Auditing

Audit will comprise of both external and internal audit
EXTERNAL Audit :
The external audit of the project will be conducted by the C&AG for the line departments, and MSWC . The consolidated unaudited financial statements of the expenditures incurred by the departments under the project will be submitted to the C&AG latest by June 30th . This will provide three months to CAG to undertake audit, up to September 30th. Following this, in case if the C&AG is unable to submit the audit report by due date (i.e. September 30th), the project may, after seeking confirmations as may be required under the laws of the land, assign the audit of the departmental expenditures to a private chartered accountant firm which is independent and acceptable to IDA.

Non compliance to the above may invoke, remedies as per Bank’s Operational/Business Policy 10.02. In other words disbursement to the Project based on IUFRs will be stopped. However, for the autonomous bodies namely ATMAs, VANAMATI, ,MSAMB, MSWC and NIPHT, the remedy will be applied to the defaulting entity and other entities will not be affected by the non-performing entitity/ies.

Audit of expenditures incurred by ATMAs, VANAMATI, the expenditures from beneficiary contribution at the DDRC level and NIPHT will be conducted by private firm of Chartered Accountants. The Chartered Accountants will be contracted by PCU, one for each revenue division of the State. The selection of audit firms will be done as per the World Bank procurement guidelines and as per selection criteria agreed with the Bank.

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Audit will comprise of both external and internal audit
EXTERNAL Audit :
The external audit of the project will be conducted by the C&AG for the line departments, and MSWC . The consolidated unaudited financial statements of the expenditures incurred by the departments under the project will be submitted to the C&AG latest by June 30th . This will provide three months to CAG to undertake audit, up to September 30th. Following this, in case if the C&AG is unable to submit the audit report by due date (i.e. September 30th), the project may, after seeking confirmations as may be required under the laws of the land, assign the audit of the departmental expenditures to a private chartered accountant firm which is independent and acceptable to IDA.

Non compliance to the above may invoke, remedies as per Bank’s Operational/Business Policy 10.02. In other words disbursement to the Project based on IUFRs will be stopped. However, for the autonomous bodies namely ATMAs, VANAMATI, ,MSAMB, MSWC and NIPHT, the remedy will be applied to the defaulting entity and other entities will not be affected by the non-performing entitity/ies.

Audit of expenditures incurred by ATMAs, VANAMATI, the expenditures from beneficiary contribution at the DDRC level and NIPHT will be conducted by private firm of Chartered Accountants. The Chartered Accountants will be contracted by PCU, one for each revenue division of the State. The selection of audit firms will be done as per the World Bank procurement guidelines and as per selection criteria agreed with the Bank.

Audit by C&AG will be conducted in accordance with generic TOR agreed with the C&AG for audit of bank financed projects. Audit by private CA firm(s) will also be conducted in accordance with pre-agreed TORs. In addition, an audit report by the C&AG for the designated account held at GoI would also be submitted in the usual manner. Thus, the following audit reports will be submitted to the Bank within six months from the end of each financial year

Implementing Agency
Audit
Auditors
All Implementing agencies except ATMAs, VANAMATI, NIPHT, MSWC, Beneficiary Contribution Accounts and PCU and PIU (AM)
Consolidated Financial Statements of the Project except for ATMAs VANAMATI, NIPHT, MSWC, Beneficiary Contribution PCU and PIU(AM)
State AG (Audit)
ATMAs , VANAMATI NIPHT, MSWC, Beneficiary Contribution Accounts, PCU and PIU(AM)
Compiled Financial Statements
Private CA Firm
DEA / GOI
Special Account
Comptroller & Auditor General of India
These audit reports will also be disclosed in the external project website.
 
selection of auditor :
The terms of reference for hiring a Chartered Accountant Firm for external audit is given in the Annexure 21 attached.
 
Internal Audit :
OBJECTIVES
The overall objectives of Internal Audit is to provide the project management with independent assurance that
 (i) the internal controls established by management are designed appropriately
(ii) the controls are operating effectively and as intended. In addition, it is expected that internal audit should play a role in assisting management in
  • bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management,
  • identifying control lapses and taking corrective measures in a timely manner.
Standards
The internal audit will be carried out in accordance with the Standards for the Professional Practice of Internal Auditing issued by the Institute of Internal Auditors. The internal auditor should accordingly evaluate risk exposures relating to the project’s governance, operations and information systems, and plan the examination to detect control weaknesses and indicators of fraud and corruption and recommend remedial measures.

Coverage for the Audit:
The audit would cover the entire project i.e., all the spending units under the project and coverage in each quarter will be decided using appropriate sampling techniques.

Scope of Internal Audit:
The internal audit will be carried out in accordance with the Standards for the Professional Practice of Internal Auditing issued by the Institute of Internal Auditors. The internal auditor should accordingly evaluate and will include such tests and controls as the auditor may consider necessary under the circumstances. In conducting the audit special attention should be paid to the following.
a)   All funds have been used in accordance with the conditions of the relevant legal agreements and only for the purposes for which the financing was provided. Relevant legal agreement includes the Financing Agreement, the Project Agreement and the Minutes of Negotiation
b)   The monthly expenditure Statement submitted by the districts indicating the approved budget provision and expenditure during the month, cumulative expenditure against the activity / sub-activity during the year should be reviewed in the internal audit.
c)   The procurement procedure adopted for civil works, goods and consultancy services should be reviewed by the internal auditors and it should be ensured that correct procedures as per the Bank procurement guidelines have been followed for each procurement.
d) It should be ensured that the records of all procurement, agreements, work/purchase orders, invoices, receipts, stock registers etc are properly maintained, duly linked and retained. The auditor should also review contract management and whether business standards for payment to contractors are being adhered to.
e)   The project account have been prepared in accordance with consistently applied Govt. accounting practices
f)   The auditor should ensure the efficiency and timeliness of the funds flow mechanism at the State and District level and whether there are delays and which could impact the timely implementation of project. The auditor should also identify and report the reasons for such delays and possible remedial measures.
g)   The auditor should ensure all project funds received under the project have been used with due attention to economy, efficiency and effectiveness, and only for the purposes for which the financing was provided;
h)   The auditor should ensure that all Beneficiary Contributions, deposited in separate bank account at District level are maintained as per the terms and conditions stated in the financial manual.
i)    The auditor should ensure that all necessary supporting documents, records, have been separately filed in respect of all project activities and that clear linkages exist between the supporting documents, accounting books and records and the periodic financial reports from the respective spending units
j)    The internal auditor should ensure that the adequate records are maintained regarding the assets created and assets acquired by the project, including description, details of cost, identification and location of assets. Carry out physical verification of a sample of assets created out of the project and comment on its utilization .The internal auditor should check as to whether the terms and conditions of contract of building new infrastructure have been adhered to with respect to time and money
k)   Whether the accounting for the advances to line departments and concern units are properly recorded in the accounting books; whether systems are in place for monitoring the receipt of periodic financial reports & follow up on overdue reports are adequate. Exceptions should be identified and reported.
l)    Whether the IUFRs are submitted in a timely manner, whether release of funds are conditional to receipt of IUFRs and report exceptions, if any
m)  Bank reconciliations have been carried out on a monthly basis. In case spending units having a treasury/BDS system, whether quarterly reconciliation of accounts are being done by the Controlling officer for all DDOs under his control with the AG(A&E) in a timely manner.
n) While conducting internal audit in a subsequent phase the auditor will ensure that the compliance report on audit observations pointed out in the reports relating to earlier audit is made and corrective actions taken on those points are furnished in the Audit Report of the subsequent phase
o)   Routine errors of omission or commission noted during the course of internal audit may be rectified on the spot.
p) The auditor should ensure that project assets exist, are adequately safeguarded and are actually used for their intended purposes .
The Internal Auditor will do quarterly audits and submit quarterly reports to PCU maximum within a period of 15 days after the end of each audit.. The Internal audit program and sample coverage for each quarter will be drawn up by the internal auditor in consultation with PCU. Coverage in each quarter will be decided following a risk based approach taking into consideration factors such as quantum of expenditure, performance in terms of reporting, progress of work etc. and any other relevant factors that the auditor or the management deems relevant
Project Audit Review Committee:
For regular and timely external and internal audit , constant monitoring of the same is absolutely essential. For this purpose, the Project Audit Review Committee is proposed to be constituted in the PCU,MACP and chaired by the Project Director with the following members-

  1. Chief Financial Controller, PCU- member
  2. Nodal Officer PIU (Agri. Mktg.) – member
  3. Nodal Officer PIU (Agriculture) – member
  4. Nodal Officer PIU (AHD ) – member
  5. Sr. Accounts Officer. PIU (AGRI-MKTG)- member
  6. Accounts Officer-(PCU)-member
  7. Accounts Officer. PIU (Agriculture)- member
  8. Accounts Officer. PIU (AHD)- member.
  9. Representative of A.G.
  10. Representative of C.A. firm assigned with internal audit- member
  11. Finance Specialist , PCU - member secretary
This Committee will mainly be responsible for timely audit and timely follow up of the rectification / corrective measures on the basis of audit reports. It will also attend to the following - i.) periodical review of progress of internal and external audit.
ii) review of rectification of audit observations
iii) corrective steps on audit observations.
iv) give necessary instructions to the field staff of line departments and various institutions covered under MACP, to extend necessary support to audit teams and complete the record writing regularly.
v) appraise the Principal Secretary (Co-operation & Marketing) / State Government, every six months about the progress and other matter of audit.
 The audit committee will hold quarterly meetings to carry out the above functions.
Pursuance of Audit objections :
In order to keep a watch over the settlement of audit objections included in the audit report, the Accounts Wing of the project will maintain a Register in the format given in the setting apart separate folios for each PIUs.
  • The progress made on the settlement of audit objections outstanding will be reviewed by the PCU and appropriate further action taken to ensure their speedy settlement.
  • The concerned auditors should verify the reported compliance with the objections made by the PIUs at the time of next audit.
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