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Internal Audit System of Government of West Bengal

A brief presentation on the internal audit system of the Government of West Bengal, highlighting the definition, types, role of internal control, evidence, techniques, audit program, procedures, sampling techniques, and audit files.

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Internal Audit System of Government of West Bengal

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  1. A BRIEF REPRESNTATION ON INTERNAL AUDIT SYSTEM OF GOVERNMENT OF WEST BENGAL- A BRIEF REPRESENTATION ON INTERNAL AUDIT SYSTEM OF GOVERNMENT OF WEST BENGALPRESENTED BY – SIB SANKAR BANIK, W.B.A&A.S, INTERNAL AUDIT OFFICER, FINANCE (INTERNAL AUDIT) DEPARTMENT, GOVERNMENT OF WEST BENGAL, MOB-8926225065, E-mail ID: sibsankar.banik40@gmail.com

  2. AUDITING DEFINED: • ETYMOLOGICALLY THE WORD ‘AUDIT’ HAS BEEN DERIVED FROM LATIN WORD ‘AUDITE’, WHICH MEANS ‘TO LISTEN’. SYSTEMATIC VARIFICATION/EXAMINATION OF ACCOUNTING DATA, FINANCIAL STATEMENTS & RECORDS WITH A VIEW TO DETERMINE THE ACCURACY & RELIABILITY.

  3. VARIOUS TYPES OF AUDIT: • STATUTORY AUDIT, INERNAL AUDIT, MANAGEMENT / SYSTEM AUDIT, COST AUDIT, TAX AUDIT, CON-CURRENT / RUNNING AUDIT, SPECIAL AUDIT, SOCIAL / SOCIO-ECONOMIC AUDIT, ENVIRONMENT/GREEN AUDIT.

  4. QUALITY TO BE POSSESSED: • GOOD KNOWLEDGE OF SUBJECT; • GOOD KNOWLEDGE OF RELATED RULES, LAWS & PROVISIONS; • VIGILLANCE, PATIENCE & SKILL; • STRONG PERSONALITY, INTEGRITY & FIRMNESS; • METHODICAL,PRACTICAL & STRONG COMMON SENSE;

  5. INTERNAL AUDIT MEANS: • According to the Institute of Internal Auditors, USA, “Internal Auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes”.

  6. INTERNAL AUDIT MEANS: • INTERNAL AUDIT IS PERIODICAL REVIEW OF AN ORGANISATIONAL SYSTEMS & PROCEDURES TO ENSURE OVERALL EFFICIENCY OF THE ORGANISATIONS. IT IS COMPLEMENTARY TO STATUTORY AUDIT. IT IS A TOOL BY WHICH FAULTY, INEFFICIENT & FRAUDULENT OPERATIONS IS REVEALED & CORRECTED.

  7. ROLE OF INTERNAL CONTROL • INTERNAL AUDITING PRIMARILY DIRECTED TO IMPROVE THE INTERNAL CONTROL SYSTEM. BY IMPOSING PROPER INTERNAL CONTROL SYSTEM IN AN ORGANISATION ONE CAN ENSURE THE EFFECTIVENESS & EFFICIENCY OF ACTIVITIES/OPERATIONS, RELIABILITY OF FINANCIAL REPORTING, COMPLIANNCE WITH THE LAWS.

  8. ROLE OF EVIDENCE IN INTERNAL AUDIT • THE REPORT OF THE INTERNAL AUDITOR MUST CONTAIN EVIDENCES (KEY DOCUMENTS) IN SUPPORT OF THE FINDINGS. EVIDENCES MAY BE OF:- PRIMARY & SECONDARY EVIDENCE, DIRECT & INDIRECT EVIDENCE, CIRCUMSTANTIAL & CORROBORRATIVE EVIDENCE.

  9. TECHNIQUES TO BE ADOPTED BY THE INTERNAL AUDITOR: • VERIFICATION OF INTERNAL CONTROL SYSTEM & ITS EFFECTIVENESS. • VERIFICATION OF ACCOUNTING RECORDS & STATEMENTS. • VERIFICATION OF ASSETS & LIABILITIES. • STATISTICAL COMPARISON.

  10. Audit Program: • The Audit Program is a task plan prepared as a framework for the conduct of the audit assignment and guidance to the auditors undertaking the review. The purpose of an Audit Program is to provide audit procedures to be performed during the audit that will achieve the specific audit objectives. The Audit Program is also a record of supervisory approval of work to be performed. It provides a basis upon which to budget and control the audit. Following an approved and detailed Audit Program will prevent the auditor from getting off the track and pursuing irrelevant items.

  11. Obtaining Information: • - Interviewing appropriate personnel. • - Reviewing procedure manuals, policies if available. • - Reviewing job descriptions, if available. • - Reviewing or preparing flowcharts. • - Tracing one or more transactions through related documents.

  12. Procedures of Internal Audit: • test of details: • - physical examination • - inspection • - vouching • - recalculation • - confirmation inquiry • analytical procedures: • - scanning • - review • - regression analysis • - ratio analysis

  13. Procedures of Internal Audit: Sampling Techniques -The objective of Sampling is to obtain information about a population characteristic. sampling is likely to be the most cost-effective means in case auditable transactions are abnormally large. -Sampling involves making decisions about the following 1) Selection of items – which ones and how they are selected 2) Size of Sample – How many items 3) Precision of the sample – how much it may vary as a result of error

  14. Audit Files: • Working papers can be generated and kept in either electronic or paper format. • After each audit Internal Auditors should prepare a file with description of all audit related working papers.

  15. Audit Files: • Audit files contain working papers related to the particular audit. These working papers are the records maintained by the auditor of the work planned and carried out in relation to the audit, including the procedures followed, the tests performed together with the information obtained and the conclusions formed. Working papers should be prepared at the time the work is carried out. Such papers are the property of the Fin.(I/A) Deptt. and the auditors who shall ensure their safe custody and confidentiality.

  16. Audit Reports: EXECUTIVE SUMMARY • The executive summary is intended to provide audit perspective, and highlight on a summarized basis, the significant findings discussed throughout the body of the detailed audit report. Care should be exercised in reaching conclusions solely based on a review or reading of this summary. It is necessary to read the specific detail sections and/or the report in its entirety to obtain the breadth of the background, ramifications, and recommendations relating to each issue and/or finding.

  17. Audit Reports should consider the following: 1. Title Page and Contents: Title page mention the name of Auditee and subject matter and reports have a contents page. 2. Signature: The audit report will be signed by the Head of Finance (Internal Audit) department. 3. Introduction: Describes the type of audit and the area of activity. It will make reference to the previous audits and discuss the status of previous recommendations where that have not yet been settled. 4. Establishment of methodology: The establishment of the methodology should clearly explain the collection of evidence and the analysis techniques used to attain the audit objectives.

  18. Audit Reports should consider the following: 5. Audit Findings: The audit report must provide opinions on the established audit objectives. The report must issue the auditors opinion on each objective. 6. Conclusions with Recommendations: • Each recommendation should consider: Facts established by the audit, Criteria, Causes and Effects, Advice to management in order to remedy problems identified by the audit. • Recommendations should be prioritized into major, medium and minor. The auditee must respond to the audit report and the recommendations made.

  19. ACCOUNTING STANDARDS: • A.S-1: DISCLOSURE OF ACCOUNTING POLICIES, • A.S-2: VALUATION OF INVENTORIES, • A.S-3: CASH-FLOW STATEMENT, • A.S-4: CONTINGENCIES OR EVENTS OCCURING AFTER BALANCE SHEET DATE,

  20. ACCOUNTING STANDARDS……. • A.S-5:NET PROFIT OR LOSS FOR THE PERIOD, PRIOR PERIOD & EXTRA ORDINARY ITEMS & CHANGES IN ACCOUNTING POLICIES, • A.S-6:DEPRECIATION ACCOUNTING, • A.S-7:CONSTRUCTION CONTRACTS, • A.S-8:ACCOUNTING FOR R&D, • A.S-9:REVENUE RECOGNITION,

  21. ACCOUNTING STANDARDS……. • A.S-10:ACCOUNTING FOR FIXED ASSETS. • A.S-11:THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATE. • A.S-12:ACCOUNTING FOR GOVT. GRANTS. • A.S-13:ACCOUNTING FOR INVESTMENTS. • A.S-14:ACCOUNTING FOR AMALGAMATIONS. • A.S-15:ACCOUNTING FOR RETIREMENT BENEFITS IN THE FINANCIALSTATEMENTS OF THE EMPLOYERS.

  22. ACCOUNTING STANDARDS……. • A.S-16:ON BORROWING COST, • A.S-17:SEGMENT REPORTING, • A.S-18:RELATED PARTY DISCLOSURE, • A.S-19:LEASES, • A.S-20:EARNING PER SHARE, • A.S-21:CONSOLIDATED FINANCIAL STATEMENT, • A.S-22:ACCOUNTING FOR TAXES ON INCOME,

  23. ACCOUNTING STANDARDS……. • A.S-23:ACCOUNTING FOR INVESTMENTS IN ASSOCIATES INCONSOLIDATED FINANCIAL SATATEMENTS. • A.S-24:DISCONTINUING OPERATION. • A.S-25:INTERIM FINANCIAL REPORTING. • A.S-26:INTANGIBLE ASSETS.

  24. ACCOUNTING STANDARDS……. • A.S-27:FINANCIAL REPORTING ON INTEREEST ON JOINT VENTURE. • A.S-28:IMPAIRMENT OF ASSETS. • A.S-29:PRVISSION FOR CONTINGENT LIABILITIES & CURRENT ASSETS.

  25. FORMATION OF FINANCE (Internal Audit) DEPARTMENT : • A BRANCH OF FINANCE DEPARTMENT OF THE GOVERNMENT SET UP THROUGH NOTIFICATION NO. 7959-F DATED 20TH NOVEMBER 1998 TO IMPOSE INSPECTION SUPERVISION SYSTEM FOR EFFECTIVE CONTROLLING OF EXPENDITURE AT OPERATING LEVELS THROUGH CONCURRENT MONITORING AND EVALUATION OF FINANCIAL TRANSACTIONS .

  26. FINANCE (Internal Audit) DEPARTMENT MEANS: • A BRANCH OF FINANCE DEPARTMENT OF THE GOVERNMENT SET UP FOR CONDUCTING INTERNAL AUDIT IN ALL THE DEPARTMENTS, DIRECTORATES OF THE STATE GOVERNMENT & THEIR SUB-ORDINATE & REGIONAL OFFICES, COMPANIES OWNED & CONTROLLED BY THE STATE GOVERNMENT,UNDERTAKINGS, AUTONOMOUS BODIES,LOCAL BODIES INCLUDING CORPORATIONS, THE MUNICIPALITIES & PANCHAYATS & ANY OTHER ORGANISATIONS DIRECTLY OR INDIRECTLY CONTROLLED BY THE STATE GOVERNMENT.

  27. FINANCE (Internal Audit) DEPARTMENT MEANS: • FURTHER IN TERMS OF NOTIFICATION NO.395-F DATED 13TH JANUARY,2009 FINANCE (Internal Audit) DEPARTMENT EMPOWERED TO CONDUCT INTERNAL AUDIT IN ALL STATE UNDERTAKINGS INCLUDING COMMERCIAL UNDERTAKINGS AND AUTONOMOUS BODIES AND SUCH OTHER OFFICES WHERE SUBSTANTIAL INTERESTS OF THE STATE GOVT. INVOLVED.

  28. BASIC OBJECTIVES: • THE RELIABILITY & INTEGRITY OF FINANCIAL & OPERATING INFORMATION AS WELL AS THE MEANS UTILISED TO SAFEGUARD & VERIFY THE EXISTENCE OF FINANCIAL & PHYSICAL ASSETS, • THE ADEQUECY OF SYSTEMS ESTABLISHED TO ENSURE CONPLIANCE WITH POLICIES, PLANS PROCEDURES, LAW & REGULATIONS.

  29. BASIC OBJECTIVES……. III) THE EXTENT TO WHICH RESOURCES ARE EMPLOYED EFFICIENTLY & ECONOMICALL, AS WELL AS WHETHER PROGRAMMES ARE CARRIED OUT AS PLANNED & WHETHER PROGRAMME RESULTS ARE CONSISTENT WITH ESTABLISHED GOALS & OBJECTIVES.

  30. FUNCTIONS & RESPONSIBILITIES OF FINANCE (INTERNAL AUDIT) DEPARTMENT:I

  31. FUNCTIONS & RESPONSIBILITIES OF FINANCE (INTERNAL AUDIT) DEPARTMENT:I • CONDUCTING INTERNAL AUDIT AND SPECIAL AUDIT IN ALL THE DEPARTMENTS, DIRECTORATES OF THE STATE GOVERNMENT & THEIR SUB-ORDINATE & REGIONAL OFFICES, COMPANIES OWNED & CONTROLLED BY STATE GOVERNMENT. UNDERTAKINGS, AUTONOMOUS BODIES,LOCAL BODIES INCLUDING CORPORATIONS, THE MUNICIPALITIES & PANCHAYATS & ANY OTHER ORGANISATIONS DIRECTLY OR INDIRECTLY CONTROLLED BY THE STATE GOVERNMENT.

  32. PERIODICITY & SCOPE OF AUDIT TO BE DECIDED BY COMMISSIONER WITH THE CONCURRENCE OF THE STATE GOVERNMENT.

  33. INTERNAL AUDIT INCLUDES VERIFICATION OF CASH & CHEQUES,STOCKS, STORES, MANPOWER, GOODS, SCRIPTS, SHARES, DEBENTURES, SECURITIES, INVESTMENTS, LAND & BUILDINGS, PLANT & MACHINERIES OR ANY TANGIBLE & NON-TANGIBLE ASSETS OF THE STATE GOVERNMENT.

  34. INTERNAL AUDIT IS DEPARTMENT IS RESPONSIBLE TO SUBMIT THE REPORT TO THE STATE GOVT. IN THE FINANCE DEPTT. SUCH REPORTS/RETURNS/SPECIAL FINDINGS OF THE INTERNAL AUDIT OR SECIAL STUDY AS DIRECTED BY THE DEPARTMENT.

  35. INTERNAL AUDIT DEPARTMENT IS RESPONSIBLE TO STUDY THE PRACTICES & PROCEDURES, RULES & CONVENTIONS WHICH ARE IN EXISTENCE AND WILL HAVE TO POINT OUT TO THE GOVERNMENT WEAKNESS & DIFFICULTIESIN IMPLEMENTATION THEREOF OR OBSERVANCE THEREOF AS NOTED IN THE COURSE OF AUDIT OR SPECIAL AUDIT & WILL BE RESPONSIBLE FOR SUGGESTING TO THE GOVT.NEEDED CHANGES & MODIFICATIOS THEREIN.

  36. INTERNAL AUDIT DEPARTMENT SHALL BE DUTY BOUND TO KEEP ALL ITS FINDINGS OBSERVATIONS & RETURNS CONFIDENTIAL & NOT BE AUTHORISED TO HAND OVER COPIES OF THE SAME TO ANY AUTHORITY OR AGENCY.

  37. INTERNAL AUDIT DEPARTMENT SHALL BE RESPONSIBLE FOR INTERFACE WITH THE C.A.G OF INDIA & HIS OFFICIALS REGARDING ALL MATTERS CONNECTED WITH C.A.G’S REPORT.

  38. INTERNAL AUDIT DEPARTMENT SHALL BE RESPONSIBLE TO CARRY OUT ANY OTHER FUNCTIONS OR ACTIVITIES AS THE STATE GOVT. IN THE FINANCE DEPARTMENT MAY EXPRESSLY DIRECT.

  39. POWERS & AUTHORITIES OF INTERNAL AUDIT DEPARTMENT • INTERNAL AUDIT DEPARTMENT HAVE THE POWER TO CALL FOR ANY INFORMATION, RECORD, FILES, REGISTERS, ACCOUNTS BOOKS, STOCK REGISTERS OR ANY OTHER DOCUMENTS NECESSARY FOR THE PURPOSE OF AUDIT & AUDITEE UNIT SHALL HAVE THE RESPONSIBILITY OF SUBMITTING THE SAME FOR AUDIT FORTHWITH.

  40. INTERNAL AUDIT DEPARTMENT HAVE THE POWER TO PHYSICALLY VERIFY CASH & CHEQUE, STOCKS, STORES, MANPOWER, GOODS, SCRIPS, SHARES, DEBENTURES, SECURITIES, INVESTMENTS, LAND & BUILDINGS, PLANT & MACHINERIES, & ANY OTHER TANGIBLE & NON-TANGIBLE ASSETS OR PROPERTY OF THE STATE GOVT. OR THE AUDITEE ORGANISATION OR ANY UNIT SUBSTATIALLY OWNED FUNDED BY THE STATE GOVT.

  41. INTERNAL AUDIT DEPARTMENT HAVE THE POWER TO RECORD THE STATEMENTS OF SUCH OFFICIALS, TAKE COPIES OF SUCH DOCUMENTS & CHECK & COLLECT SUCH OTHER CORROBORATIVE EVIDENCE FROM WITHIN & OUTSIDE STATE GOVERNMENT AS IT CONSIDERS NECESSARY FOR THE INTERNAL AUDIT OR SPECIAL AUDIT AS ENTRUSTED TO IT IN CONSULTATION WITH THE FINANCE DEPARTMENT.

  42. THE AUDITEE DDEPARTMENTS UNITS SHALL REPLY TO THE OBSERVATIONS & OBJECTIONS OF THE AUDIT WITHIN SUCH PERIOD AS MAY BE PRESCRIBED. FAILURE TO FURNISH REPLIES SHALL BE BROUGHT TO THE NOTICE OF THE STATE GOVT.

  43. INTERNAL AUDIT DEPARTMENT SHALL HAVE SUCH POWERS & AUTHORITY AS THE STATE GOVT. IN THE FINANCE DEPARTMENT MAY EXPRESSLY NOTIFY FROM TIME TO TIME.

  44. COMMON DEFIENCIES OBSERVED: *CASH BOOK NOT WRITTEN ON REGULAR BASIS, PERIODICAL VERIFICATION OF CASH BALANCE & CASH ANALYSIS NOT DONE. • OFFICE COPY OF THE BILLS & VOUCHERS NOT PROPERLY ARRANGED & KEPT.

  45. DEFICIENCIES…. • ALLOTMENT REGISTER NOT PROPERLY MAINTAINED, B-STATEMENT NOT PREPARED ON REGULAR BASIS. • FIXED ASSETS REGISTERS NOT MAINTANINED PROPERLY, PHY SICAL VERIFICATION FIXED ASSETS NOT DONE ON REGULAR BASIS. • UTILISATION CERTIFICATE NOT SUBMIT IN DUE TIME/NOT IN PROPER FORM.

  46. OBSTACLES: • LACK OF OFFICERS IN THE FINANCE ( INTERNAL AUDIT) DEPARTMENT. • IMPROPER PLANNING. • RELUCTANCY OF THE AUDITEE ORGANISATION. • NON/DELAY SUBMISSION OF BOOKS OF ACCOUNTS & RECORDS. • NON/POOR COMPLIANCE OF AUDIT OBSERVATIONS.

  47. THANK YOU WISH YOU A SUCCESSFUL SERVICE LIFE

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