Financial Audit Manual for ULBs of M.P. - English

uxjh; LFkkuh; fudk;ksa ds fy,
ys[kkijh{kk eSU;qvy

e/;izns’k 'kklu
uxjh; iz'kklu ,oa fodkl

^^izkstsDV mRFkku**
e/;izns'k xjhcksUeq[k 'kgjh lsok dk;ZØe

izkDdFku
e/;izn'k xjhcksUeq[k 'kgjh lsok dk;ZØe (MPUSP) ,d iapo"khZ; ¼2006&11½ dk;ZØe gS tks e/;izn'k
s s
'kklu ,oa vUrjkZ"Vªh; fodkl foHkkx (DFID), ;qukbZVM fdaxMe dh Hkkxhnkjh ls py jgk gS A bldk mís';
s
jkT; rFkk uxjh; LFkkuh; fudk;ksa ds Lrj ij iz'kklfud O;oLFkk dks lqn`<+ djuk gS ftlls xjhcksa dks
fpjLFkkbZ rFkk leqfpr dher ij ewyHkwr lsok,a iznku dh tk ldsA e/;izn'k esa bl dk;ZØe }kjk uxjh; {ks=ksa
a s
esa xjhch de djus vkSj vkfFkZd fodkl ds y{; dks izkIr djus esa enn feysxh A e/;izn'k xjhcksUeq[k 'kgjh
s
lsok dk;ZØe dk ,d mís'; ;g Hkh gS fd e/;izn'k jkT; esa uxjh; LFkkuh; fudk;ksa dh ys[kkadu ,oa foRrh;
s
iz.kkyh dks lq/kkjk tk,A
lafo/kku ds pkSgRrjosa la'kks/ku }kjk uxjh; LFkkuh; fudk;ksa dk l'kDrhdj.k fd;k x;k gS rFkk mUgsa
laoS/kkfud ntkZ nsdj LFkkuh; Lo&'kklu dh laLFkkvksa ds :i esa dk;Z djus ds vf/kdkj fn;s x;s gSa A
X;kjgosa foRr vk;ksx] foRr ea=ky;] Hkkjr ljdkj ,oa Hkkjr ds fu;a=d ,oa egkys[kkijh{kd dh
vuq'kalkvksa ds vk/kkj ij uxjh; LFkkuh; fudk;ksa ds fy;s ys[kkadu esa laHkwfr vk/kkj dks viuk;k x;k gS ftlls
u dssoy mudh dk;Z{kerk c<+xh cfYd yksd fuf/k;ksa ds mi;ksx djus esa ikjnf'kZrk rFkk mRrjnkf;Ro esa Hkh o`f)
s
gksxh A lkFk gh uxjh; LFkkuh; fudk; viuh Hkwfedk vf/kd izHkkoh <ax ls fuHkk ldsxs rFkk muds }kjk mRre
a
<ax ls lsok,a lqfuf'pr dh tk ldsxh A
a
foRr ea=ky;] Hkkjr ljdkj }kjk uxjh; LFkkuh; fudk;ksa ds ys[kkvksa dks laHkwfr vk/kkfjr iz.kkyh ds
vuqlkj la/kkfjr djus gsrq us'kuy E;wfufliy ,dkmUV~l eSU;qvy rS;kj djk;k x;k ,oa blh ds vk/kkj ij
e/;izn'k 'kklu }kjk Hkh ^^e/;izn'k E;qfufliy vdkmUV~l eSU;qvy** rS;kj djk;k x;k] tks fd 1 vizSy 2008
s s
ls izHkko'khy gS A
laHkwfr vk/kkfjr f}izfof"V ys[kk iz.kkyh 1 vizSy 2008 ls izHkko'khy gksus ds dkj.k e/;izn'k xjhcksUeq[kh
s
'kgjh lsok dk;ZØe] ftleas foRrh; fu;a=.k ij Hkh fo'ks"k cy fn;k x;k gS] ds varxZr ys[kk ijh{kk eSU;qvy
rS;kj djkus dh vko';drk eglwl dh xbZ A vr% bl {ks= dh lcls vuqHkoh laLFkk bULVhV~;V vkWQ ifCyd w
vkWMhVlZ vkWQ bf.M;k dks ys[kk ijh{kk eSU;qvy rS;kj djus dk dk;Z lkSik x;k A bl laLFkk }kjk laHkwfr
a
vk/kkfjr f}izfof"V ys[kk iz.kkyh ds leLr vk;keksa dks lfEefyr djrs gq;s ;g eSU;qvy rS;kj fd;k x;k gS A
foRr foHkkx ds funZ’kkuqlkj ;g vkWfMV eSU;qvy uxjh; fudk;ksa ds vf/kdkfj;ksa ,oa deZpkfj;ksa ds fy;s
s
rFkk foHkkxh; vkWfMVjksa ds fy;s ,d xkbZM ykbZu ds :i esa mi;ksxh fl) gksxk ysfdu tgka rd foRr foHkkx
ds vkWfMVjksa ds }kjk izn’k ds fofHkUu uxjh; fudk;ksa dh laijh{kk fd;s tkus dk iz’u gS] ;g dk;Z e/;izn'k
s s
LFkkuh; fuf/k laijh{kk vf/kfu;e 1973] e/;izn'k LFkkuh; fuf/k laijh{kk fu;e 1974 rFkk LFkkuh; fuf/k laijh{kk
s
fu;ekoyh 1981 ds vuqlkj fd;k tk;sxk A
bl eSU;qvy ds mUu;u lac/kh lq>koksa dk Lokxr fd;k tk;sxk A
a

vk;qDr
Hkksiky fnukad% 01@10@2011 uxjh; iz'kklu ,oa fodkl

fo"k; & lw p h
fo"k; i`"B Ø-
Ø-
ifjPNsn 1 v/;k; 1 izLrkouk 1–3
ifjPNsn 2 ys[kkijh{kk ds lkekU; fl)kar vkSj dk;Zi)fr;k¡
v/;k; & 1 lkekU; fl)kar vkSj dk;Zi)fr;k¡ 4–9
v/;k; & 2 izkfIr;ksa dh ys[kkijh{kk 10 – 24
v/;k; & 3 O;; dh ys[kkijh{kk 25 – 30
v/;k; & 4 Hk.Mkj izkfIr ,oa izc/ku ys[kkijh{kk
a 31 – 33
v/;k; & 5 Okkf"kZd foÙkh; fooj.k i=dksa dh ys[kkijh{kk 34 – 41
ifjPNsn 3 iwjd funZ'k
s
v/;k; & 1 fufonkvksa ,oa vuqc/kksa dk ys[kk ijh{k.k
a 42 – 45
v/;k; & 2 n{krk ,oa fu"iknu rFkk /ku mikns;rk ys[kkijh{kk 46 – 51
v/;k; & 3 m/kkj ysuk] _.k] vfxze ,oa fuos'kksa dh ys[kkijh{kk 52 – 56
v/;k; & 4 lkekU; Hkfo"; fuf/k rFkk vU; lsokfuo`fRr ykHkksa dh 57 – 59
ys[kkijh{kk
v/;k; & 5 egRoiw.kZ ys[kk vfHkys[kksa dh ys[kkijh{kk 60 – 69
v/;k; & 6 ys[kkijh{kk ls lacf/kr vU; fofo/k {ks=
a 70 – 74
v/;k; & 7 vkarfjd vad{k.k s 75 – 76
v/;k; & 8 lwpuk izk|kSfxdh ys[kkijh{kk 77 – 80
v/;k; & 9 lkekftd vad{k.k s 81 – 82
ifjPNsn 4 [kk
fuekZ.k dk;ksZa dh ys[kk ijh{kk
v/;k; & 1 dk;kasZ ij O;; dh ys[kkijh{kk ¼vfHk;kaf=dh; foHkkx½ 83 – 90
ifjPNsn 5 ys[kk ijh{kk ds ifj.kke
v/;k; & 1 vkifÙk;k¡ mBkuk vkSj mudk vuqlj.k 91 – 92
v/;k; & 2 ys[kkijh{kk izfrosnu rS;kj djuk 93 – 95
v/;k; & 3 laijh{kk ds fy;s laijh{kk Qhl dk fu/kkZj.k ,oa Hkqxrku 96
ifjPNsn 6 izf'k{k.k
v/;k; & 1 uxjh; LFkkuh; fudk;ksa dh ys[kkijh{kk dk izf’k{k.k 97
ifjf'k"V
1 ys[kkijh{kk ds fy, ys[kkijh{kk ekud ls mn~/k`r va’k 1 – 23
2 egRoiw.kZ izi=ksa dh lwph 24
3 ys[kkijh{kk ls lacf/kr e/;izn’k uxj ikfyd fuxe
a s 25 – 26
vf/kfu;e] 1956 ds fu;e ,oa mifof/k;ksa dh egRoiw.kZ
/kkjkvksa dh lwph
4 E;qfufliy ys[kk eSU;qvy esa ys[kkijh{kk ls lacf/kr a 27 – 28
egRoiw.kZ ys[kk izi=ksa ,oa iaft;ksa dh lwph
5 ys[kkijh{kk izfrosnu ¼izk:i½ 29 – 31
6 ys[kkijh{kk izfrosnu dh lkekU; :ijs[kk 32
7 ys[kkijh{kk izfrosnu ds egRoiw.kZ eqÌs 33 – 34
8 ys[kkijh{kk izek.k&i= 35
9 izf'k{k.k izkn’kZ 36 – 37

Financial Audit Manual For Madhya Pradesh Urban Local Bodies 1

ABBREVIATIONS

ADB Asian Development Bank
AMA Authorised Medical Attendant
CAA Constitution Amendment Act
CAAT Computer Assisted Auditing Techniques
CAG Comptroller And Auditor General of India
COBIT Central Objectives for Information and Related Technology
DEAS Double Entry Accounting System
DPC Duties, Power and Conditions
ECPA Efficiency cum Performance Audit
EDP Electronic Data Processing
EFC Eleventh Finance Commission
FIFO First In First Out
GAAP Generally Accepted Accounting Principles
Government State Government
HUDCO Housing and Urban Development Corporation Limited
INTOSAI International Organization of Supreme Audit Institute
IT Information Technology
JNNURM Jawaharlal Nehru National Urban Renewal Mission
LBG Local Body Grants
LIC Life Insurance Corporation of India
LIC Life Insurance Corporation of India
MB Measurement Book
MoUD Ministry of Urban Development
MPMAM Madhya Pradesh Municipal Accounts Manual
MPMCAct Madhya Pradesh Municipal Corporation Act, 1956
MPUADD Madhya Pradesh Urban Administration and Development Department
PFMA Public Financial Management and Accounting
RTI Right To Information
TA Travelling Allowance
TFC Twelfth Finance Commission
TGS Technical Guidance and Supervision
ULBs Urban Local Bodies
VFM Value for Money


SECTION – 1
CHAPTER – 1
INTRODUCTION
The Backdrop
1.1.1 A recent study by the World Bank regarding “Synthesis Study of Public Financial
Management and Accounting (PFMA) in Urban Local Bodies” points out that India is
witnessing rapid urbanization. The urban population of the country has grown five fold since
1947 and more than 27 percent of India’s people now live in urban areas. This urban influx of
population has been consistently rising upward. The trend is not likely to abate.
1.1.2 There has also been a constant rise in the level of awareness of the populace about health,
sanitation and urban needs like proper traffic circulation and other necessary amenities.
1.1.3 A well entrenched democratic order in the country has also given extra fillip to people’s
aspiration for an organized and better urban life style.
1.1.4 In this backdrop of increasing urbanization and rising aspirations of the people most of the
urban settlements in the country have been facing short falls in housing and water supply,
inadequate sewerage, congested traffic and pollution.
1.1.5 To help the Urban Local Bodies (ULBs), to meet these and other growing challenges, it has
become imperative that they are more systematic and organized, structurally stronger and
competent to be able to deliver. This Manual is a sequel to the strides being made in the
direction under various programmes undertaken by the Central and State Governments.
Existing Accounting Practices and New Initiatives.
1.1.6 Presently, the ULBs in the country are generally following the cash basis of accounting
coupled with single entry accounting system. The system is highly rudimentary, non-
transparent and fails to facilitate the purpose of accounting.
1.1.7 Under this system the transactions are recorded when the related cash receipts, or cash
payments take place. The revenue for example from property tax, water charges etc. is
recognised when each is collected. Similarly expenditure on acquisition and maintenance of
assets as well as on employee’s remuneration and other items is recorded when the related
payments take place. The end product of the cash basis of accounting is a statement of
receipts and payments that classifies cash receipts and payments. A statement of assets and
liabilities may or may not be prepared and attached to it. This cash basis of accounting fails to
meet most of the financial objectives.
1.1.8 In the early 1990, with the onset of the first generation economic reforms, there was a
paradigm change in the perception about the Government role in the Indian economy. All the
three tiers of Government viz Central, State and Urban Administration and Development
Department felt need to make themselves more accountable. One of these reforms included
amendment to the constitution of India i.e. The Constitution Seventy Fourth Amendment Act,
1992 (74th CAA). It provided constitutional status to the ULBs and vested them with powers to
function as institution of Urban Administration and Development Department (UADD).
Simultaneously the Ministry of Urban Development (MoUD) Government of India took several
leads to make ULBs self sustainable and viable Self Government Institutions.
1.1.9 On recommendations of the Eleventh Finance Commission and guidelines given by the
Ministry of Finance, Government of India a Task Force was constituted by the Comptroller
and Auditor General of India (CAG) to recommend budget and accounting formats for ULBs in
India. The CAG’s Task Force interalia suggested adoption of accrual based double entry
accounting system by the ULBs. The switching over to the accrual based double entry
accounting system besides upgrading the capacities of the ULBs is also expected to bring in
more transparency and accountability in the municipal transactions and the overall accounting
structure.
1.1.10 The switching over of the account to accrual based double entry accounting system is afoot in
some of the ULBs. The process may take sometime as the ULBs which have taken it up are
in the process of training and attuning themselves to the new system. The Accounting
Standard for ULBs are also at formation stage with the Institute of Chartered Accountants of
India. This is, however, no constraint as the accounts meanwhile may be given final shape on
the basis of Generally Accepted Accounting Principles (GAAP) to the extent feasible and
suitable in the context or State Government may adopt Accounting Standards formulated by


the C&AG for ULBs and Panchayti Raj Institutions. The excerpts from the standards referred
to later are reproduced in the Appendix I .
Audit
1.1.11 The study undertaken by the World Bank under the caption “Public Financial Management
and Accountability (PFMA) in ULBs in India”, infers that the main constraints to strong PFMA
in ULBs are the weak legal framework, less demand for accountability, lack of incentives for
compliance with existing rules and limited use of guidelines.
1.1.12 The World Bank report recommends strengthening the audit function in urban local bodies
through technical guidance, supervision and imposition of penalties for non-compliance. It is
also desirable that besides internal controls and external audit, possibilities of public oversight
be ensured. For this purpose financial performance report, managements analysis etc. for the
year be issued within three months of the year end to the authorities of the ULBs and such
other officers as is decided by the Govt. under Section 8 of Madhya Pradesh Local Fund
Audit Act 1973.
1.1.13 Similar views are resonated in the recommendations of the Eleventh Finance Commission.
Finance Commission, amongst other things recommended that (a) the Comptroller and
Auditor General of India (C&AG) should be entrusted with the responsibility of exercising
control and supervision over proper maintenance of accounts and audit of Urban Local
Bodies (b) the Director, Local Fund Audit or any other agency made responsible for the audit
of local bodies, should work under the Technical Guidance and Supervision (TGS) of the
C&AG in the same manner as the Chief Electoral Officers of the States operate under the
control and supervision of the Central Election Commission.
1.1.14 Under the Constitution Local Bodies are listed in the State List. There is practically no power
with the centre to do effectively much in this regard. Given the sensivity and reluctance of the
State Government to let any other authority enter into their areas it is remarkable that the
States mostly agreed to the Technical Guidance and C&AG’s new role in this regard in the
field of audit and accounting of local bodies. Suitable enactment or amendment to existing
provisions are, however, yet to be materialised.
1.1.15 Mandate and Practices
Madhya Pradesh Municipal Corporation Act 1956, chapter X “Audit and Accounts” reads that
there shall be an auditor specially appointed by the Government to examine and audit
accounts of the Corporation. The auditor shall from time to time examine and audit accounts
in accordance with the arrangements approved by the Government in this behalf.
1.1.16 Pursuant to the provision, the Director Local Fund Audit Madhya Pradesh is the auditor
appointed to carry on the audit of ULBs. The audit is regulated in accordance with the
provisions of the Madhya Pradesh Local Fund Audit Act 1973, Madhya Pradesh Local Fund
Audit Rules 1974 and Madhya Pradesh Local Fund Audit Departmental Regulations 1981.
1.1.17 As per Section – 9 of the Madhya Pradesh Local Fund Audit Act of 1973, the Auditor shall
also include in his Report following points :-
(a) All such payments which appear to be unlawful.
(b) Such shortages and losses which appear to have been incurred due to negligence
and fraudulently.
(c) Sums, which should have figured in accounts, have not been accounted for.
(d) Any other material impropriety or irregularity, fraud, mis-appropriation which have
been noticed in the accounts
1.1.18 The “Mayor in Council” shall cause to be laid before the Corporation every report made by the
auditor and every statement of the views of the auditor on any matter effecting the pursuance
and exercise of the duties and powers assigned to him under the Act which the auditor may
require the “Mayor in Council” to place before the Corporation, together with a report by the
“Mayor in Council” upon such report or statement, and the Corporation may take such action
in regard to the matters aforesaid as Corporation may consider necessary.
1.1.19 As soon as may be, after the commencement of each financial year, the auditor shall deliver
to the “Mayor in Council” a report upon the whole of the municipal account for the previous
financial year.
1.1.20 The Commissioner of the Corporation shall cause the said report to be printed and forward a
copy of it to each councillor along with the printed copy of the Administrative Report and
Statement of Accounts as referred to in section 127 of the Act.


1.1.21 The Corporation shall forthwith remedy any defects or irregularities that may be
communicated by the auditor and shall send report to the Government of the action taken by
the municipal authorities concerned. If there is difference of opinion between the municipal
authority and the auditor, or if the municipal authority does not remedy any defect or
irregularity within a period considered reasonable by the auditor, matter shall be referred to
the Government within such time and in such manner as may be prescribed and the
Government may pass such order as it thinks fit.
Failure to comply with Government order may attract the provisions of Section 419 with all the
necessary modifications as if order has been issued under Section 418 of the Act.
1.1.22 The Act has also provision for constituting a Municipal Accounts Committee in the first
meeting of the Corporation during the year. The committee alongwith its other functions shall
consider the report of the auditor, appointed under section 129 of the Act.
1.1.23 Section 130-A of the Act refers to Social Audit as well. However, it did not appear that the
Government, who is to arrange for Social Audit and prescribe the manner in which it is to be
carried has devised any system or modalities for it so far.
1.1.24 Need for Re-organising and Updating the System
Audit being conducted by the Local Fund Audit Department in the Municipal Corporations falls
under the Concurrent Audit or Resident Audit Scheme of the organization. The system implies
that all payments made in the Auditee Institution shall be preaudited. The acquittances shall
be checked at post audit stage every month. If the ULB acts with alacrity on Reports issued
by the Local Fund Audit the efficiency and capacity of the ULB can consistently improve.
1.1.25 Switching over to accrual based double entry accounting system has, however, rendered it
imperative to review the auditing parameters and to revise them suitably so that these are
compatible with the new accounting system. The annual accounts of the ULBs shall be
requiring certification by Statutory Auditors and for that purpose the Local Fund Audit
Department shall have also to suitably equip itself.
1.1.26 Accountability has lately emerged as a key element of the new philosophy of governance.
The new language of public administration requires that public officials should be held
responsible and accountable for providing high quality, timely and cost effective services to
tax payers. Just testifying veracity of a transaction or a group of transactions is not enough.
The trend and the wisdom is towards accountability in terms of standard of performance and
service delivery of public agencies to the citizen groups they are required to serve. It has,
therefore, become imperative that audit adopts itself to new methods and technique to cope
up with the emerging scenario. The revamping of the system can further be achieved by
updating it and consistently rediscovering it to keep pace with the time.
1.1.27 Applicability:
All the provisions of "Madhya Pradesh Sthaniya Nidhi Sampariksha Adhiniyam 1973 and
"Revised Adhiniyam 1978 and 1979", "Madhya Pradesh Sthaniya Nidhi Sampariksha Niyam
1974" and "Manual Local Fund Audit Department – 1981" shall remain applicable for the audit
of Urban Local Bodies. For meeting the fiduciary requirements of audit of accounts of Urban
Local Bodies to be maintained on Accrual Based Double Entry Accounting System with effect
from 1st April, 2008 and Annual Financial Statements thereunder this Supplementary Manual,
which will prove useful for the guidance of the Officers / Employees of the Directorate of Local
Fund Audit, has been prepared.
-------


SECTION – 2
GENERAL PRINCIPLES AND PRACTICES OF AUDIT
CHAPTER - 1
GENERAL PRINCIPLES AND PRACTICES
2.1.1 Introduction
This section deals with the general principles and practices to be followed in regard to audit of
expenditure, receipts, procurement and inventory control, annual accounts statement etc. The
principles and devices contained in this section and the sections to be followed are by no
means exhaustive. They should not be taken as limiting the scope of audit to the lines
indicated thereunder. The audit checks should be observed in spirit and not merely in the
letter. In the ever changing world, the audit has to evolve itself in a manner that it could be
adapt to any situation and perspective as it may arise.
2.1.2 Auditing Standards
Auditing standards prescribe the norms, principles and practices which the auditors are
expected to follow in the conduct of audit. They provide minimum guidance to the Auditor that
helps him to determine the extent and quality of auditing steps and procedures that should be
applied in the audit and constitute the criteria or norms against which the quality of audit
results are evaluated.
2.1.3 The Comptroller and Auditor General of India who is the Supreme Audit Institution of India
(SAI) has adopted with due consideration of the Constitution of India, statutes and rules, the
auditing standards of the International Organization of Supreme Audit Institutions (INTOSAI).
The Urban Local Bodies (ULBs) are operating in the public domain and handling public funds.
These auditing standards are, therefore, equally relevant in their sphere also with minor
changes and as briefly described hereunder.
2.1.4 The auditing standards consist of four parts :
(a) Basic Postulates
(b) General Standards
(c) Field Standards
(d) Reporting Standards
2.1.5 Basic Postulates
The basic postulates for auditing standards are basic assumptions, consistent premises,
logical principles and requirements which help in developing auditing standards and serve the
auditors in forming their opinion and reports particularly in cases where no specific standards
apply.
2.1.6 The postulates are :
(a) The audit applies its own judgment to the diverse situations that arise in the course of
ULB auditing.
(b) With increased public accountability of persons or entities managing public resources
has become increasingly evident so that there is a need for the accountability process
to be in place and operating effectively.
(c) Development of adequate information control, evaluation and reporting systems
within the ULBs will facilitate the accountability process. Management is responsible
for corrections and sufficiency of the form and content of the financial reports and
other information.
(d) Appropriate authorities should ensure the promulgation of acceptable accounting
standards for financial reporting and disclosure relevant to the needs of the ULB and
audited entities should develop specific objective and performance targets.
(e) Consistent application of acceptable accounting standards should result in fair
presentation of the financial position and results of operations.
(f) The existence of an adequate system of internal control minimizes the risk of errors
and irregularities.
(g) All audit activities should be within the audit mandate.
(h) The audit should work towards improving techniques for auditing the validity of
performance measure.


(i) The auditing authority should avoid conflict of interest between the auditors and the
entity under audit.
The above postulates for auditing standards are further elaborated in the following
paragraphs :-
2.1.7 The Audit applies its own judgment to the diverse situations :
(i) It would be impractical to establish a code of rules, sufficiently elaborate, to cater to
all situations and circumstances which an auditor might encounter in the observance
of Auditing Standards. Therefore, the audit must exercise its judgment in determining
the auditing processes necessary in the circumstances to afford reasonable basis for
its opinion and the content of its report.
(ii) In regard to audit of Annual Account Statements of ULB, the audit objective may be
akin to the objectives of audit as being practiced and prescribed under the Standard
Audit Practices issued by the Institute of Chartered Accountants of India, as may be
applicable in similar situations.
2.1.8 Demand of Public Accountability
(i) The broad aim of audit is to safeguard the financial interests of the ULB and to uphold
and promote public accountability and sound and economical financial management
practices.
(ii) Audit assists the elected representatives in the exercise of financial control over the
management.
(iii) The management and not audit is responsible for enforcing economy and efficiency in
the expenditure of public money. It is, however, the duty of Audit to bring to light
wastefulness, failures, system weaknesses, deficiencies and the circumstances
leading to infructuous expenditure.
2.1.9 Development of adequate information control, evaluation system.
Management of the auditing entity is responsible for correctness and sufficiency of the form
and content of the financial reports and other informations. If there are any inadequacies in it
they are to be pointed out. Audit may also suggest a more comprehensive approach in the
matter.
2.1.10 Authorities should ensure the promulgation of acceptable accounting standards.
The Audit shall advise the ULB for the promulgation of acceptable accounting standards for
financial reporting and disclosure relevant of the needs of ULB. The audited entities should
develop specific and measurable objectives and performance targets.
2.1.11 An adequate system of internal control minimizes the risk of errors.
It is the responsibility of audited entity to develop adequate internal control systems to protect
its resources. It is also obligatory for it to ensure that the controls are in place and operational.
The applicable statutes and regulations are being complied with and that probity and
propriety are observed in decision making where controls are found to be inadequate or
missing altogether.
2.1.12 All audit activities shall be within the mandate.
The term ‘Audit’ includes Financial Audit, Regularity Audit and Performance Audit. In
pursuance of responsibility, the audit is empowered to decide the nature, scope, extent and
quantum of audit and content of the audit reports in respect of audit to be conducted by him or
on his behalf.
2.1.13 Towards improving technique for auditing the validity of performance measure.
The expanding audit role of the auditors will require them to improve and develop new
techniques and methodologies to assess whether reasonable and valid performance
measures are used by the audited entity. Wherever practical the auditors should acquaint
themselves with techniques and methodologies of relevant disciplines.
2.1.14 Avoiding conflict of interest between the auditors and entity under audit.
The Audit performs its role by carrying out audits of various ULBs and by reporting the results
in conformity with Reporting Standards. To fulfill this role, the audit needs to maintain its
independence and objectivity. The application of appropriate general auditing standards
assist the audit in satisfying these requirements.
2.1.15 The General, Field and Reporting Standards are suitably dealt within the subsequent sections
and chapters.


2.1.16 Audit Objectives and Scope
The audit objectives are clearly defined in the Madhya Pradesh Local Fund Audit
Departmental Regulations 1981. The audit activities should be directed in consonance with
these objectives.
The broad objectives of audit shall be:
(i) to provide an unbiased, impartial and objective assessment of the reliability and fair
presentation of the financial activities and financial status of the ULB in their reports ;
(ii) to provide an assessment of the due observance of the laws, rules, procedures and
systems in keeping with the financial interest and propriety in the overall functioning
of the ULB ; and
(iii) to provide an assessment of economy, efficiency and effectiveness, (value for
money) in the implementation of the mandated activities by the ULB.
In the process, audit aims to :-
(a) safeguard the financial interests of taxpayer ;
(b) assist the Mayor in Council and the elected representatives in exercising
financial control over the executives ; and
(c) watch that various authorities and branches of the ULB act as per the
mandate and laws of the land.
2.1.17 It is the function of the management to make financial rules and orders and put in place an
adequate internal control mechanism that will guard against misuse of public funds. The audit
is to verify that the administrative departments properly apply these internal control but also to
point out weaknesses, if any, as may be noticed in the functioning of the control mechanisms.
2.1.18 The management of the ULB and not the Audit is responsible for enforcing economy in the
expenditure of public moneys. It is, however, the duty of Audit to bring to notice wastefulness
in administration and infructuous expenditure in its report.
2.1.19 The auditing authority itself shall decide the nature and extent of audit to be conducted by it or
in its behalf.
Approach To Audit
2.1.20 Right of access to information
In the course of scrutiny of accounts and transactions, audit is entitled to make such queries
and observations and to call for all records, statements, returns and explanations as it may
consider relevant and necessary in discharge of its duties. All such quarries and observations
should be couched in courteous and impersonal language without innuendo or insinuation.
2.1.21 It is the statutory obligation of the management of the ULB to afford all facilities for inspection
/ audit and to comply with request for information in a complete form as may be possible and
with all reasonable expedition.
2.1.22 In the event of non-production of vital record or documents the audit should bring the
complacency to the notice of the chief Executive and in case the problem is not resolved the
matter should be suitably highlighted in the Audit Report and brought to the notice of the
Municipal Council.
2.1.23 Audit Evidence
The principal source of evidence for audit findings will be the records of the auditee
organization. The Audit should ensure that the audit findings about working of the ULB, its
various projects and programmes, activities, transactions etc. are based on sufficient,
competent, sustainable and relevant evidence. Evidence should be planned, gathered and
analysed before any conclusion is reached. This may be gathered by :
(i) review of physical verification reports ;
(ii) review of documents ;
(iii) evaluation of the quality of internal control mechanism ; and
(iv) discussions with the executives.
However, evidence may not be obtained by making independent enquiries from private
individuals or members of the general public.


2.1.24 Commonly used Audit Procedures
Following three audit procedures are commonly used to obtain audit assurance.
(i) Compliance testing
(ii) Analytical review
(iii) Direct substantive testing of transactions.
A. Compliance Testing
2.1.25 Compliance testing is an audit procedure for evaluating internal controls. The objective is to
locate deviations from control procedures.
2.1.26 Initially the auditor should make a preliminary assessment of the internal controls in the ULB
and determine whether adequate reliance can be placed on the internal control mechanism.
Actual compliance testing of the controls can be undertaken in the execution stage of audit.
2.1.27 Steps involved in compliance testing are as follows:-
(i) The first step in conducting compliance test will be to identify the sub-system in which
the controls are to be tested eg. if property taxes are to be audited one of its segment
could be ‘Assessment of Tax’.
(ii) The next step will be to identify the control objectives. The control objective for the
sub-system ‘Assessment of Property Tax’ could be the tariff applied for the purpose.
Whether it is in accordance with the approved rates and the norms.
(iii) The third step will be to identify key control that have been established to achieve the
control objectives for the sub-system. Whether necessary checks are being exercised
in the proportion these are prescribed.
(iv) In addition, evidence gathering techniques like review of performance physical
achievement, shortfall etc. are to be used to arrive at a conclusion.
Auditor may categorically identify the infirmities and failures in the system and may
also suggest additional control to plug the loopholes.
B. Analytical Review
2.1.28 Analytical review is a procedure that involves analysis of significant ratios and trends
including fluctuations that are inconsistent with other relevant data or which deviates from
norms and general expectations. This can be examined with reference to other relevant
financial and non-financial information. “The commonly used analytical review techniques are
(a) comparisons involving a single component; (b) comparison across components (c)
system analysis (d) predictive analysis (e) regression analysis and (f) business analysis”.
2.1.29 Comparison involving a single component : This procedure may be used at both the planning
and execution stages of audit. It is commonly used to analyse statement of accounts. In
attempting a comparision with budget the following questions will arise in the context :
(i) are the budgets of the entity prepared on a reliable basis, using reliable and adequate
information.
(ii) have the budgets been reliable indicators of the results in the past.
In trend analysis, it is preferable to compare figures of a few previous years than just
the immediately preceding year.
2.1.30 Comparison Across Components: This procedure may be used at both the planning and
execution stages of audit. It is crucial that the definition of the ratios used is consistent with
that used for prior years or with that of similar entities, as the case may be. This procedure is
generally more effective than single component comparisons because it considers the inter
relationship among different components. This can also provide assurance simultaneously for
more than one component.
2.1.31 System analysis: The approach would be to scan or analyse individual entry in transaction
listings so as to locate unusual entries or abnormalities. This procedure may be fruitfully used
during execution stage if the data is computerized, use of appropriate auditing software can
facilitate this procedure conveniently.
2.1.32 Independent Test of reasonableness: This procedure i.e predictive testing can be used only
where sufficient information independent of accounting system is available. For example
volume of property tax proceeds and the applicable rate may be used to predict the likely
revenue of the ULB from this particular source.


2.1.33 Regression analysis: This is a statistical technique that creates an equation to reveal how one
variable is related to one or more other variables. It is generally used in execution stage.
2.1.34 Business or result analysis: This is a macro level analysis of financial statement involving
critical ratios related to returns, liquidity, financial stability, debt etc. It is useful technique for
identification of risk areas during planning and audit completion stages and also for a better
understanding of the entity and its operations. It is likely to prove a useful tool for more
experienced members of the audit team who can apply their cumulative knowledge of the
particular entity being audited.
C. Direct Substantive Testing of Transactions
2.1.35 Direct substantive testing of transactions and balances which seek to provide evidence as to
the completeness, accuracy and validity of information in the accounting of financial
statement. The testing involves examining of samples of transactions or account balances
and is a form of inductive reasoning. Where the reasonableness of the aggregate results is
inferred from the evidence of reliability of the individual details and have been tested. If the
auditor wants to test whether purchases are made by following established procedures and
have been accounted correctly in the records, he may test check some purchase
transactions. If the transactions tested conform to procedure it can be inferred that the
purchase or procurement procedure has been adhered to.
2.1.36 Steps involved in performing direct substantive testing are as follows :-
(i) Identification of the sub-systems to be tested ;
(ii) Identification of the sub-audit objective to be tested for selected sub-system. The sub-
audit objectives could be to check whether the transactions are accurately reflected in
the accounts and completely recorded in the accounts;
(iii) Identification of the technique for gathering evidence;
(iv) Determination of the sample size and performing test check using the identified
technique for evidence gathering;
(v) Formulation of conclusions.
2.1.37 Audit Planning
The audit plan should be an active rolling plan. It should be an annual exercise prepared in
accordance with the availability of manpower resources and the priorities of audit during the
year. The main objectives of the audit plan will be to:
(i) provide assurance that all deserving and significant auditable units have been
considered while determining priorities;
(ii) provide a framework for identifying the segments, programmes, functions etc. which
are significant and are vulnerable to risks and serious financial irregularities;
(iii) optimise the use of available resources for achieving the short term and long term
audit objectives; and
(iv) minimize redundant audit activities.

-------


CHAPTER – 2
AUDIT OF RECEIPTS
Audit Objectives and Scope
2.2.1 Audit of receipts embraces audit of all tax and non-tax receipts of the ULB. Audit is required to
satisfy itself that the rules and procedures in that behalf are designed to secure an effective
check on assessment, collection and proper allocation of revenues and are being duly
observed and to make, for this purpose, such examination of the accounts as it thinks fit and
report thereon.
2.2.2 Audit should satisfy itself that the requirements of legality and regularity are observed in
individual assessments.
2.2.3 It is not the part of audit function to review a judicial decision nor it is to review the judgment
exercised by officers in individual cases in areas purely in the ambit of their discretion. But it
must be recognised that an examination of such cases is important for judging the
effectiveness of assessment procedures, recovery process etc.
2.2.4 Any obvious errors in assessment, computation etc. can be pointed out in audit leaving it to
the administrative authorities to set right the errors by adopting such action as they may
consider appropriate.
2.2.5 Key areas of scrutiny as discussed elaborately in subsequent paragraphs shall include :
(i) scrutiny of regulations and procedures of assessment, collection and refunds.
(ii) audit of arrangements for detection / prevention of frauds and other irregularities.
(iii) scrutiny of effectiveness of rules and orders governing collection of receipts.
(iv) audit should carefully review outstanding dues and look into the reasons and failures
in its realization. The audit may also suggest feasible means for their recovery.
Wherever any dues appear to be irrecoverable, orders for their waiver and
adjustment should be sought.
(v) the most important function of audit and the area of audit concern in relation to
assessments and refunds is to satisfy itself by such check as it may consider
necessary that internal procedures adequately provide for proper safeguards against
loss of revenue and leakages therefrom.
2.2.6 General Principles of Audit of Receipts
The following general principles should be borne in mind:-
(a) It is primarily the responsibility of the ULB to see that all the items of revenue and
other dues which have to be brought to account are correctly and promptly
assessed, realised and credited to the Municipal Fund. It is one of the important
functions of audit to see that all sums due to the ULB have been realised and
properly accounted for. It should also see that the initial amount of demand have
been entered in the accounts; that the demands arrived at in the case of taxes and
fees are correct; and that adequate steps have been taken to enforce recovery.
Any investigation by audit in this regard should be so conducted as not to interferer
with the executive responsibility.
(b) Audit should ascertain that adequate regulations and procedures have been
framed to secure an effective check on the assessment and collection of revenue
and such regulations and procedures are being observed, and that demand,
collection and balance statements are prepared according to rules and agreed with
the subsidiary registers of demand and collection and that the balances are
regularly reviewed or checked in the manner specified by the statutory rules, orders
or regulations, if any.
(c) Audit should ascertain checks imposed against irregularities at the various stages of
assessment, demand, collection and accounting and to suggest any appropriate
improvement in the procedure. Audit might, for instance, suggest that a test
inspection should be carried out by comparing a sample set of receipt counterfoils
(duplicate copy) with the receipts actually in the hands of the tax-payers and the
result of such an inspection being made available to audit.
(d) The audit of receipts should be regulated mainly with reference to the statutory
provisions or financial rules or orders which may be applicable to the particular
receipts. If the test check reveals any shortcoming in such rules or orders the
advisability of amendment should be brought to notice of the ULB.


(e) It is not the duty of audit to question an authoritative interpretation of rules or orders
and review a judicial decision or a decision given by ULB in a quasi-judicial
capacity. This instruction does not, however, debar an auditor from bringing to
notice any conclusion deducible from the examination or the results of a number of
such decisions.
(f) Where any financial rule or order applicable to the case prescribes the scale or
periodicity of recoveries it will be the duty of audit to see, as far as possible, that
there is no deviation without proper authority from such scale or periodicity. The
aim should be to see that the disregard of rules or defects of procedure are not
such as to lead to leakage of revenue rather than to see that a particular sum due
to the ULB was not realised at all or on due date.
(g) Audit will see that no amounts due to ULB are left outstanding on their books
without sufficient reasons. Audit will continue carefully to watch such outstanding
and suggest feasible means for their recovery. Whenever any dues appear to be
irrecoverable, provision for remission thereof has been made under the orders of
competent authority.
2.2.6 Audit of Receipts
Following instructions should be borne in mind during audit :-
(i) that adequate regulations and procedures have been framed to serve as effective
check on the assessment, collection and allocation of revenue;
(ii) that such regulations and procedures are being observed;
(iii) that where any financial rule or order prescribe the scale or periodicity, there is no
deviation without proper authority from such scale or periodicity ;
(iv) that a demand collection and balance register of all recurring or/and non-recurring
demands is kept in accordance with the rules and collections watched against it;
(v) that arrangements for collections are satisfactory and that there are no outstandings
requiring special notice;
(vi) that the receipts are not directly appropriated for expenditure except with prior
approval of the competent authority.
(vii) that if remissions are granted, they are duly supported by the sanction of the
competent authority;
(viii) that moneys received are brought to account immediately and that there is no delay
in their remittances into the Bank.
(ix) that return of the counterfoils of used receipt books is properly watched and that the
counterfoils are recorded after check so as to ensure that there had been no delay or
omission in bringing the receipt to account ;
(x) that for cancelled receipts, both the original and duplicate foils are on record;
(xi) that the amount realised on a receipt has been clearly written in words and figures.
Any indistinct or doubtful entry should be viewed seriously and further proof
regarding the amount actually realised should be demanded from the officer
concerned ;
(xii) that the amount realised as per the receipt issued has been correctly noted in the
daily collection statement and the demand, collection and balance register;
(xiii) that reversible carbon has been used for the issue of receipt.
(xiv) that receipt for realisation of money by cheque has been issued on its realisation
unless the rules of ULB provide otherwise.
(xv) that receipts are given in the prescribed printed form duly machine numbered and
that no manuscript forms are used;
(xvi) that the levy of taxes, rents, fees etc. is duly authorised and that recoveries are
effected according to the sanctioned scale and periodicity;
(xvii) that surcharge has been recovered as per rules for the delay in payment of taxes
etc.;
(xviii) that the demands are correctly assessed punctually and fully realised;
(xix) that the refund / remissions granted are admissible under the rules and that they
have been duly sanctioned;
(xx) that the income during the year derived from each source compares favorably with
that of the previous year and omission in realisation and marked decreases in
income, if any, are fully explained;


2.2.8 Assessment and collection of taxes - It should be seen that :-
(a) the tax levied is authorised by the Act governing the ULB;
(b) the prescribed procedure such as the obtaining of sanction and the publication of
proper notification has been observed wherever a new tax is levied or the rate of an
existing tax is revised;
(c) the assessment is in accordance with the scale, if any, fixed in the Act or Rules;
(d) exemption has been granted only in case entitled to exemption under the provisions
of the Act or the Rules;
(e) all taxable items have been entered in the appropriate Demand, Collection and
Balance Register (Form F&A 15) required to be maintained. The total demand for the
year has been arrived at and certified by the executive authority;
(f) an abstract of demand, collection and balance has been prepared in the register at
the end of the year;
(g) the collection as noted in the Demand Collection and Balance Register agrees with
the collection as entered in the daily collection statement;
(h) the writes off are supported by competent sanction and there is a record to show that
the items are really irrecoverable;
(i) the grant of remissions is in accordance with the rules and orders;
(j) the arrears of demand at the end of the year have been transferred to the new
Demand, Collection and Balance Register;
(k) the arrears are not time-barred.
2.2.9 In case; where demand notices are issued in advance it should be ensured in audit that-
(i) demands issued for collection are in the prescribed form and are serially numbered;
(ii) a stock account of demand books, receipt books etc., is maintained and also
account of the books issued for collection with provision therein for noting the date of
issue, the person to whom issued and his initials and the date of return;
(iii) the demand agrees with the amount in the Demand, Collection and Balance
Register;
(iv) collections have been promptly remitted to the zonal office or Treasury of ULB and
have not been remained unduly in the hands of collecting agency / ward;
2.2.10 Revenue from Taxes
(A) The ULBs, subject to Section 132 of Municipal Corporation Act 1956 and general or
special orders of the Sate Government, may impose the following taxes :-
(a) a tax payable by the owners of buildings or lands situated within the city, with
reference to the gross annual letting value of the buildings or lands, called the
property tax (Refer Para 2.2.21).
(b) water tax, in respect of lands and building to which water supply is furnished
from or which are connected by means of pipe with ULB water works.
(c) a general sanitary cess, for the construction and maintenance of public
latrines and for removal and disposal of refuge and general cleanliness of the
city.
(d) a general lighting tax, where the lighting of public streets and places is
undertaken by the ULB.
(e) a general fire tax, for the conduct and management of the fire service and for
the protection of life and property in the case of fire.
(B) The water tax shall be charged:-
(a) on buildings and lands, which are exempted from property tax, at a rate as
shall be determined by the Council.
(b) on buildings and lands, which are not exempted from property tax, at a rate
as determined in clause (a) plus such percentage of the property tax as shall
be determined by the ULB.
Provided that the water tax shall not be levied on buildings and lands owned by
freedom fighters during their life time, if they are exempted from income tax and water
connection is for domestic purpose and does not exceed half inch connection.
(C) The sanitary cess, lighting tax and fire tax shall be levied at a consolidated rate as
under :-


(a) on buildings and lands, which are exempted from property tax, at a rate as
determined by the Council.
(b) on buildings and lands, which are not exempted from property tax, at a rate
prescribed under clause (a) plus such percentage of the property tax, as may
be determined by the ULB.
(D) In addition to the taxes specified above the ULB may, subject to any general or
special order of the State Government, impose any of the following taxes, namely:-
(a) a latrine or conservancy tax payable by the occupier or owner upon private
latrines, privies or cesspools or open premises or compounds cleaned by
ULB agency;
(b) a drainage tax where a system of drainage has been introduced;
(c) a tax on persons exercising any profession or art or carrying on any trade or
calling within the city;
(d) fees on the registration of cattle sold within the city;
(e) market dues on persons exposing goods for sale in any market or in any
place belonging to or under the control of the Government or of the ULB;
(f) a betterment tax on properties whose value may have improved as a result of
town planning scheme undertaken by the ULB;
(g) a tax on pilgrims resorting periodically to a shrine within the limits of the ULB
according to their circumstances and property;
(h) a tax on persons occupying houses, buildings or lands within the limits of the
ULB according to their circumstances and property;
(i) a toll on new bridge constructed by the ULB;
(j) a tax on advertisements other than advertisement published in newspapers;
(k) a tax on theatres, theatrical performances and other shows for public
amusement;
(l) a terminal tax on goods or animals exported from the limits of the ULB; and
(m) any other tax, which the State Government has power to impose under the
Constitution of India, with the prior approval of the State Government.
2.2.11 Power to impose additional stamp duty on transfer of immovable property : -
(a) The duty imposed by the India Stamp Act, 1899 on instruments of sale, gift and
usufructuary mortgage, respectively, of immovable property, shall in the case of
instruments affecting immovable property situated within the limits of ULB be
increased by one per- centum on the value of the property so situated, or in the case
of an usufructuary mortgage on the amount secured by the instrument, as set forth in
the instrument.
(b) The State Government shall every year pay to ULB from the Consolidated Fund of
the State a grant-in-aid approximately equal to the extra duty realized after making
such deductions on account of cost of collection as the State Government may
determine.
2.2.12 Daily Collection Statement (Form F&A 3)
Audit should see that :-
(a) daily collection statements have been prepared in prescribed Form F&A 3 of MPMAM
separately for each type of collection like property tax, water tax, trade license, rental
etc. to facilitate accounting.
(b) these have been prepared by each collection center and cash counter of the ward to
record all receipts - cash, cheques (including drafts).
(c) each authorised collection center and cash counter of ward has filled in the statement
after receiving the money from assessees and users/beneficiaries of the municipal
services.
(d) details of collection concerning current year, arrears, interest, and penalty have been
recorded separately in the statement.
(e) account head wise collection details have been recorded.
(f) the collection counters and centers have sent copies of the statements to the
concerned ward for consolidation.


(g) consolidated collection statement has been prepared by each ward for the collection
made by its collection centers and counters with denominations for cash, cheques
and drafts on daily basis.
(h) these have also been prepared by other sections and departments of the ULB
authorised to collect revenue or receipts.
(i) collection summary has been prepared by each ward in form prescribed by ULB from
consolidated daily collection statement separately for each type of collection like
property tax, water tax, trade license, rental etc. to facilitate accounting.
(j) collection summary for each ward has included the collection of all the collection
centers and counters in the ward on a daily basis.
(k) details of arrear collection, current period collection, interest, penalty, etc. have been
provided against each account head.
(l) collection summary has also been prepared by other sections and departments of
ULB from its daily collection statements.
(m) the daily collection statements alongwith summary have been submitted by each
ward alongwith the details of cash, cheques and drafts to its zone office whereas the
sections and departments have submitted the same to the concerned zone office or
treasury for remittance and deposit in the bank.
(n) the cash, cheques and drafts collected by each ward/section/department have been
deposited in the zone office/treasury on the same day or latest on next working day.
(o) arrangements for the safe custody of unremitted amount exist in each
ward/section/department.
(p) the duty for collection of taxes has been performed by the authorized personnel under
the written order of the Commissioner.
(q) the receipt has been tendered for every sum paid on account of tax, fee, levy etc. by
the official of ULB receiving payment stating the sum and nature of tax etc. on
account of which it has been paid and the postings thereof in the Daily Collection
Statement have been traced / tallied from the counterfoils of the receipts.
2.2.13 Ward wise Collection Summary (Form F&A 4)
(a) collection summary has been prepared in prescribed Form F&A 4 of MPMAM by each
zone office from collection summary received from wards/other sections and
departments of ULB.
(b) each zone office has prepared the collection summary to summarize the collection of
all the wards/sections/departments of the ULB. Treasury of ULB has also prepared
the collection summary of the collections received by it from the sections and
departments.
(c) the cash, cheques, drafts etc. received by the zone office/treasury of ULB have been
deposited in the bank on the same day or latest on the next working day.
(d) Arrangements for safe custody of unremitted amount exist in the zone office/treasury.
(e) details for the amount remitted and cheques/drafts deposited in the bank have been
entered.
(f) a copy of the collection summary has been sent by the zone office and the treasury to
the accounts section of ULB for further summarization.
2.2.14 Zone wise Collection Summary (Form F&A 5)
(a) collection summary has been prepared in prescribed Form F&A 5 of MPMAM in
account section from collection summary received from each zone and treasury of
ULB.
(b) the accounts section has consolidated the zone wise and treasury collection
summary showing total collections of the ULB on a daily basis for each type of
collection and break-up for each zone and the treasury.
(c) it has been taken as the basis for preparing the receipt voucher concerning the
collection entry by the accounts section of ULB.
2.2.15 Acknowledgment of Cash / Cheque Received (Form F&A 6)
(a) it has been prepared in prescribed Form F&A 6 of MPMAM.


(b) it has been issued as receipt document by each collection center and cash counter of
the ward or any other section/department of ULB as a proof of receipt to any payer of
taxes, fees, charges, or any other collection.
(c) the receipts have been machine numbered and generated in two copies, one for the
payee and the other for the office record.
(d) a register of receipt books in the form prescribed by ULB has been maintained by the
central store of the ULB showing the receipt books printed and details of
ward/section/department/treasury wise issues.
(e) a register of receipt books in the form prescribed by ULB has also been maintained
by each ward/section/department/treasury for the receipt books received from central
stores.
(f) the receipt books issued by the central stores have been accounted for by the
ward/section/department/treasury in the prescribed register.
(g) a register of receipts books has been maintained by each collection centre and cash
counter for the receipt books received from the ward and its subsequent return to the
ward after use.
(h) there is no misuse or pilferage of the receipt books from the initial stage of printing to
the last stage of issue from whom money is received.
(i) reversible carbon has been used for the issue of receipts to the payee.
(j) amount of each receipt has been properly accounted for and also posted in the
demand, collection and balance register, daily collection statement and in any other
subsidiary register.
(k) all the unused receipt books have been kept under the personal custody of the
authorised officer.
2.2.16 Cheque/Draft Receipt Register (Form F&A 11)
(a) cheque / draft receipt register has been maintained in prescribed Form F&A 11 of
MPMAM by each zone office and treasury.
(b) details of all cheques and drafts received, cheques and drafts deposited in the bank
and their status of collection has been recorded therein from the bank statement.
(c) dishonoured cheques, if any, have been entered in the Cheques Dishonoured
Register.
2.2.17 Bank Reconciliation (Receipts)
(a) bank statement has been collected from the bank by the zone/treasury of ULB at the
end of each week and reconciled with the cash remittance and cheques / drafts
deposited.
(b) the dates for collection of cheques and drafts as shown in bank statement have been
noted in the register of cheques and drafts.
(c) dishonoured cheques have been entered in the cheques dishonoured register and
returned to the ward / section / department for realization in cash alongwith the
surcharge, if any, for the delay in payment and the penalty for dishonoured cheque.
The amount of discount, if any, allowed has also been recovered.
(d) there is no undue delay by the bank in the collection of cheques / drafts.
(e) there is no other discrepancy in the bank statement except cheques / drafts under
collection.
(f) the bank has not recovered any collection charges.
(g) there is no difference in the amount of cash remitted and credited by bank.
Cheques Dishonoured Register (Form F&A 12)
2.2.18 Audit should see that :-
(a) cheques dishonoured register has been maintained in prescribed Form F&A 12 of
MPMAM by each zone office and the treasury.
(b) it has been maintained to record all the information pertaining to the dishonoured
cheques received from the respective bank branch and details concerning
subsequent collection.


(c) the amount of dishonoured cheque has been realized in cash alongwith the penalty,
rebate, if any, allowed at the time of receiving payment and surcharge, if any,
recoverable due to delay in payment.
(d) the information of dishonoured cheques has been collected by the zone office and
treasury from the respective bank branch on daily basis.
(e) the payment has not been accepted by cheque from the party concerned whose
cheque was dishounoured.
2.2.19 Notice of Demand (Form F&A 13)
(a) Notice of Demand has been prepared in prescribed Form F&A 13 of MPMAM.
(b) it has been used for raising demand for all dues, other income or any further demand
after scrutiny of the self assessment returns for property tax.
(c) penalty/surcharge has been mentioned in the notice for non-payment of demand by
the specified date.
(d) it has been prepared from the Demand, Collection and Balance Register.
(e) In case of a demand (new assessment) raised for a period earlier to the financial year
in which assessment is made, was the demand split in the accounts according to the
period to which it related to earlier period and the same was accounted as “Prior
Period Income”.
2.2.20 Warrant of Distress –
(a) It should be seen that warrants in the prescribed form signed by the Commissioner
have been issued to the person or persons who have not paid the sum as demanded
in the notice of demand within 30 days of the service of such notice under section
175 of Madhya Pradesh Municipal Corporation Act, 1956.
(b) The total number of warrants issued with the amount involved, the warrants executed
and the amount recovered and the warrants pending with the amount involved should
be checked. The delay in either issuing or execution of the warrants should be
commented upon also be seen.
2.2.21 Self-Assessment Property Tax Form (Form F&A 14)
(a) self assessment property tax return for payment of property tax has been filed in by
the assesses in the prescribed Form F&A 14 of MPMAM and as revised by the ULB
from time to time.
(b) the arithmetical accuracy of the computation of the annual letting value, property tax
and other taxes has been ensured.
(c) the tax has been imposed on the annual letting value of the lands and buildings.
Annual letting value of the building or land whether revenue paying or not, has been
determined on the basis of per square meter of the built up area of the building or
land taking into consideration the area in which building or land is situated, its
location, purpose for which it is used, quality of construction etc.
Note:- (1) Previously it was “Carpet Area” which was substituted by “Built up Area” by MP.
Act No. 2 of 2005 published in M.P. Rajpatra (Asadharan) dated. 20/01/2005.
(2) Built up area is approximately 20% more than the carpet area and in the property
tax return for the year 2005-06 the area of the building should be 20% more than the
area shown in the return for the year 2004-05.
(d) the computation of the annual letting value, property tax and other taxes is in
accordance with the prescribed norms.
(e) service charge on the buildings owned by the Central Government has been levied as
per prescribed norms.
(f) the built up area of the building, area of vacant land and its use viz commercial or
residential shown in the return has been checked by the ward officer and the
Revenue Inspector.
Note:- (1) If the assessment made by the owner found to be incorrect by the ULB and the
variation is more than 10% the penalty equal to five times of the difference of self
assessment made by the owner and the assessment made by ULB has been recovered.
(2) The property tax is based on the built up area of building, area of vacant land and its
use viz commercial or residential.


(g) discount not exceeding six and a quarter percent has been allowed on the amount of
property tax by whom it has been paid before such date as the ULB has fixed.
(h) surcharge, if any, has been recovered on the payment received after such date as the
ULB has fixed.
(i) city development cess collected by the ULB on behalf of the State Government has
been remitted.
2.2.22 Exemptions -
The property tax is not leviable in respect of the following properties, namely:
(a) buildings and lands owned by or vesting in
(i) the Union Government;
(ii) the State Government;
(iii) the Corporation;
(b) buildings and lands the annual value of which does not exceed six thousand rupees
in case of Municipal area having population of one lakh or above and four thousand
eight hundred rupees in case of Municipal area having population below one lakh;
Provided that, if any such building or land is in the ownership of a person who owns
any other building or land in the same city, the annual value of such building or land
shall for the purposes of this clause be deemed to be the aggregate annual value of
all buildings or lands, owned by him in the city;
(c) buildings and lands or portions thereof used exclusively for educational purposes
including schools, boarding houses, hostels and libraries, if such buildings and lands
or portions thereof are either owned by the educational institutions concerned or
have been placed at the disposal of such educational institutions without payment of
any rent;
(d) public parks and play grounds which are open to the public and building and land
attached thereto if the rent derived therefrom is exclusively spent for the
administration of parks and playgrounds to which they are attached;
(e) buildings and lands or portions thereof used exclusively for public worship or public
charity such as mosques, temples, churches, dharmashalas, gurdwaras, hospitals,
dispensaries, orphanages, alms houses, drinking water fountains, infirmaries for the
treatment and care of animals and public burial grounds, or other places for the
disposal of the dead;
Provided that the following buildings and lands or portions thereof shall not be
deemed to be used exclusively for public worship or for public charity namely:-
(i) buildings or lands on which any trade or business is carried on unless the
rent derived from such buildings or lands is applied exclusively to religious
purposes or to public charitable institutions aforesaid;
(ii) buildings or lands in respect of which rent is derived and such rent is not
applied exclusively to religious purposes or public charitable institutions
aforesaid;
(f) buildings or lands owned by widows or minors or persons subject to physical
disability or mental infirmity owing to which they are incapable of earning their
livelihood, where the main source of maintenance of such widows or minors or
persons is the rent derived from such buildings and lands;
Provided that such exemption shall, relate only to the first twelve thousand rupees or
the annual value of such buildings and lands whichever is less;
(g) buildings and lands owned by freedom fighters, retired members of Defence Services
and their widows during their life time if they are exempted from income tax;
(h) buildings and lands owned by blind persons, abandoned women and mentally
incapacitated persons if sufficient proof is produced in this behalf and if the main
source of their maintenance is the rent derived from such buildings and lands;
(i) buildings and lands in occupation of owner for his residence shall be exempted from
property tax to the extent of fifty percent;
(j) the electric pole erected by the Madhya Pradesh Electricity Board;
(k) property owned by such political party in the State which has been recognised by the
Election Commission of India.
(l) water tax on buildings and lands owned by freedom fighters during their life time, if
they are exempted from income tax and the water connection is for domestic purpose
and which does not exceed half-inch connection.


2.2.23 Demand, Collection and Balance Register (Form F&A 15)
Audit should ensure that :-
(a) separate demand, collection and balance register has been maintained in prescribed
Form F&A 15 of MPMAM by each ward for each type of tax, levy etc. and for each
financial year;
(b) the amount received from the assessees has been promptly posted in the register
from the carbon copy of the receipt;
(c) details of demands, which the ULB raises, have been recorded;
(d) information relating to past dues, demand for the current year, current and arrear
collections, and the closing balance of arrears, and advance collection, if any, have
been recorded;
(e) it has been maintained dedicating separate page for each assessee;
(f) it has been balanced periodically (quarterly/half-yearly/yearly), as the ULB may
decide;
(g) the amount of current and arrear collection shown in the register agrees with the
amount mentioned in the receipts issued to the assessee;
(h) the levy, demand and collection of taxes made as per prescribed rules and bye-laws;
(i) the Parishad has framed any regulations specifying the occasions for imposition of
levy, rate of levy and mode of collection;
(j) the Parishad has imposed any charges for any specific services rendered in
pursuance of Madhya Pradesh Nagar Palik Nigam Adhiniyam 1956;
(k) the State Government have prescribed the scale for levy of fees or imposition of
charges;
(l) the valuation of all municipal holdings reviewed at the termination of specified period;
(m) all the changes in the demands entered in the register;
(n) the Ward Officer made necessary postings in the register from the counterfoil receipt
and daily collection statement;
(o) remissions, write offs to be checked to see that these were authorised by the
competent authority and are as per the approved accounting policies;
(p) the officer authorized by the Commissioner has carefully checked the entries after the
total has been struck and signed the register in token of having made the check;
(q) a list of all Parshad (including Mayor and the Speaker) is prepared by the
Commissioner as required by section 26 of the M.P. Municipal Corporation Act, 1956
within fifteen days from the expiration of each calendar quarter who have failed to pay
any tax due by them to the ULB within six months from the date on which such tax
became due; that a notice of demand is issued to every Parshad requiring him to pay
the arrears within three months from the date of service of such notice and that a
copy of the list is submitted to the Government;
(r) the entries in the register are checked by the Ward Officer and that he has placed his
initials on each page in token of this examination;
(s) the outstandings are bona fide and that collections, if any, made against them have
not been misappropriated.
(t) frequent scrutiny is exercised during the course of the year and also at the end of the
year of all outstanding dues for prompt recovery;
(u) the closing balances of the previous demands have been correctly brought forward;
(v) all the amounts shown in the counterfoils of receipts granted to parties have been
correctly noted in the register;
(w) all sums due are realised with reasonable promptitude and checked against
demands.
2.2.24 Receipt Voucher (Form F&A 7)
(a) receipt voucher has been prepared in prescribed Form F&A 7 of MPMAM by
accounts section of the ULB from the collection summary received from each zone
office and the treasury of ULB;
(b) it has been used as voucher document by the ULB to account for the daily collections
duly supported by zone wise and treasury collection summary;
(c) separate receipt voucher for each type of collection has been prepared.


2.2.25 Levy and Collection of Fees - The levy and collection of fees, that ULB is authorised to levy,
should be examined to ensure:-
(i) that there is a sufficient authority for the levy of fees;
(ii) that notification, if any, required regarding the levy of fees has been duly published in
the manner prescribed in the Act or Rules or Regulations;
(iii) that fees are levied at the approved rates not exceeding the maximum, if any,
prescribed;
(iv) that a record of fees due and realised is maintained;
(v) that fees due have promptly been realised and have not been allowed to become
time-barred.
2.2.26 Leases - With regard to leases of property belonging to ULB or managed by it, it should be
seen in audit that-
(a) every property usually leased out has been leased out;
Note : The Demand, Collection and Balance Register for the previous year should be examined to
see that all items have been leased out during the current year and in case of omission a
record of reasons for such omission is available.
(b) ordinarily the leases have been sold in public auction after due publicity and the
amount of bid has been accepted by competent authority;
(c) indenture for the lease in the prescribed form has been executed setting forth the
conditions of lease;
(d) security has been taken for the due fulfilment of the terms and conditions of the
lease;
(e) the payment of instalments is watched through the Demand, Collection and Balance
Register;
(f) penal interest, if any, due under the agreement for belated payments has been
correctly calculated and recovered;
(g) in cases of persistent default action has been taken to terminate the lease as
provided for in the agreement;
(h) record to keep watch for the renewal of lease has been maintained;
(i) remissions, if any granted, satisfy the conditions prescribed in the rules or orders;
(j) physical verification of leased properties has been done to ensure that there is no
subletting.
2.2.27 Cattle Registration Fees - The entries in daily collection statement should be checked with the
counterfoils of receipts. It should be seen that the fees are recovered according to the rates,
sanctioned by the ULB.
2.2.28 Cattle Pound (Goverdhan Project) - The prescribed pound registers should be otained and
the entries in the register should be checked with the counterfoils of receipts, and it should be
seen that the feeding charges are realised in accordance with the approved rates and that all
entries regarding animals not released or otherwise disposed of at the end of the month are
shown in red ink in the next month’s or next year’s register. The totals in the register should
he checked and it should be seen that the collections are remitted promptly by pound
keepers.
It should be seen that sales of unclaimed cattle, except cows which are transferred to nearby
Gaushala, are justified and that the provisions of the Cattle Trespass Act are observed.
2.2.29 Fees from Vendors -
(a) In case of casual vendors it should be seen that :-
(i) the dues are realised according to the rates in the sanctioned bye-laws and that the
rules prescribed are generally followed;
(ii) the passes are kept in the personal custody of the prescribed authority;
(iii) proper account of receipt, issues and realization of money value of passes has been
maintained;
(iv) the collection should he checked with the value of the money value passes issued
and traced into daily collection statement;
(v) the stock account should be checked at the commencement of audit and the balance
of the money value passes should be verified.


(b) In case of regular vendors it should be seen that :-
(i) the leasing is permissible by law;
(ii) it is properly sanctioned;
(iii) lease money has been realised as per terms and conditions of the indenture;
(iv) the highest bid is accepted or adequate reasons are placed on record rejecting the
highest offer;
(v) indenture in prescribed form have been duly obtained from the lessee;
(vi) the terms of the indenture are duly enforced; and
(vii) the defaulters of previous years are not given the lease again.
2.2.30 Water Charges
(a) water charges have been recovered at the prescribed rate for domestic, or
commercial or industrial purpose;
(b) new connections allowed and old connections cut off during the year are as per
applications, fitter’s diaries and with the register of house connections;
(c) meter-reading as recorded in the meter register has been traced for water supplied
by meter to see that the charge is correctly made;
(d) the total collections for the year agree with the total of daily collection statement and
the arrears at the close of the year have been scrutinized;
(e) previous year’s arrears have been brought forward.
Note :- Freedom fighters are exempt during their life time from payment of water tax and not water
charges (Proviso to Section 132(4)(b) of Madhya Pradesh Municipal Corporation Act, 1956).
2.2.31 Licence Fee – In auditing the receipts from all sources in which licences are issued, it should
be seen that –
(a) the fees realised are according to the scale in the bye-laws sanctioned by
Government or competent authority;
(b) the receipts; issues and balances of the licence forms as shown in the stock account
are correct;
(c) in the case of licences for hackney carriages, flour mills, mutton shops, shops under
Gumashta Act, pet dogs etc., the number of licences issued during the year
compares favourably with the figure of the previous year and that there is no
remarkable deficiency;
(d) record to keep watch for the renewal of license / registration has been maintained;
(e) renewal fee alongwith penalty, if any, has been recovered from the licencee;
(f) suitable action is taken in cases in which licences are required to be taken out but
has neither been applied for nor taken out;
2.2.32 Building Permission
(a) register for forms for building permission, registration of architect and registration of
colonizer showing source of receipt, indent number and date, quantity received and
sale thereof has been maintained.
(b) sale proceeds of forms have been shown in the register as well as included in the
daily collection statement.
(c) registration fees has been realized from the architect / colonizer as per prescribed
scale.
(d) register for registered architects and colonizers has been maintained in the
prescribed form.
(e) building permission fee as per prescribed scale has been recovered.
(f) labour welfare cess recovered alongwith building permission fee has been remitted
to the concerned authority and acknowledgement obtained.
(g) renewal fees has been recovered, wherever necessary, from the architect / colonizer
at the prescribed scale.
(h) fees for the permission of development of colony has been deposited by the
colonizer at the prescribed scale.


(i) revalidation charges of building permission have been recovered if the building has
not been erected / re-erected within the period specified in the building permission.
(j) copy of completion certificate issued under section 301 of Madhya Pradesh
Municipal Corporation Act, 1956 has also been endorsed to the ward concerned for
recovery of property tax.
(k) dismantling charges of any unauthorized construction have been recovered from the
colonizer, owner of the building.
Fees for Birth / Death Certificate
2.2.33 Audit should see that :-
(a) application has been received in the prescribed form.
(b) registration fees for birth / death certificate has been received as laid down in the
Madhya Pradesh Birth and Death Registration Rules 1969 and receipt therefor has
been issued.
(c) certificate has been issued only on receipt of the registration fees.
(d) ULB share of registration fees has been included in the daily collection statement
and remitted into treasury of ULB.
(e) Government share of registration fee has been deposited in Government treasury
and receipted chalan has been kept in record.
2.2.34 Fees from Slaughter House –
(a) It should be seen that the fees are realised according to the sanctioned rates;
(b) The number of animals slaughtered should be checked with that shown in the
register maintained by the Passing officer, Veterinary Assistant Surgeon;
(c) The fees realized from slaughter of buffalos on behalf of the State Government has
been properly accounted for and remitted to the Veterinary Department;
(d) Proper receipt has been obtained from Veterinary Department for the amount
remitted.
2.2.35 Rent of land and buildings – Audit should see that register of rent of land and buildings has
been maintained in the form prescribed by ULB. Separate page has been allotted for each
building. Rent has been recovered as per rules and scale prescribed by ULB from the pay of
the employee and posted in the register. Reasons for vacant buildings, if any, be ensured.
Leased land and buildings have been noted in the Demand, Collection and Balance
Register.
Miscellaneous Sales
2.2.36 In the case of miscellaneous sales it should generally be seen (1) that they have been
conducted and confirmed by competent authorities; (2) that earnest money deposit is
received wherever necessary and the balance is recovered promptly (3) that the sale
proceeds have been recovered generally before the articles sold out are allowed to be
removed; (4) that printed receipts have been issued in all cases of collection, (5) that the
amounts realised have promptly been brought to account through daily collection statement;
and (6) that the demand in such cases which could not be promptly realized has been
entered in Miscellaneous Receipts Register prescribed for the purpose to watch the recovery
thereof.
Miscellaneous Sales generally include sale of solid waste, trees, fruits, grass, nursery plants,
flowers, tender forms, ration card and other forms (Registration of contractors, colonizers,
architects, building permission), obsolete store, obsolete assets, scrap, old newspaper, water
supply through tankers etc).
2.2.37 Miscellaneous Receipts – These generally consist of -
(a) Copying fees
(b) Sarai, Guest House, Dharmashala, etc. receipts
(c) Hire charges of ULB property.
(d) Recoveries for services rendered
(e) Receipts pertaining to Water Works Department such as fees for cutting pipe
connections, etc.
(f) Fines creditable to Municipal Fund, compounding fees under the Madhya Pradesh
Municipal Corporation Act, 1956.
(g) School fees.

Financial Audit Manual for ULBs of M.P. - English

Financial Audit Manual for ULBs of M.P. - English

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (16)

Similar to Financial Audit Manual for ULBs of M.P. - English

Similar to Financial Audit Manual for ULBs of M.P. - English (20)

More from City Managers Association Madhya Pradesh

More from City Managers Association Madhya Pradesh (10)

Recently uploaded

Recently uploaded (20)

Financial Audit Manual for ULBs of M.P. - English