1. 1 Regional Training Institute, Ranchi Structured Training Courseware on State Receipts Audit Audit of Interest Receipts

2. RTI, Ranchi2 Session Objectives At the end of this session, the participants will be able to Explain the nature of Interest receipts Understand the procedure for granting loans/advances and Discuss audit checks relating to interest receipts

3. RTI, Ranchi3 Nature of Interest Receipts Interest is realized by the Government on the following: Loans and Advances granted for developmental and non-developmental activities to, –Government Companies –Corporations –Local Bodies

4. RTI, Ranchi4 Nature of Interest Receipts (contd.) –Autonomous Bodies –Co-operatives –Non-Governmental Institutions –Individuals like Government Servants, Farmers, Private Parties etc.

5. RTI, Ranchi5 Nature of Interest Receipts (contd.) Interest is also realized on, Investments made out of Capital Outlay to promote –Development –Manufacturing –Marketing and –Social activities

6. RTI, Ranchi6 Nature of Interest Receipts (contd.) Interest is also realized on, Cash balance invested by the Government to promote –Development –Manufacturing –Marketing and –Social activities

7. RTI, Ranchi7 Procedure for granting Loans and Advances Principles of good lending Safety –Ensure funds advanced to borrowers are safe Liquidity –Ensure principal with interest is repaid as agreed

8. RTI, Ranchi8 Procedure for granting Loans and Advances (contd.) Principles of good lending Purpose –The purpose should be productive Profitability –To ensure interest rates earn revenue

9. RTI, Ranchi9 Procedure for granting Loans and Advances (contd.) Principles of good lending Security –Ensure safety net for unforeseen situations

10. RTI, Ranchi10 Procedure for granting Loans and Advances (contd.) Procedure for sanction of loan Loans and advances –Sanctioned by administrative departments with concurrence from Finance Department –Sanctions subject to terms and conditions regarding repayment of principal and interest –Responsibility for recovery is with concerned department

11. RTI, Ranchi11 Important Registers Loan Register Demand, Collection and Balance Register Register of waivers and remissions Register of remittances

12. RTI, Ranchi12 Audit Issues Selection of auditee units –High level payment of loans and advances –Trend of realization – arrears of loans as well as interest –Waiver of interest

13. RTI, Ranchi13 Audit Scope Focus on compliance aspects Covers aspects like non-recovery of loans, accumulation of outstanding amounts etc. Policy of State Government to grant loans / advances to specific classes of persons / entities not questioned

14. RTI, Ranchi14 Audit Checks Administrative arrangements Whether principles of good lending were followed Position of interest receipts Analyze of interest receipts department- wise / Major Heads of Account with reference to budgetary deficit

15. RTI, Ranchi15 Audit Checks (contd.) Adequacy of the system and procedure for computation of, –Interest –Penal Interest –Recovery of principal and interest –Determination of dues –Proper follow-up action in case of default

16. RTI, Ranchi16 Audit Checks (contd.) Maintenance of loan register Maintenance of Demand, Collection and Balance register Whether terms and conditions specified Cases of loss of interest due to non- disbursement / delayed disbursement of loans

17. RTI, Ranchi17 Audit Checks (contd.) Non-realization of interest due to administrative delays Interest not collected or demanded Non-recovery of interest on conversion of interest free loans Non-demand of principal and interest in respect of unutilized loans

18. RTI, Ranchi18 Audit Checks (contd.) Repayment of loans from financial institutions Short recovery of interest Waiver or remission of interest Collection of arrears of interest receipt

19. RTI, Ranchi19 Audit Checks (contd.) Departmental procedures Whether department has proper procedures for preparation of budget estimates of interest receipts Whether there is proper procedure for giving loans and advances to bodies / companies etc.

20. RTI, Ranchi20 Audit Checks (contd.) Whether department made all efforts for recovery and liquidation of arrears Whether department is pursuing installments granted for payment of interest Whether internal controls and effective monitoring system exist for recovery and collection of demands

21. RTI, Ranchi21 Audit Checks (contd.) Others Check of individual loan registers and related records are maintained properly Whether arrear demands are shown correctly year after year Powers and functions of sanctioning authority

22. RTI, Ranchi22 Audit Checks (contd.) Correctness of computation of interest and demand Proper adjustment of repayments towards principal and interest Rebates, if any, allowed in rate of payment, for timely repayment

23. RTI, Ranchi23 Audit Checks (contd.) Whether high cost borrowings from the market raised by Government have been invested at low rate of interest for loan purposes Whether Government is managing its finances efficiently Check cases of injudicious investment and consequent loss of interest

24. RTI, Ranchi24 Audit Checks (contd.) If there is provision of penal interest Check if penal interest is levied in case of belated payment of non-interest bearing loan Whether demand notices were served and results thereof Whether installments were granted for payment of interest

25. RTI, Ranchi25 Audit Checks (contd.) Whether demands becoming irrecoverable have been written off System of monitoring recovery at higher levels