Chapter–4
Audit of Accounts of Stores and Stock
Audit Mandate
2.4.1 Audit of payments for the purchase of stores is conducted according to the rules
prescribed by the Comptroller and Auditor General in regard to the audit of expenditure
from the Consolidated Fund of India or of a State or a Union Territory having a Legislative
Assembly.
2.4.2 The Reports of the Comptroller and Auditor General which are to be submitted to the
President or the Governor of a State under Article 151 of the Constitution, or to the
Administrator of a Union Territory under Section 49 of the Government of the Union
Territories Act, 1963, must relate to the totality of the accounts of the Union, State or the
Union Territory and should cover not merely all receipts and expenditure but also all
accounts of stores and stock because the latter form an important, though subsidiary, part
of the accounts. Section 17 of the Act therefore vests in the Comptroller and Auditor
General the authority to audit and report on the accounts of stores and stock kept in any
office or department of the Union or of the States or of the Union Territories.
Audit Objectives and Scope
2.4.3 The stores and stock accounts form part of the initial and subsidiary accounts of the
departments and audit thereof is consequently conducted locally. The audit of the accounts
of the stores and stock shall be directed towards ascertaining that the departmental
regulations governing purchase, receipt and issue, custody, condemnation, sale and stock
verification of stores are well devised and implemented. Audit should bring to the notice
of the Government any important deficiencies in quantities of stores held or any grave
defects in the system of control.
Key areas of audit scrutiny
Audit of purchase of stores
2.4.4 The following aspects relating to purchases of stores should be examined in audit:
(i) Purchases should have been properly sanctioned and made in the most
economical manner in accordance with the rules, regulations and orders issued
by the Government. Audit must see that the purchases have been made taking
into account the workload of the division and that the requirements have been
assessed on a realistic basis and funds are available for the procurement. It is
also to be seen that the stores procured are of approved quality and
specifications. Stores of the required specifications covered under rate contracts
entered into by the Directorate General of Supplies and Disposals or any other
approved rate contract should have been purchased only under such rate
contracts. The system of open competitive tender should be adopted for
purchases from contractors or suppliers, the purchase being made only from the
lowest tenderer unless there are recorded reasons for not doing so.
(ii) The rates paid should correspond to those agreed to in the relevant contracts or
agreements.
(iii)The government servants responsible for approving and receiving purchases
should furnish certificates of quality and quantity before payments are made,
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except where the contrary is permitted by the rules of Government regulating
purchase of stores.
(iv) Purchase orders should not have been split up so as to avoid the necessity for
obtaining the requisite sanction of higher authorities.
(v) The stipulated terms and conditions should conform to various codal
provisions and orders issued from time to time by the Government.
(vi) Necessary precautions should have been taken to safeguard government
interests in cases involving advance payments for supply of stores in terms of
the contract provisions or Government orders. The stores should also have
been received within the stipulated period and the advance payments adjusted.
Audit of custody and issue of stores
2.4.5 As regards custody and issue of stores, it has to be seen in audit whether:
(i) a particular official has been responsible for the custody of stores for prolonged
periods and, if so, whether the stores have been physically verified regularly to
guard against any loss, pilferage, etc.;
(ii) discrepancies, if any, between the book balances and the ground balances have
been reconciled promptly;
(iii) appropriate and effective follow-up action has been taken on reports of
physical verification of stores for making good any losses, shortages, etc. and
to fix responsibility therefor;
(iv) adequate precautionary measures have been taken to prevent misuse of
materials issued to contractors for use in works;
(v) adequate storage facilities are available and precautionary measures have been
taken to protect stores from damage and undue deterioration;
(vi) efforts have been made to transfer surplus stores to other works, divisions or
departments where these could be utilised;
(vii) a report on surplus stores that could not be so transferred as well as on obsolete
and unserviceable stores, specifying the reasons for so declaring them, has
been promptly sent to the competent authority for facilitating their disposal;
(viii)all issues of stores are supported by proper indents and have been approved by
the competent authority and acknowledged by the intended recipients; and
(ix) officers entrusted with custody of stores or holding charge of stores have
furnished the security prescribed in terms of the instructions issued from time
to time by the competent authority.
Note: Only such materials as are provided in the agreement should have been issued to
contractors in a phased manner based on its use within a reasonable period. Where Government or any
other authority has prescribed a scale for issue of stores of any particular kind, the scale should not have
been exceeded.
Audit of write-off/disposal of stores
2.4.6 Irregularities in the disposal of public stores are equivalent to illegal appropriation of
public funds, and an audit of moneys expended on purchase of stores cannot, by itself, be
complete unless the disposal of the stores is also audited in order to ascertain the final
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application of the moneys. In auditing the disposal or write-off of stores, the following
should be kept in view:
(i) The competent authority should have accorded sanctions for write-off of stores.
Any deficiencies in the systems requiring attention should be brought to
Government’s notice.
(ii) Maintenance and accountal of unserviceable stores that cannot be utilised by
the department responsible for their custody involve waste of labour and space.
Retention of stores in excess of probable requirements in the immediate future
may also result in loss through deterioration. It should, therefore, be seen that
measures are taken to survey and segregate surplus, unserviceable and obsolete
stores and to consider their disposal in accordance with the procedures
prescribed by Government in this regard.
(iii) Stores are generally procured by departments/divisions for their own use and
not for sale. However, when it becomes necessary to sell some surplus stores,
this is generally done on receipt of payments in advance against proforma
invoices, though sales on credit may be unavoidable occasionally. In such cases,
the sale proceeds should have been promptly realised. Instances of proceeds
against credit sales remaining unrealised for considerable periods should,
therefore, be analysed and commented upon.
Audit of stores management
2.4.7. Stores in many cases result in capital remaining locked up for long periods; this may
not be justified unless essential. In order to ensure this and effect economies, appropriate
stock limits for different categories of stores should have been fixed by Government. Audit
may, therefore, see that this has been done and that balances in stock do not exceed the
prescribed limits. Audit should also scrutinise cases of purchase of stores without actual
need or in excess of requirement, resulting in accumulation of idle stock and consequential
loss to the Government. Similarly Audit may look out for cases of purchases less than the
actual requirement that might have affected adversely the progress of works and resulted
in subsequent procurement at additional cost. It may also be examined whether there has
been rush of expenditure on procurement at the close of the financial year or fictitious
booking merely with a view to utilising the budget grants.
Audit of stores records
2.4.8 Audit should ascertain whether:
(i) all stores were examined, on receipt and while accepting delivery, to
determine their condition and to ensure that they were of the approved quality,
make and specifications and the quantities conformed to those agreed upon;
(ii) the stores have been taken on stock and entered in the Goods Received
Sheets/Bin Cards;
(iii) the previous stock balances have been correctly worked out, carried forward
and authenticated by a responsible officer;
(iv) bin cards have been maintained chronologically based on receipts and issues;
and
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(v) Price Stores Ledgers containing the value account of stores have been
maintained.
2.4.9 Where priced accounts are maintained, Audit will see that:
(i) stores are priced with reasonable accuracy and the rates initially fixed are
reviewed periodically, correlated with market prices and revised where
necessary;
(ii) the value accounts tally with the accounts of works and departments
connected with stores transactions, their total also tallies with the amount
outstanding in the general accounts;
(iii) the numerical balances of stock materials are reconciliable with the total of
the value balances in the accounts at the rates applicable to different classes
of stores; and
(iv) steps have been taken for the adjustment of profit or loss due to revaluation,
stock verification or other causes not indicative of any serious disregard of
rules.
Physical verification of stocks
2.4.10 It is an important function of Audit to ascertain that stores materials are counted
periodically and otherwise examined to verify the accuracy of the quantity balances
reflected in the books. Audit shall not, except when specifically authorised to do so, assume
responsibility for physical verification of stores; it, however, has the right to investigate
stores balances and highlight discrepancies. Audit has to see that (a) a certificate of
verification of stores is recorded periodically by a responsible authority; (b) the system
adopted by the executive for verification is adequate and proper; (c) discrepancies found
on stock verification are properly investigated and reconciled; and (d) the staff responsible
for stock verification are, wherever possible, independent of those responsible for the
physical custody of stores or for maintaining the accounts. It should also be seen that stock
verifiers work, wherever practicable, directly under the control of the Government and not
under the heads of the individual departments concerned.
Audit of accounts of furniture in residences of High Officials
2.4.11 In respect of the accounts of furniture in the residences of High Officials, Audit may
require, where necessary, the furnishing, by the executive authority nominated for the
purpose, of an annual certificate of verification to the effect that (a) the furniture has been
inspected and checked with the stock lists maintained; (b) all new supplies have been
correctly brought on the stock lists so that are current and up to date; (c) the stock lists are
correct and complete in all respects; (d) the articles actually in stock agree with the stock
lists; (e) sale proceeds, if any, have been properly accounted for; and (f) sanction of the
competent authority exists for all articles written off or struck off the stock lists.
Other guidelines
2.4.12 The detailed procedure for undertaking the audit of any stores and stock accounts
will be such as may be agreed upon, where necessary, between the Accountant General
concerned and the Government.
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2.4.13 The procedure prescribed by the Comptroller and Auditor General for the raising
and pursuance of audit objections in relation to expenditure shall generally apply in respect
of objections on any accounts of stores and stock. Where necessary, separate rules of
procedure shall be laid down by the Accountant General with the concurrence of the
Government.
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