• Audit against sanctions to expenditure 2.2.

34 30
• Audit against propriety 2.2.46 33
• Other guidelines 2.2.48 34
• Annexure – Illustrative list of tasks that may be 35
entrusted to the propriety audit section
Chapter 3 – Audit of Receipts
• Audit mandate 2.3.1 37
• Audit objectives and scope 2.3.2 37
• Audit approach 2.3.6 37
• Key areas of audit scrutiny – Audit of regulations 2.3.7 38
and procedures for assessment, collection and
refunds
• Audit of arrangements for detection/prevention of 2.3.8 38
frauds and other irregularities
• Audit of effectiveness of rules and orders governing 2.3.9 38
collection of receipts
• Audit of periodicity of recoveries 2.3.10 38
• Examination of outstanding dues 2.3.11 38
• Audit of internal controls 2.3.12 39
• Cross verification 2.3.14 40
• Other guidelines 2.3.15 40
Chapter 4 – Audit of Accounts of Stores and Stock
• Audit mandate 2.4.1 41
• Audit objectives and scope 2.4.3 41
• Key areas of audit scrutiny – Audit of purchase of 2.4.4 41
stores
• Audit of custody and issue of stores 2.4.5 42
• Audit of write-off/disposal of stores 2.4.6 42
• Audit of stores management 2.4.7 43
• Audit of stores records 2.4.8 43
• Physical verification of stocks 2.4.10 44
• Audit of accounts of furniture in residences of high 2.4.11 44
officials
• Other guidelines 2.4.12 44
Chapter 5 – Audit of Commercial Accounts
• Audit mandate 2.5.1 46
• Government companies 2.5.3 46
• Deemed government companies 2.5.5 46
• Statutory bodies 2.5.6 46
• Departmental undertakings 2.5.9 47
• Audit objectives and scope 2.5.10 47
• Audit arrangements 2.5.12 47
• Key areas of audit scrutiny – Audit of government 2.5.13 47
companies
• (A) Issue of directions to statutory auditors 2.5.14 48

v
 Chapter 5 – Audit of Grants-in-aid
• Introduction 3.5.1 93
• Audit approach 3.5.2 93
• Issues for audit scrutiny 3.5.8 93
• Submission of utilization certificates 3.5.18 96
• Grant made for a specified object 3.5.21 97
• Grants to non-government or quasi-government 3.5.22 97
bodies or institutions
• Audit of scholarships 3.5.23 97
Chapter 6 – Pension Audit
• Audit objective and scope 3.6.1 99
• Source documents 3.6.4 99
• Audit approach 3.6.5 99
• Issues for audit scrutiny – Pension cases 3.6.9 100
• Pension vouchers 3.6.13 102
• Anticipatory/Provisional pensions 3.6.16 102
• Gratuity 3.6.18 103
• Commutation of pension 3.6.20 103
• Territorial and political pension 3.6.22 103
Chapter 7 – Audit of Contracts
• Audit objectives and scope 3.7.1 104
• General principles governing audit of contracts 3.7.2 104
• Source documents 3.7.6 105
• Arrangements and procedures for central audit 3.7.7 105
• Issues for audit scrutiny 3.7.11 106
• (A) Audit of sanctions 3.7.12 106
• (B) Audit of acceptance of 3.7.13 107
tender/contracts/agreements
• (C) Audit of bills for purchases and supplies of 3.7.15 108
stores
• (D) Audit of accounting of stores 3.7.17 109
• (E) Local audit of contracts, bills for purchases etc. 3.7.18 109
• Audit of transactions relating to contracts of 3.7.20 111
department of supply
• Payments made abroad for stores, supplies etc.
• (A) Store purchases 3.7.22 112
• (B) Freight charges 3.7.26 113
• (C) Other payments to suppliers abroad 3.7.27 114
Chapter 8 – Efficiency-Cum-Performance or Value for Money Audit
• Audit objectives and scope 3.8.1 115
• Aspects to be covered and source documents 3.8.5 116
• Approach for reviews 3.8.7 117
• Criteria bases audit 3.8.9 117
• Selection of subjects 3.8.10 117

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 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,

41
 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

42
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

43
 (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.

44
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.

45
 Chapter–7
Audit of Contracts
Audit Objectives and Scope
3.7.1 The responsibility for the conclusion of contracts for works to be done and
supplies to be made and for enforcing them rests with the Executive. However, scrutiny
of these contracts or agreements entered into by government servants on behalf of
Government constitutes one of the important functions of audit. The objective of such a
scrutiny is to see whether the contracts or agreements have led to loss or wastage of
public money and also to ensure that the rules and regulations provide reasonable security
against malpractices.
General principles governing audit of contracts
3.7.2 The Union Government has laid down the following fundamental principles for
the guidance of authorities authorised to enter into contracts or agreements involving
expenditure from the Consolidated Fund of India:
(i) The terms of a contract must be precise and definite, and there must be no
room therein for ambiguity or misconstruction.
(ii) Standard forms of contracts should be adopted wherever possible, the
terms being subjected to adequate prior scrutiny.
(iii) As far as possible, legal and financial advice should be taken in the
drafting of contracts before they are finally entered into.
(iv) No contract involving an uncertain or indefinite liability or any condition
of an unusual character should be entered into without the prior consent of
the competent financial authority.
(v) Similarly, terms of a contract once entered into should not be materially
varied without the prior consent of the competent financial authority.
(vi) Contracts should invariably be placed only after inviting open tenders and
the lowest tender accepted. In cases where it is not considered practicable
to invite open tenders or to accept the lowest tender, the reasons for the
deviations should be recorded.
(vii) In selecting the tender to be accepted, the financial status of the tendering
individuals and firms must be taken into consideration, in addition to all
other relevant factors.
(viii) Even in cases where a formal written contract is not entered into, no order
for supplies should be placed without at least a written agreement in
regard to price.
(ix) Provision must be made in contracts for safeguarding government
property entrusted to contractors.
(x) When a contract is likely to endure for a period of more than five years, it
should include, wherever feasible, a provision for its unconditional
revocation or cancellation by Government at any time after the expiry of
six months’ notice to that effect.
Though these guiding principles are primarily in the nature of financial rules, they are
nevertheless of relevance from the audit perspective as well.
3.7.3 Deviations from contracts require authority not inferior to that required for the
conclusion of the original contract. Audit should also see that any payments outside the

104
strict terms of the contract or in excess of the contracted rates are not made without the
consent of the competent financial authority.
3.7.4 Cases in which there is evidence that an officer or agent of a contracting
department has an undue common interest with the other contracting party should be
brought to the notice of the competent higher authority for such action as it may deem
necessary.
3.7.5 Standing contracts should be reviewed occasionally and if Audit has reason to
believe that the rates accepted in those contracts are considerably higher than the rates
prevailing at the time of review, such variations should be brought to the notice of the
competent authority.
Source Documents
3.7.6 The following are the main source documents to be checked in the audit of
contracts and agreements:
(i) Contract files maintained by the departments or institutions.
(ii) Accounts and payment vouchers received from the treasuries.
(iii) Administrative Approvals and Technical Sanctions of the competent
authority forming the basis of the contracts.
(iv) Portfolio Registers maintained by the Integrated Audit Unit Section.
(v) Bills for supply of Stores.
(vi) Copies of Contracts and Agreements.
(vii) Any other documents that would facilitate effective audit.
Arrangements and procedures for Central Audit
3.7.7 The procedure for dealing with the contracts relating to the Public Works
Department is contained in Section IV relating to Public Works Audit. In respect of civil
departments, copies of contracts and agreements relating to purchases of the value of Rs
5 lakhs and above should invariably be obtained and examined in Central Audit. All rates
and running contracts, as well as all important and unusual contracts, should be
scrutinised irrespective of the amount of contract. Other contracts should be examined in
local audit to a suitable extent determined with reference to local conditions. For this
purpose, the departmental officers should be required to send monthly lists of all
contracts entered into by them, besides copies of all contracts and agreements for
purchases of the value of Rs 5 lakhs and above, all rate and running contracts, and of all
important and unusual contracts included in the monthly lists for scrutiny.
3.7.8 In order to facilitate audit of payments against these contracts, relevant details of
(i) sanction; (ii) contractors; (iii) the nature of the work or materials to be supplied; (iv)
brief particulars of rates, important conditions, etc.; and (v) the delivery or completion
schedule should be recorded in a Register (Form MSO (Audit)-l) maintained in the
Central Audit Support Section (also known as Integrated Audit Unit Section in some
offices) and made available to the Central Audit Parties who may refer, wherever
necessary, to the copies of the contracts made available by the departments concerned.
The Central Audit Party should note in the register only those payments that are audited.
There may, however, be cases where all vouchers paid against contracts of the value of

105
Rs 5 lakhs and above may not come up for audit. In cases where no payments have been
noted in the register for as long a period as one year or so or during the entire contract
period, which is generally very short in respect of contracts entered into by civil
departments, specific inquiries may be made from the departments concerned to ascertain
if the contract has actually been operative; if so, details of the vouchers through which the
payments were made and other relevant particulars may be called for.
3.7.9 Unusual items in the contracts and agreements should be scrutinised carefully if
necessary in consultation with the Propriety Audit/Higher Audit Section in the
headquarters. The OAD (Headquarters) Section should also be informed of such
purchases without delay so that they may arrange a programme of local audit to enable
scrutiny of the relevant purchase files.
Notes:
(i) The Principal Director of Audit, Economic and Service Ministries, conducts a detailed
examination of selected contracts (other than those relating to contingent and
miscellaneous expenditure to which the instructions contained in this paragraph will
apply) entered into by the Directorate General of Supplies and Disposals under the
Ministry of Commerce and by the Department of Food under the Ministry of Food and
Agriculture with reference to the connected files and other documents during local
audit undertaken concurrently.
(ii) When payments included in contingent bills are made at contracted rates that need not
be communicated to the Audit Office, a certificate should be obtained from the
competent authority to the effect that the claim is correct with reference to such
contracted rates.
3.7.10 The Audit Officer of the Central Audit Support (Integrated Audit Unit) Section
should review contract agreements critically and communicate its results to the
departments concerned. Points noticed in the course of the review, which have to be
borne in mind while conducting local audit, should be entered in the Register of
Important Points for Local Audit and communicated to the local audit parties as and
when the local audit of the concerned offices is taken up.
Issues for audit scrutiny
3.7.11 While the general principles underlying the audit of contracts have been discussed
earlier, detailed instructions and procedures to be followed in this regard have been dealt
with in the succeeding paragraphs. These are, however, not to be taken as exhaustive and
may be adapted to suit the requirements of audit in specific cases in the light of the
departmental rules and regulations.
A. Audit of sanctions
3.7.12 In conducting audit of sanctions to purchases, contracts, etc., the broad principles
of financial propriety enunciated under in the chapter on ‘Audit of Expenditure’ should
be borne in mind. In cases of doubt regarding the necessity for or the propriety of the
expenditure sanctioned, the original records leading to the issue of the sanction should be
called for and scrutinised in Central Audit. If the Accountant General (Audit) considers
this necessary, the case may also be sent with a brief note to Propriety Audit Section or
the local audit party for examination. It should further be seen that all requirements
pointed out at the time of any pre-scrutiny of the sanctions have been duly complied with
or resolved to the satisfaction of Audit;

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B. Audit of Acceptance of Tender/Contracts/Agreements
3.7.13 Important points to be verified while auditing Acceptances of tenders (ATs),
contracts or agreements are as follows:
(i) Complete particulars of quantities and rates/prices should have been
furnished, the rates/prices stipulated being firm.
Note: Particulars of contracts containing a price variation clause or provisional rates
should be sent to local audit for further examination.

(ii) Important and material clauses relating to delivery schedule, place of

delivery, inspection of stores, despatch instructions, particulars of
consignee, etc. should have been clearly specified and not omitted.
(iii) Normally, the AT/purchase order should have been signed by an authority
competent to enter into contracts. If, however, this has been signed by an
authority not competent to enter into the contract, it should be verified that
a certificate to the effect that the competent authority has approved the
purchase is recorded thereon, mentioning also the designation.
Note: The Purchase Officer concerned should sign in ink all copies of the AT,
Supply Order, etc. including all attachments containing details of the
rates/prices and other important conditions.
(iv) If the AT provides for payment to a party other than the contracting firm, a
power of attorney should already have been registered in the books of the
office.
(v) Provisions relating to payment of sales tax, excise duty, etc. should be
checked with reference to the instructions issued by the Government from
time to time. Vague provisions such as "sales tax will be paid, if legally
leviable" should be objected to and the contracting officers asked to state
in definite terms whether sales tax, excise duty, etc, are payable and, if so,
the rates, basis of payment, etc.
(vi) ATs issued in the latter part of a financial year should be specially
scrutinized and any tendency on the part of the department to resort to
rush of expenditure brought to notice.
(viii) If the AT provides that the supplier should furnish a solvency certificate
for the contractual amount, Audit should verify that there no facts have
been suppressed in the documents connected with the solvency certificate
and that the financial interests of Government have been adequately
protected.
(ix) The contract should have been sanctioned by a competent authority and
signed for and on behalf of the President of India, Governor of a State,
Administrator of a Union Territory or the Chairman or any other
authorised official of a quasi-public body, as the case may be.
(x) In respect of contracts entered into with a firm, each one of the partners, or
the duly constituted attorneys in the case of absent partners, should have
signed all the documents constituting the contract. In the latter case, the
original powers of attorney duly registered in a court of law will be
verified and an attested copy obtained for audit purposes.

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 (xi) The contract should not have been entered into by or on behalf of a minor.
(xii) Security deposit, if any, should have been furnished in the appropriate
form and of the correct amount and within the period stipulated in the
contract.
(xiii) All the conditions and requirements printed on the contract form should
have been complied with.

(xiv) Penalties leviable under the terms of the contract should have been
enforced in the event of any default or breach of the conditions.
(xv) Requests for despatch of heavy goods by passenger train involving
payment of freight charges disproportionate to the value of the materials
should be reported to the local audit party for detailed examination. In
such cases, the party should examine whether higher rates of freight
charges were also agreed to on earlier occasions on grounds of urgency
and whether the circumstances really justified the additional expenditure.
3.7.14 If considered necessary, cases of the following type may be scrutinised in
consultation with the Propriety Audit Section:
(i) Inclusion of any new item not originally contemplated in the contract.
(ii) Cases involving extension of the stipulated delivery schedule when
payment of higher prices had been agreed to initially on grounds of
urgency of requirements and early delivery.
(iii) Cases involving payment of compensation to contractors/suppliers’ firms.
(iv) Contracts, even if sanctioned by the competent authority including the
Government, containing any extraordinary or unusual stipulations.
(v) Cases involving adoption of any special and apparently objectionable
procedures of purchase, inspection and payment.
(vi) All contracts concluded on cost plus profit basis.
(vii) All contracts entered into with private firms for functioning as
Government stockists.
(viii) Sanctions to ex gratia payments.
C. Audit of bills for purchases and supplies of stores
3.7.15 Before auditing expenditure on bills for purchases, the Audit Officer should
satisfy himself that the sanctions and agreements have been properly audited and bear
suitable audit endorsement.
3.7.16 Besides the checks prescribed in paragraph 3.1.20, it should be verified in
auditing bills of contractors or suppliers that:
(i) the purchase of the stores has been sanctioned by the competent authority;
(ii) all purchases of stores are made in accordance with the instructions laid
down in Chapter 8 of the Compilation of General Financial Rules
(Revised and Enlarged), 1963, or the similar rules of the Governments
concerned, with special reference to the rule that no purchase which
requires the sanction of a superior financial authority is sanctioned by a

108
 lower authority in instalments by splitting the requirements so as to
obviate the necessity for sanction of the competent authority;
(iii) the rates charged in the bills are in conformity with those in the
agreements;
(iv) the necessary inspection certificates have been furnished with the bills in
cases where the contract stipulates inspection in stages, at the time of
manufacture or after erection at site;

(v) claims in respect of railway freight, insurance charges, etc. are duly
supported by cash receipts, irrespective of the amount involved, when
orders have been placed FOR destination basis;
(vi) the prices claimed in respect of contracts concluded on the basis of prices
prevailing in the market on the date of receipt of the order by the firm or
on the day of supply are not at variance from the market prices as
intimated by the suppliers and have also been confirmed by the purchasing
officers;
(vii) the actual dates of despatch/delivery of stores conform to those stipulated
in the contracts/agreements in cases where deliveries are to be spread over
and made in phases at different times, involving varying prices linked to
deliveries;
(viii) no payments on account of customs duty or increase in customs duty have
been made except under the provisions of the contract or under orders of
the competent authority in respect of stores procured from outside the
country;
(ix) discrepancies or deficiencies, if any, pointed out by the consignees in their
receipt certificates have been duly taken into account and appropriately
dealt with before releasing final payments for supplies in respect of which
the advance or part payments stipulated in the contracts; and
(x) the stores have been delivered within the stipulated period and belated
deliveries or slippages, if any, have been regularised by the competent
authority.
D. Audit of accounting of stores
3.7.17 It should be seen that the provisions contained in Chapters 8 and 9 and
Appendices 8 and 9 of the General Financial Rules (Revised and Enlarged), 1963, and
Schedule V of the Delegation of Financial Powers Rules, 1978, have been complied with.
E. Local audit of contracts, bills for purchases, etc.
3.7.18 The following are the main types of cases that may be examined in local audit:
(i) Acceptances of tenders, including Rate/Running Contracts and Supply
Orders.
(ii) Amendments to Acceptances of Tenders.
(iii) Contracts placed from India directly on suppliers in UK, USA and other
overseas countries.
(iv) Contracts placed by Indian Missions and Trade Commissioners abroad
(other than those in UK and USA).
(v) Timber Purchase Orders.

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 (vi) Office orders and other instructions issued by the Purchase Organisation
on incidence of sales tax, excise duty, etc.
(vii) Disposal contracts.
(viii) Arbitration cases.
3.7.19 The following are some of the points that should be kept in view and examined in
local audit:
(i) Whether, so far as can be ascertained from the purchase files, demands
received from other indenting officers received at the relevant time were
consolidated and bulked as far as possible to secure the advantage of lower
prices for bulk supplies and, if so, whether the aggregate of the quantities
ordered for the individual indentors in the contracts entered into for the
purpose was in excess of the quantities actually indented and so
consolidated.
(ii) Availability of sanction of the competent authority for effecting purchases
on the basis of a single tender or negotiations and of recorded reasons for
resorting to this method of purchase.
(iii) Opening of all tenders on the due date and their authentication by the
designated officer numbered and initialled with date by the officer opening
them.
(iv) Availability on record of the comparative statement and whether it was
verified with reference to the original tenders.
(v) Whether any tender received belatedly after the stipulated date had been
included in the comparative statement and considered, and whether orders
of the competent authority were obtained for doing so.
(vi) Whether the lowest offer was accepted in each case. In case this was not
done, whether adequate justification adequate reasons had been provided
in writing for rejecting the lowest offer should be examined; the difference
between the lowest offer and that accepted should also be quantified.
(vii) In cases where more favourable or advantageous offers were rejected on
the ground that the firms were untried, it should be examined whether the
feasibility of placing a trial order on the firms was considered with a view
to achieving economies and appropriate action taken.
(viii) Whether the successful tenderer had indirectly derived any advantage over
the other tenderers because of the insertion of certain special conditions; it
should be particularly examined whether acceptance of these special
conditions resulted in any increase over the prices actually quoted.
(ix) Whether the difference between the purchase price finally accepted and
that estimated in the tender is within the limits prescribed; if not, it should
be examined whether confirmation about the availability of additional
funds was obtained.
(x) Whether the contract was placed on a registered firm; in case this was not
done, whether sanction of the competent authority was obtained and
obtaining appropriate security, guarantees, etc. were insisted upon for
adequately safeguarding government’s interests.

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 (xi) Whether, in the case of contracts placed directly on firms in the United
Kingdom, payments in advance linked to progressive deliveries had been
agreed to and, if so, this was done only after ascertaining the practice
followed by the India Stores Department (India Supply Mission), London.
(xii) Whether the accepted rates/prices had been modified or revised in any
case after the conclusion of the contract and, if so, whether this was done
with the approval of the competent authority, and the reasons justifying
the revision were adequate.

(xiii) In case any supplementary contract had been negotiated or payments

authorised for any additional services required of the supplier subsequent
to the acceptances of the tender, the appropriateness thereof should be
examined from the competency and propriety angles.
(xiv) Whether the interests of Government were adequately safeguarded and
protected in arbitration proceedings by the officers concerned with the
defence of the cases.
Audit of transactions relating to contracts of Department of Supply
3.7.20 The detailed instructions to be followed by the Office of the Principal Director of
Audit, Economic and Service Ministries, in the audit of contracts entered into by the
Directorate General of Supplies and Disposals (DGS&D) under the Central Department
of Supply and of payments made there against are contained in the Manuals of that
Office’s Concurrent Audit and Central Test Audit Sections. The DGS&D was relieved of
the responsibility for ad hoc purchases w.e.f 1st January, 1992, when such purchases were
decentralised and entrusted to the respective departments of the Central Government.
Consequently the DGS&D’s role at present is confined mainly to the finalisation of rate
contracts for commonly used items required on a recurring basis by the Central
Government departments, State Governments, quasi-public bodies such as municipalities,
city corporations and government undertakings. Central Government departments not
having their own infrastructure for purchases can, however, utilise the services of the
DGS&D even in respect of their ad hoc requirements. The audit of contracts, bills, etc.
pertaining to the ad hoc purchases made directly by the departments is to be conducted by
the Audit Officers of the concerned departments. In so far as the stores purchased through
the agency of the DGS&D are concerned, the division of responsibility for audit between
the Principal Director of Audit, Economic and Service Ministries, and the Audit Officers
of the indenting departments is as follows:
(i) The Principal Director of Audit, Economic and Service Ministries, will be
responsible for the audit of the bills against the contracts.
(ii) The Audit Officers of the departments indenting and receiving the stores
will be responsible for auditing the charge to ensure that (a) it is a proper
charge against a work, office or other expenditure unit under their audit;
and (b) that it has been duly sanctioned. It is not necessary for them to
check arithmetical calculations of the vouchers.
(iii) In cases where advance claims are made by the Pay and Accounts
Officers, Ministry of Commerce, without the consignees’ certificates
vouching receipt, the Audit Officer of the consignee should ensure that

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 adequate and prompt action is taken to obtain the requisite
certificates/acknowledgements and to settle, in consultation with the
consignees, the discrepancies or deficiencies pointed out in the certificates
of receipt.
3.7.21 It is obligatory on the part of each and every department of the Central, State and
Union Territory Governments to procure stores required on a recurring basis, and borne
on the rate contracts entered into by the DGS&D, either through the Directorate General
or, if the officer concerned has been declared as a Direct Demanding officer, directly
from the firm concerned. Failure to avail of the benefit of these rate contracts and
resorting instead to local purchases at higher prices, either by splitting the purchase
orders so as to ensure that the financial powers delegated to the officers for local
purchases are not exceeded, or under some other pretext, including the ground that the
officer concerned was not aware of the conclusion of the rate contract for the particular
item, results in avoidable extra expenditure to Government. The Accountant General
(Audit) and the Principal Directors of Audit should point out such cases, if any, noticed
in the course of audit of the accounts of the departments concerned. In case such failures
are found to be widely prevalent in a department or of a large magnitude, appropriate
comments should be proposed for inclusion in the Audit Report.
Payments made abroad for stores, supplies, etc.
A. Stores purchases
3 7.22 Stores transactions passed on to India through the Remittance Account between
England and India or the accounts of the India Supply Mission, Washington, as well as
transactions pertaining to the separated accounts offices, which are initially classified
under “Pay and Accounts Offices" and intimated to the Accounts Officers in India under
the heading "Miscellaneous Transactions", can be classified broadly as follows:
(i) Stores obtained directly from firms abroad on FOB basis subject to
inspection by the Director General, India Stores Department, London, or
the India Supply Mission, Washington.
(ii) Stores purchased through the agency of the Director General, India Stores
Department, London, or the India Supply Mission, Washington in terms of
Rule 7 of Appendix 8 of the General Financial Rules (Revised and
Enlarged),. 1963).
(iii) Food grains, fertilizers, etc. purchased through other agencies.
3.7.23 The duty of auditing the contracts and the payments in respect of (i) above
devolves on the Audit Officers in India. In exceptional cases where direct payments by
the High Commissioner for India in the United Kingdom or by the India Supply Mission,
Washington, as the case may be, are authorised for such purchase of stores, the necessary
authority for payment is sent to the overseas paying authorities along with a copy of the
contract. The bills are prepared in duplicate and the overseas paying authorities will
retain the original vouchers, with reference to which the Principal Director of Audit,
India Audit office, London, or the Director of Audit, Indian Accounts, Washington, as the
case may be, should audit the payments. The Remittance Account or the accounts of the
India Supply Mission or those sent to the separated Accounts Offices should be

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accompanied by the duplicate copies of the vouchers to enable the Audit Officer in India
to undertake the necessary final audit of the payments in all respects.
Note: In all cases of contracts entered into by the ministries of the Government of India directly with
suppliers in the United Kingdom and United States of America, the ministries are required to
furnish copies of all such contracts to the Audit Officers concerned in India by the 20th of the
month following that in which the contract is signed. The Principal Director of Audit, Indian
Accounts in the UK, London, or the Director of Audit, Indian Accounts, Washington, should
report to the Audit officers in India any special features coming to his notice during scrutiny of
in any of these cases and, whenever possible, the prices at which similar articles were purchased
or could be purchased by the Director General, India Stores Department, London, or the
Director, India Supply Mission, Washington, as the case may be.

3.7.24 In respect of stores purchases falling under categories (i) and (ii), the Audit officer
of the consignee in India should audit the expenditure against the sanctions issued by the
competent authorities in India and should also exercise the checks prescribed in the
Chapter (II.4) on the audit of accounts of stores and stock, in relation to the audit of
subsidiary accounts of commercial undertakings, as well as of the departments/offices.
3.7.25 As regards (iii) above, the Principal Director of Audit, Indian Accounts in the UK,
London, and the Director of Audit, Indian Accounts, Washington, are responsible for the
audit of tenders, contracts and payments when the purchases are made through the High
Commissioner for India in London and the India Supply Mission, Washington,
respectively and the related contracts are entered into in those countries. If the contracts
are entered into by Central ministries or the State Governments in India and the payments
in the United Kingdom or the United States of America are authorised by the Accounts
Officer concerned in India, the Principal Director of Audit, Indian Accounts, London, or
the Director of Audit, Indian Accounts, Washington, as the case may be, will audit such
payments only with reference to the authorisation. The Audit Officer in India will then be
responsible for the audit of sanctions, tenders and contracts. If the contracts are entered
into in India and the related payments are also made in the, the Audit Officer in India will
be responsible for the audit of the sanctions, tenders, contracts, etc, as well as the
connected payments.
B. Freight Charges
3.7.26 The responsibility for auditing freight charges on purchases from abroad will be
as follows:
(i) In all cases where the High Commissioner for India in London makes the
payments on this account, the Principal Director of Audit, Indian
Accounts, London, is responsible for detailed audit of the payments.
(ii) In cases where the High Commissioner for India in London arranges
shipment of the stores and payments are made by his Chief Accounting
Officer, the Principal Director of Audit in London is responsible for
checking the classification of stores, the correctness of the freight and its
reasonableness and all other preliminary requirements relating to the
payment of freight.
(iii) The checks prescribed at (ii) above are exercised by the Director of Audit,
Indian Accounts, Washington, in cases where shipments are arranged by

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 the India Supply Mission, Washington, and the payments are made on the
basis of the authority of the Mission’s freight forwarders by the Chief
Accounting Officer to the High Commissioner for India in London.
(iv) In cases where the shipments are arranged by other Missions abroad and
the relevant documents leading to the determination of freight rates are in
India, the Audit Officer in India is responsible for the checks specified at
(ii) above; he will also maintain a close liaison with the Audit Officer
concerned abroad.
(v) The consignees' Audit Officers are responsible for verifying that the
freight payments have been correctly linked in the connected records with
the cost of stores.
C. Other Payments to Suppliers Abroad
3.7.27 In all other cases of purchases of stores from abroad not specifically mentioned in
paragraphs 3.7.22 to 3.7.25 supra, payments are generally arranged through the
respective Indian Missions abroad. The Audit Officer of the purchasing department in
India is responsible for the audit of the contracts with reference to the related records as
well of the debits in respect of payments even in cases where the payments are covered
by other arrangements.
3.7.28 The instructions in paragraphs 3.7.22 to 3.7.25 are applicable mutatis mutandis to
the transactions of Defence, Railways and Posts and Telecommunications. The Pay and
Accounts Officers of departments the accounts of which have been separated from audit
have also generally adopted these instructions. In these cases, the audit of sanctions,
contracts entered into in India, etc. will devolve on the statutory Audit Officer.

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