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

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Financial Audit Manual for Urban Local Bodies of Madhya Pradesh - English

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

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  3. 3. fo"k; & lw p h fo"k; i`"B Ø- Ø-ifjPNsn 1 v/;k; 1 izLrkouk 1–3ifjPNsn 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 – 41ifjPNsn 3 iwjd funZk 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 fuoskksa 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 – 82ifjPNsn 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 – 90ifjPNsn 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 96ifjPNsn 6 izfk{k.k v/;k; & 1 uxjh; LFkkuh; fudk;ksa dh ys[kkijh{kk dk izf’k{k.k 97 ifjfk"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 izfk{k.k izkn’kZ 36 – 37
  4. 4. Financial Audit Manual For Madhya Pradesh Urban Local Bodies 1 ABBREVIATIONSADB Asian Development BankAMA Authorised Medical AttendantCAA Constitution Amendment ActCAAT Computer Assisted Auditing TechniquesCAG Comptroller And Auditor General of IndiaCOBIT Central Objectives for Information and Related TechnologyDEAS Double Entry Accounting SystemDPC Duties, Power and ConditionsECPA Efficiency cum Performance AuditEDP Electronic Data ProcessingEFC Eleventh Finance CommissionFIFO First In First OutGAAP Generally Accepted Accounting PrinciplesGovernment State GovernmentHUDCO Housing and Urban Development Corporation LimitedINTOSAI International Organization of Supreme Audit InstituteIT Information TechnologyJNNURM Jawaharlal Nehru National Urban Renewal MissionLBG Local Body GrantsLIC Life Insurance Corporation of IndiaLIC Life Insurance Corporation of IndiaMB Measurement BookMoUD Ministry of Urban DevelopmentMPMAM Madhya Pradesh Municipal Accounts ManualMPMCAct Madhya Pradesh Municipal Corporation Act, 1956MPUADD Madhya Pradesh Urban Administration and Development DepartmentPFMA Public Financial Management and AccountingRTI Right To InformationTA Travelling AllowanceTFC Twelfth Finance CommissionTGS Technical Guidance and SupervisionULBs Urban Local BodiesVFM Value for Money
  5. 5. Financial Audit Manual For Madhya Pradesh Urban Local Bodies 2 SECTION – 1 CHAPTER – 1 INTRODUCTION The Backdrop1.1.1 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
  6. 6. Financial Audit Manual For Madhya Pradesh Urban Local Bodies 3 the C&AG for ULBs and Panchayti Raj Institutions. The excerpts from the standards referred to later are reproduced in the Appendix I . Audit1.1.11 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 accounts1.1.18 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.
  7. 7. Financial Audit Manual For Madhya Pradesh Urban Local Bodies 41.1.21 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. -------
  8. 8. Financial Audit Manual For Madhya Pradesh Urban Local Bodies 5 SECTION – 2 GENERAL PRINCIPLES AND PRACTICES OF AUDIT CHAPTER - 1 GENERAL PRINCIPLES AND PRACTICES2.1.1 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 Standards2.1.5 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.
  9. 9. Financial Audit Manual For Madhya Pradesh Urban Local Bodies 6 (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.
  10. 10. Financial Audit Manual For Madhya Pradesh Urban Local Bodies 72.1.16 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 Audit2.1.20 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.
  11. 11. Financial Audit Manual For Madhya Pradesh Urban Local Bodies 82.1.24 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 Testing2.1.25 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 Review2.1.28 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.
  12. 12. Financial Audit Manual For Madhya Pradesh Urban Local Bodies 92.1.33 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 Transactions2.1.35 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. -------
  13. 13. Financial Audit Manual For Madhya Pradesh Urban Local Bodies 10 CHAPTER – 2 AUDIT OF RECEIPTS Audit Objectives and Scope2.2.1 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.
  14. 14. Financial Audit Manual For Madhya Pradesh Urban Local Bodies 11 (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;
  15. 15. Financial Audit Manual For Madhya Pradesh Urban Local Bodies 122.2.8 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 :-
  16. 16. Financial Audit Manual For Madhya Pradesh Urban Local Bodies 13 (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.
  17. 17. Financial Audit Manual For Madhya Pradesh Urban Local Bodies 14 (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) Audit should see that :- (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) Audit should see that :- (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) Audit should see that :- (a) it has been prepared in prescribed Form F&A 6 of MPMAM.
  18. 18. Financial Audit Manual For Madhya Pradesh Urban Local Bodies 15 (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) Audit should see that :- (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) Audit should see that :- (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.
  19. 19. Financial Audit Manual For Madhya Pradesh Urban Local Bodies 16 (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) Audit should see that :- (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) Audit should see that :- (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.
  20. 20. Financial Audit Manual For Madhya Pradesh Urban Local Bodies 17 (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.
  21. 21. Financial Audit Manual For Madhya Pradesh Urban Local Bodies 182.2.23 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) Audit should see that :- (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.
  22. 22. Financial Audit Manual For Madhya Pradesh Urban Local Bodies 192.2.25 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.
  23. 23. Financial Audit Manual For Madhya Pradesh Urban Local Bodies 20 (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 Audit should see that :- (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 Audit should see that :- (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.

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