CHAPTER 18; Audit of Debt, Deposit and Remittance Transactions
CHAPTER 18
Audit of Debt, Deposit and Remittance Transactions
299. Nature of Audit. Under paragraph 13 (1) (ii) of the Audit and Accounts Order, 1936, as adapted, the Comptroller and Auditor General is responsible for the audit of all transactions of the Governments of India and of the States relating to debt, deposits, sinking funds, advances, suspense accounts and remittance business. These transactions are recorded in the Debt, Deposit and Remittance divisions of the accounts and their nature has been described generally in paragraph 218. The audit checks which are applied to some important categories of these transactions are described in this chapter.
300. The general principles and rules of audit which govern audit of expen- diture apply mutatis mutandis to disbursements under Debt, Deposit and Re- mittance heads. In the case of a repayment, Audit is required to check the payment against the original receipt and has to satisfy itself that the reัะฐั- ment is made according to the rules, regulations or orders which govern the transaction. Similarly, in the case of a payment subject to recovery, Audit is required to ascertain that the payment confirms to the authority which governs it and has further to watch that the moneys are regularly paid by the debtor.
301. It is an important part of the duties of Audit to review and verity the balances under Debt and Deposit heads and the outstanding under Remit- tance heads as disclosed in the books of Account office at the close of the year. The first step in the process of this verification is to see how far the final results of any detailed accounts of the transactions work up to, and agree with, the balances on the Ledger. The next step is to ascertain, where necessary, whether the person or persons by whom the balance is owed or to whom it is due admit its correctness, and in the case of balances due to Government how far they are really recoverable.
302. Borrowing. Under Article 292 of the Constitution, the Union can raise money by borrowing upon the Security of the Consolidated Fund of India within such limits, as may from time to time be fixed by Parliament by law. Subject to such limits, the Union can also give guarantees in respect of loans raised by a State. Under Article 293 of the Constitution, a State may borrow within the territory of India upon the Security of the Consolidated Fund of the state within such limits, as may from time to time be fixed by the Legislature of the State by law, subject to the condition that the State may not without the consent of the Government of India raise any loan if there is still outstand- ing any part of loan made to the State by the Government of India or by its predecessor Government, or in respect of which a guarantee has been given by the Government of India or by its predecessor Government. A State may also obtain loans from the Government of India subject to such conditions as may be laid down by or under any law made by Parliament.
It is an important duty of Audit to see that the borrowings of a Govern- ment are so regulated as not to exceed the limits fixed by the Legislature fromtime to time and that the conditions laid down by or under an Act of Parlia- ment are duly observed in respect of a loan granted by the Government of India to a State or guaranteed by it. In the case of loans raised by a State which can be done only within the territory of India, or obtained by it from the Government of India. Audit should watch that any conditions imposed by the Government of India in giving consent to the raising of a loan or in giving a guarantee in respect of a loan or in granting a loan so far as they fall within the purview of audit, are duly observed by the State Government.
Another important duty of Audit in relation to borrowings is to see that the proceeds of loans are properly brought to account and that they are ex- pended only on objects for which the loans were originally raised or to which borrowed moneys may properly be applied in accordance with sound principles of public finance.
Audit has also to see whether adequate arrangements are made by Gov- ernment for amortisation of debt, particularly in cases where borrowed moneys are utilised on objects or works which cannot be regarded as productive, and should bring to notice instance in which amortisation is ignored or appears to be prima facie inadequate. The general principles in accordance with which the adequacy of the amortisation arrangements should be examined are set out below.
(1) Amortisation arrangements for loans for unproductive purposes may be related to some extent to the period of maturity of the loans, and also to the chances of growth of the particular type of unproductive debt. It is how- ever, sounder and more prudent to relate the arrangements rather to the object of the borrowing than to the currency of the actual loans. The period ought to be comparatively short where the expenditure on the unproductive purpose should more properly be met from revenue, where the assets constructed from the loan are comparatively short-lived, or where the total of the borrowings for the unproductive purpose is likely to increase rapidly. Where material asset is produced the amortisation period should never exceed the life of the asset.
(2) The arrangements for the amortisation of loans for productive purposes must again depend on the particular circumstances of each case. Where the net earning power of an asset substantially exceeds the interest on the debt, it may not be necessary to suggest amortisation; it should be recognised how- ever, that it is sound and prudent financial policy to make amortisation arrange- ments even in connection with the most productive debt. In the case of bor- rowings to finance loans to cultivators and others, the actual recoveries of principal may be sufficient for debt repayment if used for that purpose provid- ed all losses etc., are written of to revenue. Where depreciation or renewal reserves are constituted for the replacement of assets constructed from loan fund, amortisation is often omitted altogether or its rate scaled down: but here again the remark made about productive loan is valid. Normally the rate of amorti- sation should be related to the life of the revenue-producing asset for the cons- truction of which the debt was incurred.303. The Indian Audit and Accounts Department is also responsible for the Audit of transactions connected with the Debt Redemption Scheme of the Government of India and of any similar scheme which may be adopted by the Government of a State. In conducting this audit, the Audit Officer is required to see that the conditions of the scheme are scrupulously observea, that is, the annual debits against revenue under the scheme are calculated strictly in accordance with the approved programme, that the appropriations for reduction or avoidance of the debt are applied to the objects for which the money has been set aside and that liquidation of debt proceeds at the rate and on the lines prescribed.
304. In auditing the transactions connected with the Sinking Funds regu- larly constituted for the redemption of loans raised by Government, the Audit Officer has to satisfy himself that credits to these funds are in accordance with the undertakings given by Government and set forth in the prospectus of the loans, and that the payments are eventually utilised for the purpose for which the funds themselves were created.
305. Contingent Liabilities. The guarantees which the Government of India and the States may give under Articles 292 and 293 of the Constitution in respect of loans raised by others constitute contingent liabilities of Govern- ment, and it is an essential duty of Audit to keep a close watch over them to see that the limits prescribed by the Legislature are not exceeded. In order to safeguard the financial interests of Government in respect of such contingent liabilities, the Audit Officer should satisfy himself that the accounts of the public body or institution whose loan or loans has or have been guaranteed by Government are subjected to audit by qualified auditors acceptable to Government. The Audit Officer may also require that the accounts of the public body or institution as certified by those auditors are submitted to him for general scrutiny. He may even undertake with the consent of Government, to audit the accounts of any sinking fund created by such a public body or ins- titution in pursuance of a scheme for the liquidation of debt under some statu- tory provisions or otherwise. Such audit will be directed to ascertaining-
(i) that the scheme of liquidation prescribed as the basis of the sinking fund is financially sound;
(ii) that the fund contains the amount which should have been accu- mulated if the prescribed scheme of the sinking fund has been ob- served in respect of both the amount to be credited to the fund and of the interest which it anticipated; and
(iii) that the investments of the sinking fund are sound and are valued at not more than their market price,
306. Investments. Audit is responsible for keeping a watch over invest- ment of funds forming part of the Public Account of India or of a State. It is to be seen in audit that the investments made on account of any regularly cons- tituted Sinking Fund or other Fund administered by Government are of the category authorised by the statutory provisions or instrument by which the Fundis governed. When there is no governing statutory provision or instrument proper authority for the investment should be demanded. This principle also applies to the investment of each balances of the Government of India or of a State. The Audit Officer should take up promptly with the Government any cases of investments which he considers to be unauthorised, irregular or un- sound.
307. Service and Provident Funds. The audit of transactions pertaining to Service and Provident Funds controlled by Government mainly consists in seeing that the transactions conform to the rules or regulations governing the administration of each Fund and any subsidiary instructions issued thereunder. Having first satisfied itself that subscriptions to a Service or Provident Fund are received only from such Government servants as are either required or permitted by the rules of the Fund to subscribe to it, Audit will watch that subscriptions and any other dues recoverable under the rules of the Fund are duly and regularly recovered from the Government servant concerned. In the case of Contributory Provident Funds, Audit will also examine that Govern- ment’s share is properly calculated and brought to account. Finally, Audit is to verify that the accounts of the Funds are correct both in total and in the detailed accounts of the subscribers.
308. Reserves and Reserve Funds. There exist a number of Reserve and Reserve Funds in the Deposit Section of the accounts of the Governments of India and the States which have been created for specific and well-defined pur- poses and are fed by contributions or grants from the revenues of the Union and the State or from outside agencies. In relation to the transactions per- taining to such Funds, Audit is required to see-
(1) that the transactions are classified and accounted for according to the prescribed principles, and
(2) that the transactions conform to the rules or orders governing the administration of each Fund made by competent authority.
Audit should also verify the balance at the close of the year standing in the account of each fund.
309. Deposits. In the case of moneys received to be held as deposits with
Government, Audit has to satisfy itself that the money can properly be credited to the Public Account of India or of a State by virtue of a statutory provision or of general or special orders of Government. Audit has also to see that no item is credited as a deposit in the accounts of Government which could be credited as a revenue receipt or in reduction of ordinary expenditure of that Government. In respect of repayments of deposits, Audit is required to exa- mine that there are proper vouchers in support of the amount repaid and to check each repayment against the original receipt either individually or against the total credit in a particular account in order to see that repayments do not exceed the amounts originally received and credited to Government.It is also the funcion of Audit to see that balances in deposit accounts are correctly carried over from year to year, that the balance at the close of the year in each account is acknowledged as correct by the person or body con- cerned where necessary and practicable and that any deposits remaining un- claimed for such periods as may be prescribed by Government in this behalf are duly credited as revenue receipts of Government.
310. Loans and Advances by Government. Government occasionally makes loans and advances to public and quasi-public bodies and to individuals. Some of these loans and advances are made under special laws, other for special reasons or as a matter of recognised policy. Except in the case of loans and advances made under special laws or in respect of which Government has issu- ed any general rules or orders, Audit may require that the reasons for making it as well as the conditions on which it is made are stated in full in the orders sanctioning the loan or Advance. Audit may also enquire the reason for any unusual condition, e.g., remission of interest, in an individual case. Audit should see that the conditions of repayment of a loan or advance are complied with by the debtor and should exercise a close watch over payment of prin- cipal and realisation of interest, if any. In reviewing the outstanding loans and advances, Audit will pay special attention to irregularities in repayment, acknow- ledgment of balances and unrealisable and doubtful assets.
311. In respect of loans and advances the detailed accounts of which are kept by him, the Audit Officer is required to report without delay any default in payment, either of principal or of interest, to the authority which sanctioned the loan or the advance. If that authority enforces any penal interest upon the overdue instalments of interest or principal and interest, it will be the duty of audit to watch its recovery.
312. Any information which may come to the notice of the Audit Officer in the course of his official business in respect of the financial position of a debtor should be communicated by him confidentially to Government with such comments as he may think fit. This duty should be performed by the head of the Audit office personally with the utmost care and discretion.
312-A. In the present day context of the huge loans granted to State Gov- ernments, Statutory Corporations etc., Government Companies, Quasi Publice bodies and private institutions for development and other purposes, it has be- come an important function of audit not only to watch the fulfilment of the various conditions on which the loans are sanctioned but also to ascertain :-
(a) that adequate security has been obtained, particularly from private loanees, to safeguard Government interest and that Government have made adequate arrangements to keep themselves informed of the continued solvancy of the loanee;
(b) that there is no tendency to grant further loans for the same pur- pose to a loanee when the latter already has substantial un-utilised balances out of the previous loans; and(c) that there is adequate basis to show that the loans are utilised for the purposes and on the objects for which they are sanctioned.
313. Suspense Accounts. Under Suspense heads are recorded all such transactions as are ultimately removed either by payment or recovery in cash or by book adjustment.
Audit of transactions under Suspense heads consists not only in applying the ordinary procedure of audit of expenditure and receipts but also in seeing-
(1) that the unadjusted balances under these heads continue to repre- sent bona fide assets or liabilities of Government, capable of being realised or settled, as the case may be, and
(2) that satisfactory action towards such realisation or settlement is being taken by the officers responsible therefor.
314. All balances under Suspense heads have to be reviewed at short inter- vals so that it may be secured that no item remains unadjusted longer than is reasonably necessary to bring about its clearance in the ordinary course with due regard to the rules applicable to each case.
315. Remittances. In the audit of Remittance transactions it has to be seen that debits and credits are cleared either by receipt or payment in cash or by book adjustment under the relevant Service or Revenue heads of account or have been paired off by corresponding credits or debits within the same or in another account circle. An important part of this audit is to scrutinise the balances from month to month in order to effect their early clearance and to determine the accuracy of the outstandings at the end of the year.