Overview of
Public Sector Auditing in India
Constitutional arrangement
Organizational arrangement
Audit process and products
Public Sector Auditing
• Public sector audit is a form of legislative
oversight under constitutional arrangement over
the executive that
▫ seeks to enhance accountability and promote
improvement in use of public resources
• Accountability is answerability for the way one
exercised power and control, mediated rights and
used discretions vested by law in public interest.
Public Sector Auditing in India – Constitutional arrangement
• Constitution of India entrusted the
responsibility of public sector auditing in
India to the C&AG, assisted by IAA&D
• through Audits, CAG seeks to provide
assurance to the Legislature about the
functioning of the executive
• Constitution-Legislature-C&AG of India
• Constitution of India Article 148 to 151
• Duties and Power of C&AG Act 1971 (DPC Act)
CAG of the Union and the States
Other Federal Countries
Supreme Audit Institutions -SAIs
INTOSAI - 1953 “mutual experience benefits all”
UN Resolution 22 Dec 2011 – “strengthening Supreme
Audit Institutions contributes in promoting the
efficiency, accountability, effectiveness & transparency
of public administration”
India- INTOSAI – Governing Board, 1 of the 4 Committees
broadly the SAI/Public Sector Auditing looks at the Executive/
Government in the following way.
Aggregate Fiscal
Discipline
Legislature
Policy
Resource
Mobilization
affe
Resource allocation
AGgee
Public Expenditure Management
Executive
Public Service
Delivery
Implementation
Regulators
CITIZENS as citizens with fundamental rights, as Tax payers, as service recipients,
Union Government comprises of about 50 Ministries
with about 100 Demands for Grants and Railways
grouped into following sectors
▫ Revenue Services Sector (Tax Departments)
▫ Economic Services Sector (Oil & Gas, Coal, other
Minerals, Industries, Power, Transport)
▫ Social Service Sector (Health, Education, Culture,
Social Welfare, Food Security, Rural Develop)
▫ General Services Sector (Defence, Paramilitary,
Administration, Legislature)
It is same in a smaller scale for all State Governments
Public Sector Audit looks at the departments as follows
A public sector entity is created to deliver a service. Primary
function is to fulfil its service delivery mandate efficiently.
Their operational performance is expected to efficient- first responsibility
Entity to carry out their operations -provided with financial
resources, budget. acquires all other resources like men, material,
assets, land, building etc that they need for their activities.
Procurement rules, GFR, FR&SR, Travel Conduct Rules, Budget
Rules -to safeguard from- theft, loss, misuse, abuse, mismanage
Safeguard of resources at all the times by following the related rules is
the second responsibility.
Entities to keep an ‘account’ of all financial transactions and
related administrative records ( sanctions)
Keeping an account of financial ‘transactions’ in the books of accounts -reporting within financial reporting framework – the third responsibility
Audited with an objective to examine
•‘to what extent the entities service delivery operations
are efficient and economical’ is performance audit.
•‘to what extent entity could safeguard all the resources
with which it is entrusted or responsible for - from theft,
loss, mismanage, misuse, abuse, waste, by complying
with rules compliance audit. (also natural resources)
•‘to what extent the entity’s financial reporting is reliable’
i.e., to what extent correctly recognised, measured, the
figures are classified, captured, reported in the financial
statements is financial audit.
Audit of Central Government Departments
Audit of Central Government Departments is
organized in the following lines
(about 50 Ministries with about 100 Demands for Grants)
▫ Economic Services Sector (Oil & Gas, Coal, other
Minerals, Industries, Power, Transport-Railways)
▫ General Services Sector (Defence, Administration)
▫ Social Service Sector (Health, Education, Culture,
Social Welfare, Food Security, Rural Develop)
▫ Revenue Services Sector (Tax Departments)
Audit of Economic Services Sector Departments
Audit of Railways
18 offices headed by Principal
Directors (PDs) 14 cities
Assisted by 24 Directors /Dy
dedicated cadre of Audit
Officers, Asst AOs,Auditors
Posts and
Communications
1 office in Delhi headed
by Director General (DG)
14 Dir/Dy at 12 locations
dedicated cadre AO,AAO
Audit of all Economic Services Departments (Power,
Transport etc) by 13 offices headed by Principal Directors
assisted by 34 Dir/Dy – dedicated cadre AO, AAO, Auditors
> 400 central PSUs – Financial Audit of Annual Financial
Statements- “supplementary audit”- Commercial Audit
Audit of General, Social Services Sectors Departments
Audit of Defence Ministry - 6 offices headed by DG/PDs
Army, Air Force, Navy, Ordinance Fact- dedicated cadre
Audit of all other General, Social Service Departments
by 11 offices headed by DG/PDs at 9 cities 48 Dir/Dy Dir
(PD Central) Most of the Autonomous Bodies (IIT, IIM,
Museums etc about 350) fall under this. Financial Audit
of their Annual Accounts- SAR (Separate Audit Reports)
Above PD Central Offices also carry out Revenue Audit
(Income Tax, CE, ST, Customs) – cadre of the State AG
Audit of State Governments
Audit of 28 State Governments is carried out by
39 Accountants Generals (AGs)/PAGs assisted by
140 DAGs (Deputy AGs/Senior DAGs) organized into
Economic, Social, Revenue Services Departments
each State has its own cadre of AOs, AAOs, Auditors etc
AG (A&E) - Compilation of Accounts of the States and
Entitlements (Pension, PF of State Govt. Employees) in
25 States is by 27 AGs assisted by 75 DAGs. (in some only
DAGs) These office have their own cadre of Accounts
Officers, Asst. Accounts Officers, Accountants, Clerks etc.
Audit Assignments
The entire Audit activity is carried out in the form of
Audit Assignments (Audits); i.e., audit of entities,
subordinate offices etc of the Department/Ministries
carried out by Audit Teams (Audit Parties). It is lead by
of 1 Audit Officer having 2 to 4 members -AAO, Auditors
Duration of the Audit Assignment or an Audit would vary
from 1 week to 2 , 4, 6 or 8 weeks depending on the size
& type of unit & type of audit. A larger Audit Assignment
like Disaster Management would consist of several
Audits carried out by a number of Audit Parties- locations
An Audit Assignment
Each Audit starts by having an Audit Objective
3 broad audit objectives; to what extent service delivery
operations of the entity are efficient -Performance Audit
to what extent its accounting, book keeping and
Financial Reporting is reliable – Financial Audit
to what extent entity could safeguard its resources from
theft, loss, misuse, abuse, mismanage by complying the
related Rules and instructions - Compliance Audit
Audit Objectives in turn will have sub-objectives
Whether procurement was as per prescribed rules?
Audit Criteria (against which measured)- related Rules
An Audit Assignment or An Audit
After identifying Audit Objective, Sub-Objectives and
Audit Criteria; the Audit Party selects the Sample
(4 of 15 purchase contracts - 2 years, sample of transactions)
Entry Conference: Audit Party explains the above to the
Executive to the Head of the Dept./Office. Less formal in
smaller audits (1 to 2 weeks).
explains period to be covered in audit & duration of audit
Pre-requisites: audit party to have necessary audit skills,
have knowledge of functioning of the entity, objective in
approach, display professional ethical behavior
Conducting an audit assignment consists of
• Identifying the audit objective- which aspect to be seen/checked
• Audit criteria – on what criteria it should be checked
• Audit checks- substantive testing, analytical procedures
• Material significance of deviation- materiality
• Audit evidence – to prove either way
• Audit observations – communicating, replies
• Exit Conference – Discussion
• Audit conclusions- Audit Findings
• Documentation of the entire process and evidence
Reports of the Audit Parties- Draft Inspection Reports
Vetted by Dir/DAGs formally issued - Inspection Reports
Significant audit findings processed through rigorous quality control
Field & HQs –to include in Draft Audit Report the final
approved version of which is CAG’s Audit Report
Audit Planning – Audit Output
each office has a number of audit parties – Dir/DAGs
each office has medium term 3 year Audit Plan
Annual Audit Plan at the beginning of the Year – which
departments, which offices, how many days for each
Mandatory- Audit of Annual Accounts –Govts, PSUs, ABs
In all about 1500 audit parties – Central Govt. Depts.
who audit about 15,000 ‘offices’ (units) in a year
About 2500 parties for State Govt. Depts. who audit
about 35,000 ‘offices’ (units) in a year
In all 4000 teams produce about 50,000 Inspection
Reports (IRs)- (Local Audit Reports) in a year.
Audit Output
Very significant & high monetary value audit findings in
the Inspection Reports are processed for Audit Report
It goes through rigorous quality control process
In an year about 40 Audit Reports (Union Government)
and 120 Audit Reports (State Reports) are presented
to the Parliament and the Legislatures. Could be
Performance Audit, Compliance Audit, Financial, mix..
Discussed by Public Accounts Committees (PAC)-ATN
Audit Reports feature about 10% of the audit findings
rest 90% remains in IRs - correspondence between the
audited entity and the field audit office- ongoing
Audit Quality – Control
Quality & consistency in Quality – Auditing Standards
Auditing Standards IA&AD 1994 revised in 2002
Audit Manuals, Auditing Guidelines for each type audit
First Edition of Defence Audit Manual 1922, P&T 1928
Railway Audit 1931, Revenue Audit 1961, MSO 1963
International standards for public sector auditing- INTOSAI
International Standards of Supreme Audit Institutions-ISSAIs (इसाईस)
Perquisites- Ethics, Independence, Objective & unbiased
Audit Quality Management Framework (AQMF)- Peer Reviews
(Book-keeping in
public sector)
Government
Accounting
Financial reporting in
public sector
(State Union (+ Rly)
Finance Accounts
ABs, LBs
Financial
Auditing
(Book-keeping in
private sector)
Commercial
Accounting
Financial reporting
in private sector
(Commercial-Accounting
Standards)
2 subjects in Semester-I
2 subjects in Semester-II
1 subject in
Semester-II
Public Finance with introductory
Economics (inhouse + NIPFP, RBI,TISS)
Public Expenditure, Revenue and
Resource Management
Public Administration (e-learning, self
learning module- modeled to meet the
requirement of performance audits)
Financial Management – 2 week IIM A
Compliance
Auditing
Performance
Auditing
IT Skills
IT Audit