PART III

THE MAIN PRINCIPLES AND THE MAIN PROCESSES OF AUDIT

CHAPTER 12

Functions and Spirit of Audit

225. Functions of Audit. The primary function of Government Audit is to verify the accuracy and completeness of accounts to secure that all revenue and receipts collected are brought to account under the proper head, that all expenditure and disbursements are authorised, vouched, and correctly classi- fied, and that the final account represents a complete and true statement of the financial transactions it purports to exhibit. The broad aim of audit is to safeguard the financial interests of the tax-payer and to assist the Parliament/ State Legislatures in exercising financial control over the Executive. It is the function of the Comptroller and Auditor General in the discharge of his duties to watch that the various authorities of the State set up by, or under the Cons- titution, act in regard to all financial matters in accordance with the Cons- titution and the Laws of Parliament and appropriate Legislatures and Rules or Orders issued thereunder.

The right of independent criticism is inherent in the auditorial function.

226. It is a function of the Executive Government to make financial rules and orders and of the subordinates of the Executive Government to apply those rules and orders. It is the function of Audit to verify that financial rules and orders satisfy the provisions of the law and are otherwise free from audit objection and that the rules and orders are properly applied. It is not the function of Audit to prescribe what such rules and orders shall be.

227. Deleted.

228. The Executive Government and not the Audit Department is res- ponsible for enforcing economy in the expenditure of public moneys. It is, however, the duty of Audit to bring to notice wastefulness in public adminis- tration and infructuous expenditure.

229. Sprit of Audit. Although Audit Officers are bound to ascertain that the prescribed rules and orders are obeyed, it is not to be understood that the mere application of those rules and orders in their minutes detail by itself serves the purpose of audit. Such a view does not envisage the fundamental object of an audit department, which is to secure value for the tax-payers” money by seeing that expenditure is not irregularly and wastefully incurred.

230. For such a purpose it is necessary, of course, that rules of procedure should be laid down; but, if such rules are to be regarded as ends in themselves and not merely as means to an end, the inevitable tendency will be for Audit Officers to insist rigidly on relatively petty matters and thus to frustrate the real object of audit. For it is clear that, if much time and trouble is occupied,and friction possibly engendered, over expenditure of a very trifling character in regard to which there has been only a technical, as opposed to a substan- tial irregularity, the Government and therefore the tax-payers are losers. That is, it is better often to pass some not fully regularised expenditure of a trifling amount than to embark on lengthy controversy in respect of it. Undue insis- tence on trifling errors and technical irregularities should whenever possible be avoided and more time and attention devoted to the investigation of really important and substantial irregularities with the object not only of securing rectification of the particular irregularity but also of ensuring regularity and propriety in similar cases for the future. At the same time it must be borne in mind that failure to appreciate the significance of what appears to be a trifling irregularity may lead to failure to discover an important fraud or de- falcation. An auditor must develop an instinct for assessing the importance of an individual irregularity.

231. The prescribed checks should therefore be observed in the spirit and not in the letter as opposed to the spirit. As a rule, trifling matters which are of no consequence to the finances of the Government should not be given much attention. To save time and trouble over petty sums, Audit Officers have been given powers by the Union and State Governments to waive petty objections and these powers should be exercised freely but with discretion.

232. Procedure for Audit Scrutiny. In the scrutiny of accounts and vou- chers the following procedure should be observed. The actual person perform- ing the original audit, who will be usually a clerk, must apply the rules strictly. It cannot be expected that the clerks who perform the detailed audit will have the judgment or breadth of view necessary to exercise the discretionary pow- ers mentioned in the preceding paragraph. But once the detailed audit has been carried out strictly and every infraction of rule brought to light, it will be for the competent Audit Officer to exercise the discretion vested in him by Govern- ment, as laid down in the Comptroller and Auditor General’s Manual of Stand- ing Orders, (Technical) and to determine the cases in which the objections which might be raised under the strict letter of the law can be waived.

233. If the objection is of such a nature that it cannot be waived under the provisions of the Manual of Standing Orders (Technical), it will be the duty of the Audit Officer to press it firmly but in courteous language. The more important the objection, the more necessary it is to couch it in language courte- ous and impersonal. In carrying out this audit, the Audit Officer should re- member that exceptional cases may arise in which it is desirable to relax forma- lities which would be followed strictly in ordinary cases; but the circumstances must be really exceptional before rules are relaxed, and even then the relaxation must be of formalities rather than of essentials.

234. Audit depends for its effective value on its right and duty to report results to the proper authority so that appropriate action may be taken to rectify the irregularity or impropriety, where possible, or to prevent a recur- rence of it. It is in the treatment of results of audit that the auditorial functiondemands the highest qualities of understanding, balanced judgment and sense of proportion.

235. Audit to assist Government. In paragraph 7 it has been pointed out that Audit is an instrument of financial control. It is, therefore, the duty of the Audit Officer to provide Government with all possible assistance within the sphere of his functions in financial matters. His normal attitude is the critical one, but the duty of criticism must not be developed to exclude the construc- tive faculty or constructive help. For example, when an Audit Officer as to ins- pect an office he should not only point out mistakes but also indicate how they may be rectified and in future avoided; he should also suggest improve- ments in system. He must educate as well as investigate.