by the Chief Auditors of Railways to the
Additional Deputy Comptroller and Auditor-General of India (Railways) should be vetted

promptly by the Financial Adviser and Chief Accounts Officers of Railways, when they
are requested to do so. Enquiries, if any, made by the Additional Deputy Comptroller
and Auditor-General of India (Railways) for further information should be given high
priority and, as far as possible, such information should be supplied promptly to the
Chief Auditor by the Railway Administrations duly vetted by the Financial Adviser and

Chief Accounts Officer for onward transmission to the Additional Deputy Comptroller
and Auditor-General of India (Railways). The Additional Deputy Comptroller and
Auditor-General of India (Railways) will send the edited paragraphs to the Railway
Board for verification of facts and clarification on any point which the Railway Board
may like to give before the paragraph is finalised by the Additional Deputy Comptroller
and Auditor General of India (Railways) for inclusion in the Report. A time-limit is usually
specified within which the Railway Board are expected to complete the factual

verification or offer their comments on these revised /edited paragraphs. These revised
paragraphs should, on receipt by the Railway Board/Railway Administration, be
scrutinized promptly with utmost care as it is not possible to correct any factual
inaccuracies in the draft paragraphs at a later stage.

927 The Report of the Comptroller and Auditor General of India is presented to the
Parliament, generally during the Budget session, where it is taken up for consideration
by the Public Accounts Committee consisting of members of Lok Sabba and Rajya
Sabha. The Committee obtains personal evidence of senior officers of the Railway

Board in respect of the various items in the comptroller and Auditor General’s Report.

The results of the deliberations of the Public Accounts Committee are published in the
form of Reports which are laid on the table of each House of Parliament and forwarded
to the Ministry of Railways (Railway Board). These Reports contain the
recommendations of the Public Accounts Committee for implementation by the Ministry
of Railways.

928 The recommendations made by the Public Accounts Committee are considered
by the Ministry of Railways. (Railway Board), and other Ministries of Government of
India where, some of the observations and recommendations concern them also, and

notes on action taken on the Public Accounts Committee's recommendations are

submitted to the Committee, along with any comments which Audit department may
have to make on these notes, within six months of the date of presentation of the
Reports.