1. PREPARATIONS AND COMPLETION OF AUDIT FOR THE YEAR 2009-2010

2. The preparations for the conduct of audit of the accounts of SSA, SIS for the year 2009-2010 were initiated by the Ministry of HRD in June 2010. A letter was issued by name to all the SPDs of SSA States/UTs on 4 th June 2010 in which the need for timely completion of accounts and accounts records properly was emphasized. Attention of the State Project Directors was drawn to the Schedule of Audits as contained in the Manual on Financial Management & Procurement. They were also requested to appoint CA firms for the conduct of audit immediately if the same had not already been done. It was also requested that the account and Financial Statements for the year 2009-2010 complete in all respects should be made over to the auditor for commencement of Audit work by the end of June 2010 so as enable the CA firm to complete the audit work in a proper and timely manner.

3. In order to avoid recurrence of audit observations timely, completion of audit work and submission of audit reports by the due date, the following steps were advised. (i) Appointment of Statutory Auditor latest by 1 st April 2010; wherever, the auditors are not engaged, the same may please be done immediately. (Para 109.1 (2) of Manual.) (ii) Timely adjustment of advances and obtaining receipt of all the outstanding UCs from the sub-districts level before the accounts are finalized at DPO level. The State must ensure that advances against which expenditure has been incurred during the year should be adjusted at the close of the accounts for the year.

4. (iii) Proper maintenance of the books of accounts and finalization of annual account statements before 30 th June each year. The steps should be taken to make these available to the CAs for audit in time. (iv) Compliance and settlement of audit observations of previous audit report. The current audit report should necessarily contain a paragraph on compliance of previous years’ audit objections / observations. (v) Adequate coverage of procurement process and reflection of same in the audit report, as a separate paragraph, as per the format prescribed by this Ministry’s letter No.15/2/2003-SSA (PR) dated 29 th September, 2006, on Procurement Audit.

5. (vi) Compulsory coverage of audit of 1/3 of VECs or its equivalent that have received more than Rs. 1 lakh in a given year. For the purpose, SPO / DPO should give particulars of such VECs to CA. The audit reports should clearly indicate coverage of such VECs reporting on number of such VECs and the amount covered during the audit. (vii) Certification of only those expenditures, which are supported by expenditure Statements/Utilization Certificates/ Vouchers etc. as per the provisions of Para 74.1 of the Manual (Revised) and budget allocation for the same exists in the approved AWP&B for the year 2009-10. It may also be ensured that the expenditure certified by the audit is as per the activity heads under which allocation has been approved by PAB.

6. (viii) The audit report should clearly state the details of unadjusted advances. These should not be certified as expenditure but as advances only. It was also requested to draw a calendar for audit activities to monitor the audit work. The following documents, which are required to be submitted along with the audit reports, were also listed in the above letter. (a) Utilization Certificate (Annexure–XIX) (b) Consolidated Annual Financial Statement (Annexure–XX) (c) Consolidated Balance Sheet (Annexure–XXI) (d) Consolidated Income & Expenditure Account (Annexure XXII) (e) Consolidated Receipt & Payment Accounts (Annexure–XXIII)

7. (f) Management letter (g) Procurement Audit Certificate in the format sent under this Ministry’s letter No. 15/2/2003-SSA(PR) dated 29 th September 2006. (h) FMRs – I, II & III duly filled in (i) Para on Settlement of outstanding/ Previous years Audit objections (j) Para on Coverage of Audit of VECs receiving grants of more than Rs. One lakh per year. To facilitate the monitoring of audit process and timely completion of audit a suggestive implementation Schedule was also developed and sent to the State Project Directors on 23 rd July 2010 for their convenience as under:-

8. IMPLEMENTATION SCHEDULE FOR AUDIT 1. Invite EOI from AuditorsBy 5 th JanuaryAp poi ntm ent and Ori ent atio n of aud itor s 2. Draw the panelBy 10 th February 3. EC’s approval for engagement of Auditors 15 th February 4. Appointment of CA Firm15 th March 5. Appointment of lead AuditorsBy 15 th April S. No.ActivityTime line

9. 6 Review of previous year audit compliance (in the meeting for closing of financial year) By 30 th April 7. Instruction of Closing of account by 30 th June By 15 th April 8. Orientation of Statutory Auditor by GOI/State By 30 th June 9. Collection of Expenditure Statements/UCs from sub-district level By 15 th May 10. Adjustment of advances in accounts to be completed By 15 th June 11.Liabilities of expenditures incurred during the year but not paid for to be provided in accounts By 15 th June

10. 12. Finalization of accounts and annual financial statement By 30 th JunePr ep ara tio n of Au dit 13. Commencement of Audit work By 1 st July 14. Reply to Preliminary Audit Memos State/at District/Sub- District level Within 3 days of the Receipts of Audit Memo 15. Discussion of draft Audit Report to the DPO by CA By 25 th August 16. Submission of Draft Audit Report to State By 5 th September 17. Discussion on draft audit report to be completed by SPO/DPO By 15 th September each year

11. 18. Submission of Final Audit Report to SPO 30 th SeptemberFin ali zat ion of Au dit 19. Approval of audited accounts & audit report by State Govt. /EC 15 th October 20. Despatch of Audit Report to GOI By 1 st November

12. It was also requested to ensure that audit reports complete in all respects are submitted within the prescribed time i.e. by 1 st November 2010. So far audit reports from the following States on the dates shown against each have been received. 1.West Bengal=6.10.2010 2.Tamil Nadu=12.10.2010 3.Sikkim=18.10.2010 A scrutiny of the audit reports received reveals that the situation has not improved. As in all the reports the auditors pointout that:-

13. (i) Funds released have been certified as expenditure instead of advances (all the 3 reports) (ii) (a) Bank Reconciliation statement are not prepared on monthly basis. (Sikkim) (b) Bank accounts of DPO have not been reconciled for many years (Coimbatore District Tamil Nadu) (c) Monthly Bank Reconciliation requires improvement in most of the Districts (West Bengal)

14. (iii) Fixed Asset Register is not maintained (Sikkim) not properly maintained in most of the Districts (West Bengal) There are deficiencies / discrepancies in the audited accounts & audit report. (i) Auditor has not indicated his Membership No. while signing the report (Sikkim & Tamil Nadu) (ii) Para on settlement of previous years audit objections is found missing (Sikkim, Tamil Nadu & West Bengal) (iii) Para on audit coverage of VECs getting Rs. One lakh & above in the year found missing (Sikkim)

15. Apart from the above deficiencies / discrepancies have been observed in the audited accounts statements which are :- (i) Variation in expenditure figures in the various financial statements. (ii) Unspent balance is not worked out correctly. (iii) Expenditure exceeds the budget allocation for the year. (iv) Adjustment of advances given in previous years shown in the current year’s expenditure without approval for spill over having been obtained from PAB. (v) Funds for grants released on 31 st March of the year and treated as expenditure to avoid lapse of funds.

16. Presumably the reports have not been examined critically by the Finance Controllers and discussed with the auditor’s before finalization.You are, therefore requested to ensure that the draft audit report is critically examined / discussed with the Auditors before finalization to avoid repetition of the old objections and discrepancies / deficiencies in the audited documents.

17. Statutory Audit Reports The following States UTs have not furnished Compliance on Audit Reports of CAs Audit. 2005- 2006 Andhra Pradesh, Arunachal Pradesh, Bihar, Chhattisgarh, Haryana, Himachal Pradesh, Manipur, Mizoram & Nagaland

18. 2006- 2007 Andhra Pradesh, Arunachal Pradesh, Bihar, Chhattisgarh, Haryana, Karnataka, Kerala, Madhya Pradesh, Manipur, Mizoram, Nagaland, Meghalaya, Puducherry, Sikkim, Tripura & Tamil Nadu 2007- 2008 Arunachal Pradesh, Bihar, Chhattisgarh, Haryana, Himachal Pradesh, Meghalaya, Karnataka, Kerala, Manipur, Nagaland, Punjab, Rajasthan & Tripura, Tamil Nadu

19. 2008- 2009 Assam, Andhra Pradesh, Arunachal Pradesh, Bihar, Chandigarh, Chhattisgarh, Dadra & Nagar Haveli, Daman & Diu, Goa, Gujarat, Haryana, Himachal Pradesh, Jammu & Kashmir, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Manipur, Mizoram, Meghalaya, Nagaland, Orissa, Punjab, Rajasthan, Tripura, Uttar Pradesh, Uttarakhand & West Bengal

20. QUARTERLY REPORT ON THE POSITION OF SETTLEMENT OF AUDIT OBJECTIONS / PARAS The SIS is required to furnish a quarterly report on the position of settlement of outstanding audit objections in the format provided at Annexure–XXV (Para –110.5) of the Manual on Financial Management & Procurement. The report is to be submitted by 15 th of the month following the close of the quarter. Many states are not sending this report regularly. Report for the quarter ending April – June 2010 has been received from the following States only despite issue of reminder to all the States on 22.3.2010.

21. 1. Delhi 2. Karnataka 3. A& N Islands 4. Uttar Pradesh 5. Punjab 6. Rajasthan 7. Kerala 8. Tamil Nadu

22. The quarterly report for the Quarter Ending 30.9.2010 has been received only from One State- Uttar Pradesh. It is requested that the above report may please be submitted to the Ministry every quarter on a regular basis.