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PR. 289

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OµÀzsÀ ¤AiÀÄAvÀæPÀgÀÄ.

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PR. 290

SC. 25

OµÀzsÀ ¤AiÀÄAvÀæPÀgÀÄ.

DEPARTMENT OF COMMERICAL TAXES

PROCEEDINGS OF THE COMMISSIONER OF COMMERCIAL TAXES,

(KARNATAKA), BENGALURU-CLARIFICATION UNDER SECTION 59(4) OF THE KARNATAKA

VALUE ADDED TAX ACT 2003,

No: CLR/CR-132/14-15, Bengaluru

Present :

RITVIK PANDEY, I.A.S.

Commissioner of Commercial Taxes.

(Karnataka) Bengaluru.

Sub:

KVAT Act, 2003-Clarification under Section 59(4)of the Karnataka Value Added Tax Act,

2003 regarding “certain Goods”-.

Ref:

Application filed on 24-12-2014 by M/s. Bharat Electronics Limited, Jalahalli Post,

Bengaluru-560013, (TIN: 29290058392)

In the application cited above, M/s. Bharat Electronics Limited, Jalahalli Post, Bengaluru - 560013(TIN: 29290058392) has

sought clarification regarding the rate of tax applicable on "certain Goods" enclosing tax invoices relating to the goods for which

clarification is sought for. Further, the applicant filed a letter on 10.2.2015 seeking opportunity of being heard before the clarification is

issued. In the interest of natural justice, the applicant was given an opportunity of hearing and was asked to be present on 5.8.2015.

Sri. Ramakrishna H.A. Senior Deputy Manager of the Company and the authorized person appeared on the day and he was heard. At

the time of hearing, the applicant pleaded for clarification with regard to applicability of rate of tax on 'Missile'. The applicant seeks rate

of tax on 'Missile' by treating it as 'Flying Machine'. He has also sought clarification with regard to rate of tax on sales made to

Aeronautical Development Agency.

2. Section 59(4) of the Kamataka Value Added Tax Act, 2003 empowers the Commissioner of Commercial Taxes to clarify the

rate of tax payable under the Act, if he considers it necessary or expedient so to do, for the purpose of maintaining uniformity in the work

¨sÁUÀ 3

PÀ£ÁðlPÀ gÁdå¥ÀvÀæ, UÀÄgÀĪÁgÀ, ªÉÄà 5, 2016

1679

of assessments and collection of revenue. It is examined and found that, the clarification requested by the applicant is within the scope

of the aforesaid provision and it is necessary that, the clarification be issued for the purpose of maintaining uniformity in the work of

assessments and collection of revenue.

3. The matter is examined and it is noticed that the applicant has sought clarification on rate of tax on (a) MISSILE SYSTEMS

(b) ELECTRONIC WARFARE & AVIONICS SYSTEMS by furnishing the HSN Codes of the goods sold as parts of these systems for

which clarification was sought for. The details are as follows;

Sl.No.

Category of Goods

Goods Sold

HSN Code

1

Missile Systems

a. Pvdm-2-64 Ch Pkt Vo/ Fax Dsp

84433990

b. Voip phones

85171190

c. Head Sets

85177090

d. Transporter cum loader vehicle

87059000

e. Missile Checkout Facility

93069000

f.

Flight Equipment Maintenance Vehicle

87059000

g. Flight Control Centre

85176100

h. Bearings, valves, etc.

73182100

i.

Akash Missile

93069000

j.

Flight Level Radar

85261000

k. Akash Air Force Launcher

93012000

2.

Electronic Warfare & Avionics

Systems

Pylon Interface Box

88024000

The applicant seks clarification in the background of the Notification No. FD 228 CSL 2013(1) & (II) Dated 14.11.2013 and pleads that

their customers include Indian Air Force and Aeronautical Development Agency and they are expecting to charge tax at 2% or exempt

sales for both local sales as well as interstate sales as these customers are relying on the notification which is issued in respect of

manufacturers of aircraft. The applicant has enclosed copy of the Aircraft Act, 1934, Notification and the tax invoices to the letter

seeking clarification. The applicant is also of the opinion that, the said notification is applicable to the manufacturers of aeroplanes,

helicopters and other types of flying machines and if sale of aeroplanes, helicopter and other types of flying machines or parts thereof is

made to defence, rate of tax at 2% is applicable. He further states that, BEL does not manufacture aircrafts and the missiles cannot be

considered as aircraft and rate of tax at 2% is not applicable. With regard to Electronic Warfare & Avionics Systems, the applicant files

his remarks with regard to applicability of the notification and states that, exemption as per the notification is applicable to aeroplanes,

helicopters and other types of flying machines and if such sale of prototype is made to defence as a result of design and development

activity. The applicant states that they are neither manufacturers of parts of aircraft nor the aircraft by itself and also the sale is not of

prototype but of an established product and hence exemption is not applicable

4. Perusal of the invoices, write up, annual report of the applicant company for the year 2014-15 and the goods dealt in by the

applicant shows that, clarification sought by the applicant is with regard to 'MISSILE SYSTEMS' and ELECTRONIC WARFARE &

AVIONIC SYSTEMS. The applicant sells the goods as mentioned in para 3 above with the HSN code and seeks clarification.

Notification No. FD 228 CSL 2013(1) dated 14.11.2013 exempts goods mentioned in the notification when they are sold by a dealer who

is a manufacturer of aeroplanes, helicopter and other types of flying machines on his sales to Armed Forces and other agencies

mentioned therein. Notification No. FD 228 CSL 2013(II) dated 14.11.2013 reduces rate of tax to two percent in respect of manufacture

and sale of aeroplanes, helicopters and other flying machines. The applicant is not a manufacturer of aeroplanes, helicopter and other

types of flying machines. Annual report for the year 2014-15 in Annexure 3 at page 30 in FORM NO. MGT - 9 declares the principal

business activities of the company as follow:

II. PRINCIPAL BUSINESS ACTIVITIES OF THE COMPANY:

All the business activities contributing 10% or more of the total turnover of the company shall be stated:

SL.

No.

Name and Description of Main products/services

NIC Code of the Product/service

% to total turnover of the

Company

1

Weapon Systems

2927

(Supplies to the Defence

for 2014-15 contributed to

87% of Turnover)

2

Radar and Fire Control Systems

3312

3

Electro Optics

3311

4

Communication

3210

1680

PÀ£ÁðlPÀ gÁdå¥ÀvÀæ, UÀÄgÀĪÁgÀ, ªÉÄà 5, 2016

¨sÁUÀ 3

5. The above declaration in the annual report clearly points to the fact that, the applicant is in the business of weapon systems,

radar and fire control systems, electro optics and communication and not in the business of manufacture and sale of aeroplanes,

helicopters and flying machines. Thus, the goods mentioned in para 3 for which clarification is sought for is related to (a) MISSILE

SYSTEMS (b) ELECTRONIC WARFARE & AVIONICS SYSTEMS which is nothing but weapon system. Notifications referred by the

applicant relates to a dealer who is into manufacture and sale of aeroplanes, helicopters and other flying machines and parts.

6. Reference to the Aircraft Act, 1934 is also examined and noticed that, this Act is enacted to make better provision for the

control of the manufacture, possession, use, operation, sale, import and export of aircraft. Thus, the definition of an 'aircraft' as defined

in the said enactment cannot be extended to 'missile' systems manufactured by the applicant. The Notification reducing the rate of tax to

two percent to a manufacturer of aeroplanes, helicopters, and other types of flying machines cannot be equated to a manufacturer of

'missile systems'. Also the Notification which exempts sales by a dealer who is a manufacturer of aeroplanes, helicopters and other

types of flying machines is not applicable to a dealer who is a manufacturer of 'missile systems'.

7. As the applicant is not engaged in manufacture and sale of 'flying machine' but manufacture and sale (a) MISSILE

SYSTEMS (b) ELECTRONIC WARFARE & AVIONICS SYSTEMS, these notifications are not applicable to the goods manufactured

and sold by the applicant. Goods mentioned in para 3 being part of the (a) MISSILE SYSTEMS (b) ELECTRONIC WARFARE &

AVIONICS SYSTEMS are liable to tax at the same rates if they are sold independently without being part of the system. For example,

the applicant is seeking clarification as to Voip Phones falling under HSN Code 85171190, Head Sets falling under HSN Code

85177090 and Flight Control Centre falling under HSN Code 85176100 which are notified for reduced rate of tax at 5.5% as per Sl No. 1

of Notification No. FD 116 2006(17) dated 29.4.2006. If the applicant sells them as part of 'MISSILE SYSTEMS', then these goods

are liable to tax at 14.5% and if the same goods are sold independently as 'headsets' classified under HSN Code 8517, then they are

taxable at 5.5 from 1.8.2012 onwards. The applicant has also sought clarification with regard to, rate of tax on 'AKASH MISSILE

SYSTEM' which is not notified for any reduced rate of tax. As per invoice No.102496 dated 30.9.2014 'AKASH MISSILE' is classified

under HSN Code 93069000. Description of goods mentioned in Tariff Item 9306 is as follow:

Tariff Item

Description of Goods

9306

Bombs, grenades, torpedoes, mines missiles, and similar munitions

0 war an parts thereof; cartridges and other ammunition and

projectiles and parts thereof, including shot and cartridge wads

The applicant has classified Akash Missile under HSN Code 93069000 which refers to 'other' which is the sub-heading of 9306 which is

not notified for any reduced rate of tax. Therefore, Akash Missile System attracts tax @ 14.5 % as per Section 4(1) (b) (iii) of the KVAT

Act, 2003 w.e.f. 01-08-2012. Likewise Pvdm-2-64 Ch Pkt Vol Fax Dsp, Transporter cum loader vehicle, Missile Checkout Facility, Flight

Equipment Maintenance Vehicle, Bearings, valves, etc. Flight Level Radar, Akash Air Force Launcher and Pylon Interface Box are not

notified for reduced rate of tax and if they are sold independently or as parts of (a) MISSILE SYSTEMS (b) ELECTRONIC WARFARE &

AVIONICS SYSTEMS, they are also taxable at 14.5% as per Section 4(1) (b) (iii) of the KVAT Act, 2003 w.e.f. 01-08-2012. If all the

parts of (a) MISSILE SYSTEMS (b) ELECTRONIC WARFARE & AVIONICS SYSTEMS for which clarification is sought for is sold as

one unit, they are taxable as Missile Systems and Electronic warfare & Avionic Systems at 14.5% as per Section 4(1) (b) (iii) of the

KVAT Act, 2003 w.e.f. 01-08-2012.

8. The applicant has also sought clarification as to rate of tax applicable to the goods sold to Aeronautical Development

Agency. As already discussed, the applicant not being a manufacturer of aeroplanes, helicopter and other types of flying machines and

parts, goods sold to this agency by the applicant are taxable at the rates applicable to such goods as per the provisions of the

Karnataka Value Added Tax Act, 2003 and the notifications referred by the applicant are not applicable.

9. Hence, the following clarification is issued.

CLARIFICATION NO.CLR.CR.132/2014-15. DATED: 17-02-2016.

It is clarified that, goods mentioned in Column ‘B’ of the following table for which clarification is sought are taxable at the rates

mentioned in column ‘C’ of the table.

SL

No.

Description of Goods

Rate of Tax w.e.f. 1.8.2012

A

B

C

1

Pvdm-2-64 Ch Pkt Vo/Fax Dsp

14.5%

2

Voip phones

5.5%

3

Head Sets

5.5%

4

Transporter cum loader vehicle

14.5%

5

Missile Checkout Facility

14.5%

6

Flight Equipment Maintenance Vehicle

14.5%

¨sÁUÀ 3

PÀ£ÁðlPÀ gÁdå¥ÀvÀæ, UÀÄgÀĪÁgÀ, ªÉÄà 5, 2016

1681

SL

No.

Description of Goods

Rate of Tax w.e.f. 1.8.2012

7

Flight Control Centre

5.5%

8

Bearings, valves, etc.

14.5%

9

Akash Missile

14.5%

10

Flight Level Radar

14.5%

11

Akash Air Force Launcher

14.5%

12

Pylon Interface Box

14.5%

13

Missile Systems

14.5%

14

Electronic Warfare & Avionics Systems

14.5%

PR. 291

SC. 25

RITVIK PANDEY

Commissioner of Commercial Taxes,

Bengaluru.

£ÀUÀgÀ¸À¨sÁ PÁAiÀiÁð®AiÀÄ »jAiÀÄÆgÀÄ

PÀbÉÃj «¼Á¸À: UÁA¢ü ¸ÀPÀð¯ï, ªÀÄÄRågÀ¸ÉÛ, £ÀUÀgÀ ¥Éưøï oÁuÉ JzÀÄgÀÄ, »jAiÀÄÆgÀÄ, avÀæzÀÄUÀð f¯Éè, PÀ£ÁðlPÀ

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£ÀA: »D±Á/¹Dgï:0121/2015-16 ¢£ÁAPÀ:28-03-2016

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w½AiÀÄ¥Àr¸ÀÄ ªÀÅzÉãÉAzÀgÉ

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¥ÀgÀªÁ¤UÉ, eÁ»ÃgÁvÀÄ ¦üÃUÀ¼À zÀgÀUÀ¼À£ÀÄß ¥ÀjµÀÌgÀuÉ ªÀiÁrgÀĪÀAvÉ ¢: 10.03.2016 gÀAzÀÄ PÀbÉÃjAiÀÄ°è ºÁUÀÆ PÀ£ÀßqÀ ¢£À ¥ÀwæPÉUÀ¼À°è

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zÀgÀUÀ¼À£ÀÄß ¥ÀjµÀÌj¹ CAwªÀÄUÉÆ½¹ ¢: 01.04.2016 jAzÀ eÁjUÉ §gÀĪÀAvÉ ¤ÃqÀ¯ÁVgÀÄvÀÛzÉ.

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mÉæÃqï ºÉ¸ÀgÀÄ

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mÉæÃqï ºÉ¸ÀgÀÄ

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1

EAf¤AiÀÄjAUï PÀ£ïì¯ÉÊAmïì (¥Áè¤AUï

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3000

15

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1500

2

gÉrªÉÄÃqï §mÉÖ CAUÀr

1000

16

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1500

3

¦æAnAUï ¥Éæ¸ï

2000

17

ºÁ°£À qÉÊj

1000

4

EnÖUÉ, ¹ªÉÄAmï EnÖUÉ vÀAiÀiÁjPÉ WÀlPÀ

3000

18

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2000

5

PÀgÀ¥ÀÆgÀ /ªÉÄÃtzÀ §wÛ

2000

19

J¸ï.n.r/L.J¸ï.r

1000

6

4 ZÀPÀæ ªÁºÀ£ÀUÀ¼À ªÀiÁgÁl PÉÃAzÀæ

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1000

20

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2000

7

4 ZÀPÀæ ªÁºÀ£ÀUÀ¼À ªÀiÁgÁl PÉÃAzÀæ

(¸ÉÀPÉÀAqï ºÁåAqï)

2000

21

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2000

8

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1000

22

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D¦üøï

1000

9

¥ÀmÁQ ªÀiÁgÁlzÀ CAUÀrUÀ¼ÀÄ

2000

23

§¼ÉUÀ¼À CAUÀr

1000

10

ªÉ°ØAUï ±Á¥ï

2000

24

ªÉÄrPÀ¯ï ªÀÄvÀÄÛ d£ÀgÀ¯ï ¸ÉÆÖøïð

2000

11

a®ègÉ CAUÀr

1000

25

JPÀìgÉÃ, D®Öç ¸ËAqï, ¹n ¸ÁÌöå¤AUï

¸ÉAlgï

2000

12

©ÃgÀÄ (PÀ©âtzÀ UÁqÉæÃeï)

2000

26

Qè¤PÀ¯ï ¯Áå¨ÉÆÃgÉÃljUÀ¼ÀÄ

1000

13

DmÉÆÃ UÁågÉÃeï

1000

28

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1000

14

qÁ¨Á

2000

29

r.n.ºÉZï ¸À«Ãð¸ï ¸ÉAlgï

1000

1682

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mÉæÃqï ºÉ¸ÀgÀÄ

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mÉæÃqï ºÉ¸ÀgÀÄ

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30

gÉÃrAiÉÆÃ, n.«. j¥ÉÃj CAUÀr

1000

67

ºÁ¥Á̪Àiïì

1000

31

¯Áj, §¸ï, mÁæPÀÖgï ¨Ár j¥ÉÃj ªÀÄvÀÄÛ

ºÉƸÀzÁV ªÀiÁqÀĪÀÅzÀÄ

2000

68

FgÀÄ½î ªÀÄAr

1000

32

«Ää£À CAUÀrUÀ¼ÀÄ

2000

69

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2000

33

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1000

70

UÀæAyUÉ CAUÀrUÀ¼ÀÄ

1000

34

dÆå¸ï ¸ÉAlgï

1000

71

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1000

35

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2000

72

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2000

36

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2000

73

PÁArªÉÄAmïì

1500

37

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2000

74

ºÀtÂÚ£À ªÀÄArUÀ¼ÀÄ

1000

38

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75

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39

PÀĮĪÉÄ

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76

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1000

40

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1000

77

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2000

41

eÉÆÃwµÀå

1000

78

¥ÉÆÃmÉÆÃ ¥ÉæÃªÀiï ªÀPïìð

1000

42

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1000

79

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1000

43

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1000

80

mÉʯïì ªÀiÁgÁl

2000

44

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1000

81

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1000

45

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1000

82

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500

46

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1000

83

lƸïð CAqï mÁæªÉ¯ïì

1000

47

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1000

84

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2000

48

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85

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49

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86

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50

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2000

87

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E£ÀÆìgÉ£ïì

2000

51

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88

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52

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89

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53

DmÉÆÃªÉÆ¨Éʯïì

2000

90

±Á«UÉ

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54

mÉÊgï CAUÀr

2000

91

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2000

55

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1000

92

gÉʸï«Äïï

4000

56

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2000

93

D¬Ä¯ï «Äïï

4000

57

PÉÆjAiÀĸïð

500

94

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58

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95

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59

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96

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2000

60

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1000

97

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1000

61

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3000

98

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2000

62

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1000

99

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500

63

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1000

100

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1000

64

J¯ÉPÁÖç¤Pï ªÀÄvÀÄÛ J¯ÉQÖçPÀ¯ï ªÀPïìð

(j¥ÉÃj)

1000

101

EAf¤AiÀÄjAUï ªÀPïìð (¯ÉÃwäµÀ£ï)

2000

65

UÀÄdj CAUÀrUÀ¼ÀÄ

1500

102

PÀƯï ræAPïì ¸ÉAlgï

1000

66

mÉÊ®jAUï ªÉÄªÉÆÃjAiÀįï CAUÀr

1000

103

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1000

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PÀ£ÁðlPÀ gÁdå¥ÀvÀæ, UÀÄgÀĪÁgÀ, ªÉÄà 5, 2016

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mÉæÃqï ºÉ¸ÀgÀÄ

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104

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500

139

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1000

105

mÁæ£ÉÆà÷ìÃl¸ïð

1000

140

nà ¸ÁÖ¯ïUÀ¼ÀÄ

500

106

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1000

141

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1000

107

vÀÆPÀ ªÀÄvÀÄÛ C¼ÀvÉ ¸ÁzsÀ£ÀUÀ¼ÀÄ

1000

142

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108

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1000

143

mÁæPÀÖgï/EvÀgÉ 4 ZÀPÀæ ªÁºÀ£ÀUÀ¼À ªÀiÁgÁl

PÉÃAzÀæ (±ÉÆ gÀÆA)

5000

109

UÁå¸ï ºË¸ï

1000

144

r.n.¦. ¸ÉAlgï/¨ÉgÀ¼ÀZÀÄÑ PÉÃAzÀæ

1000

110

aPÀÌ£ï/ ªÀÄl£ï CAUÀrUÀ¼ÀÄ

2000

145

eÉgÁPïì

500

111

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1000

146

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1000

112

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2000

147

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1000

113

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2000

148

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3000

114

gÉõÉä £ÀÆ®Ä vÉUÉAiÀÄĪÀÅzÀÄ

1000

149

¥Á£ï ©ÃqÀ CAUÀrUÀ¼ÀÄ

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115

mÉÊ®jAUï ±Á¥ï

1000

150

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1000

116

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1000

151

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1000

117

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2000

152

UÉÆ§âgÀzÀ CAUÀrUÀ¼ÀÄ

2000

118

UÁå¸ï CAUÀrUÀ¼ÀÄ

5000

153

§Æån ¥Á®ðgï

1000

119

n¥sÀ£ï ¸ÉAlgïUÀ¼ÀÄ

1000

154

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2000

120

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2000

155

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1000

121

ºÉÆÃmÉ¯ï ¸À¸ÀåºÁj

3000

156

a£Àß ¨É½î PÉ®¸À/G¢ÝªÉÄ

1500

122

PÉç¯ïUÀ¼ÀÄ

8000

157

¯ÉêÁzÉë/ºÀtPÁ¸ÀÄ ¸ÀA¸ÉÜUÀ¼ÀÄ

2000

123

«Ä¤ avÀæªÀÄA¢gÀUÀ¼ÀÄ

2500

158

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3000

124

ZÀ®£ÀavÀæ ªÀÄA¢gÀUÀ¼ÀÄ

4000

159

¥ÉmÉÆæÃ¯ï §APï

3000

125

PÀ¯Áåt ªÀÄAl¥ÀUÀ¼ÀÄ

8000

160

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2500

126

ºÀtÂÚ£À CAUÀrUÀ¼ÀÄ

1000

161

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4000

127

«¼ÉzÉ¯É CrPÉ/vÉAV£ÀPÁ¬Ä CAUÀrUÀ¼ÀÄ

1000

162

Qè¤PïUÀ¼ÀÄ

1000

128

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1000

163

£À¹ðAUï ºÉÆÃAUÀ¼ÀÄ

2000

129

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2000

164

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4000

130

vÀgÀPÁj CAUÀrUÀ¼ÀÄ

1000

165

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2000

131

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2000

166

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2000

132

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1000

167

mÉÊ®jAUï vÀgÀ¨ÉÃw PÉÃAzÀæ

2000

133

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3000

168

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4000

134

J¯ÉPÁÖç¤Pïì CAUÀrUÀ¼ÀÄ

2000

169

PÁAiÀÄgï ¥ÁæqÀPïì

2000

135

J¯ÉQÖçPÀ¯ï CAUÀrUÀ¼ÀÄ

2000

170

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2000

136

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1000

171

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100

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1000

172

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1000

138

dªÀ½ CAUÀr

3000

173

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(ºÉZï. ¦. MAzÀPÉÌ)

500

P.D.40

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£ÀA 43 ¦æªÀiï gÉÆÃ¸ï gÀ¸ÉÛ, ¨ÉAUÀ¼ÀÆgÀÄ

wzÀÄÝ¥Àr

C¢ü¸ÀÆZÀ£É ¸ÀASÉå: PÀgÁG¤/CqÀ½vÀ-1/ 2423/2015-2016 ¢£ÁAPÀ: 11-08-2015

«µÀAiÀÄ :

PÀ£ÁðlPÀ ¸ÁªÀðd¤PÀ GzÉÆåÃUÀ (ºÉÊzÀgÁ¨Ázï-PÀ£ÁðlPÀ ¥ÀæzÉñÀPÉÌ £ÉêÀÄPÁwAiÀÄ°è «Ä¸À¯Áw) DzÉñÀ,

2013gÀrAiÀİè PÀ£ÁðlPÀ gÁdå GUÁæt ¤UÀªÀÄzÀ 6 f¯ÉèUÀ¼À°è §gÀĪÀ QjAiÀÄ UÀĪÀiÁ¸ÀÛgÀ ªÀÈAzÀzÀ°è£À

ºÉÊzÀgÁ¨Ázï–PÀ£ÁðlPÀ ¥ÀæzÉñÀzÀªÀjUÁV ºÀÄzÉÝUÀ¼À£ÀÄß UÀÄgÀÄw¹ wzÀÄÝ¥Àr ªÀiÁrgÀĪÀ PÀÄjvÀÄ.

G¯ÉèÃR :

1) C¢ü¸ÀÆZÀ£É ¸ÀASÉå: PÀgÁG¤/DqÀ½vÀ-1/1515/2014-15, ¢£ÁAPÀ: 12-06-2014.

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SC. 50

PÀ£ÁðlPÀ gÁdå¥Á®gÀ DzÉñÀ£ÀĸÁgÀ ªÀÄvÀÄÛ CªÀgÀ ºÉ¸Àj£À°è,

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HOME SECRETARIAT

NOTIFICATION

No:HD:31:POP:2016, Bengaluru Dated: 17-03-2016.

In exercise of the powers conferred by clause (s) of section 2 of the Code of Criminal Procedure, 1973 (Central Act

2 of 1974), and in partial modification of earlier notification issued in this behalf, the Government of Karnataka, hereby

declare that with effect from the date of publication of this notification in the Official Gazette, the areas and places specified

in column (3) of the schedule below, shall cease to be within the jurisdiction of the police station specified in column (4)

thereof and the said areas and places shall be included in the police station specified in column (2) thereof, in respect of

offences pertaining to women and children specified below:-

SCHEDULE

Name of the

Unit/Sub-

Division/Police

Cricle

Name of the Police Station in

which the areas and places

specified in column (3) shall be

included

Name of the areas and

places

Name of Police Station

from whose jurisdiction

the areas and places

mentioned in column No.

(3) Shall be excluded

(1)

(2)

(3)

(4)

Bidar District,

Bhalki Sub

Division, Bhalki

Rural Circle

Women Police Station, Bidar

(1) Tajalapur

(2) Marjapur (Taj)

(3) Waldaddi

(4) Talghat

(5) Agrahar

(6) Meeragunj

(7) Mamankeri

(8) Ola Koti

Bidar Town Police Station

(9) Aliyabad

(10) Nizampr

(11) Kolar (K)

(12) Kolar (B)

(13) Hajjargi

New Town Police Station

(14) Shahapur Village

Market Police Station

(15) Gunalli

(16) Gornalli

(17) Chitta

(18) Amalapur

(19) Chitta Wadi

Gandhi Gunj Police Station

¨sÁUÀ 3

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(1)

(2)

(3)

(4)

(20) Chikpet

(21) Hamilapur

(22) Gadagi

(23) Solpur

(24) Gumma

(25) Rasoolabad

(26) Ashtoor

(27) Kamthana

(28) Sikindrapur

(29) Bakchowdi

(30) Bellura

(31) Zmisthanpur

(32) Imamabad

(33) Malkapur

(34) Sultanpur

(35) Kuttabad

(36) Mirzapur (T)

(37) Ayaspur

(38) Yadalapur

(39) Ghodampalli

Bidar Rural Police Station

Entire Jurisdiction of Bidar

Town Muncipal Limits

The Women Police Station specified in column (2) shall be responsible for investigation of the offences under,-

1)

The Children Act, 1960 ·(Central No.60 of 1960)

2)

The Immoral Traffice (Prevention) Act, 1986

3)

The Juvenile Justice (Care and Protection of Children) Act, 2000

4)

The Dowry Prohibition Act 1961

5)

The Protection of Children from Sexual Offences Act. 2012

6)

The Indecent Representation of Women (Prohibition) Act, 1986

7)

The Commission of Sati (Prevention) Act, 1987

8)

The Prohibition of Child Marriage Act, 2006 and Offences under sections 302,304 (B), 307,

312 to 318, 326 (A), 341 to 348, 354, 357, 358, 363 to 373, 376 to 376 (D), 493 to 498 (A)

and 509 of the Indian Penal Code 1860 which are committed against women or as the

case may be, children and any other cases of atrocities on women including attacks and

assaults.

9)

The Protection of Women from domestic violence Act, 2005. (Act, No. 43 of 2005)

10)

The Karnataka Devadasis (prohibition of dedication) Act, 1982 (Karnataka Act 1 of 1984).

PR-335

SC. 100

by Order and in the name of the Governor of Karnataka

B.N.Devaraj

Under Secretary to Government (I/C)

Home Department

(Police Expenditure)

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IIND ADDL.CHIEF METRO POLITAN MAGISTRATE BENGALURU CITY.

LIST OF THE SEIZED VEHICLE ARE LAYING IN BASAVANGUDI POLICE STATION BENGALURU CITY WHICH HAVE SEIZED UNDER NCR NUMBER.

Sl. NO

CR No Or LPT No

P.F. No

Reg. No

Vehicle Type

Chassis No

Engine No

01

LPT No. 3/15

3/15

KA-05-EM-1455

TVS VICTOR

1302F472580

N6302M527337

02

LPT No 4/15

4/15

KA-03-HG-7703

HONDA DIO

ME4J11DA8023557

JF11E4023561

03

LPT No 5/15

5/15

KA-04-EZ-9725

HONDA DIO

ME4JF114898042696

JF11E6120666

04

LPT No 7/15

7/15

KA-03-EP-7113

BAJAJ PULSAR

DHVBLF61882

DHGBLF60649

05

LPT No 8/15

8/15

KA-05-HL-5812

YAMAHA R 15

ME11CK901AB2005089

1CK1005084

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1699

Sl. NO

CR No Or LPT No

P.F. No

Reg. No

Vehicle Type

Chassis No

Engine No

06

LPT No 9/15

9/15

KA-05-EK-7467

YAMAHA

02H4TL535563

4TL535563

07

LPT No 10/15

10/15

AP-03-K-5932

BAJAJ CALIBER

DDFBKA01966

DDMBKA0415

08

LPT No 11/15

11/15

KA-53-J-7768 ORGINAL NO UP-16-Q-8942

HONDA DIO

ME4JF112H78049049

JF11E6056413

09

LPT No 12/15

12/15

KA-02-EL-1715

TVS VICTOR GL

MD625AF1041A45158

0F1A41124576

10

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13/15

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µÉqÀÆå¯ï ¸ÀévÀÄÛ :- ¹ÜgÁ¹Û :

All that pice and parcel of the property No.51/1, Opposite to Sri, Mariswamy Mutt Road, situated at MTB Road, Bengaluru-02, bearing property No. 47-78-51/1 of BTM Road in ward No.47

Bengaluru-02, Measuring East to West : 13 Feet and North to South : 47.5 feet in all Measuring 634 Sq.Ft and consisting of Ground floor Shop building along with RCC roofed building, cement flooring with

all civic amenities and totally Six and a half Square and bounded on the

East by

---------- Remaining property sold to Smt.Nitya and Harish,

West by

----------

Property belongs to Siddaramaiah,

North by ----------

Property belongs to Shemega Begaum and

South by ----------

Mariswamy Mutt

STOCK IN TRADE

The item No.2 at the shop/Business premises of Respondent No.1 property No. 51/1, Opposite to Sri. Mariswamy Mutt Road, situated at MTB Road, Bengaluru-02, bearing property

No. 47-78-51/1 of BTM Road in ward No.47 Bengaluru.

F wÃ¥ÀÄð ¥ÀƪÀð d¦Û DzÉñÀªÀ£ÀÄß F ¢£À, ¢£ÁAPÀ: 26-02-2016 gÀAzÀÄ £À£Àß ¸À» ºÁUÀÆ ªÀÄÄzÉæAiÉÆA¢UÉ ºÉÆgÀr¸À¯ÁVzÉ.

PR-278

SC-5

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J£ï. ®PÀëöät

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DyðPÀ E¯ÁSÉ (DqÀ½vÀ & ªÀÄÄAUÀqÀ)

Karnataka Municipal Accounts Audit Manual

Table of Contents

Chapter 1 Introduction

1 .1

Initiation of reforms in Urban Local Bodies

1 .2

Framing of National Municipal Accounting Manual (NMAM) and Karnataka Municipal Accounting Manual (KMAM)

1 .3

Existing statutory provisions relating to audit of accounts of Municipalities

1 .4

Need for a new Audit Manual

1 .5

Scope of audit

1 .6

Audit sequence

1 .7

Adoption of KMABR, 2006 to Municipal Corporations (except BBMP)

SECTION-A STATUTORY AUDIT

Chapter 2 Important Legal Provisions relating to Accounting in Municipalities

2 .1

Important provisions of the Karnataka Municipalities Act, 1964

2 .2

Important rules relating to finance, accounting and audit made under the provisions of the Act.

2 .3

Important bye laws

Chapter 3 Statutory Audit and Audit Principles

3 .1

Audit objectives

3 .2

Scope of auditor

3 .3

Kinds of audit

3 .4

Audit against provision of funds

3 .5

Audit of regularity

3 .6

Audit against sanctions

3 .7

Propriety audit

3 .8

Performance or Value for Money (VFM) audit

3 .9

Systems audit

3 .1 0

Computer Aided Audit /Information Technology Audit

3 .1 1

Application of the above audit principles in the audit of ULB accounts by the Statutory Audit Authority, i.e. State Accounts

Department

3 .1 2

Audit of revenues

3 .1 3

Audit of financial statements of ULBs

3 .1 4

Scope of physical verification in Statutory Audit

3 .1 5

Audit alertness

3 .1 6

Audit report

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Chapter 4 Budget

4 .1

Preparation and presentation of budget

4 .2

Compliance to preliminary procedure

4 .3

Budgetary control

4 .4

Budget variance

Chapter 5 Audit of ULB Income

5 .1

Incomes of ULBs

5 .2

Audit of any new tax levied by the ULBs

5 .3

Audit of property tax account.

5 .4

Service charge in lieu of property tax

5.5

Cess collected on behalf of the State Government

5.6

Check of collections

5.7

Check of stock account of receipt books

5.8

Check of accounting in collection register

5.9

Check of Chitta

5.10

Check of remittance of collections

5.11

Reconciliation of remittances made to bank accounts

5.12

Check of direct bank collections

5.13

Procedure of accounting property tax

5.14

Verification of the Demand Collection and Balance Register (Form KMF 24)

5.15

Advertisement tax

5.16

Provision for unrealized taxes

5.17

Water supply and sewerage charges

5.18

Rentals, fees and other incomes

5.19

Right of collection of revenues leased out

5.20

Items of income not susceptible to accrual

5.21

Revenue Collections through the staff of municipality

5.22

Audit of accounts relating to Development Charges collected from Layouts formed within the limits of the municipalities

5.23

Audit of accounts of Additional Stamp duty on transfer of immovable properties( Surcharge on stamp duty)

5.24

Quantum of check

Chapter 6 Audit of Revenue Expenditure Transactions

6.1

Expenditure of ULBs

6.2

Accounting of revenue expenditure

6.3

Audit of employee related claims

6.4

Verification of entries and its correctness in the service books

6.5

Quick check of regular salary bills

6.6

Traveling expenses of employees

6.7

Medical expenses of the municipal employees

6.8

Expenditure relating to Elected Council

6.9

Items of expenditure subject to limitations/restrictions

6.10

Procedure for procurement of stores and other consumables

6.11

Expenditure towards maintenance and repairs

6.12

Expenditure on repairs and maintenance of vehicles

6.13

Expenditure on hiring of vehicles

6.14

Expenditure on outsourced operations of the ULBs

6.15

Water supply related expenditure audit

6.16

Audit of claims relating to street-lighting maintenance

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6.17

Payment of electricity charges preferred by Escoms

6.18

Audit of claims relating to outsourcing of Solid Waste Management

6.19

Expenses in connection with rent of building/premises taken on hire/lease

6.20

Expenditure on rates or taxes

6.21

Expenditure on purchase of books and periodicals

6.22

Legal and other professional fees

6.23

Advertisement and publication

6.24

Expenditure on printing

6.25

Expenditure on supply of uniforms

6.26

Other office maintenance expenses

6.27

Payment of insurance premium

6.28

Expenditure in connection with various functions

6.29

Expenditure incurred in connection with fairs, festivals, Jathras and Urs

6.30

Expenditure on destruction of dogs, venomous snakes, catching and removal of monkeys, etc.

6.31

Checks to be exercised in respect of expenditure incurred

6.32

Expenditure towards grant-in-aid, contributions, donations, etc.

Chapter 7 Audit of Expenditure relating to Procurement, Stores and Fixed Assets

7 .1

This chapter deals with

7.2

Audit of procurement of stores

7.3

Audit of stores accounts

7.4

Disposal of stores

7.5

Audit of accounting of other movable fixed assets

7.6

Audit of accounting of land

7.7

Audit of public works accounts

Chapter 8 Audit of Investments and Other Current Assets

8 .1

Audit of investments account

8 .2

Audit of receivable accounts

8 .3

Audit of loans and advances accounts

Chapter 9 Audit of Liabilities Accounts

9 .1

Audit of grants accounts

9.2

Audit of borrowings

9.3

Delegated loan

9.4

Audit of earmarked funds

9.5

Trust and agency funds

9.6

Revolving fund

9.7

Audit of deposits

9.8

Liabilities towards payables

Chapter 10 Audit of Accounting Procedure and Books of Accounts

1 0 .1

Audit of accounting procedure

1 0 .2

Audit of receipts

1 0 .3

Audit of accounting of collections of municipal revenues

1 0 .4

Audit of books of accounts maintained

Chapter 11 Audit Procedure and Audit Report

1 1 .1

Audit preparedness

11.2

Audit procedure

11.3

Contents of the audit report

11.4

Selection of audit objections/observations for incorporation in the audit report

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11.5

Review of draft audit report

11.6

Special letters to CSAD

Chapter 12 Follow up action to be taken on the Audit Reports of Municipal Councils

1 2 .1

Action on the audit report by municipal councils

12.2

Action on the intimation or explanation furnished to audit report by the municipal councils

12.3

Surcharge and charge recommendations

12.4

Surcharge and charge proceedings by DMA

12.5

Decision of appellate authorities

Chapter 13 Incorporation of Result and Comments made in the Financial Statements Audit Report

1 3 .1

Incorporation of result and comments of Financial Statements Auditor in the report of the Statutory Auditor

1 3 .2

Incorporation of impact of Statutory Auditor's findings on the financial statements

1 3 .3

Comments on Annual Performance Report of the Municipality

Chapter 14 Constitution of Ad-hoc Audit Committee

1 4 .1

Need for Ad-hoc Committee

14.2

Constitution of Ad-hoc Committee:

14.3

Duties and Powers of the Ad-hoc Committee

14.4

Office of the Ad-hoc Committee

14.5

Meeting of the Ad-hoc Committee

14.6

Functions of the Member Secretary

14.7

Obligation of the MC/CO of the ULBs to attend the Ad-hoc Committee Meetings

14.8

Consideration of outstanding paras of Audit Reports of ULBs by the Committee

SECTION-B FINANCIAL STATEMENTS AUDIT

Chapter 15 General Principles governing Financial Statements Audit

1 5 .1

Introduction

15.2

Meaning of Financial Statements Audit

15.3

Scope of Financial statements audit

15.4

Manner of conducting the Financial Statements audit

15.5

Audit report

Chapter 16 Relevant Statutory Provisions

1 6 .1

Annual financial statements

16.2

Annual Performance Report (APR)

16.3

Publishing the financial statements

16.4

Time limits for various activities connected to annual financial statements

16.5

Audit of municipalities

16.6

Appointment of Financial Statements Auditor

16.7

Audit report

16.8

Powers of the Financial Statements Auditor

Chapter 17 Sources of Information

1 7 .1

Acquiring knowledge of municipal accounting system, policies and procedures

17.2

The Karnataka Municipalities Act, 1964 (KM Act, 1964)

17.3

The Karnataka Municipal Corporations Act, 1976 (KMC Act, 1976)

17.4

Bye-laws

17.5

Karnataka Municipalities Accounting and Budgeting Rules, 2006

17.6

Karnataka Municipal Accounting Manual (KMAM)

17.7

Karnataka Municipal Forms (KMF)

17.8

Karnataka Municipal Asset Management and Valuation Methodology Manual (KMAM & VM)

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Chapter 18 Salient Features of FBDEAAS

1 8 .1

Fund accounting

18.2

Double entry accounting

18.3

Accrual accounting

18.4

Vouchers and books of account

18.5

Chart of accounts

18.6

Functions

18.7

Maintenance of accounts in electronic form

Chapter 19 Audit of Fund Accounts

1 9 .1

Three sets of books of accounts

1 9 .2

Identification of funds

1 9 .3

Inter-Fund transactions

1 9 .4

Financial Statements Auditor's responsibility with regard to fund accounts

Chapter 20 Audit of Income related Transactions

2 0 .1

Accruable and non-accruable income

20.2

Records relevant to demand and changes in demand

20.3

Accounting of accrued income and change in demand

20.4

Collection accounting procedure

20.5

Verification of income related transactions by the Financial Statements Auditor

20.6

Verification of Receivable Accounts

20.7

Verification of Provision on unrealized receivables

Chapter 21 Audit of expenditure related transactions

2 1 .1

Charge of expenditure

21.2

Claims against municipal fund

21.3

Payments from municipal fund

21.4

Accruable and non-accruable bills

21.5

Processing of bills in municipalities

21.6

Accruable and non-accruable bills

21.7

Verification of transactions related to public works

21.8

Verification of Stores related transactions

21.9

Verification of employee related transactions

21.10 Verification of payments

21.11 Provision for bills outstanding at the end of the year

Chapter 22 Audit of Fixed Assets

2 2 .1

Fixed assets are of the following types

22.2

Fixed asset registers

22.3

Verification of existing and new fixed assets

22.4

Verification of sale of fixed assets

22.5

Other important aspects in verification of fixed assets

Chapter 23 Audit of grants, loans and earmarked funds

2 3 .1

Grants

23.2

Verification of grants

23.3

Borrowings

23.4

Project comprising of loan component, grant component and municipal contribution

23.5

Earmarked funds

Chapter 24 Audit of other transactions

2 4 .1

Investments

24.2

Fixed deposits in banks

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24.3

Loans and advances given by the municipality

24.4

Securities held by the municipality

24.5

Earnest Money Deposits and security Deposits, rent deposits etc:

24.6

Cess Payable Accounts:

24.7

Revenue received in advance

24.8

Non-cash transactions

Chapter 25 Audit of Period-End Activities

2 5 .1

What are period-end activities ?

2 5 .2

Auditor's responsibility with respect to period-end activities

2 5 .3

Verification of opening balances

2 5 .4

Verification of period-end balances

Chapter 26 Verification of Financial Statements

2 6 .1

Annual financial statements

2 6 .2

Verification of financial statements

Chapter 27 Audit Report

2 7 .1

Completion of audit and submission of audit report

27.2

Points to be covered in the audit report

27.3

Additional matters required to be reported by the auditor

27.4

Communication of audit matters with the management

27.5

Qualification in the audit report

27.6

Certification of financial statements of municipalities

Chapter 28 Miscellaneous Topics related to FS Audit

2 8 .1

Responsibility of preparing financial statements

28.2

Consideration of applicable laws and regulations in audit .

28.3

Auditor's responsibility with regard to fraud and errors

28.4

Reliance on internal control system

28.5

Built-in internal control measures in FBDEAAS

28.6

Rectification entries for errors detected during audit

28.7

Using the work of Statutory Auditor

Appendix 1: Topic wise Listing of KMF Forms

Appendix 2: Workflow Charts

Appendix 3: (a) Audit Check lists for Audit of Urban Local Bodies.

(b) Financial Audit checks for Urban Local Bodies.

List of Tables

Table 1: Important accounting forms

Table 2: Monthly rates for honorarium

Table 3: Limits for procurement of goods and services

Table 4: Surcharge and charge recommendations

Table 5: Deadlines for financial statements related activities

Table 6: List of Schedules to KMABR,2006

Table 7: Inter-Fund Transfer Entries

Table 8: Different types of registers pertaining to accrual of demand

Table 9: Prescribed forms for different types of claims

Table 10: Fixed asset registers

Table 11 : Reconciliation required between general ledger accounts and subsidiary registers/sub-ledgers

List of Figures

Figure 1 : Demand and change in demand

Figure 2 : Accounting of Income Transactions

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Figure 3 : Expenditure Accounting Procedure

Figure 4 : Steps for Preparation of Financial Statements

Abbreviations/Acronyms

AAS

Auditing and Assurance Standards

BIDS

Budget Information Details Sheets

BWSSB

Bangalore Water Supply & Sewerage Board

C & AG

Comptroller & Auditor General Of India

CMC

City Municipal Council

CO

Chief Officer

CSAD

Controller, State Accounts Department

CVS

Capital Value Scheme

CWIP

Capital Work-in Progress

DC

Deputy Commissioner

DCB

Demand Collection & Balance

DCRG

Death Cum Retirement Gratuity

DD

Demand Draft

DEAS

Double Entry Accounting System

DMA

Director of Municipal Administration/ Directorate of Municipal Administration

EE

Executive Engineer

EMD

Earnest Money Deposit

ESCOM

Electricity Supplying Company

FBDEAAS

Fund Based Double Entry Accrual Accounting System

FS

Financial Statements

FS Audit

Financial Statements Audit

FS Auditor

Financial Statements Auditor

FSA

Financial Statements Auditor/Financial Statements Audit

GO

Government Order

GOI

Government of India

GOK

Government of Karnataka

I & E A/c

Income & Expenditure Account

ID

Identification Number

JV

Journal Voucher

KCSR

Karnataka Civil Services Rules

KFC

Karnataka Financial Code

KM Act,1964

Karnataka Municipalities Act, 1964

KMA

Karnataka Municipalities Act, 1964

KMABR,2006

Karnataka Municipal Accounting and Budgeting Rules,2006

KMAM

Karnataka Municipal Accounting Manual

KMC Act

Karnataka Municipal Corporation Act, 1976

KMC Act,1976

Karnataka Municipal Corporations Act, 1976

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KMF

Karnataka Municipal Form

KPTCL

Karnataka Power Transmission Company Limited

KTPP Act

Karnataka Transparency in Public Procurement Act, 1999

KUIDFC

Karnataka Urban Infrastructure Development Finance Corporation

KUWS&DB

Karnataka Urban Water Supply & Drainage Board

LAC

Local Audit Circle

MB

Measurement Book

MC

Municipal Commissioner

MIN

Material Issue Note

MOU

Memorandum of Understanding

MPLAD

Member of Parliament Local Area Development

MRN

Material Receipt Note

NGOs

Non Government Organizations

NMAM

National Municipal Accounting Manual

NMR

Nominal Master Roll

OBS

Opening Balance Sheet

OM

Official Memorandum

PT

Property Tax

PVs

Payment Vouchers

PWD

Public Works Department

QCBS

Quality & Cost Based Selection

R & P A/c

Receipt & Payment Account

RC

Registration Certificate

RF P

Request for Proposal

RTO

Regional Transport Officer

SA

Statutory Auditor/Statutory Audit

SAS

Self Assessment Scheme

SC

Scheduled Cast

SJSRY

Swarna Jayanthi Shahari Rozgar Yojana

SK

Store Keeper

SR

Schedule of Rates

SSS

Single Source Selection

ST

Scheduled Tribe

SUA

Smaller Urban Area

TA

Travelling Allowance

TMC

Town Municipal Council

TOR

Terms of Reference

TP

Town Panchayath

TT

Taluk Treasury

UC

Utilization Certificate

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UGD

Under Ground Drainage

UIDSSMT

Urban Infrastructure Development scheme for small & Medium Town

ULB

Urban Local Body

VFM

Value for Money.

w.r.t.

With reference to

Preface

Instructions for auditing the Accounts of Municipalities and other institutions audited by the State Accounts Department were

incorporated in the Mysore Local Fund Audit Manual 1967. The Karnataka Municipalities Accounting and Budgeting Rules 2006, were issued

vide Notification No: UDD 16 CAR 2006 dated: 21-12-2006. Rule 146 of the said Rules provides for preparing a detailed Audit Manual.

Further, National Municipal Accounting Manual formulated by the Ministry of Urban Development, Government of India also provides for

preparation of Audit Manual. Accordingly, the Directorate of Municipal Administration has got a detailed Audit Manual viz. Karnataka

Municipal Accounts Audit Manual prepared by the Expert Group of Karnataka Institute of Public Auditors (KIPA).

This Manual explains the scope of the Financial Statement Auditors (FSA) and the Statutory Auditors (SA), audit procedures and

reporting requirements, etc. It provides general principles of Statutory Audit and detailed audit instructions for audit of transactions of

Urban Local Bodies. It may be followed by the Chief Auditors of Mahanagara Palikes also.

The Draft Audit Manual was submitted to the Government for approval. The State Government (Finance Department) after

obtaining opinion of C&AG has accorded approval in its Letter no: DE 287 gÁ¯É¥À 2010 dated: 03-07-2012. In the meantime, certain manuals viz.,

Audit Manual, Training Manual etc. are being prepared under IDF assisted Project for Strengthening the State Accounts Department.

Keeping these in to account certain modifications have been made to this manual in consultation with KIPA.

Karnataka State Accounts Department is thankful to the Commissioner, Directorate of Municipal Administration for taking lead

in the preparation, funding and publishing of this Manual.

Bengaluru.

Date: 18-12-2014.

R.S.Phonde

Controller,

State Accounts Department,

Chapter 1

Introduction

1 .1

Initiation of reforms in Urban Local Bodies

74th Amendment to the Constitution of India which called ULBs as 'Local Self Governments', entrusted them with more powers and

devolution of funds from the States. The Amendment mandated Government of India (GOI) to launch various municipal reform

initiatives. In view of the anticipated increase in the flow of funds to ULBs and application of the funds towards various developmental

activities, it was felt that the municipal accounting system in the country needed to be geared up to meet the increased information

needs. The Eleventh Finance Commission recommended that the Comptroller and Auditor General of India be entrusted with this task.

1 .2

Framing of National Municipal Accounting Manual (NMAM) and Karnataka Municipal Accounting Manual (KMAM)

As a part of the Municipal Reforms initiated by the Ministry of Urban Development, Government of India, a National Municipal

Accounting Manual (NMAM) was developed and recommended by the Task Force constituted by the Comptroller and Auditor General

of India, for the guidance of Urban Local Bodies in the country. The Comptroller and Auditor General of India has facilitated and

overseen the development of this manual.The Ministry of Urban Development, Government of India, issued instructions to the State

Governments to prepare their own State specific Accounting Manual based on the guidelines given in NMAM. With a view to

implement NMAM in the State with necessary changes, the Government of Karnataka framed Karnataka Municipalities Accounting and

Budgeting) Rules, 2006 (KMABR,2006) and brought it into force w.e.f. 1st April, 2006 in all the Urban Local Bodies in the State. The

Karnataka Municipalities Accounts Rules, 1965 are are replaced by Karnataka Municipalities (Accounting and Budgeting) Rules, 2006

(KMABR,2006) . The Karnataka Municipal Accounting Manual (KMAM) was framed laying down detailed procedure for maintenance of

accounts in municipalities. The words 'Urban Local Bodies or ULBs' used in the manual refers to the Municipalities established under the

Karnataka municipalities Act, 1964.

Salient features of Karnataka Municipalities Accounting and Budgeting Rules, 2006, are:

•

Introduction of double entry, accrual accounting system in place of single entry, cash based accounting system prevalent

in ULBs..

•

Fund-wise maintenance of accounts.

•

Use of prescribed chart of accounts in passing accounting entries. .

•

Maintenance of books of accounts and other records in prescribed (KMF) formats.

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•

Changes in the general procedure of accounting income and expenditure.

•

Period end reconciliation procedures.

•

Preparation of Monthly Trial Balance and DCB statements.

•

Preparation of financial statements in prescribed formats

•

Disclosure of significant accounting policies in the financial statements.

•

Preparation and publishing of Annual Performance Report

•

Audit of accounts of ULBs by Chartered Accountants, in addition to existing Statutory Audit.

•

Preparation and publishing of budget in prescribed formats.

•

Provides scope for maintenance of accounts in a computerized system

•

Provides for prescription of an Accounting Manual

•

Provides for prescription of an Audit Manual

The Karnataka Municipal Accounting Manual prescribed under Rule 145 of KMABR,2006 contains Volume I and Volume II.

KMAM Vol. I covers:

•

Definitions: - The various terms used in the Accounting Manual have been defined..

•

Accounting Policies: - Prescribed Accounting Policies to be followed in accounting of various types of ULB transactions

and disclosure of significant accounting policies in the financial statements

•

Fund Accounting: - What is a fund? classification of funds in ULB accounting, need to maintain separate sets of books of

accounts for each fund, scheme of entries for transfer of funds, etc,

•

General Accounting procedures: - General procedures to be followed in accounting, types of vouchers, books of

accounts, preparation of trial balance, registers and other forms to be maintained, accrual of income, daily collection,

procedure, procedure for remittance to bank, payment procedure, accounting of income accrued, collection, bills received,

payment etc,.

•

Property Tax and other taxes:- Accrual of property tax and cesses, collection entries to be passed, accounting records

relating to property tax and other taxes under different occasions, etc,.

•

Water Supply and Sewerage :- Accounting entries, forms and registers, internal controls, etc, relating to water supply and

sewerage.

•

Assigned Revenues:- Assigned revenues are revenues in the nature of a share in the revenues of the state

government, to compensate for certain losses in revenue and arrangement of resources of the ULBs. The ratio of the

share in revenues is determined on the basis of the revenues collected by ULBs and the recommendations of the State

Finance Commissions and devolution of funds to ULBs. However, State Finance Commission grants are classified under

Grants & contributions in the chart of accounts.

•

Rentals, fees and other incomes:- Accounting of other accruable and non-accruable income of ULBs like rentals from

Municipal properties, license fees, other fees, etc,

•

Public Works:- Accounting of public works carried out in ULBs, forms and registers, accounting of deposits collected and

refunded, out-sourced operations of ULBs, accounting of contractors bills and payment of such bills, capital-work in progress

and capitalization of completed works, works carried out by other agencies, delegated loan works, internal controls, etc,.

•

Stores related transactions:- accounting of stores related transactions, forms and registers, receipt and issue, valuation,

disposal, and write off of material, physical verification and reconciliation of stock, maintenance of stores ledgers, internal

controls, etc,.

Employees related transactions:- accounting of employees related transactions such as salary/wages, loans & advances

to staff, remittance of recoveries effected from employees claims, contributions payable to Government, etc, forms and

registers, internal controls, etc.

Health and sanitation:- Functions of Health Department of ULB, main sources of income, nature of expenditure, procedure

of accounting of revenue and expenditure, internal controls, forms and register relating to health and sanitation related

transactions etc.

•

Other revenue expenditure:- Illustrative items of revenue expenditure in ULBs, relevant accounting procedures and

entries, accrual of expenditure at the end of the year, accounting of permanent advance, miscellaneous advances, internal

controls, forms and registers relating to other revenue expenditure etc.

•

Grants:- Types of grants generally received by ULBs, forms and registers relating to grants, entries relating to various

types of grants, deductions of ULB dues out of grants, utilization of specific grants for revenue expenditure and capital

expenditure, transfer of ''deferred income' to 'income', refund of un-utilized specific grant, grants in kind, internal controls etc.

•

Borrowings:- Borrowing powers, procedure, forms and registers, accounting of transactions such as receipt of loans,

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repayment of loans and payment of interest etc, sinking fund for loan repayment, transfer of funds to Escrow Account,

delegated loans, internal controls, etc,

•

Earmarked Funds:- Types of earmarked funds, forms and registers, accounting procedure and entries, utilization of funds,

transfer of funds, sinking fund investments and accounting, closure of earmarked funds, Agency & Trust Funds, etc,

•

Investments:- Long term and short term investments, forms and registers, accounting procedures and entries, valuation of

investments, internal controls, etc,

•

Fixed Assets:- Accounting entries, depreciation on fixed assets, capital work-in-progress, capitalization of interest during

construction period, accounting of sale/disposal of fixed assets, forms and registers etc,

•

Special Transactions:- Special types of transactions that may arise on account of works executed by other agencies out

of grants or loans given by Government /own funds- ex. Water Supply / UGD works etc,

•

Period end procedures:- Daily procedures and monthly, quarterly and annual procedures for closing of accounts,

reconciliation, getting confirmation of balances, preparation of periodical financial statements etc,

•

Reconciliation procedures:- Reconciliation of bank accounts, receivables, suspense registers, contractor's / supplier's

payables, borrowings, deposits, advances, stock in hand, fixed assets related accounts, balances relating to Government and

other agencies, etc,

•

Financial Statements:- Monthly financial statements such as trial balance and DCB Statements, annual financial

statements such as receipts and payments statement, income and expenditure statement, balance sheet etc, their formats,

time line for preparation , submission and adoption,

•

Audit Report:- Types of audit, duties of the Statutory Auditor and the Financial Statement Auditor, reporting requirements,

additional matters to be reported by the Financial Statement Auditor etc,

•

Annual Performance Report:- Contents of Annual Performance Report- City Management Report, Financial Auditor's

report on financial statements, Cost and Performance Indicators and Budget Variance Statement.-what each of these

reports should contain and their significance, timeline for audit and preparation of these reports, publishing of annual report, etc,

•

Budget and Budgetary Controls:- Provisions of the Act and Rules relating to preparation of budget, passing of budget by

the council and approval by DMA/Government, budget classification, budget codes, process of budgeting, classified

registers of receipts and payments, budgetary controls and budgetary comparisons, budget and subsidiary statements

formats, etc,

KMAM Vol. II contains:-

•

Chart of Accounts:- Structure of chart of accounts, accounts codes, what constitute 'functions', 'sources of finance',

major codes, minor and sub-minor codes, detailed codes, control accounts and sub-ledgers, instructions for use of chart of

accounts, annexure relating to income, expenses, liability and asset account heads, etc.

1 .3

Existing statutory provisions relating to audit of accounts of Municipalities

Audit of accounts of Municipalities, including Town Panchayats in the State of Karnataka is required to be conducted by the Auditor

appointed by Government and also by such other agency prescribed in the rules of Municipal Council, in terms of Section 290 of Karnataka

Municipalities Act, 1964.

The Government, in its Order No. PLM 11 MLR (1) 65 dated 2nd September, 1965, appointed the Deputy Controller, Assistant

Controller and staff of Local Audit Circle of the State Accounts Department, as Auditor of Municipalities in the State. The Karnataka

Municipalities (Powers and Duties of auditors), Rules 1965 framed by Government under Section 323 of the KMA prescribe the powers

and duties of auditors and matters to be incorporated in the Audit Reports. These rules stand modified to the extent of changes made in

the KMABR and this audit manual.

The State Accounts Department is following the instructions laid down in the Local Fund Audit Manual 1967 of the Department, in

conducting audit of accounts of Municipalities in the State. Audit guidelines in this manual are based on the general principles of audit

prescribed by the Comptroller and Audit General of India for audit of accounts of Government accounts, with necessary instructions

conducive for a detailed audit of ULBs.

1 .4

Need for a new Audit Manual

a)

The change in the accounting system, introduction of a separate financial statements audit besides statutory audit by the State

Accounts Department, provisions of rule 146 of KMABR, 2006 empowering the Government to prescribe an audit manual for

ULBs etc, have warranted framing of a detailed Audit Manual for defining the scope of the Financial Statement Auditor and the

Statutory Auditor, audit procedures, and reporting requirements.

b)

The guidelines for audit of accounts of Municipalities contained in the Local Fund Audit Manual 1967 of the State Accounts

Department shall stand replaced by this manual. However, relevant part/audit instructions of the Audit Manual being prepared by

the State Accounts Department also needs to be followed.

c)

Any amendment to this manual may be given effect to by the Director of Municipal Administration after prior consultation with the

Controller, State Accounts Department.

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1 .5

Scope of audit

Both the Statutory Auditor (SA) and the Financial Statement Auditor (FSA) are required to audit the accounts of Municipalities under

KMABR, 2006. They have inherent powers to look into all aspects relating to accounting, classification of the transactions under

relevant heads of account, compliance to principles of regularity and propriety, and reflection of correct and complete summary of

financial activities in the annual accounts prepared. As the ULB accounts are now subjected to two types audits, it is necessary to define

the scope of audit and duties and responsibilities of these two entities to avoid overlapping of their duties and responsibilities. Keeping

this in view, the scope of these two audit entities are broadly defined hereunder.

a)

Scope of audit of the Statutory Auditor: The Statutory audit of local bodies is conducted by the State Accounts

Department through its Local Audit Circles in the State. The SA shall audit the accounts of ULBs to ensure that financial

transactions comply with regularity and propriety aspects.

The 'Karnataka Municipal Corporations and Certain Other Law (Amendment) Act, 2011 (Karnataka Act No.24 of 2011), as

amended in March 2012, empowers the Comptroller and Auditor General of India to Subject the accounts of ULBs(City

Municipal Councils, Town Municipal Councils and Town Panchayats) to Technical Guidance and Support through

complementary audit and sending Annual Technical Inspection Report to the State Govt., for placing it before the State

Legislature.

General Principles of Statutory Audit and detailed audit guidelines are given in the Chapter 3 in Section A of this manual

b)

Scope of audit by the Financial Statements Auditor: The FSA appointed by the Director, Municipal Administration shall

be responsible to verify and ensure that the financial statements prepared are in accordance with the accounting policies

contained in the KMABR, 2006 and KMAM and are in the prescribed forms and depict;-

(i)

complete and accurate account of its financial transactions

(ii)

financial performance of the Municipality / Town Panchayat during the account period indicating the surplus / deficit of

income,

(iii)

financial position of the Municipality / Town Panchayat at the end of the specified period, and;

(iv)

certify the financial statements prepared for the account period, duly furnishing audit opinion on whether the financial

statements represent a 'true and fair' view on the state of affairs of the institution audited

In order to comply with the above responsibility, The FSA shall check the primary documents based on which vouchers are prepared for

entry into the books of accounts, ensure correctness of the books of accounts and the financial statements prepared and certify the

financial statements. He shall follow the accounting policies prescribed in KMABR, 2006, KMAM and terms of conditions of the

appointment letter for audit of financial statements.

Detailed audit guidelines for the FSA are given in Chapter 15 to 28 in Section B of this manual.

1 .6

Audit sequence

a)

Audit report along with certified copy of the financial statements shall be sent by the financial statements auditor to the Local

Audit Circle, and other specified authorities. As the Financial Statements Audit is required to be completed within four

months from the end of the financial year in terms of rule 125 (4), it is necessary that financial statements audit is taken up

first. Therefore, the DMA shall ensure that appointment of financial statements auditors is done well in advance to enable

completion of the financial statements audit within specified time limit, and also that the ULBs finalize the annual accounts of

the ULB and produce for audit within prescribed time.

b)

The Statutory Audit will conduct audit of the ULB after completion of audit of the financial statements by the FSA. However,

the Statutory Auditor may carry out transaction audit of the ULB pending receipt of the report of the FSA, to ensure

expeditious completion of audit on receipt of FSA's report. The CSA may issue necessary guidelines to the Assistant

Controllers of LACs regarding planning and completion of SA of all ULBs coming under the jurisdiction of the LAC within

stipulated time and ensuring issue of Audit Reports without delay.

c)

Having regard to the provisions of Section 295 of KMA regarding follow-up action to be taken by concerned authorities

envisaged and provision of Section 296 empowering DMA initiate Charge and Surcharge proceedings, these aspects are

dealt in detail in chapter 12 of this manual.

d)

The Controller, State Accounts Department is required to send a consolidated Annual Audit Report pertaining to

Municipalities audited, to the State Government for placing it before the State Legislature, in terms of Section 295 (6) of the

Karnataka Municipalities Act, 1964(as amended in March 2012).

e)

The Comptroller & Auditor General of India, who is empowered to subject all City Municipal Councils, Town Municipal

Councils and Town Panchayats to technical guidance and support through Complementary Audit in terms of Proviso under

ection 290, sub-section(1) of the KM Act, 1964 as provided in the 'Karnataka Municipal Corporations and Certain Other Law

(Amendment) Act, 2011-amended in March 2012, is required to submit his Annual Technical Inspection Report pertaining to

Municipalities audited, to the State Govt., for placing it before the State Legislature, as per Section 295 (7) of the KM Act, 1964

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f)

The Comptroller & Auditor General of India, who is mandated to subject audit of all transactions of receipts and expenditure

of the Municipal Corporations to technical guidance and support through complementary audit is required to submit his annual

Technical Inspection report to State Govt., for placing it before the State Legislature as per f the 'Karnataka Municipal

Corporations and Certain Other Law (Amendment) Act, 2011,(as amended in March 2012').

g)

'A Committee on 'Local Bodies and Panchayat Raj Institutions has been constituted under Rule 266A of 'Rules of Procedure

and Conduct of Business in Karnataka Legislative Assembly' in 2011 to consider the Annual Report of the C&AG. This

Committee will review the annual audit reports on ULBs submitted by the CSAD and the C&AG to Govt. in terms of provisions

of the KM Act 1964 mentioned in clauses d) and e) above and may direct action to be taken on the observations made in the

Annual Audit Reports of the CSAD and C&AG. The concerned municipalities/Corporations are required to take

appropriate action and submit 'Action Taken Report' to the Committee through the DMA/Govt.

1 .7

Adoption of KMABR, 2006 to Municipal Corporations (except BBMP)

a)

In view of the provision of Section 150 of the KMC Act, 1976 for appointment of a Chief Auditors to the Municipal

Corporations in the State and the prerogative of such Chief Auditors to have their own audit manual or prescription by

Govt. through rules, Govt. of Karnataka in its Notification No. UDD 16 CAR 2006 dated 03-05-2007 has made applicable

KMABR 2006 issued by Government Notification No. UDD 16 CAR 2006 Dated 27-12-2006, to all Municpal

Corporations except Bruhat Bengaluru Mahanagara Palike (BBMP) with retrospective effect from 01-04-2006, pending

framing of rules for the Municipal Corporations.

b)

The Statutory Audit of BBMP is conducted by the Chief Auditor under the supervision and guidance of the Controller,

State Accounts Department, as per Section 150 (2) of the KMC Act, 1976, The Controller may direct the Chief Auditor of

BBMP also to follow the general principles of audit of financial transactions and financial statements audit, as provided in

this manual pending framing of separate audit manual for BBMP

c)

This audit manual prescribes the General Principles of Statutory Audit and detailed audit instructions for audit of transactions

of ULBs w. r. t. KMABR 2006 , the same may be followed by the Chief Auditors of Mahanagara Palikes, also.

d)

As the Manual is prepared having regard to KMABR,2006 framed in respect of municipalities coming under the purview of

the Karnataka Municipalities Act, 1964, references made in this manual are with reference to the relevant provisions of the

Act, Rules and the KMAM.

e)

Wherever the words 'municipality', 'municipal council', and 'ULBs' are used, the same may be construed as references to

'Mahanagara Palikes', 'Corporation Council' and 'Mahanagara Palikes' respectively, by the Chief Auditors.

f)

While referring to the provisions of the Act, other rules and bye-laws, the relevant provisions of the KMC Act and rules and

bylaws framed under it may be referred to, by the Chief Auditors.

SECTION-A

STATUTORY AUDIT

Chapter 2

Important Legal Provisions relating to Accounting in Municipalities

The auditor appointed under Section 290 of KMA should know important provisions of the Act and Rules and Bye-laws framed under

the Act, especially those having bearing on finance and accounting of ULBs. This chapter is intended to facilitate auditor to have some

idea of important provisions of the Act and Rules relating to constitution of municipal councils, municipal finance, budgeting,

accounting and audit. The Sections given below are indicative of what it deals with but not reproduction of the provisions of the

Section. The auditor has to refer to the relevant Section to know details of the provisions. Apart from these, the auditor should be

conversant with Government orders, Official Memoranda and Circulars issued by Government and instructions issued by DMA, from time

to time.

2 .1

Important provisions of the Karnataka Municipalities Act, 1964

Section 3 of the Act provide for the Specification of Smaller Urban Areas i.e., City Municipality, Town Municipality and Industrial

Townships, etc., and Section 351 of the Act provide for constitution of a Town Panchayat in respect of an area specified as transitional

area under Section 349 based on satisfying conditions mentioned under Sub-section (1) of Section 3, by the Governor.

The factors considered for notification of a local area as a Smaller Urban Area (SUA) are:

•

Population of the area (not less than 10,000 and not more than 3 lakhs)

•

Density of population (not less than 1500 per Sq.km)

•

Revenue generated from local administration in the year of last preceding census (not less than 9 lakhs pa or Rs.45/- per

capita p.a, whichever is less)

•

Percentage of employment in non-agricultural activities (not less than 50% of the total employment)

•

Economic importance and

•

Such other factors

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Any area having population of not less than 10,000 and not more than 3 Lakhs may be specified as a SUA-

•

10,000 to 20,000 Called Town Panchayat

•

20,000 to 50,000 called Town Municipal Council

•

50,000 but less than 3 lakhs called as City Municipal Council

•

The Governor also has powers to notify any area as TP, TMC or CMC notwithstanding the above conditions.

Any area having population of more than 3 lakhs may be notified as Larger Urban Area (LUA) i.e. Municipal corporation, as per

Karnataka Municipal Corporations Act, 1976

Under Section 4, any local area adjacent to a SUA may be included within a SUA or any area within the SUA excluded from it having

regard to the provisions under clauses (a) to (f) of sub-section (1) of Section 3.

Section 11 provide for constitution of Municipal Councils comprising of such number of councilors based on the population as laid down

in the table given under the said Section, besides not more than 5 persons nominated by Government, the members of House of

People, State Legislative Assembly, representing the constituency within which the ULB lies who are registered as electors and those

members of the Councils of States and members of the State Legislative Council registered as electors within the municipal. Seats shall be

reserved for SC/ST/ Backward Communities as provided in this behalf. The councilors shall be elected through general elections as

provided under Section 17. Rights and privileges of the councilors are spelt out in Section 45.

Every councilor may receive such monthly allowance out of municipal funds at such rates as may be fixed by Government from time to

time, as per Section 18-A.

Section 42 provides for election of presiding authorities for municipal councils namely, President and Vice-President for every municipal

council. Their functions are specified under Sections 43 and 44.

In Section 72, powers of the municipal councils to lease sell and contract movable or immovable property which belongs to it, subject to

restrictions and conditions are laid down. Conditions for transfer of property by municipal council are stipulated in Section 73.

Chapter IV comprise of very important provisions pertaining to assets and finances of the municipal councils namely,

•

Sections 81 -defining what constitute municipal property

•

Section 82-claims to property against municipal council

•

Section 83- defining what constitute municipal fund

•

Section 84-provisions relating to application of municipal fund and property

•

Section 85-depositing/investing surplus fund, and

•

Section 86-purposes for which municipal councils may borrow money

Chapter V comprising Sections 87 to 93 deal with functions of the municipal councils-Obligatory, Special and Discretionary functions, etc,

Chapter VI captioned as Municipal Taxation comprising of Sections 94 to 141 is an important chapter the auditor must know, as it deals

with the taxes that may be levied by the municipal councils, procedure to be followed before levy of any tax, assessment, mode of

collection of various taxes, powers of Government in relation to taxation, etc,

Chapter VII comprising of Sections 142 to 154 mainly deals with recovery procedures including distraining of articles from the premises

of the defaulting tax payers and provisions for recovery of the dues as arrear of land revenue.

Chapter VIII comprising of Sections 155 to 173 deals with power of the municipal councils to execute Improvement Schemes and

procedure, restrictions and conditions relating to it and Sections 173 and 174 Government's power to establish Improvement Boards in

consultation with the municipal council, its powers, finance, etc

In Chapter IX-Sections 175 to 260 stipulate Regulatory and Preventive functions of the municipal councils with regard to streets,

buildings, drainage and water works, external structures, public health, public safety and convenience, public nuisance, regulation of

markets, sale of goods, dangerous diseases, trades and occupations, etc, besides general penalty, service of notices and

miscellaneous provisions. Apart from these, some of these sections empower municipal councils to frame Rule/Regulations/Bye-laws

in these connections and also to collect fees for the services rendered.

Chapter X. comprising of Sections 276 to 285 deals with powers of the municipal councils to prosecute, compound offences, file suits,

etc.

Chapter XI is the most important chapter which deals with the following aspects:-

•

Section 286-Prohibition of expenditure not budgeted- items of expenditure which can be paid in the absence of budget

provision.

•

Section .287- 288 presentation of accounts and aspects to be taken into account in preparation of budget estimates, re-

appropriation of funds, etc,

•

Section 289 maintenance of accounts of income and expenditure of the municipal council as per the rules framed by

Government(Karnataka Municipalities Accounts Rules, 1965 replaced by KMABR,2006 framed under this section and

section 323)

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•

Section 290 provides when and who shall audit the accounts of the municipal council besides obligation of the municipal

council to pay audit charges out of municipal funds. KM (Payment of audit charges) Rules, 1967 is issued under this

section).

•

Proviso to sub-section (1) of Section 290 of the KM Act, 1964 also empowers the C&AG to subject audit of all City

Municipal Councils, Town Municipal Councils and Town Panchayats to technical guidance and support through a

complementary audit (as per' Municipal Corporations and Certain Other Law (Amendment) Act, 2011, as amended in

March, 2012).

•

Section 291 & 292 deal with the power of auditor to require production accounts records besides presence of the

concerned person accountable or having custody of records or any person having share or interest in contract besides

penalty for disobeying requisition of the auditor.

•

Section 293 prescribes to whom the auditor should send audit report.

•

Section 294 Specifies what the audit report should contain KM (Powers and Duties of Auditors) Rules, 1965 issued under

Section 323 also contains guidelines to the auditor (Statutory Auditor).

•

Section 295 prescribes the follow up action to be taken by the Municipal Commissioner/Chief Officer, municipal council,

the Controller State Accounts Department.

•

Sub-section (6) of Section 295 require the Controller, State Accounts Department to send consolidated Annual Audit

Report pertaining to all municipal councils, to th State Govt., for placing it before the State Legislature ( as per' Municipal

Corporations and Certain Other Law (Amendment) Act, 2011as amended in March 2012).

•

Sub-section (7) of Section 295 require that C&AG to send his Annual Technical Inspection Report on the accounts audited

in terms of Proviso to Section 290(1) to the to the State Govt., for placing it before the State Legislature, as per amendment

law 2011 referred to above.

•

Section 296 & 297 prescribe Powers of the DMA to Surcharge or Charge illegal payment or loss caused by gross

negligence or misconduct and procedure for recovery of amount of surcharge or charge made.

•

Section 298 deal with application against order of surcharge or charge by aggrieved person.

•

Section 300 stipulate transmission of annual accounts as soon as it is passed by the council to Government and other

authorities and publication of accounts. (KM (submission of returns, statements, etc) Rules, 1965 prescribe annual accounts

format in Form No. 21. The KMABR,2006 prescribe a set of financial statements as annual accounts of municipal council)

•

Section 301 stipulate that quarterly/annual accounts of receipts and expenditure and the budget estimates when

sanctioned shall be kept open for public inspection besides publication of the same in the manner prescribed.

•

Section 302 prescribe preparation and publication of Annual Administration Report by municipal councils every year and

submission of consolidated report to Government by the DMA (Preparation of Annual performance report by the

municipal council prescribed under KMABR,2006)

•

Section 302-A requirement of every municipal council to prepare a Development Plan and submit it to District Planning

Committee constituted u/s 310 of the Karnataka Panchayat Raj Act, 1993 or Metropolitan Planning Committee u/s 503-B of

the Karnataka Municipal Corporation Act, 1976.

•

Section 302-B stipulate that Finance Commission constituted u/s 267 of the KPR Act to review the financial position of

municipal councils and make recommendations

Chapter XII Sections 303 to 322 deal with administrative and functional control of municipal councils by the Deputy Commissioners, DMA

and Government Sections 323 deal with Power of Government to make Rules for carrying out the purpose of the Act mentioned as 'as

prescribed' in other sections and in respect of matters specifically mentioned under this section.

Sections 324 Power of municipal councils to make bye-laws as per the provisions of the Act or rules for regulating, permitting, licensing

various activities and providing services envisaged under the Act. Section 325 Power of Government to make model bye-laws for

adoption of such bye-laws by the municipal councils. Section 326 stipulates that Rules and Bye-laws to be printed and sold.

Chapter XIV Sections 327 to 348 deal with appointment of Municipal Commissioner or Chief Officer and other Municipal Officers-their

duties and powers and powers to execute contracts-mode of contract and need to invite tenders u/s 347 for contracts involving

expenditure exceeding the sum stipulated.

Chapter XV Sections 349 to 355 deal with provisions relating to Transitional Area and constitution and functioning of the Town

Panchayats

Chapter XVI Sections 356 to 363 deal with conversion of panchayat area into a SUA, effect of absorption of panchayat area or part of

it into SUA, conversion of TMC into CMC or vice versa, amalgamation of two contiguous SUA, etc,

Chapter XVII comprising of Sections 365 to 388 deals with miscellaneous provisions. Important provisions are:-

•

Section 365 -Karnataka Municipal Administrative Service

•

Section 366- Nomination of any agency for execution of public works- Government after consulting the municipal council, may

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direct any agency to execute any public works, if required degree of professional skill is not available with the

municipal council,

•

Section .367-Contribution of certain percentage of revenue of municipal council to the consolidated fund of the State

•

Section 370 Penalty for acquisition of any interest in contract by an officer or servant of municipal council

•

Section 387: A municipal council to consult the nearest Planning Authority in respect of matters affecting town planning, if

no Planning Authority has been constituted under the Karnataka Town and Country Planning Act,

•

Section 388 relate to establishment of Directorate of Municipal Administration (w.e.f 6-6.1986)

2 .2

Important rules relating to finance, accounting and audit made under the provisions of the Act.

The title of the rules shown in bracket is indicative of the topic to which it relates and auditor should refer to the relevant rules to know

detailed provisions.

•

The Karnataka Municipalities (Accounting and Budgeting ) Rules, 2006- framed u/s 289 and 323 of the Act

•

The Karnataka Municipalities (Delegation of Powers of Government ) Rules, 1965- framed u/s 323 of the Act

•

The Karnataka Municipalities Taxation Rules, 1965- framed u/s 94,95 and 323 of the Act

•

The Karnataka Municipalities Irrecoverable Sums (procedure for Write off) Rules, 1967- framed u/s 323 of the Act

•

The Karnataka Municipalities (Furnishing of Securities) Rules, 1965- framed u/s 323 of the Act

•

The Karnataka Municipalities (Limitation on Powers of Contract) Rules, 1966- framed u/s 72 and 323 of the Act

•

The Karnataka Municipalities (Regulation of Duty on Transfer of Immovable Property) Rules, 1966- framed u/s 99 and 323 of

the Act

•

The Karnataka Municipalities (Submission of Returns, Statements and Reports) Rules, 1966- framed u/s 300, 301 and 323

of the Act

•

The Karnataka Municipalities (Levy and Collection of Fees in respect of

Jatra, Urs), Rules, 1966- framed u/s

323 of the Act

•

The Karnataka Municipalities (Conditions of Borrowing) Rules, 1966- framed u/s 86 and 323 of the Act

•

The Karnataka Municipalities (Guidance of Officers, Grant of Copies and Miscellaneous Provisions) Rules,1966- framed u/s

323 of the Act

•

The Karnataka Municipalities (Grant of Loans to Municipal Servants for construction of Houses) Rules,1967 - framed u/s 323

of the Act

•

The Karnataka Municipalities (Delegation of Powers, Executive Functions, Duties, Powers and Determination of Staff) Rules

1973- framed u/s 323 of the Act

•

The Karnataka Municipalities (Limitation of Powers of Standing Committee) Rule, 1977- framed u/s 63 and 323 of the Act

•

The Karnataka Municipalities (Powers of Expenditure) Rules, 1986- framed u/s 84, 289 and 323 of the Act

•

The Karnataka Municipalities (Grant of Advances to the Employees for purchase of Motor Car, Motor Cycle and Bicycle)

Rules,1987- framed u/s 323 of the Act

•

The Karnataka Municipalities (Recruitment of Officers and Servants) Rules, 1971- framed u/s 323 of the Act

•

The Karnataka Municipalities (Conditions of Service) Rules, 1987- framed u/s 323 of the Act

•

The Karnataka Municipalities (Improvement Board) Rules, 1966- framed u/s 173 and 174 read with 323 of the Act

•

The Karnataka Municipalities (Preparation of Plans and Estimates and Execution of Municipal works) Rules, 1966- framed

u/s 323 and 366 of the Act

•

The Karnataka Municipalities (Powers and Duties of Auditors) Rules, 1965- framed u/s 323 of the Act

•

The Karnataka Municipalities (Payment of Audit Charges) Rules, 1965- framed u/s 323 read with Section 290 of the Act

•

The Karnataka Municipalities (Appearance before Government Auditor and Inspection of Books and Vouchers by

Ratepayers) Rules, 1966- framed u/s 323 of the Act

2 .3

Important bye laws

Important Model Bye-laws the auditor should know are:

•

KM Building Bye-laws, 1979

•

KM Advertisement Bye-laws

•

KM Sanitation , Conservancy and Drainage, Bye-laws

•

KM Water Supply Bye-laws

•

KM Regulation and Inspection of Places used for private market, slaughter houses, etc,

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•

All model bye-laws relating to regulation and licensing for activities of the municipal council for which fees are being

collected by the municipality

Chapter 3

Statutory Audit and Audit Principles

The present auditing system of Government transactions is mainly derived from the Government of India Act 1935. The Constitution of

India in its Articles148 to 151 lays down the details of the institution of Comptroller & Auditor General (C&AG) of India, his terms of

appointment, duties and powers. The C&AG (Duties, Powers and Conditions of Service) Act, 1971 (DPC Act) passed by parliament

clearly prescribes his jurisdiction regarding the maintenance and audit of accounts of Union and States. The 73rd & 74th Amendments

to the Constitution of India empowethe States to decide the auditor for the audit of accounts of local bodies. In Karnataka, the audit and

certification of accounts of Zilla and Taluk panchayats are entrusted to C&AG of India and that of Grama panchayats and Municipalities to

the Controller, State Accounts Department.

The 13th Finance Commission, inter-alia, made certain recommendations relating to the Local Bodies functioning in the States. The most

important recommendations relating to audit are:-

a.

C&AG must be entrusted with Technical Guidance & Support for all local bodies;

b.

CA&G's Annual Technical Inspection Report should be placed before the state legislature; and

c.

The Annual Report of the Director, Local Fund Audit should be placed before the state legislature.

In accordance with the above recommendations, provisions have been made entrusting TG&S for all ULBs in the States, placing the

Technical and Inspection Report of the C&AG before the Legislature of the State and also for placing the Annual Report of the

Controller, State Accounts Department pertaining to the ULBs before the Legislature, by amending KMC Act, 1976 and KM Act, 1964

through 'Karnataka Municipal Corporations and Certain Other Law (Amendment)) Act, 2011, with effect from10th June, 2011 vide

Notification No. UDD 209 GEL dated 10/06/2011.(See para 1.6 d) to g) above).

3 .1

Audit objectives

Broad objectives of audit are:-

•

To provide an unbiased, impartial and objective assessment of the reliability and fair presentation of financial activities

•

To provide an assessment of due observance of laws, rules, procedures and systems

•

Assessment of the achievement of economy, efficiency and effectiveness in the implementation of the mandated activities

The conventional audit of accounts is to "verify the accuracy and completeness of accounts to secure that all revenue and receipts

collected are brought to account under proper head, that all expenditure and disbursements are authorized, vouched, and correctly

classified, and that the final accounts represent a complete and true statement of the financial transactions it purports to exhibit". It is

an exercise to ensure Audit against provision of funds, the Regularity and Propriety of the financial transactions.

3 .2

Scope of auditor

Criticism, giving opinion and suggestion are inherent part of the duties of auditor. For performing this duty, auditor has inherent powers

to:

•

Access to accounting and other records

•

Obtain clarifications and statements

•

Report serious irregularities'

•

Submit audit report to the concerned authorities within specified time

•

Scrutiny of compliance to audit report

3.3

Kinds of audit

Kinds of audit are:

•

Audit against provision of funds,

•

Regularity audit

•

Propriety audit

•

Performance or value for money audit

•

Systems audit and

•

Computer aided audit

3 .4

Audit against provision of funds

This audit is directed primarily to ascertain that the money expended has been applied to the services and purposes for which grants are

provided in the budget passed by the Urban Local Bodies under the provisions of the Karnataka Municipalities Act & Karnataka

Municipal Corporations Act and the amount of expenditure against each budget head does not exceed the amount provided in the budget.

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3 .5

Audit of regularity

Regularity audit seeks to ensure accountability of the spending authorities in terms of conformity with the authority, rules, regulations and

orders issued by Government or under its own powers. This covers:

•

Audit against Rules, Regulations and Orders, and

•

Audit against sanctions.

This audit consist of verifying and confirming that the expenditure incurred conforms to the relevant provisions of the Constitution and

the laws and rules made there-under and is also in accordance with the financial rules, regulations and orders issued by a competent

authority, either in pursuance of any provisions of the Constitution or of the laws and rules made there-under or by virtue of powers

delegated to it.

The main rules, regulations and orders against which the audit of Urban Local Bodies expenditure is conducted are:

a) rules and orders regulating the powers to incur expenditure from the Consolidated Fund and Contingency Fund of India or

of a State or fund of local bodies ( both in treasury and banks),

b) rules and orders dealing with the mode of presentation of claims against Government, withdrawing money from

Consolidated Fund, Contingency Fund and Public Account, claims against Urban Local Bodies and in general, the

financial rules prescribing the detailed procedure to be followed by Government servants in dealing with Urban Local

Bodies transactions, and

c) Rules and orders regulating the conditions of service and pay and allowances and pension of employees of the Urban Local

Bodies.

In the scrutiny of these rules and orders it should be seen that:

a) they are not inconsistent with any provisions of the Constitution or of any law made there- under,

b)

they are consistent with the essential requirements of audit and accounts as determined by the C&AG,

c)

they do not conflict with the orders or rules made by any higher authority and

d) In case they have not been separately approved by competent authority, the issuing authority possesses necessary rule

making power.

3. 6

Audit against sanctions

In this audit, auditor has to be satisfied that:

a)

authority sanctioning the expenditure is competent to do so under the provisions of the Act, rules or orders or by rules of

delegation of financial authority made by a competent authority, and

b)

Sanction is definite and needs no reference either to the sanctioning authority itself or to any higher authority.

When sanction is accorded by a competent authority, it can be challenged in audit only on grounds of propriety. If sanction is accorded

subject to fulfillment of certain criteria, such sanction can be challenged if any of the criteria stipulated is disregarded and if it is

considered serious as to make the sanction perverse.

In general, the auditor has to ensure the following while conducting the audit of expenditure:

a) There is provision of funds for the expenditure duly authorized by competent authority

b) The expenditure is in accordance with a sanction properly accorded and is incurred by an officer competent to incur it

c) The claims are made in accordance with rules and in proper form

d) All prescribed preliminaries to expenditure are observed, such as proper estimates framed and approved by competent

authority for works expenditure and in other cases certificates required obtained before disbursement

e) The expenditure sanctioned for a limited period is not paid beyond that period without further sanction,

f)

The rules regulating the method of payment have been duly observed by the disbursing officer

g) The payment has been made to the proper person and it has been so acknowledged and recorded that a second claim on

the same account is impossible

h) The charge is correctly classified, and that if a charge is debitable to the personal account of a contractor, employee or

other individual or is recoverable from him under any rule or order, it is recorded as such in a prescribed account

i)

The rates paid for work done or supplies made are in accordance with any scale or schedule prescribed by competent authority

and

j)

The payments have been correctly brought to account in the original accounts

3 .7

Propriety audit

The Propriety audit extends beyond the formality of the expenditure to its wisdom and faithfulness and economy. The object of

Propriety audit is to support a reasonably high standard of public financial morality, of sound financial administration and devotion to

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the financial interest of Government.. Even though an expenditure incurred may satisfy the conditions of audit against regularity, the

same may be questioned on the grounds of propriety, like non-utilization of a building for the purpose for which it was constructed,

purchase of machineries/ equipments for specific project but not utilized or delayed utilization after some years, etc which appeals to the

common sense. Such expenditure will be termed as improper or avoidable or infructuous expenditure in propriety audit. As there was no

hard and fast rules in this behalf, certain standards have been evolved called as "Canon of Financial Propriety", namely,

a) The expenditure should not prima facie be more than what the occasion demands,

b) Every Government servant should exercise the same vigilance in respect of expenditure incurred from Government

revenues as a person of ordinary prudence would exercise in respect of the expenditure incurred out of his own money.

c) No authority should exercise its power to sanctioning expenditure to pass an order which will be directly or indirectly to its

own advantage

d) Public money should not be utilized for the benefit of a particular individual or a section of the community unless the claim

for the amount could be enforced in a Court of Law or is in pursuance of the recognized policy or custom

e) No authority should sanction any expenditure which is likely to involve at later date expenditure beyond its own powers of

sanction.

f)

The amount of allowances, such traveling allowances, granted to meet expenditure of a particular type, should be so

regulated that the allowances are not a source of profit to the recipient.

Any violation of these cannons or wasteful/infructuous cases of expenditure has to be reported to all concerned by the Statutory Auditor.

3 .8

Performance or Value for Money (VFM) audit

This audit is known as Efficiency-Cum-Performance Audit (ECPA) Or Value for Money Audit. ECPA is a technique of audit adopted to

assess and evaluate. The three basic elements of Value for Money are economy, efficiency and effectiveness of development

schemes, projects and organisations.

Economy is concerned with minimizing the cost of resources acquired or used having regard to good quality.

Efficiency is the relationship between the output of goods or services or other results and the resources used to produce them.

Effectiveness is concerned with the relationship between the intended results and the actual result of a scheme, project or programme

The objective of this audit is generally to review a particular project/scheme/activity to ascertain;

•

Extent of achievement of physical and financial targets, unintended impact

•

Realization of socio-economic objectives

•

Whether the scheme/programme was implemented with due regard to economy, efficiency and effectiveness, and

•

Highlight instances of avoidable, excess or infructuous expenditure, attributable to improper planning, delays in execution,

adoption of unsound policies, etc.

Performance Audit (VFM) may be taken up in ULBs in respect of schemes and projects entrusted to it by State / Central Government and

separate grants are released for the same, when such an audit is felt necessary by the Statutory Auditor or so requested by

DMA/Government The Annual Performance report required to be prepared under the KMAM - Chapter 25, comprising of City

Management Report, Financial Auditor's report on financial statements, Cost and Performance Indicators and Budget Variance

Statements gives an opportunity to the SA to analyze and assess the performance and make appropriate comments.

3 .9

Systems audit

A system is an orderly arrangement of separate but interdependent and interacting activities and related procedures which implements

and facilitates performance of the functions of the organization.

A System Audit may be undertaken to ascertain whether in an organization as a whole or a wing or a section is designed with

appropriate controls, checks and balances to safeguard against errors, frauds, etc,. This may be undertaken when serious defects in the

functioning of the organization or a wing or a section is noticed by the management or in audit.

System Audit may be taken up when the serious lapses noticed in accounting of receipts or expenditure could be attributed to any

defect in the system or procedure, or when management desire for such an audit to ensure effectiveness of the existing systems.

General Principles:

i.

Check the chain of movement in each procedure forming a part of the operational or financial activity. Each link in the

chain has to be analysed to identify the unnecessary links.

ii.

Causes for departures from or relaxations of the prescribed procedures should be analysed to ascertain the in-built

delays. The analysis will indicate where the linkages are getting extended or overloaded and how the resultant strains may

be eliminated.

iii.

System should be examined to check whether action on important points has been initiated at sufficiently high levels of the

hierarchy so as to produce meaningful results.

iv.

In addition, procedures, and or records which appear to be redundant or superfluous should be identified for elimination.

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3.10

Computer Aided Audit /Information Technology Audit

Computer Aided Audit may be resorted to when:

•

All aspects of accounting transactions are fully computerized

•

A robust, reliable and sustainable computerized accounting system is in place with audit trail conducive for computer aided

audit.

•

Various modules of accounting software developed are integrated to the main accounting module for easy access to the

accounting data/reports

•

Accounting software developed enables audit to check required categories of transactions- detailed or summary or analytical

data.

3.11

Application of the above audit principles in the audit of ULB accounts by the Statutory Audit Authority, i.e. State

Accounts Department

Audit of accounts depends on the system of accounting followed, rules and regulations framed, the procedures and forms

prescribed in the rules and regulations. Therefore, the audit has to be conducted having regard to these aspects. Refer Chapter 2 to have

an idea of important provisions of the Act and Rules.

Audit against provisions shall be conducted with reference to the stipulations, restrictions and procedures laid down in Sections 286,

287 and 288 of the Act and procedures and forms prescribed in the KMABR 2006.

Audit against Regularity shall be conducted with reference to the financial rules framed under Section 289 and 323 of the Act besides

provisions relating to delegation of powers to Municipal Authorities and Controlling Authorities, KMABR 2006, etc,.

Propriety Audit shall be conducted keeping in view the canons of financial propriety and transactions disclosing glaring extravagance/

infructuous expenditure, etc,.

The detailed audit procedure covering above aspects are laid down in subsequent chapters of this manual.

3.12 Audit of revenues

It is the primary responsibility of the revenue collecting authorities to see that all revenue receipts due to the ULB under laws applicable

to it are assessed properly, demanded and realized timely and credited to its account, as per rules.

The Audit is required to see that:

a) Rules and procedure are in place to secure effective check on assessment, collection, remittance and classification of

revenue and are strictly followed

b) Prescribed Accounts, forms and registers are properly maintained

c)

Instances of misappropriation noticed in audit are reported to concerned and prompt action taken by the concerned

authorities

d) Defects in the system which enabled misappropriation or defalcation are reported promptly to the institution, Controlling

Authorities and Government.

Detailed audit checks to be exercised in the audit of income account (revenues) of the ULBs are given in Chapter 5.

3.13 Audit of financial statements of ULBs

Though audit of financial statements and certification of the accounts falls within the ambit of the Statutory Auditor as per the provisions

of KM (Powers and Duties of the Auditor) Rules, 1965, in view of the specific provisions in the KMABR 2006 for appointment of Financial

Statement Auditor and duties and responsibilities of such auditor, this audit is restricted to certain aspects specified below:-

•

Detailed check of vouchers prepared by the Accounts Department to the books of accounts, treasury/bank pass sheets and

bank reconciliation statements

•

Test check of year end closing of cash book, bank book, journal book, ledgers, trial balance

•

Review of financial statements w. r. t. trial balance and other records

3.14 Scope of physical verification in Statutory Audit

Audit by statutory auditor is generally confined to the accounting records maintained by the ULBs However, the auditor is required to

physically verify;-

•

Cash on hand with the cashier and check its agreement with the cash book balance, as on that day

•

Stock of unused Receipt Books, Cheque books, Ticket Books, etc,

•

Stock of unused money value book-lets and forms like prescribed and priced application forms for various services

3.15 Audit alertness

Auditor should be alert and vigilant to detect frauds that might have taken place on account of irregularities like:

•

Unauthenticated erasures and alterations of accounting records

•

Use of photo copies of documents for payments

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•

Missing vouchers, counter foil for departmental receipts issued

•

Unusual accounting entries

•

Discrepancy between control total and subsidiary records

•

Manipulation of accounting records to conceal misappropriation of receipts

•

Retention of heavy cash balances and undue delay in depositing cash receipts into Bank/treasury.

3.16 Audit report

The Audit Report is the end product of every Audit. It is through this media the auditor expresses his opinion on the test of financial

transactions with regard to regularity and propriety as well as on the Financial Statements and other data under audit. The wording of

audit report is of prime importance as auditor's legal responsibility for negligence or fraud rests on this report. The report must contain all

pertinent information to satisfy audit objectives and should be complete with appropriate background information audit conclusions.

Report should be correct objective convincing and should be concise and must have clarity.

Detailed instructions regarding audit planning, intimation of audit programmes, conduct of audit, issue of audit enquiries, completion of

audit, audit report format and its contents are given in Chapter 11 of this manual for reference.

Chapter 4

Budget

4 .1

Preparation and presentation of budget

[sec. 287 of KM Act-1964 - Rule 131 to 135 of KMAB Rules 2006 and detailed instructions on budget preparation given in Chapter 26 of

KMAM]

It shall be ensured in audit whether the following requirement under Section 287 (3) of the KM Act , 1964 has been fulfilled by the

municipal council:

a)

Adequate and suitable provisions made for fulfillment of functions imposed on it under the Act or any other law

b)

Necessary provision made for payment of principal and interest payable towards loans taken by the municipal council

c)

Provisions made towards all sums payable to Government including contributions for maintaining water supply,

dispensaries, schools managed by Government on behalf of the municipal council

d)

A closing balance to meet establishment expenses of the municipal council for a period of three months is allowed in the

budget estimates

Audit shall also verify and ensure that following aspects prescribed under Rule 131 to133 are complied or otherwise:

a)

Budget estimates of the municipal council are prepared on cash basis even though the accounts are maintained in double

entry accrual system of accounting

b)

Budget estimates for the next financial year is prepared by the Commissioner/Chief Officer and presented before the

council before 15th day of January, preparing a Budget Summary in KMF No. 79 supported by detailed estimate of

Revenue Receipts in KMF NO. 80, Revenue Payments in KMF NO. 81, Capital Receipts in KMF NO. 82, Capital

Payments in KMF NO. 83, Extraordinary Receipts in KMF NO. 84 and Extraordinary Payments in KMF NO. 85

c)

Revised budget estimates of the current year taking into account the additional budget and re-appropriation of funds

made, is also placed along with ensuing year's budget estimates

d)

The revised budget estimates of the current year and estimates for the next year placed before the Municipal Council,

approved by the municipal Council, at least before the commencement of financial year.

e)

The budget estimates as passed by the municipal council is published under the seal of the municipal council with the

signature of the President and the MC/CO and hosted in the website of the municipality

f)

Copies of the budget forwarded to Government, DMA, DC, CSAD and the Assistant Controller of the jurisdictional Local

Audit Circle and an abridged version of the budget sent to the District Publicity and Information officer for publication in 2

leading news papers of the District. A notice shall also be published in two local news papers having maximum circulation

in the District announcing the sanction of the budget and the detailed copies may be obtained from the office of the

municipality on payment of necessary fees or may be downloaded from the website of the municipality.

g)

Audit should also see whether any modification to the budget estimates submitted to Government / DMA/DC is received

in terms of Section 287(5) of the KM Act.

4 .2

Compliance to preliminary procedure

Audit is required to verify and ensure that the municipal council has complied with the following preliminary procedure before

preparation and placing of budget estimates for approval of the municipal council:

a)

Manner of preparing budget estimates laid down in Rule 133 (1) are followed

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b)

Estimation of transactions of income and expenditure is based on estimation sheets prepared in Budget Information Data

Sheets (BIDS) prescribed in Chapter 26 of KMAM

c)

First round of Public Consultation meeting while preparing the budget in November, inviting representatives of

registered 'Resident Welfare Associations'. NGOs, Trade and Industry Associations, other Associations and prominent

citizens of the municipal area for discussing following aspects:

(i)

Annual performance report of previous year

(ii)

The budget performance of the current year

(iii) The approach to the ensuing budget year

(iv)

The proposed capital expenditure & new works suggested

(v)

Suggestions as to additional revenue measures and

(vi) Proceedings recorded placed with the feasibility opinion of the MC/CO before the council, as stipulated in Rule

133(3) of KMABR,2006

d)

Second round of Public Consultation meeting held in December placing before the public representatives mentioned

above, the following for discussion and suggestion offered:

(i)

draft budget which is proposed to be placed before the Council

(ii)

details of capital works most likely to be taken up in the next year

(iii) suggestions received placed before the council along with the note of the MC/CO as to the feasibility of the

suggestions financially & administratively, as per Rule 133(4) of KMABR,2006

4 .3

Budgetary control

Audit should examine the budget control mechanism followed in the municipality, and should ensure that:

a)

No expenditure is incurred unless budget provision is made in the budget and sanction to incur expenditure exists

b)

Expenditure of earlier periods are paid with the sanction of the council, only after necessary budget provision is made by

way of additional budget or by re-appropriation of funds

c)

No expenditure is incurred in anticipation of additional grants or by diversion of grants available under other fund account

4 .4

Budget variance

Audit is required to see that there are no instances of excess expenditure over budget provision and abnormal savings against

provisions. The 'Budget Variance Statement' prepared by the Accounts Department as stipulated in para 26.52 of KMAM will disclose

such variances. If no valid reasons are forthcoming for such variations between budgeted figures and actual figures by the MC/CO, such

cases may be highlighted in the audit report

Chapter 5

Audit of ULB Income

5 .1

Incomes of ULBs

Income or Revenues of ULBs comprise of:

a) Taxes levied under the provisions of the Act i.e. Section 94 of KM Act

b) Assigned Revenue by Govt. like Grants under devolution fund (State Finance Commission)

c)

Govt. of India Grants (Finance Commission/Schemes)

d) Fees collected under the provisions of the Act, Rules and bye-laws

e) Income from properties of the ULBs

f)

10% of the amount of cesses collected, as collection charges

g) Fines and penalties levied under the provisions of the law

h) Unconditional Contributions, Donations, etc from Govt. and other entities

i)

Any other receipts

Revenue of the ULBs are broadly categorized as follows:-

•

Revenue Receipts

•

Capital Receipts

Revenue Receipts include;-

•

Tax Revenue- i.e. revenue from taxes levied by the ULBs as per the Act., like Tax on buildings and lands (Property Tax),

Advertisement tax, and Duty on transfer of immovable properties in the form of additional stamp duty

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•

Non-tax revenue i.e. income from properties like lease rentals, fees levied for services rendered, user charges, interest

from investments, untied grants (State Finance Commission) released by State Govt. under devolution of funds

according to the recommendation of the State Finance Commission as mandated under 74th amendment to Constitution of

India and other receipts like fines, penalties, copying charges for documents requisitioned, etc.

Capital Receipts include;-

•

Grants received for creation of assets or for capital works

•

Loans raised for creation of assets or for capital works

•

Income from sale of lands, buildings and other fixed assets

For accounting purpose, the categories mentioned above are further categorized as:

a)

income accounted on accrual basis, and

b)

income accounted on cash basis

This is based on the criteria laid down in Chapter 4 (rules 19&20) and Chapter 5 ( rules 21 to 34) of KMABR,2006

The Concerned Departments / Sections of the ULBs are responsible for identification of income legally collectable under the Act and

rules, assess the amount, collect and remit it to concerned bank/treasury accounts and maintain accounts as per the procedure laid

down in the rules.

The following items of revenue fall under the category of Accruable Income satisfying the criteria laid down in Rule 19 (1) of

KMABR,2006;-

a) Property Tax

b) Service charges in lieu of Property tax levied under Section 94(2)

c) Advertisement Tax

d) Water Supply and Sewerage Charges

e) Trade license fees

f)

Rental income from municipal properties (rent from shops, commercial complex etc.)

g) Lease rental income

h) Ground rent on advertisement hoardings on ULB land

The following items of revenue fall under the category of Non-Accruable income accounted on receipt of cash;-

a) Rent from guest houses, community halls, auditoriums etc.

b) Rent from daily markets collected departmentally.

c) Fees for birth/ death certificate.

d) Fees for khatha transfer. e) Building License fees.

f) Cremation / Burial charges, copy fees, etc,.

g) Fines and Penalties

Chapter 6 of KMAM prescribes the accounting entries to be passed in respect of income of ULBs and form of accounting. The following

are some of the important accounting forms required to be maintained by the ULBs in connection with accounting of income. Audit has

to verify these register and forms in audit.

Table 1: Important accounting forms

Name of the Form/Register

Form No

Summary of statement of demand raised or income accrued

KMF No. 13

Register of changes in Demand or Adjustments (write off, remissions etc,.)

KMF No. 27

Summary statement of changes in Demand or Adjustments

KMF No. 13A

Receipt Books

KMF No 14

Register of Cheques received

KMF No 15

Collection Register of (cash and cheque collection)

KMF No 16

Collection Register (Bank collection)

KMF No 16 A

Chitta

KMF No 17

Summary of daily cash collections

KMF No 18

Summary of daily cheque collection

KMF No 19

Summary of daily collection through bank / treasury

KMF No 20

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Demand collection and balance (DCB) cum Form III register

KMF No 24

Special DCB register (monthly basis collections )

KMF No 25

Miscellaneous DCB Register (for demands other than those liable to be paid on monthly basis)

KMF No 26

Demand collection and balance Register (DCB)-Trade License Fees

KMF No 26A

Suspense Register to record transactions for which details are wanting

KMF No 28

Audit checks to be exercised in the audit of accounting of collection of ULB dues in the office are discussed in Chapter 10. Therefore,

detailed audit checks in relation to other accounting record prescribed in the KMABR,2006 and KMAM are indicated in this chapter

5 .2

Audit of any new tax levied by the ULBs

When any tax is levied by the ULB, audit has to verify whether the levy of tax is permissible under Section 94 of KM Act or any other

legislation, the following procedure to be followed before levy of tax as laid down in Section 95 has been followed and sanction of

Government for the said levy: obtained-

a) Tax has been levied for the first time or when the rate is increased, a notice has been published by the ULB as required by

section 95 of the KM Act

b) Council had published a notification in the Karnataka Gazette, specifying the rate at which, the date from which and the

period for which such tax would be levied

Note: A notification is necessary even if a tax is reduced or abolished.

c) Any resolution abolishing a tax or reducing the rate of tax has been reported to Government and in municipalities which have

outstanding loan either from the Government or from the public or other local body, such abolition or reduction is not given

effect to without the sanction of Government as required by section 141(b) of the KM Act 1964.

5 .3

Audit of property tax account

Audit has to see whether:

•

DCB register is maintained in form No KMF N0. 24 based on the demand raised or income accrued in KMF NO. 13 furnished

by the Revenue Department.

•

The Accounts Department has passed entries opening ledger account for 'Receivables- Property Tax income' by preparing

a Journal Voucher

•

Filing of Property Tax-SAS return: Every owner or occupier who is liable to pay tax has submitted the return required under

SAS within the stipulated time and paid the tax to the ULB through the designated bank

•

Arrangements have been made to obtain bank schedules together with SAS declaration forms from the designated banks

by allocating staff for the purpose of accounting of collections through banks by preparing Summary of Daily Bank

Collections of each bank in KMF No. 20

•

Verification of SAS declarations and the challans supporting remittance of tax as per self assessment has been done to

ensure tax has been properly assessed as per the guidelines for assessment on Capital Value System (CVS)

•

Payment of Tax: Tax has been remitted by the tax payer within the time specified for payment without penalty and rebate

of 5% of tax is allowed wherever paid within stipulated time, as per section 105(1) of the KM Act 1964

•

Penalty of 2% P.M. under section 105(5) of the Karnataka Municipalities Act 1964 is collected where tax has been paid

after 90 days, after the commencement of financial year

•

Self assessment declared are verified and found correct, assessed accordingly and an order of assessment sent to the tax

payers, as per Section 105 (3) and orders in all cases of self declaration returns are concluded within one year from the date

of submission of returns

•

Payment/Collection of Cesses on Property Tax: Tax Payers have paid Cesses payable on the property tax along with SAS

declaration return to the bank and in case of tax collected by collection staff, the same has been collected by them

•

Issue of Assessment Orders: MC/CO or the authorized officer has conducted the assessment and raised demand for

property tax in case of property owners who failed to file return under SAS with in 30th June as per Section 105 (4) of the

Act and Rule 19 of Karnataka Municipalities Taxation Rules, 1965 (amended from 23.01.2002), which is called

Compulsory Assessment by the local bodies (CAL), and orders sent to the tax defaulted tax payer.

•

Collection of Penalty: Any penalty ordered to be paid by the MC/CO/Authorized Officer either for failure to file the return or

for furnishing incorrect or incomplete return or failure to submit the return after payment of tax, in terms of Section 105(5) of

the Act, have been paid or not by the tax payer

•

Objections against assessments: If any tax payer has sent objection, the objection has been sent within one month from

the date of receipt of assessment order and a decision either confirming or revising the assessment is communicated to the

tax payer within sixty days from the date of filing objection.

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•

Accounting of changes in the demand: A statement of changes in the demand in KMF No. 13A is prepared on monthly

basis by the Revenue Department and sent to the Accounts Department for effecting changes in the 'Receivables- Property

tax account' and other accounts.

•

Accounting of collections in the DCB register: Property tax remitted by the tax payers along with the SAS declaration

returns are posted in the DCB registers with reference to remittance challans accounted in the summary of Daily Bank

Collection statements and all payments of tax through Bill Collectors or ULB office are accounted with reference to receipts

accounted in the collection register. Audit should also see that Remissions and Write off granted by the ULB are also

reflected in the DCB registers and the balance is arrived at correctly and that agree with the total outstanding figure in the

'Receivables- Property Tax account'

•

Preparation and publication of Property Tax Register (Rule 106 of KM Act): A Property Tax Register in respect of buildings

and vacant lands or both in the municipal area, with such particulars is prepared in the form prescribed.

•

Number of cases where on application made by any person and payment of fees specified by the authorized person, such

persons are allowed to inspect the above register and number of cases certified extract of the entries in the said register are

given to such persons

•

Whether any survey of buildings and lands or both has been conducted by the ULB on the orders of Government and any

expenditure incurred towards conduct of such survey for assessment/preparation of the property tax register, as per Section

107-A of the Act.

•

Enhancement of property tax: Enhancement of property tax once in three years, commencing from 2005-06 has been

made as provided under Section 102-A of the Act.

•

Demand of property Tax has been raised in the month in which the property tax is received / SAS returns filed on new

buildings or demand raised by issue of demand notice, whichever is earlier, as per para 6.8 (11) of chapter 6 of the KMAM

•

The properties which have escaped assessment have been accounted as prior period income when recognized and the

amount pertaining to current year has been treated as 'current years income' and that the property tax received in advance is

treated as a 'liability' till the tax becomes due and same is adjusted against receivables as per para 6.8 (b) and (c) of chapter 6

of the KMAM

•

Rebate allowed on property tax on account of self occupation under section 103 of the Act, the net amount has been

accounted as property tax i.e. for the purpose of both demand and collection, and rebate allowed on account of early

payment under provision to section 105(1) of the Act, treated as expenditure by accounting gross amount as property tax as

para 6.8 (I) (ii) of chapter 6 of KMAM

•

Notice fee, Warrant fee and Distraint fee, penalty etc for which notices or warrants are issued have been accounted as and

when the demand is raised as per para 6.8(e) of KMAM

5 .4

Service charge in lieu of property tax

Under section 94(1A) of the Karnataka Municipalities Act 1964, several properties such as, places of worship, places of charitable

purpose, hospitals and Government properties are exempt from the payment of property tax. However, section 94(2) provides for

collection of service charge for providing Civic amenities to these organizations at the prescribed rates, as per para 6.34 of chapter 6 of

the KMAM. The demand for service charge in lieu of property tax shall also be recorded in the same way as property tax.

It has to be verified and ensured in audit that such items are included in DCB raised in KMF No.13 under head service charge in lieu of

property tax. Accounting procedure is detailed in para 6.35 of chapter 6 of the manual and DCB accounts maintained.

5 .5

Cesses collected on behalf of the State Government

a)

Audit has to verify and ensure that the state Government dues such as Health cess, Beggary cess, Library cess or any

other cess collected along with property tax has been recorded with property tax while accruing property tax and both

have been debited to receivable account and property tax is credited to property tax (income) account and total cess

amount is credited to a separate "cess control Account- property tax" (para. 6.8(f) of the manual).

b)

90% of the Cesses collected transferred to individual cess liability account of different cesses from where remittances

are made to appropriate authorities, and balance of 10% percent of the collected amount retained as 'Cess Collection

Charges' under income as per para 6.8 (g) of the KMAM.

c)

Remissions granted, refunds etc are to be seen as affected to accounts concerned as per the provisions of para 6.8

(h),(i),(j),(k),(l),(m) and (n) of KMAM. Accounting policies relating to property tax is also applied to the extent possible to the

Advertisement tax.

5.6

Check of collections

a)

The ULBS may collect money by way of the following means as per Rules 2 to 27 of KMABR,2006

(i)

Through the ULB's Bill collectors ,

(ii)

Through office collections

(iii) Through a collection agency (such as designated Bank/ treasury for collection of property Tax under SAS),

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b)

In respect of the above first two cases collections may be through cash, cheque or DD for which printed Receipts in KMF

No14 are to be issued.

5 .7

Check of stock account of receipt books

Auditor has to physically count the un-used Receipts books on hand with reference to stock book balance in KMF No 87 and certify in

the stock register as to its correctness. Ensure that these have been supplied by Government Printing press or got printed from presses

authorized by Government Printing Press

Auditor has to obtain the receipts books issued to various collection staff during the period of accounts audited, as per the Stock Book

of Receipts in addition to unused receipt books as on 31st of March of previous financial year Auditor has to verify Stock Account of

Receipt Books and ensure that:

•

The printed receipt books in form KMF 14 in Triplicate, serially numbered have been issued to each collection staff, as per

the entries of issues made in the stock book.

•

Only one receipt book has been issued to the collection staff, at a time after, the earlier receipt book returned after it is

completely or almost completely used

•

All receipt books issued to a Bill Collector or other authorized official during the period of accounts under audit, have been

actually accounted as seen from the entries recorded in the collection registers maintained by them

•

The receipts have been written using double-sided carbon.

•

Original receipts issued to the tax payers the duplicate copy sent for record of the Department concerned and the

triplicate retained in the receipt book as per rules and para 5.53 of chapter 5 of KMAM

•

In the case of receipt issued in respect of Cheques and drafts, the receipt issued is recorded with a notation "subject to

realization".

•

The unused receipts as on 31st of March have been subsequently used and accounted

5 .8

Check of accounting in collection register

Auditor shall verify and ensure that:-

•

Collections as per the receipts issued have been accounted in the collection Register in KMF No 16 maintained by each

collection staff and the daily collections entered from the receipt book have been correctly totaled

•

Separate collection registers have been maintained for each such collection of bank account in KMF No 16A (para 5.54 chapter

5 of KMAM)

•

Revenue Inspector, Revenue officer or any other nominated officer has exercised Checks of receipts and collections register of

each bill collector with reference to the DCB register and affixed his signature on the collection Register (para5.55 of chapter 5

of KMAM)

•

The amount collected has been handed over to the Cashier by the collection staff, after verification as above and the

cashier has acknowledged the receipt of the collections in the collection Register.

•

The Cashier has maintained a 'Register of Cheques Received' in KMF No15 and has accounted collections received

through cheques handed over by the collection staff

5 .9

Check of Chitta

Auditor shall verify Chitta and ensure that:-

•

Cashier has accounted all collections made in the office or by any staff entrusted with office collections, in the Collection

Register maintained by him and got verified by some designated official

•

Cashier has accounted all collections received by him in a Chitta in KMF No17 duly segregating the collections fund-wise

and Account Codes-wise

•

Cashier has prepared summary of daily cash collection in Form KMF No 18 and cheque collections in Form KMF No 19

separately for each Fund segregating the collections under relevant account heads and account code and Budget codes.

•

There has been no delay at any stage in bringing the collections to account

•

Summary statements in KMF No 18 and 19 have been sent to the Accounts Superintendent/Accountant, for verification

and preparation of separate Receipt Vouchers in KMF No.8 for cash and cheque collections

5.10 Check of remittance of collections

Auditor shall verify and ensure that:-

•

The daily collections acknowledged by the cashier and entered in Chitta have been remitted into treasury or bank, on the next

working day

•

Remittances to treasury or bank have been made preparing challan/ pay-in-slips and recording the remittances in a

'Remittance Book'.

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•

Remittance Book has been regularly verified by the Office Manager/MC/CO

•

Amount remitted to banks have been brought to Cash Book and Bank Book by preparing Contra Voucher in KMF No.10 by

the Accountant

5.11 Reconciliation of remittances made to bank accounts

Auditor shall see whether:-

•

Bank statements have been obtained on weekly basis and remittances reconciled with reference to Remittance Book and

Cash /Bank Book

•

Realization of all cheques remitted to Treasury or Banks has been ensured by the Accountant

•

In case of Dishonoured cheques, action as stipulated in Rule 34 of KMABR,2006 has been taken and necessary entries

have been made in the relevant records reversing the receipt entry

5.12 Check of direct bank collections

In the case of direct collection by banks in respect of property tax payments, auditor has to verify and ensure that:

•

Arrangements have been made for obtaining bank statements from the designated bank, regularly (at least weekly)

•

Daily bank collections have been accounted in Collection Register in KMF No.16A by the official entrusted with this task

•

After entry of the direct bank collections in the form 16-A, challans supporting remittance of tax have been handed over to

the concerned official responsible for posting of collections in the DCB register

•

Based on the Daily Collection Register, separate Summary of Daily Bank Collection in KMF No.20 for each bank has been

prepared and verified and authenticated by the Revenue Inspector/ Revenue Officer or any other official designated for this

purpose and sent to Accountant

•

The Accountant has prepared Receipt Voucher in KMF No.8 by debit to Bank/Treasury account concerned and by credit to

concerned Income account (para 5.61 of KMAM)

•

In respect of arrears collection of property tax, collections made by the Bill collectors have been accounted in collection

register by them and remitted to cashier, in the usual manner

5.13 Procedure of accounting property tax

Procedure for passing of accounting entries is laid down in Chapter 6 of KMAM. The Auditor has to see that accounting entries have

been passed for accrual of property tax, changes in the accrued demand, accounting on collection of tax, advance collection of tax,

remissions and writes off, etc, accordingly in the vouchers and books of accounts.

5.14 Verification of the Demand Collection and Balance Register (Form KMF 24)

It should be seen in audit whether: -

•

Total demand has been certified by the Executive authority.

•

Alterations in demand have been carried out in the demand register according to Form No13A including 'rebate of 5%

allowed on payment of property tax within thirty days of commencement of the year, as indicated in para 6.32 of KMAM

•

Posting of collections have been correctly recorded in the DCB register based on the Collection Registers of collection staff

in respect of collections in cash and through cheques and with reference to challans & bank statement entries in respect of

direct bank collections

•

Reductions granted on appeals have been noted in the demand Register.

•

Page-wise totals of the several money columns in the demand register have been made in ink and carried forward correctly

to the abstract prepared at the end of the register. Totals in each register should be test checked to verify their correctness.

If numerous mistakes are noticed, such further check may be exercised, as the auditor may consider necessary.

•

Totals of the abstract agree with the corresponding figures in the demand, collection and balance statement prepared for the

year of audit and placed before the municipal council.

•

Total collection agrees with the progressive total amount shown in the Classified Abstract of Receipts

•

Balances have been correctly arrived at carried forward to the balance column of the DCB Register.

•

In case of write off, the concerned files indicate that the amounts due have been found to be irrecoverable and sanction of

competent authority has been obtained for writing off

•

In case of remissions, the same are admissible according to provisions of the Act and Rules framed there-under and

prescribed procedure has been followed before according sanction for write off

•

Timely action has been taken to avoid a due becoming barred by the Limitation of Time Act

•

Posting of collections in the DCB register are supported by entries in the Collection Register or Challan details for direct

bank collections i.e. to ensure that no fictitious postings of collections are recorded.

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5.15 Advertisement tax

Accounting of advertisement tax is similar to property Tax .The Revenue Department of ULB maintains a miscellaneous DCB register

in KMF No 26 to record demands collections and balances due in respect of Advertisement tax. This shall be based on advertisement tax

statement of Demand or Income Accrued in KMF 13 for the year prepared and sent to the Accounts Departments at the beginning of

the year. Based on this statement, the Accounts Department shall prepare the journal voucher to include in the accounts (see para 6.38

of N KMAM).

Audit of collection of accrued Advertisement tax is same as that of property tax.

5.16 Provision for unrealized taxes

a) Under Rule 58(1) of KMABR,2006, a provision on the amount of 'Receivables' in respect of tax receivable (property tax

as well as advertisement tax) remaining outstanding at the end of the year has to be made in the accounts on the following

basis:-

(i)

Outstanding for more than 2 years but not exceeding 3 years @ 25%.

(ii)

Outstanding for more than 3 years but not exceeding 4 years. @ 50%

(iii) Out standings for more than 4 years and not exceeding 5 years. @ 75%

(iv)

Outstanding more than 5 years 100 %.

b) Rule 58 (2) of KMABR,2006 prescribes that such a provisions shall be made on overall basis on balances in the respective

accounts in the books of accounts shall not have effect of reduction or write off of demand and as such, no entries for such

provisions shall be made in the DCB register.

c) The Auditor has to verify and ensure that provision made as above and reflected in the balance sheet is not reduced from

the 'Receivables' outstanding or accounted as 'write off' in the respective Ledger accounts and DCB registers.

5.17 Water supply and sewerage charges

a) Auditor should be conversant with the revenue being collected by the ULBs, the accounting policies relating to it, accounting

procedure laid down in chapter 7 of KMAM.

b) Under the new accounting system, water supply and sewage is recognized as a separate fund, and ULB"s are required to

maintain separate books of account for transactions pertaining to water supply and sewerage (para 7.2 of KMAM)

c) ULB's charge the users fee for providing and maintenance of water supply to the public and private purpose.

d)

The charges for water supply are collected each month based on a standard rate per house hold as per the bylaws approved

by the Municipal council.

e) The following types of revenue from water supply and sewage are to be checked .in audit

(i)

monthly water charges- collected on accrual basis

(ii)

connection charges for water supply for new connection -accounted on collection

(iii) water Tanker charges for supply of water at fixed rate per tanker- accounted on collection

(iv)

Road cutting charges and Restoration charges (to be accounted under General funds).- accounted on collection

(v)

Connection charges for new sewerage connections.- accounted on collection

(vi) Monthly sewerage maintenance charges-- accounted on collection, if the council decides to charge the users.

f)

The Auditor has to verify the demand raised in the DCB register in Form No KMF 25 and other accounting records

mentioned below. (rule 53(1) (b) KMABR,2006)

•

Demand raised or income accrued in Form KMF No 13

•

Summary statement of changes in demand in Form KMF No13A

•

Register of changes in demand or adjustments KMF No 27

•

Register of cheques received Form in MKF No 15

•

Collection Register of cash and Cheques KMF No 16

•

Collection Register of bank collection, if any, KMF No16A.

•

Chitta in Form KMF No 17

•

Summary of daily cash collection and cheque collection in Form KMF No 18 and 19

g) Water supply and sewerage collections are to be checked with reference to receipts issued, collection registers, and traced

in the Chitta, if the collections are made by the Bill collectors.

h) All other checks as prescribed in the case of Property Tax have to be exercised

i)

Transaction, such as advance of water charges, refunds and remissions, notice fee / warrant fee, provision for doubtful

receivables, etc are to be the same as in the case of property tax.

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j)

It is to be verified that the following internal controls are observed:

•

Accounts department had taken action to obtain Bank statement on daily basis and verified the actual realization of

drafts received and deposited in the Bank using the Cheques received Register (KMF No15).

•

Quarterly reconciliation has been carried out by the accounts department and revenue/ water supply department in

respect of amounts collected and balances in receivable accounts, Ledger accounts with the balances in special D.C.B.

register.

5.18 Rentals, fees and other incomes

a) The following items of revenue also falls accruable items of income:-

(i) Rental income from municipal properties (rent from shops commercial complex etc.), rental from leased properties

(ii) Trade License Fees for regulation of dangerous and offensive Trades

(iii) Ground rent on advertisement hoardings on municipal lands

b) In these cases, auditor has to verify and ensure that DCB registers are maintained in the prescribed form and accounted as

laid down in Chapter 12 of KMABR,2006 and accounting entries passed as indicated in Chapter 9 of KMAM

c) All properties let out or leased are supported by resolution of the council and necessary agreement executed by the lessees.

d) No lease of immovable property belonging to the Council for periods exceeding 5 years has been given on lease without

the sanction of the Government and in the case of a lease for a period exceeding one year, sanction of the Municipal Council

by a resolution is obtained.

e) Timely action has been taken to renew the lease or newly let it or lease on expiry of the period of lease

f)

Expenditure incurred on maintenance of these shops and buildings during the year of accounts audited has not exceeded

the income derived from it

g)

In the case of Trade Licenses granted, provisions of the rules and relevant bye-laws relating to preliminaries to be followed

are complied with and fees prescribed have been collected. Licenses have been renewed before expiry of currency of

validity of License by paying the renewal fees well in advance

h) All checks as applicable in the case of Property tax have to be applied in the audit of these revenues also

5.19 Right of collection of revenues leased out

a) In the case of collection of fees from ferries, markets, cart-stands, slaughter houses, etc, are farmed out (leased out) under

section 132 of the KM Act, 1964, audit should examine the relevant files and council resolutions Minute Book and satisfy that:

(i)

Preliminary notice setting forth the conditions and terms subject to which the lease would be granted, has been

approved by the authority competent to permit entering into a contract under section 72 of the Act and has been

published as prescribed as well as in one or more newspapers having a wide circulation in the locality and affixed in

some conspicuous place within the limits of the municipality or in any other manner determined by the authority

competent to accept the bid.

(II)

Auction sale is conducted by the executive authority or a person authorized in this behalf.

(iii) Terms and conditions of the auction of right to collect fees specified have been strictly followed in deciding lease right

(iv)

Deposit if any required to be collected from the bidders and retention of deposit paid by the successful bidder has been

complied with

(v)

Advance payment of lease amount if any, required to be paid by the successful bidder on approval of the lease by the

council has been collected and adjusted for the amount due during the terminal period, as per contract

(vi)

solvency of the successful bidder has been ascertained before the sale was confirmed

(vii)

Contract for the lease of rights has been executed in the presence of the witnesses as required under the Act, on a

stamp paper within fifteen days of the date of confirmation of the lease

(viii) The contract specify:

•

Duration of the lease

•

Amount of each installment of the rent payable

•

Compensation or penal interest payable in the case of delayed payment of any installment,

•

Liability of the lessee to make good any loss caused to the ULB on re-lease owing to cancellation of contract due default

of lessee in fulfilling the terms of his contract

•

When a resale is conducted or when a lease is terminated on account of the default of the original lessee and failed to

make good the loss if any and the incidental expenses of re-sale, necessary legal steps have been taken for the

recovery of the loss from the original lessee;

•

Rate of fees to be levied by the lessee

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•

Liability of the lessee for payment of ground rent, if any, to Government ;

•

Lease amount payable during the period of lease has been regularly collected within the specified time and action taken

for any default in compliance to terms and conditions of lease

•

Income from lease of right of collections has proved advantageous than compared to earlier expenditure on collection

staff engaged for Departmental Collection

•

No lease of immovable property belonging to the Council for periods exceeding 5 years has given without the sanction

of the Government and in the case of a lease for a period exceeding one year the sanction of the Municipal Council by

a resolution is obtained.

•

Cases of lease of right of collection of municipal dues have been recorded in the Special DCB register with all relevant

details

•

Balances outstanding at the close of the year have been carried forward to the subsequent year's register

•

Special DCB register bears evidence of scrutiny at the hands of the executive authority along with the review of the

monthly demand collection and balance statement

•

In respect of the lease amounts remaining uncollected for three years, suits have been instituted for the recovery before

they become barred by limitation of time

•

Decrees of the court towards recovery of installments due, costs, etc. have been noted in the Register of Decrees (KMF

No 30) and the recovery watched.

5.20 Items of income not susceptible to accrual

a)

In respect of other items of revenues like rent from guesthouses, community halls, auditoriums, daily market fees

collected departmentally, fees for birth/ death certificates, khatha transfer/ Khatha extracts, building license, etc, income

receivable cannot be predetermined and accrued and hence accounted on receipt, as per Rule 20 of KMABR,2006. The

accounting procedure for collection of receipts laid down in Chapter 5 of KMABR,2006 have to be followed by the ULBs

b) Auditor has to verify and ensure that proper stock account of Ticket Books has been maintained in KMF No.32, if any, are

used for any departmental collection of receipts, and have maintained an issue account in KMF No.33 as laid down in Rule

65(4) of KMABR, 2006. Tickets issued to collection staff, its utilization, and balance in stock as on the date of audit is

physically checked

c) Daily collections of non-accruable items of revenue collected have been accounted in the Collection Register and got

verified by an official nominated for this purpose by the MC/CO

d) Collections have been promptly handed over to the Cashier by the collection staff and his acknowledgement obtained

e) Collections have been correctly accounted in the Chitta by the cashier and remitted to bank

f)

The collections accounted in the cash book and ledger account has been reconciled by the Accounts Department

5.21 Revenue Collections through the staff of municipality

In cases where the collection of any revenue, such as market fees, cart stand fees, Bus stand fees, etc,. is managed departmentally

through the municipal staff of the municipality, the following checks should be exercised in audit

a) Receipt of face value ticket books accounted in the Stock Register of Ticket Books in KMF No.32 w.r.t. invoices of the printer

who has printed and supplied the ticket books

b) Ticket books are machine numbered and stamped with the Council's common seal and the total number of pages each book

contains is certified by the executive authority or any other responsible officer, before issue

c) Face value tickets have been issued for departmental collections.

d) Total number of each kind of tickets issued should be ascertained and the amount realized arrived at by the rate thereof.

e) The tickets issued/utilized daily checked with the collection Register to verify whether the amounts realized have been duly

accounted, verified by another official and handed over to the Cashier

f)

An abstract should then be made of the several totals and agreed with the amounts shown in the collection register, Chitta,

ledger account and the classified abstract of receipts.

g) The counter foils of the tickets issued examined in detail for one month completely and for two days in each of the

remaining months with a view to ensure that there are no short credits or delays in credits, etc.

h) If in the course of test audit any serious defalcations are noticed, such further detailed check should be exercised as the

auditor may consider necessary

i)

Some responsible official is made responsible to check the Departmental Collections made by the collection staff and verify

its accounting and remittance to Cashier

j)

Balances of ticket books in the office have been verified and certified half-yearly by the executive authority or any

responsible officer

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k) Whether adequate security has been taken from the persons entrusted with collection work as contemplated in KM (

furnishing of securities) Rules, 1965

5.22

Audit of accounts relating to Development Charges collected from Layouts formed within the limits of the

municipalities

a) The Karnataka Country and Town Planning Act, 1961 stipulate that permission for change in land use or for construction of

any building in the plot approved, has to be obtained from the concerned Local Planning Authority and rate of fees to be

collected for granting permission for the above are prescribed in Rule 37-A of Karnataka Planning Authorities Rules, 1965.

b) Section 170 of the Karnataka Municipalities Act, 1964 provide for collection of charges from the applicant seeking

permission of formation of private extension/layout within the limits of municipality, for meeting the expenditure towards

formation of roads, side drains, underground drainage, water supply, electricity, etc,.

c) Collection of Development Charges by Municipalities: The Govt. of Karnataka in its Circular No. UD 104 BPA 2006 dated

31-05-2005 have re-iterated the earlier circular instructions issued in circular No.HUD 107 TTP 90 dated 21-04-90 and have

further issued clear instructions as to the action to be taken by (1) The Planning Authorities under the Karnataka Country

and Town Planning Act, 1961 and Karnataka Planning Authorities Rules, 1965, and the action to be taken by the

municipalities when any area is developed as Layouts within its limits as per the provisions of Karnataka Municipalities Act,

1964

d) The auditors of municipalities shall ensure that the municipality has complied with the following requirements, wherever any

private Extensions/layouts are approved by it:-

(i) The proposed private layout is approved by the concerned Planning Authority and necessary fees is paid to that

authority by the applicant.

(ii) The Plans and Estimates for civil works are prepared for the layout by the municipality, in accordance with the rules.

(iii) Separate plans and estimates are got prepared for the following services as follows;- a) water supply and underground

drainage works from Karnataka Urban Water Supply and Underground Drainage Boar, b) Electricity supply from the

concerned electricity supplying company, and c) Parks & Gardens works from the Horticulture Department.

(iv) The municipal council shall determine the fees and Development charges payable by the applicant based on the rates

prescribed by Govt., in force, at the time of according approval to the private extension/layout.

(v) While determining the development charges payable by the Applicant, the municipality has included 9% of the

estimated cost as Supervision Charges for Civil Works and 17.5% of the estimated cost as ETP charges for other works

and applicant is directed to deposit the total Development Charges to the municipality.

(vi) If an applicant for formation of private extension/layout has desired to undertake Civil Works by himself, he is allowed to

carry it out by collecting 9% Supervision charges and an undertaking from him agreeing to carry out the civil works as

per the designs and specifications. Besides, a certificate as to the satisfactory completion of work is obtained from the

head of the technical department of the municipality.

(vii) All other works such as water supply and underground drainage, supply of electricity and formation of garden for which

17.5% ETP charges is collected, these works are carried out with the assistance and supervision of the concerned

authorities.

(viii) All works are completed as expeditiously as possible and there is no avoidable delay and the development charges

collected is utilised for the same layout.

(ix) It should also to be seen that no extra expenditure on any of the works connected with formation of extension/layout is

met out of the municipal funds

(x) The applicant had handed over to the municipality all land earmarked for roads, garden, civic amenities, etc, to the

municipality before commencement of the works in the extension/layout, without expecting any benefit in return.

(xi) The private layout is released to the applicant only on completion of all works.

(xii) Khatha for the premises are issued by the municipality only on completion of all works connected with layout as per plans

and estimates.

(xiii) License for construction of building on the premises in the private layout is granted by the municipality as per

provisions KM Act, 1964 and building bye-laws framed there-under duly collecting the fees prescribed for it, only on

receipt of commencement certificate from the Planning Authority concerned, as provided in the Karnataka Country and

Town Planning Act.

e) Any violations of the above conditions have to be highlighted in the audit report.

5.23

Audit of accounts of Additional Stamp duty on transfer of immovable properties( Surcharge on stamp duty)

a) This is levied under clause (xxii) of Section 94 (1) of the Act. This levy is collected by the Registration Department of

Government of Karnataka, through the jurisdictional Sub-Registrars.The details of collection of surcharge on stamp duty

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pertaining to the municipalities, for each year, are consolidated in the office of the District Registrars of the Districts based

on the information furnished by the Sub- Registrars and transmitted to the Inspector General of Stamps and

Registration(IGSR) The collections are accounted under Receipt Head of Account 0030 . The collections are ordered to be

released to the ULB by the Inspector General of Stamps and Registration (IGSR), through the District Registrars of the

Districts

b) Auditor is required to verify the treasury account operated by the ULB and ensure that:

Above duty collected in the form of additional stamp duty or surcharge on stamp duty by the registering authority (Sub

Registrars) (@ 3% or at specified rates prescribed) along with stamp duty charged on the instruments of transfer under the

provisions of Karnataka Stamp Act, 1957, has been credited to the account of the ULB within two months after close of the

quarter

•

ULB has received advice of total collection of this additional stamp duty collected during the quarter, commission of

3% deducted out of the collections made and the net amount credited to ULB's account by the Inspector General of

Stamps and Registration

•

This receipt of duty has been correctly taken to account by the ULB, accounting it as in the case of direct bank

collections in KMF 20 and accounted in the books of account as detailed in chapter 8 of the KMAM

•

Accounting entries debiting the income to Try/Bank Account and crediting it as 'income of duty on transfer of immovable

properties', has been passed.

•

There are no abnormal variations in the income for the year when compared to previous years (at least two previous

years) income, keeping in view the rate of levy and other policy changes of Government

c)

Passing of accrual entries in respect of outstanding income:

Generally, the income of duty on transfer of immovable properties will be accounted on

receipt i.e. on adjustment of the amount in the treasury accounts by the Treasury Officer on

receipt of authorization from the IGR. However, where the ULB has received copy of

authorization of the of IGR for crediting the additional stamp duty, for any quarter of the year

but not credited to ULB's account in the treasury, auditor has to see whether:-

•

ULB has passed accrual entries preparing a JV as required under para 8.4 of KMAM

•

At the beginning of the next financial year, a reversal entry for the accrued income has been passed by the Accounts

department, as per para 8.5 of the KMAM

•

On receipt of the income in the next year, necessary accounting entries has been passed, debiting the income to

Treasury Account and credit to income account, as per para 8.6 of KMAM

5.24 Quantum of check

a) Auditor shall physically verify the following accounting records and record a certificate of result of verification:

•

Cash on hand, Unused Receipt Books, Ticket Books, Cheque Books, Money Value Forms like Building License

application form, Trade Licenses Application forms, etc, at the time of audit

•

Partly used & used Receipt Books, Cheque counterfoils/ cheque drawn statement pertaining to audit period

b) Auditor shall verify and trace the transactions 100% in respect of:

•

Accounting of collections made by the collection staff and accounted in the Collection Register maintained by them in

KMF No. 16 w. r. t. individual receipts KMF No. 14 issued to the parties

•

Arithmetical correctness of daily collections accounted in the collection register and abstract of collections by cash and

cheques

•

Accounting of collections made through cheques in the Register of Cheques Received in KMF No. 15

•

Receipt of daily collections by the Cashier from the collection staff w. r. t. acknowledgement affixed in the collection

register

•

Accounting of daily collection of Cash received from collection staff in Chitta in KMF No. 17, by the cashier, w .r .t.

Collection Registers of collection staff

•

Correctness of daily totals worked out in Chitta after closing of accounts and verification of it by Office Manager or

designated official

•

Remittances of daily collections to banks/treasury w. r. t. Pay-in Slips/challans and Remittance Register maintained by

the Cashier

•

Summary of Daily Cash Collections in KMF No.18 w. r. t Chitta and Summary of Daily Cheque Collections in KMF No.19

w. r. t. Register of Cheques Received

•

Receipt Vouchers prepared in KMF No.8 based on the Summary of Daily Cash Collections in KMF No.18 and

Summary of Daily Cheque Collections in KMF No.19 by the Accounts Department

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•

Contra Vouchers prepared for remittances of cash and cheques to bank/treasury

•

Accounting of Receipt Vouchers and Contra Vouchers in the Cash and Bank Book

•

'Receivable accounts' opened at the beginning of the year in respect of accruable income w. r. t. Journal

Vouchers/Journal Book

•

Accounting of changes in demand of accruable income w. r .t. Summary of changes prepared in KMF No.13A

•

Changes in demand of property tax w. r. t. concerned file and entries in DCB register

•

Write Off and Remission cases w. r. t. concerned files

c) The following accounts shall be test Checked i.e. three months transactions including transactions of March w. r. t. basic

records mentioned against each:

•

Transfer of collections to 'Cess Control' account w.r.t. summary of daily cash collection/cheque collection/bank

collection statements prepared in KMF Nos 18,19 &20, respectively

•

DCB accounts maintained by the concerned Departments in the forms prescribed in the rules w. r. t. Journal Vouchers,

entries in Collection Registers in respect of cash and cheque collections/bank challans in respect of direct bank

collections

•

Reconciliation of treasury/bank accounts w.r.t. treasury schedules/bank pass books and BRS prepared

•

Posting of transactions from Cash, Bank Book and Journal Book to Ledger accounts concerned and year end closing of

ledger accounts

Chapter 6

Audit of Revenue Expenditure

Transactions

6 .1

Expenditure of ULBs

Expenditure is cost of goods and services acquired or works executed in the period whether or not payment has been made. Example

Salary paid on 7th Feb. for the month of January. Total amount of Salary is expenditure for the month of January only, although it will

be paid in February. Similarly, when furniture/ equipments costing Rs.15,000/-is purchased on credit basis, the cost is an expenditure

even-though not paid at that time.

In the context of accrual based double entry accounting system, it is necessary to know the broad classification of expenditure.

Expenditure may be classified into Capital Expenditure and Revenue Expenditure.

Capital Expenditure is long term in nature, the benefit of which will be derived in future (eg. amount spent on purchase of Fixed Assets

like vehicles, plants and machineries, equipments, etc, and construction of Fixed Assets like buildings, drains, bridges, etc.) The value

of such expenditure will be carried forward to next year after due depreciation as per rules and exhibited in the Balance Sheet of the

institution. (Refer Chapter 23 of .KMAM)

Revenue Expenditure is incurred for day to day operations like maintenance of equipments /furniture, electricity /water charges, etc.

They are recurring in nature. Benefits from these expenses expire in a short period of time. eg. Salary, Repairs, etc.

6 .2

Accounting of revenue expenditure

Revenue expenses supported by work order or supply order or indent shall be accrued as prescribed under Rule 36 of KMABR 2006,

and recorded in books of accounts at the time when they are incurred (not at the time of payment). Other expenditures are accounted on

payment and the bills outstanding are accrued at the end of every year. In respect of bills pertaining to establishment expenses and

procurement of goods and or services supported by work order or supply order shall be accrued on approval of bill. Therefore, audit

has to see whether accrual entries are passed through Journal Vouchers (JVs) as above for any expenditure is incurred subject to

aforesaid conditions. Such expenditure will be first accounted in the Journal Book with reference to JVs by debit to concerned

expenditure head and credit to 'concerned Payable' account (liability). On payment of the amount credited to 'payable account', the

"payable" account will be debited and the amount will be credited to bank/cash account. The Auditor should be well conversant with

accounting entries to be passed in the above nature of transactions (Refer to Chapter 8 of KMAM). The revenue expenditure incurred

will be reflected in the Income and Expenditure Statement of the municipal council, whether the liability in this behalf is paid or not

during that financial year. Only the liability towards 'Payable outstanding at the end of the financial year will be reflected in the Balance

Sheet under Current Liabilities- "concerned Payables"

ULBs Municipalities mainly deal with following categories of Revenue Expenditures:

•

Employee Related Transactions. i.e. salary, wages, Traveling Allowances, etc,

•

Revenue Expenditures related to Public Works i.e. repairs and maintenance of buildings, roads, drains, etc.

•

Other Revenue Expenditures generally cover:- elected body related expenses, office expenses like electricity charges,

water charges, telephone charges, cost of stationary, water supply and sanitation related consumables expenses,

repairs and maintenance charges of furniture, equipments, vehicles, vehicle hire charges, interest on loans, etc.

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6 .3

Audit of employee related claims

In respect of employee salary related claims, audit shall verify and ensure that:

•

Scale Register is maintained in the prescribed in Form No. KMF 49, as per rule 93 of KMABR,2006, duly classified

according to the functional heads in the budget estimates

•

The sanctioned scale for different establishments recorded in the scale register are in agreement with the sanctioned

scale of the previous year and any subsequent alterations sanctioned during the currency of the year.

•

Any change in the sanctioned establishment of the municipal council, the financial implication of such changes are

supported by Proposition statement prepared in KMF No.48

•

Monthly Pay Bills cum Acquittance Rolls are prepared in the KMF No. 50 as per instructions given in rule 95 and

KMF No.50A correctly indicate the salary expenditure function-wise.

•

Separate pay bills are prepared for Permanent and Temporary establishments

•

Pay and allowances of the incumbents shown against sanctioned posts in the pay bill agree with the details of the posts

shown in the scale register

•

Claims i.e. gross amount, deductions and net amounts shown in the bills are arithmetically correct.

•

Where salaries of the employees are directly credited to their bank accounts, statement showing the names of the

employees, their bank account nos. and net amounts adjustable to the bank accounts are correctly prepared and no extra

entries appear in the statement.

•

Pay and charge allowance are separately shown and the names of all persons on leave, suspension or deputation as

well as those holding officiating or in-charge appointments are entered in the bills.

•

The supplemental claims verified with reference to the original bills in which the amounts were withheld or refunded

and the number and dates of the subsequent bills have been quoted in the original bills, besides see whether non-

payment certificates recorded as prescribed in rule 97(1) of KMABR,2006

•

In respect of officials for whom Conveyance Allowance /Fixed Travelling Allowances is drawn, required certificates are

furnished by the Drawing Officer in the bills for the month of July

•

Arrears claims of the employees remaining unpaid for more than one year of its becoming due are drawn with the

sanction of the municipal council

•

Salary of employees are paid to the individual bank accounts of the employees,

•

Salary is not paid for period of absence unless regularized by sanction of leave for the period of absence,

•

Pay bill in which salary of an employee is drawn for the first time, the appointment is made by the competent authority

and the Municipal Commissioner / the Chief Officer has recorded a certificate that the Physical fitness certificate

issued by the Medical Officer has been produced by the employee,

•

Pay bills in which annual increments of employees are claimed, an Increment Certificate in KMF No 51 are invariably

attached to such bills.

•

Salary deductions towards various recoveries are watched through Recoveries Register and recovery schedules

prepared for each type of recovery effected.

•

Recoveries effected in the salary bills payable to other agencies but not adjustable to municipal funds are promptly

paid through separate cheques to such authorities without delay,

•

Income tax is deducted in respect of Officers / officials liable to pay it, based on their income and income tax

deducted is remitted to Central Government account promptly within the specified ,every month

•

Unpaid salaries up to the period ending February and un-remitted recoveries payable to other agencies are accounted

under 'outstanding payables' and reflected in the balance sheet of the municipal council

•

Wages of daily rated labourers are drawn on Muster rolls in KMF No.39 and cross verified with Daily Labour report in

KMF 40 and disbursed accordingly.

•

Claims of deceased employees are paid in accordance with in accordance with rule 100 of KMABR,2006, duly ensuring

bonafide and right of the claimant to receive it.

•

In respect of claims relating to pension and leave salary contributions of deputed staff are preferred for remittance to

Government head of account/concerned Departments, it should be seen that claims relate to the actual period of

tenure of the official concerned, with reference to relevant records.

•

All claims relating to terminal benefits of the employees if any, drawn are supported by sanction orders / authorization of

the competent authority and its computation is correct.

•

Any claim proposed by CSAD towards pension contribution payable by the municipal councils to Government for

payment of pension and family pension to retired/deceased municipal employees entitled to pensionary benefits needs

to be verified with reference to. Annual Establishment Returns submitted to the CSAD in KMF NO.52 to ensure that the

liability computed by CSAD as pension contribution payable is correct and is in order

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6 .4

Verification of entries and its correctness in the service books

Auditor shall also verify the following aspects noted in the monthly Pay Bills-cum- Acquittance Rolls with reference to the entries made in

the Service Books of the concerned employees:-

•

Particulars of the leave noted to have been sanctioned to the employees in the pay bills and the correctness of entries in

the leave account and the balance of leave shown therein.

•

Changes in pay due to drawal of increments or revision of pay and its correctness

•

In the case of officials newly appointed, whether Service Books have been opened and all details required in Part I are

recorded and attested. Especially, name, native place, date of birth, caste/community, name of the appointing authority,

nature of appointment, date of reporting for duty, etc,.

•

Date of suspension and the Subsistence Allowance granted, where subsistence allowance is drawn

6 .5

Quick check of regular salary bills

a) This procedure can minimize the time required for audit of salary claims. Verification and ensuring that the no. of posts for

which salary claims are preferred in the pay bill for the month of April for the establishments under each function tally with

the no. of posts sanctioned as per the Scale Register

b) Comparing the abstract of the gross salary claims prepared function-wise for each establishment in KMF No.50A for the

month of April w. r. t. gross claims of previous month i.e., March.

c) Arriving at the amount of net difference in the gross amounts between the above two months

d) Identifying the names of the employees in whose cases changes in the gross claims are noticed

e) Verifying the reasons for the changes in gross salary, which may be (a) amount claimed less due to non-drawal /part drawal

of salary for the period of absence yet to be regularized as leave, or non / part drawal of salary of an employee shown as

transferred out (b) salary amount drawn is more due to grant of annual increment or revision of pay, (the difference of

which was earlier drawn in supplemental bill) or drawal of full or part of the salary in respect of an employee shown as

transferred in and counted against a vacant post or against the employee shown as transferred out

f) Checking whether the net of the minus and plus due to changes noticed as above works out to the net difference arrived at

as per step (3) above

g) If the net differences arrived at in step (3) and (6) above are in agreement, then the salary claims of April bill may be admitted

as correctly claimed.

h) If the net differences arrived at in step (3) and (6) do not agree, then Audit has to verify each and every salary claim of the

employees drawn in the bill for April w. r. t previous month i.e. March.

i)

Following this procedure for the remaining regular salary bills preferred and paid during the accounting period under audit

6 .6

Traveling expenses of employees

Auditor has to verify and ensure that;-

•

Tour proposal of the employee is approved by the Municipal Commissioner /Chief Officer

•

TA bills are prepared in the prescribed form

•

The bills are prepared by the Municipal Commissioner /Chief Officer,

•

The claims paid are in accordance with the rates prescribed by Government

•

The mode of journey, distance and the fare claimed are in accordance with rules

•

TA bills of the Municipal Commissioner /Chief Officer countersigned by the President /DC/DMA and it is drawn from

the same head of account from which his salary is drawn and sufficient budget allotment is available,

•

The necessity and frequency of the travel are justifiable as could be seen from the purpose of the tour.

6 .7

Medical expenses of the municipal employees

a) Medical Allowances to the employees

Municipal employees belonging to certain categories i.e. Group 'D' and 'C' are entitled for monthly medical allowance in lieu

of re-imbursement of medical expenses, as per orders of Government In such cases, same would have been drawn along

with their monthly salary. This should be checked while auditing the salary bills of the employees

b) Re-imbursement of medical expenses

However, when any bills towards medical expenses of an employee for continuous and prolonged treatment or specified

surgery and treatment from a hospital/nursing home are paid, audit should verify and ensure that:-

•

Employee has produced necessary prescription, certificate of non-availability of the prescribed medicines in stock in the

hospital/nursing home; such certificate is enclosed to the bill. Ward charges, if any claimed is as per treatment taken in

an authorized hospital/nursing home approved by Government for taking treatment by Government employees or the

same is extended to municipal employees

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•

If treatment involves only purchase of medicines either during stay as in-patient or out- patient, the category and rate of

eligibility of the employee and the cost of medicines do not include any tonics/medicines meant for recoupment of health

and the bills are signed by the authorized Medical Attendant and countersigned by the Head of the Institution

•

If treatment involves hospitalization and

•

If treatment involves only purchase of medicines as in-patient or out-patient

6 .8

Expenditure relating to Elected Council

a) Honorarium to the President, Vice-President and members of the municipal council: Audit shall verify and satisfy itself

that:

•

Monthly honorariums fixed by Government from time to time are paid at the rates applicable to the ULB audited. The

monthly rates presently fixed are as follows:-

Table 2: Monthly rates for honorarium

Category of ULB

President

Vice-President

Members

City Municipal Councils

Rs.2000/-

Rs.1000/-

Rs. 500/-

Town Municipal Councils

Rs. 1200/-

Rs. 600/-

Rs. 300/-

Town Panchayats

Rs. 800/-

Rs. 400/-

Rs. 200/-

•

No honorarium is drawn for the months in which the member has absented himself for more than months continuously

without leave for absence granted by the municipal council (S.16(2) (c) of the Act)

•

The honorarium is drawn and disbursed by the Municipal Commissioner /Chief Officer, as verified with reference to

Register of Cash drawn and disbursed in KMF No 2.

b) Traveling Allowances to the President/Vice-President and members: Though they are entitled for

TA as applicable to non-official members Committees as per Annexure -A of KCSR, their normal

duties do not require them to undertake journey beyond municipal jurisdiction. Therefore, Audit

should see that approval of the municipal council/DMA/ Government is made available, wherever,

such claims are paid.

c) Telephone bill claims of the President/Vice-President When residential telephones

are provided to the President/Vice President and its expenses are reflected under

council related or general administrative expenses, Audit should see whether

sanction for the same is forthcoming

6 .9

Items of expenditure subject to limitations/restrictions

Expenditure on items specified in the schedule to the KM (Power of Expenditure) Rules, 1986 shall be subject to the conditions and

restrictions laid down therein. Therefore, audit has to verify and ensure that items of expenditure coming under these rules are:-

•

within the limitations/restrictions,

•

covered by the sanctions of the competent authorities,

•

sanction of the next higher authority is obtained wherever prior sanction of such authority is stipulated in the schedule

•

expenditure are met out of the budget provisions made in the budget of the year,

6.10 Procedure for procurement of stores and other consumables

The municipal councils are required to incur substantial revenue expenditure for carrying out its various activities in due discharge of its

functions like water supply, sanitation and conservancy, public safety, public health and conveniences, education, welfare, public

recreation and entertainment related activities. Such activities involve procurement of water purification chemicals, water supply

pipelines maintenance materials like water PVC pipe lengths, collars, 'T's, Bends, etc, conservancy articles like brooms, drain

scrappers, phenyle, disinfectants, insecticides, medicines and consumable articles like cotton, bandage cloth, gloves, etc in the case of

outbreak of epidemic or where municipal health clinics are maintained, tube-lights, sodium-vapour lamps, chokes and starters, wires,

etc, for maintenance of street lighting, stationary, books, etc,.

In the case of such procurements, audit has to satisfy itself that;-

•

At the beginning of the year an estimate of annual requirement of these stores and special articles is prepared by the

municipal council duly indicating the details such as, opening balance at the beginning of the previous year, fresh

quantities procured during the previous year, actual consumption during the previous year, closing balance at the end of

the previous year and the average quantity of each article required for the current year-less the closing stock. Any extra

quantities required may also be added duly furnishing the circumstances warranting additional quantities.

•

List of articles required worked as above for activities under each function with approximate cost involved and the budget

head under which the expenditure on such items may be met and the budget provision available for the year are

indicated and submitted to the Standing Committee concerned and the council for approval..

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•

Only on approval of the annual requirement and the approximate cost involved and availability of budget, the

Municipal Commissioner / Chief Officer has initiated action for its procurement

•

Only on the justifiable grounds of urgency, local purchases has been resorted to obtaining quotations and not as a

matter of routine to circumvent the rules

•

Sealed Tenders are invited in all other cases involving expenditure exceeding 10,000/- but not exceeding Rs

1.00.000/- for procurement of goods or services, following usual procedure.

•

In respect of procurement of goods or services involving more than Rs.1,00,000/-, procedure laid down in the KTPP Act

and Rules framed under it, are followed by the municipal council. Special attention should be given to see whether

Tender Notifications are sent to the Tender Bulletin Officer designated for ULBs and the procedure of publication,

scrutiny, acceptance are strictly adhered to by the municipal council

•

Articles purchased are accounted and proper accounts are maintained in KMF No. 53 and stock account of Stamp in

KMF No.64 and necessary stock certificates are recorded on the bill/ invoices and signed by the MC/CO.

•

Satisfy itself that furnishing stock certificates in the purchase bill/invoices giving reference to page no. of the stock

register is not followed as a matter of routine, audit shall check the accounting of purchases made in the stock registers

to the extent of at least 50% of major purchases involving expenditure of more than 20,000/- at a time, by verification of

the page numbers recorded on the bill/invoices in the stock certificates.

•

Proper internal controls are put in place for monitoring receipts, issues and utilization of materials purchased by

complying the instructions given in Rule 106, KMABR,2006 with regard to accounting of articles received through

Material Receipt Note in KMF No. 54, Material Issue Note in KMF No.55, preparation of monthly Summary Statement in

KMF No.56 and Yearly closing stock in KMF No.57

•

Annual physical stock verification is done by the officer/staff entrusted with this task and a report on annual stock

verification is sent to the DC/DMA

•

Proper watch registers are maintained recording payments relating to Electricity charges, Telephone bills, water supply

charges, vehicle insurance premium, News papers and periodicals, etc, which makes double payment or payment for

overlapping period difficult and easily detectable.

6.11 Expenditure towards maintenance and repairs

When any work is carried out to a fixed asset to maintain or bring back an asset to its original condition of utility,, such a work fall

under the category of 'Repair and Maintenance Works' and are to be treated as Revenue Expenses.

The expenditure such as repairs to public fountains, water supply pump-house, repairs to motors (other than works like laying of water

supply pipelines, construction of water tanks and reservoirs), repairs to equipments, plants and machinery, to roads, bridges, culverts,

drains, etc, maintenance of parks and gardens, burial ground, dhobi ghats, markets, buildings of municipal council also fall under the

revenue expenditure.

In all such cases of revenue expenditure, audit has to see whether normal procedure of obtaining quotations where expenditure

involved is less than Rs. 10,000/- followed and where it exceeds that limit, tenders are floated as provided in Section 347 of the Act. (As

per this section if minimum exceed Rs. 500/--this is very old provision and has no relevance). If the cost of repairs and improvements

exceed Rs.1,00,000/-, tenders are floated duly following the tender procedure laid down in the KTPP act/and rules framed under it.

Auditor has to ensure that claims relating to repairs and maintenance of assets are processed by the Engineering Department of the

ULB and sent to the Accounts Department along with 'Payment Order' as laid down in rule 37 of KMABR,2006 and the Accounts

Department, after due scrutiny has prepared a JV debiting the expenditure to the 'Repairs and Maintenance-concerned asset account' and

crediting the net expenditure payable to the Contractor to 'Creditors-contractors Payable' and other deductions to 'Recoveries Payable

account', as illustrated in para 10.37. After processing the claims and ensuring availability of funds to meet the expenditure, the

Accounts Department has prepared PVs for payment to contractor and remittance of recoveries to concerned agencies, as indicated in

para 10.39 of KMAM

If the assets of the ULBs are computerized and stored with unique identification code, audit can check up by obtaining details of previous

repairs and maintenance expenditure incurred and when incurred.(provided the asset data are updated online or uploaded at the end

of the year with expenditure incurred during period end closing of accounts)

6.12 Expenditure on repairs and maintenance of vehicles

Auditor should first check the Fixed Assets Register and ascertain details of vehicles in the municipal council and call for their Log books

maintained in KMF No.58.

The auditor should see whether vehicles have been insured and renewed regularly from time to time.

Auditor shall specifically verify the procedure followed for providing fuel and lubricants to the vehicles, i.e. whether any service station

has been selected for supplying fuel to the vehicles of the municipal council or system of drawing money on AC /Advance bills is being

followed. Where system of drawal of fuel from a designated service station or petrol bunk is followed, it should be seen whether any

contract has been entered into and any extra rate is payable needs to be verified. Whether the system followed shows any defect or scope

for misuse.

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Auditor shall review Part I of the Log book to check;-

•

whether fuel drawn as evidenced by the copy of the authorized issue indent / credit bills are reflected in the log book on

the date of procurement

•

the movement of the vehicle is for bonafide municipal work,

•

Performance of the vehicle w. r. t average mileage per litre of fuel given and the standard fixed by Government Shortfall

if any to be reported.

•

Part II of Log book will disclose the details of repairs and replacements made to the vehicle. If this disclose minor and

major overhauling, audit has to check;-

•

whether it has run adequate distance justifying minor and major repairs and overhauling

•

All types of repairs and replacements are got done only on inspection of the vehicle and recommendation of the

jurisdictional RTO and satisfactory repairs and condition after repairs is also certified by the RTO.

•

An estimate of cost of repairs is invariably obtained from authorized garage.

•

That all spare parts having resale value released from the vehicles repaired and parts replaced are taken to account in

Part III of the Log book

•

Audit may recommend for condemning a vehicle which is found uneconomical for further use due to huge expenditure

incurred on its frequent repairs and replacements or having outlived its utility period and exceeded the prescribed

maximum mileage,

6.13 Expenditure on hiring of vehicles

Wherever any ULB has hired vehicles like cars, jeeps, vans, trucks, etc., audit shall ensure that, rates if any prescribed by Government

for various types of vehicles are adopted by the ULBs. Where no specific rates are fixed by Government for any category of vehicles,

competitive rates based on Tenders/Quotations approved by the Council are paid.

6.14 Expenditure on outsourced operations of the ULBs

Expenditure on outsourced operations like water supply maintenance and distribution, street- lighting, removal of solid waste from the

municipal area, solid waste disposal or total solid waste management, also fall under revenue expenditure

6.15 Water supply related expenditure audit

Auditor should first ascertain details of water supply system in the municipal council i.e., whether;-

a) Water is obtained from water supplying agency on payment of cost of water supplied and management of storage,

distribution and maintenance by the municipal council including responsibility of collection of water charges. In that case,

the municipal council's liability towards cost of water supplied by the supplying agency and entire storage, electricity

charges towards pumping of water, distribution and maintenance expenses will be treated as revenue expenditure. Only

expenditure on construction of storage tanks-reservoirs, water treatment plants, pumping stations, laying of water supply

pipelines, providing public taps form capital expenditure.

b) Entire responsibility of providing water from specified water source, storage, pumping and distribution of water to the

inhabitants of the municipal council through public taps and private connections is entrusted to the water supplying agency

and cost thereof is paid to the supplying agency by the municipal council, but collect water charges from the beneficiaries. In

this case it is truly an outsourced operation

c) Water available from local resources like water bodies, rivers, lakes are harnessed, stored, purified and supplied through

water supply pipelines by the municipal council and shortfall managed by drilling borewells in the municipal area. Water

charges collected by the municipal council. In such cases, the entire expenditure on water supply maintenance will be

revenue expenditure and audit shall check these expenditure as mentioned in C & D above

Auditor should see whether complete details of water supply assets i.e., water source location and extent, water supply main lines from

source to storage places, no. of storage reservoirs and tanks with their capacity, water treatment plants, pumping /booster stations with

details of the installed motor horsepower and water supply network, etc, are available. All assets are provided with unique asset code

for easy identification.

In case of system (1) above is followed- which is partly outsourced operation, it should be seen in audit that:

•

bills received from the supplying agency are recorded in a separate Bill Register and claims preferred by the agency

checked by the concerned engineering sub-ordinate of the municipal council w. r .t rates and quantities supplied .

•

A certificate to the effect that charges claimed for the month by the supplying agency is in accordance with the rates

and quantity agreed as per the agreement/MOU is recorded on the bill before it is accepted for payment by the MC/CO.

Auditor checks for all other revenue expenditure relating to purchase of consumables, repairs and improvements to water supply assets

shall be as indicated in C & D above

Wherever system (2) above is followed- which amounts to 'outsourcing of overall water supply operations', the water supplying agency

shall raise bills every month towards cost of water supplied and also for storage, distribution and supplying, as per the MOU entered

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1743

into by the municipal council. Sometimes, cost of electricity charges for pumping of water to the ULB may also be claimed separately

based on the bills of the electricity supplying company. In such cases, audit has to satisfy itself that:

•

bills received from the supplying agency are recorded in a separate Bill Register in KMF No 21 and claims preferred by

the agency checked by the concerned engineering sub-ordinate of the municipal council w. r .t rates and quantities

agreed for, electricity charges claimed in the bills are supported by bills issued by the concerned escom (electricity

supplying company)

•

Certificate to the effect that charges claimed for the month by the supplying agency is in accordance with the rates and

quantity agreed as per the agreement/MOU, is recorded on the bill before it is accepted for payment by the MC/CO.

•

Payment to the water supplying agency (KUWSDB/BWSSDB) is reflected in the register in KMF no 23 duly recording

payment details.

•

In case payment of water charges are not paid by the municipal council but invariably allowed to be adjusted by

Government out of State Finance Commission grant payable to the council, it should be seen in audit, whether the

liability towards this is being watched by the council by maintaining DCB account of 'water charges payable' and

adjustment effected by Government from time to time adjusted in this account debiting it as expenditure on supply of

water charges. Besides, at the end of each year, a statement of Bills pending payment is prepared in KMF No.60 as

prescribed in rule 109 of KMABR,2006 and sent to the Accounts Department of the municipal council.

6.16 Audit of claims relating to street-lighting maintenance

Where a municipal council has entrusted the responsibility of maintenance of street lights in the municipal area either for the municipal

area as a whole or a ward or group of wards, Audit has to check the method followed for selection of the agency or agencies, terms

and conditions of the contract, system put in place for prompt replacement of burnt out bulbs/tube-lights/sodium vapour lamps, etc, the

rate agreed upon, penalty clause for delay or non-performance of the obligation, etc.

Auditor may also compare the expenditure incurred for street light maintenance (other than electricity charges) during the previous years,

especially when this was being done departmentally, and see which was advantageous. Further, outsourcing of this work has resulted

in reduction in the staff or staff entrusted with the work earlier are re-deployed, to show that outsourcing is advantageous or otherwise.

All bills should be checked to ensure that charges have been paid for the bulbs replaced at the agreed rates and the agency has

maintained a Log book of replacements duly indicating the ward no., street name/cross no, electric pole ID no, etc to enable cross

verification and also frequency of replacements.

Auditor should also ascertain whether any complaint book has been maintained in the municipal office or in the wards to facilitate public

to report about burnt out or broken bulbs and how its disposal being watched by the MC/CO

6.17 Payment of electricity charges preferred by Electricity Supplying Companies(Escoms)

I.

Apart from the electricity charges payable in respect of municipal buildings including sub- offices, public places like parks

and gardens, etc, electricity charges towards public street lighting in the municipal area is another major liability payable to

the electricity supplying company, which supplies electricity. This also is a revenue expenditure, for which adequate budget

provision needs to be made in the budget estimates of the municipal councils

II. Though most of the municipalities in the State were paying electricity charges in respect of municipal offices including its sub-

offices they had failed to liquidate the dues in respect of street lighting and water pumping electricity charges payable to the

concerned escom. As a result, huge arrears of electricity consumption charges was due to the escoms by ULBs.

III. The Director of Municipal Administration in his Circular No.DMA/SFC/CR-08/2006-07 dated 02-09-2008 has issued fresh

guidelines for payment of electicity charges to escoms concerned by the ULBs every month, from the portion of State

Finance Commission grants released to the ULBs by Govrnment.

IV. As per the afore said circular, electricity charges due to escoms for the period 2004-05 to 2007-08 has been paid directly by

Government through Karnataka Power Transmission Corporation Limited (KPTCL), nodal agency for the escoms.

Instructions are now issued for regular payment of the electricity charges by the ULBs to the escoms concerned directly out of

portion of the State Finance Commission grants released to them exclusively for discharge of electricity charges bills. The

payment is to be made through 'Internet Banking Facily' agreed to by the State Bank of Mysore, State Bank of Hyderabad

and State Bank of India and the DMA has entered into an agreement with the above banks, in this behalf.

V. For effective implementation of the new procedure of payment of electicity charges, the following instructions are issued to

the ULBs in the State by the DMA in the above circular dated 02-09-2008:-

a) As it is necessary to specifically agree upon the date of issue of elctricity charges bills by the escoms concerned, the date

within which the bills are to be paid by the ULB to the escom and other matters connected with it, the Municipal

Commissioners/Chief Officers are required to enter into a contract agreement with escoms concerned in the format

enclosed to the above circular

b) The Electrical Engineer or the Designated Engineer of the ULBs are to be entrusted with the responsibility of ;-

•

Obtaining bills from the concerned escom offices by 15th of every month

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•

Maintaining a Log Register to record the details of bills received , meter readings of the installations noted, electricity

charges claimed with reference to number of units of electricity consumed and its correctness, etc,

•

Ensuring that charges claimed based on meter readings of the installations recorded in the bills are only admiited for

payment and charges not based on meter readings disallowed

•

Periodically verifying the meters of the ULB's installations and confirm they are functional and not defective. In the case

of defective or where incorrect or abnormal readings are noticed in computing the consumption of electricity, the claims

of such installations are reported to the escom authorities and ask them to prefer claims based on previous period

average consumtion and furnish the bills. Besides, asking escom authorities to remedy the defects and make the

installations functional by next reading date

•

Verifying the Log Register before submitting the bills received from escom to accounts section for payment and

recording 'certificate' on bills as to the correctness of the claims in the bills as per the meter readings and details are

correctly recorded in the Log Register

c) The Accountants of the ULBs are responsible ;-

•

Verifying and ensuring that the bills received for payment of electricity charges contain certificates specified to be

furnished by the Electrical Engineer or Designated Engineer and the Municipal Commissioner/Chief Officer, in the

above circular.

•

To ensure that all bills received within 15th of the month are paid on or before 22nd of the same month and bills

received after 15th of the month from escom are paid on 15th or within 22nd of the next month

•

To ensure that sufficient funds are available in the Electricity charges account, before drawing the cheque

•

Only one cheque is drawn for the total amount of the bills received during the periods mentioned above and the

cheque is drawn in favour of the 'Assistant Executive Engineer' of the escom concerned and no amounts are drawn

from this account for any other purposes and if drawn, he shall be held responsible for the violations

d) The Municipal Commissioners/Chief Officers of the Municipalities are responsible :-

•

To ensure that elctricity bills are paid within specified time and not delayed without valid reasons. Any delay in payment

will be viewed seriously and notices will be issued by the DMA. Where payments are delayed despite issue of three

warning notices, they are liable for disciplinary action for'dereliction of duties and violation of orders of higher Officer

•

Not to divert the amount in the Electricity account to meet expenditure for any other purposes and if any instances are

noticed during monitoring of 'Internet Banking Facility' by the Directorate, notices will be issued to such officers for

crediting the diverted amount to the Electricity account forthwith. If they fail to comply to the notices, departmental

enquiry will be conducted for misapplication of funds and disciplinery action taken agaist them

•

Where escoms have levied penal interest for the delay in payment of elctricity bills, the Municipal Commissioners/Chief

Officers have to personally pay their own money to the electricity account, except cases in which adequate funds are

not available in the electricity account. Failure to do so will make them liable for disciplinery action for dereliction of

duties, in terms of Section 72(4) of KM Act, 19647

e) If any discrepancies are noticed in the electricity bills received from the escoms, The Municipal Commissioners/Chief

Officers shall appeal to the authorities of the escom mentioned below, without delaying payment of the concerned bill

amount;-

•

In repect of bill amount less than Rs.50,000/- - to the Executive Engineer of escom

•

In respect of bills of more than Rs.50,000/- but less than Rs.2,50,000/- to the Superintending Engineer

•

In respect of bills exceeding Rs.2,50,000 but less than Rs.5,00,000/- to the Chief Engineer

•

In respect of bills exceeding Rs.5,00,000/- to the Managing Director of the escom

VI.

In audit, it is required to verify and satisfy that ;-

•

Instructions of the DMA briefly mentioned above are complied with by the Municipal Commissioner/Chief Officer,

Electrical Engineer and the Accountant of the ULB

•

The ULB has received intimation of the release of portion of State Finance Commission grant for payment of electricity

bills of escom regularly

•

Complete accounts relating to receipt of grant, payment of electricity bills are maintained

•

All supporting accounts records, vouchers and bank books are forthcoming for audit

•

Accounting entries are correctly passed in the relevant accounts records

•

Wherever penal interest for delayed payment of electricity bills are levied, the delay is only on account of non-availability

of adequate funds in the electricity account and not on account of dereliction or negligence of duties by concerned ULB

employee

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•

In respect of discrepancies noticed in the bills of the escoms, appeals are preferred to the appropriate authorities by the

ULB promptly

•

Any omissions and commissions noticed in the above may be highlighted in the audit report.

6.18 Audit of claims relating to outsourcing of Solid Waste Management

The municipal councils which have no poura-karmikas or have inadequate man- power to entrust the job of removal of solid waste daily

in the municipal area and transport it to designated place or specially constructed landfills, may outsource the collection of solid waste

in the municipal area and transfer it to a SW transporting agency at specified places or both collection and transportation to designated

place or landfills.

Audit should first ascertain the method of solid waste management system in the municipality and what made municipal council to

resort to outsourcing. He should also examine how it was managed earlier and what happened to the employees involved earlier for

this purpose. He should see whether proper justification is forthcoming for outsourcing of this activity

In the case of outsourcing of SW activities to any one or more agencies, audit should examine the procedure followed in preparation of

TOR, procedure prescribed under KTPP Act and actual procedure followed floating of tender and its processing, approval of the

lowest tender by the competent authority, etc, and any defects deviations reported in the audit report

6.19 Expenses in connection with rent of building/premises taken on hire/lease

a) Audit should see from the files relating to hiring of building/premises for rent/lease has been resorted as no suitable own

building/premises for the intended purposes was available or PW Department could provide them, if needed for bonafide

official use

b) Building/premises has been taken on rent/lease duly keeping in view the provisions of Section 72(3) of the Act regarding

sanction of the council or other authority and to enter into contract.

c) Reasonableness of the rent is ascertained from the certificate furnished by the PWD.

d) The building /premises taken on rent / lease is used for the purpose for which it was taken

6.20 Expenditure on rates or taxes

a) Audit shall see that any claim preferred by suppliers / contractors/consultancy provider are applicable for supplies, services

or works as per orders of State or Central Government

b) Contract entered into by the municipal council provide for such payment at such rates, claimed in the bills

c) No other rates or taxes claimed are paid by the municipal council without specific orders of Government

6.21 Expenditure on purchase of books and periodicals

Audit shall satisfy himself that the MC/CO has obtained approval of the council for the news papers and periodicals that may be

purchased for municipal office/sub-offices, etc, and accordingly purchased and paid. Any books or journals connected with urban

management and affairs are purchased and payment made only after obtaining approval of the DMA. Besides, it shall also see

whether any record to enter regular receipt of papers and periodical are maintained and books if any purchased for the office reference

or for Reading Rooms/Libraries are accounted in an 'Accession Register', and prompt receipt of the same certified on the bills paid.

6.22 Legal and other professional fees

a) Legal Expenses

Municipal Councils may have suits instituted by it or by others against it. In the interest of municipal properties, funds, and its

regulatory and licensing powers vested under the Act. It is necessary that municipal councils maintain proper record for its follow

up and ultimate disposal. Audit has to see that:

•

'Register of Suits' in KMF No 29 is maintained and all legal cases are being entered in this register.

•

Legal proceedings are initiated or defended with the approval of the municipal council/DMA and competent advocates

are engaged and their fees also got approved.

•

wherever any suit involves payment of court fee or payment in the form of Stamp fee, it should be verified whether the

amount required is estimated and intimated by the Advocate appointed in this behalf and the amount is given to him as

advance subject furnishing of vouchers by him and no amount is paid as advance to him without a written requisition

indicating the computation of the requirement. Audit shall also point out instances of substantial amounts of advance

given to the advocates but remaining unadjusted and status of the suits not forthcoming from the Register of Suits.

•

legal charges payable to advocates engaged by municipal council for different types of cases, if any prescribed by

Government is not exceeded

•

Other expenses towards professional fees

•

In respect of payments made to professionals for any service rendered to the municipal council, Audit has to verify and

satisfy itself that:-

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¨sÁUÀ 3

•

Expression of Interest is obtained by giving adequate publicity of Professionals, details of work expected from them and

qualification/expertise in the required area, etc,

•

Terms of reference clearly specify the tasks involved, qualification of the experts needed for the tasks, time limit for

completion of the tasks, etc, whether technical and financial bids are to be submitted separately, etc,

•

The bids are processed as laid down in the TOR and the firm or person who has quoted lowest rate is awarded the

contract and duly fulfilled the contract to the satisfaction of the municipal council

•

Where any such contract exceeds Rs. 1,00,000/-, tender procedure and processing as stipulated in the KTPP Act and

rules have been followed.

•

In case of decrees, the auditor has to verify whether transactions have been recorded in Decree Register in KMF 30.

The audit has to report any loss occurred to ULB due to negligence of officials. The decree execution and follow up

action initiated regarding decrees shall also be verified.

6.23 Advertisement and publication

While checking payments towards advertisements and publications of the municipal councils, audit should see that:

•

In respect of advertisements, the matter is advertised as per the guidelines set-forth by the Government or after

complying with the procedure laid down in the rules and are restricted to the news papers having circulation in the

municipal and surrounding areas

•

Advertisements are not released to unauthorized or small time publishers or political papers printed locally

•

Cost of publication of advertisements in news papers are ascertained and compared before release, if advertisements

are to be released in more papers

•

Any publication of decisions of municipal council regarding taxation, licensing or any other regulatory functions are

notified as provided under rules, such notifications are also kept open for perusal of public in municipal office, sub-

offices and reading rooms, etc, in addition to release of notifications in the news papers

6.24 Expenditure on printing

Audit is required to see that:

•

As far as possible, the printing of Forms, Registers, Receipt Books, etc, are got printed from Government Printing Press.

•

Where printing works are carried out by private press such printing presses are Govt. Press approved presses and

rates paid are also as intimated by Govt. Press or procured through competitive rates by floating tenders/quotations.

•

No payment is made for other than municipal related works

•

Any special artwork/designing for any work got done is based on competitive rates evidenced by tenders/quotations

obtained.

•

Budget provided is not exceeded

6.25 Expenditure on supply of uniforms

Audit should see that:

•

Types of uniforms to be supplied to different category of employees and the scale i.e. number of sets and when to

issue are as per policy laid down and orders issued in this behalf.

•

Cloth /sarees are purchased from the sources indicated by Government

•

Uniforms are got stitched through the Tailoring Units of the Social Welfare Department of Government or from other

tailors at the rates, if any prescribed by Government

•

Proper stock account of cloth, sarees, towels, soaps, Gloves, etc, is maintained for each type of article in KMF No.53.

•

Separate stock account for receipt and issue of stitched uniforms including blouses are maintained correctly

6.26 Other office maintenance expenses

a) Telephone and other communication Expenses

Audit shall verify and satisfy himself that expenditure like Telephone charges of the telephones in the municipal office and

sub-offices are paid promptly on the due dates without payment of interest on delayed payments and a watch register for

payment of telephone charges is maintained. No payment towards mobile charges is paid in respect of any mobiles of the

officers and officials unless sanctioned by the municipal council. Any STD calls charged in the telephone bills may be

disallowed unless it is certified by the MC/CO that it is in connection with the bonafide official matter of the municipal council.

6.27 Payment of insurance premium

Audit should see that Insurance premium paid towards municipal buildings, properties, etc, including for renewal, are supported by

approval of the municipal council, Petty purchases towards office requirements like gum, pencils, twine, etc, are met out of office

contingency and prior orders of MC/CO for all such purchases are obtained

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6.28 Expenditure in connection with various functions

Audit is required to check :

1) whether the functions organized are of national/state/local importance covered under powers of expenditure rules:

2) wherever financial ceiling is imposed under the above said rules, whether the limits are not exceeded; and

3) In respect of functions relating to public reception, public ceremony, public entertainment or public exhibition within the

municipal area, whether necessary resolution has been passed, and prior approval of the competent authority is obtained for

organizing the function and for the amount to be spent, in terms of clause (o) of Section 91.

4) Where shamiana / pandal and lighting arrangements are made and paid for in respect of any of the functions organized by

the municipal council, Audit shall verify whether quotations / tenders have been obtained and benefit of competitive rates

availed.

6.29 Expenditure incurred in connection with fairs, festivals, Jathras and Urs.

Wherever a municipal council has incurred expenditure in connection with conducting Jathras and Urs within the municipal area and

collected fees as provided in Section 137 of the KMA, and KM (Levy and collection of fees in respect of Jathras, Urs) Rules, 1966, audit

has to see:

•

That separate accounts of the fees collected and expenditure incurred there-from has been maintained

•

Expenditure is incurred for making sanitary arrangements to safeguard the health of the pilgrims attending jathras/urs

and providing shelter for their comfortable stay during the period of the fair and part of the collection is spent for meeting

collection cost.

•

Fees collected from the pilgrims visiting the fair is as per the fee prescribed in the Act,

•

If right of collection of fees is leased to a contractor, the council has ensured that contractor is not allowed to collect

fees at a higher rate than would have collected the rate, if any, stipulated in the agreement

6.30

Expenditure on destruction of dogs, venomous snakes, catching and removal of monkeys, etc.

Whenever there is menace of stray dogs or venomous snakes or monkey menace in the municipal area, on the complaint of the public,

municipal council may take action to get rid of the menace by departmentally destroying it or by entrusting it to external agencies. Audit

has to see:

•

Whether there was frequent complaint from public about the any of the menace mentioned above

•

Decision of the municipal council as to how to overcome the menace i.e. by departmentally engaging persons or leasing

out the task to an agency which is reputed to successfully done it elsewhere or in the same area.

•

How the menace has been remedied and the cost involved.

•

If paid to a contractor/agency, whether tenders/quotations have been obtained and benefit of competitive rates availed.

•

Whether budget provision to meet this expenditure was available. If not, adequate funds provided through proper

sanction /ratification by way of supplementary budget or Re- appropriation.

•

The previous occasion such expenditure was incurred i.e. how many years back.

6.31 Checks to be exercised in respect of expenditure incurred

The forms in which the bills to be prepared depend on the nature of claims prescribed in KMABR,2006. These are prescribed for

easy identification of the nature of payment. In Government accounting, these bills become 'vouchers' once the claim preferred in it are

paid and then it will find an entry in the Cash Book.

Under double entry accounting system, the prime document for accounting will be a 'Voucher' to be prepared by the Accountant for

recording the financial transactions in the prime book of accounts namely, Cash Book KMF No.1, Bank Book KMF No.3 & Journal Book

KMF No.4. All financial transactions involving receipt of cash will be first accounted by preparing a "Receipt Voucher" in KMF No.8 and

entered in the 'Cash Book"., all payments by preparing a "Payment Voucher' in KMF No. 9 and transactions entered in the 'Bank Book".

All non-cash transactions will be accounted by preparing a 'Journal Voucher' in KMF No.11 and entered in the 'Journal Book'.

Expenditure bills backed by work order, procurement order and indent, whether revenue or capital will have to be first accrued on

approval of the bills, and then paid according to KMABR 2006/KMAM. All other bills shall be accounted on payment basis. Audit

should verify and ensure that:

• ' Journal Voucher' in KMF No.11 is prepared for accruable claims preferred and gross amount of the claim is debited to

the concerned expenditure head,

•

All recoveries towards statutory deductions like IT, Service Tax, Royalty, Cesses or salary recoveries like insurance

premium, Provident Fund, employees benefit fund, labour welfare fund, contractors benevolent fund, bank loan

recoveries, recoveries towards advances and the net amount payable to the contractors/ suppliers/employees are

credited to the concerned 'payable accounts.' (Ref Chapter 12 of KMAM for entries)

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•

For payment of the net claims by cheques to the contractor/suppliers/employees, recoveries payable to external

agencies, etc, a 'Payment Vouchers' in KMF No.9 are prepared 'debiting' the amounts earlier credited to concerned

'payable accounts' and 'crediting' such amount to the bank account. In case of bills accounted on payment basis,

'Payment Vouchers' are prepared for such expenditure by debiting it to concerned expenditure head.

•

The amounts recovered from employees and shown as credit to 'advance account of the employees /

contractors/suppliers account' in the JV prepared, are adjusted towards 'advances adjustable to concerned advance

accounts' in the register of advances, as no amount is paid out of municipal funds

•

Besides, audit also traces the accounting of the Journal Vouchers prepared as above to the Journal book, and

Payment Vouchers to the Cash/bank Book to ensure accounting of expenditure.

6.32 Expenditure towards grant-in-aid, contributions, donations, etc.

Auditor shall ensure that all expenditure towards Grants-in Aid, Contributions, Donations etc, paid to local or other organizations/

authorities, institutions to encourage Education, Art. Culture, Public welfare activities, Recreation and Entertainment by the municipal

council are supported by sanctions accorded in individual cases by the municipal councils, within the financial limitations if any,

prescribed in the Power of Expenditure Rules or authorized by competent authority.

Chapter 7

Audit of Expenditure relating to

Procurement, Stores and Fixed Assets

7 .1

This chapter deals with

a) Procurement of Stores and other movable fixed assets like equipments, plants and machineries.

b) Procurement of Immovable properties

c) Public works carried out by the Urban Local Bodies.

d) Public Works of Urban Local Bodies entrusted for execution to other agencies-Deposit Works

e) Delegated Loan Works executed by other agencies.

7.2

Audit of procurement of stores

a) General principles governing procurement of stores

(i) Stores required for various activities of the ULB should be identified, quantities required assessed by the concerned

Department /Section of ULB. Assessment is made taking into account the following:

a) average yearly consumption of the stores over the previous two years,

b) stock on hand at the end of the year, and

c) actual requirement for the current year

(ii)

Purchases should be covered by proper sanction and made in the most economical manner in accordance with the

rules, regulation and orders issued by the Government

(iii) Ensure availability of adequate budget provision under relevant budget head of account to meet the cost of stores

proposed to be purchased

(iv)

Purchases should not be split up to avoid the necessity of obtaining sanction of higher authority

(v)

Purchases sanctioned by the MC/CO or Standing Committee or the Council or DMA/Government, as per the powers

delegated or rules or orders in force

(vi)

Stores proposed to be procured should be of approved quality and required specifications

(vii) If any stores/equipments required by the ULBs are covered under Rates Contracts entered in to by the Directorate

General of Supplies and Disposals of GOI, Stores Purchase Department of GOK purchases may be made from such

authorities, without inviting tenders

(viii) The system of open competitive tender as per existing rules, should be followed for procurements even for those not

falling under the purview of Karnataka Transparency in Public Procurement Act, 1999 (effective from December 2000)

and purchases made only from the lowest tender unless there are recorded reasons for not doing so

(ix)

The rates paid should correspond to the lowest rates agreed to, in the relevant contracts or agreement.

(x)

The official responsible for approving and receiving purchases ordered should furnish certificate of compliance to

specification, quality and quantity of supplies received, before payments are made.

(xi)

The stipulated terms and conditions of purchase should confirm to various Codal provisions and orders issued from

time to time by the Government

(xii) Necessary precaution should be taken to safeguard ULB's interest in cases involving advance payments for supply of

stores in terms of the contract provisions and ensure receipt of stores within the stipulated period and the advance paid

is adjusted.

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b) Procurement under Karnataka Transparency in Public Procurement Act, 1999

(i)

Procurement of Goods and Services, Consultancy Services, or Construction (execution of works) by ULBs beyond

the limits mentioned below, have to comply with the provisions of KTPP Act, 1999 and the rules framed under it.

Table 3: Limits for procurement of goods and services

Sl.

No.

Procurement authorities

Procurement of civil

construction works of the

value

Procurement of goods /

services of the value

rocurement of Consultancy

services

1

City Municipal Corporations

and City Municipal Councils

Exceeding Rs. 5.00 lakhs

Exceeding Rs. 1.00 lakh

Exceeding

Rs.1.00

lakh

2

Town Municipal Councils and

Town Panchayats,

Exceeding Rs. 2.00 lakhs

for

implementing

mini

water

supply

scheme

or

construction of school rooms.

For

other

purposes

-

Exceeding Rs. 1.00 lakh.

Exceeding Rs. 1.00 lakh

Exceeding Rs.1.00 lakh

(ii)

Wherever entrustment of work on contract is barred in the guidelines of the centrally sponsored schemes such as

Swarna Jayanthi, Shahari Rozgar Yojana, Udyoga Bharavase Yojana, etc, the above provisions are not applicable.

(iii) Where the value of the contract exceeds the limit mentioned above, the audit has to see whether the following

procedure laid down in the KTPP Rules, 2000 are complied with:

•

Tender document is properly prepared incorporating details of work/supplies or services with necessary technical

details (in case of works detailed estimates are prepared by the competent technical authority) and appropriate terms

and conditions as provided in rules 11 & 12 of the above said rules.

•

A 'Notice' inviting tender is prepared in accordance with rule 9 specifying name and address of the Tender Inviting

Authority, name of the scheme/project/programme under which procurement is proposed, date from which and up to

what date, time and place the tender document can be obtained, amount of EMD payable, last date of receipt of tender

and time & place of opening tender etc,

•

Based on the value of procurement, notice of invitation of tender is published in the news paper or news papers

through the District Publicity Officer or the Director of Information and Publicity and also by affixing in the notice board

of the ULB and DC's office

•

A copy of the notice inviting tender is sent to the 'District Tender Bulletin Officer' for publication in the District Tender

Bulletin as stipulated in rule 8 of the above rule

•

The 'District Tender Bulletin Officer' has published the notice inviting the tender sent to him in the District Tender

Bulletin released by him and a copy sent to the tender inviting authority

•

The Tender Inviting Authority has made adequate arrangements to ensure availability of tender document to the

contractors/suppliers, on the dates specified in the tender notice and fees if any fixed, collected on sale

•

Minimum time for submission of tender is allowed by the tender inviting authority, as indicated in rule 17 of the above

rules

•

Tenders received are opened on the date and time specified in the tender notice in the presence of the tenderers and

procedure laid down in rule 19 followed

•

Whether any committee was constituted for scrutiny of tenders and procedure laid down for tender evaluation in rules

21 to 24 of chapter VI of the KTPP rules are followed

•

Lowest evaluated price is determined keeping in view the instructions in rule 25 of rule ibid and the same is in order, as

could be seen from the evaluation sheet prepared

• ' Price preference of 15% to Small Scale Industrial units in terms of rule 25 of KTPP rules, 2000, is extended for a period

of five years from first day of April 2009 by Government vide amendment notification No. FD 297 Exp- 12/2010 dt 23-10-

2010, in accordance with the new Industrial Policy, 2009- 2014 issued by Govt. Order No. CI 233 SPl 2008.

•

Whether negotiation is made with lowest quoted tenderer, as a matter of routine or with justifiable reasons

•

An evaluation report is prepared and award is passed after obtaining approval of the competent authority

•

Supply Order or Work order is issued with least delay

•

Where the nature of procurement/cost involved require tender inviting authority to follow 'Pre-qualification procedure'

or 'Two Cover Tenders' System, the requirement laid down in rules 27 & 28 are complied with

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•

Where 'Two Stage Tender System' are followed, whether the procedure laid down in rule 28.A have been complied with

or otherwise

c) In case of procurement of Consultancy Services, audit should see that:

(i) Appropriate selection method among those mentioned below is adopted depending on the nature of service required,

cost, professional expertise of the firm or sole Consultant, period of service, etc.

•

Quality and Cost Based Selection (QCBS)

•

Least Cost Selection (LCS)

•

Single Source Selection (SSS)

(ii) No officials working in Government, Undertakings, Corporations etc, are hired for consulting services

(iii) Proper Terms of reference (TOR) for the assignment, Request for Proposals (RFP) have been prepared and evaluated as

laid down in rule 28F of rules and contracts entered into

7 .3

Audit of stores accounts

a) Accounting policies relating to Stores are prescribed in 11.2 Chapter 11 of KMAM

b) Procedure for accounting stores in ULBs are laid down in Chapter 17 of KMABR,2006

c) Audit shall verify and ensure that:

(i) Maintenance of 'Register of Stores'

•

The official in-charge of the ULB Stores (Store Keeper) has maintained separate Registers in KMF No. 53 for

different categories of stores such as Conservancy related stores, Water Supply related stores, Medical supply related

stores, Lighting related stores, Public Works, Food grains, Other stores, etc,.

(ii) Accounting of stores received

•

All stores received are accounted in the Stock Register, based on the invoices/bills received from the supplier by the

Store Keeper (SK)

•

SK has checked as to the correctness of the specification, quantity supplied, condition of the materials received etc,

w. r. t. supply order and has recorded necessary 'Stock Certificate' on the bills

•

A 'Material Receipt Note' (MRN) in form KMF No.54.. is prepared by the SK and sent to Accounts Department for

passing entries in the books of accounts

(iii) Compliance to payment procedure for supplies made

•

Bills received along with supplies are entered in the Departmental Register of Bill in KMF No.21 and a 'Detailed Bill for

other expenditure' in KMF No. 59 is prepared by the SK, duly effecting any deductions to be made in the bill

•

The bill for payment is affixed with 'Payment Order' along with necessary supporting documents and a stock certificate

recorded on it..

•

The Accounts Department has accounted the Bill in the Bill Register of accounts department in KMF No. 23 and after

approval of the bill for payment, receipt of material is accounted by Debit to 'Stores in Hand-General Stores-concerned

type of stores' and credit to 'Creditors-Payable to contractors/suppliers ' in the relevant fund account, through a JV

•

The Accounts Department has, after ensuring correctness of the claims w. r. t. Supply Order, Agreement, certificates

furnished on the bill, payment order and availability of the funds, prepared a PV in the prescribed form and a cheque for

the net amount payable to the contractor/supplier and submitted to the MC/CO for signature and issue of cheque to the

contractor/supplier or for remitting it to his bank account

•

Accounts Department has accounted the above payment by passing accounting entries debiting the payment to the

'Creditors-Payable to contractors/suppliers' and crediting the amount to concerned Bank Account, as indicated in para

11.10 of KMAM

•

In respect of any amount deducted from the supplier's bill towards any statutory deductions or dues payable to other

agencies, as per JV, separate PV has been prepared and payment made following the usual payment procedure

(iv) Accounting of stores issued

•

In respect of all issues made by the SK on the orders of the MC/CO on the indents of the concerned

Department/Section, the SK has prepared separate 'Material Issue Note' (MIN) in KMF No.55 for issues made to

contractors and for those issued to Departments of ULB and sent to Accounts Department marking a copy to

Engineering Department

•

The stores are issued on First-In-First Out (FIFO) method and accounted accordingly in MIN and monthly summary of

issues prepared by the SK

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•

The Store Keeper has also prepared a 'Monthly Summary Statement of Materials Issued' issued to Department of ULB

in KMF No. 56, in duplicate, on the basis of KMF No.55 and sent to Accounts Department along with copies of MINs ,

within 7th of the following month for passing accounting entries

•

The Accounts Department has passed accounting entries debiting the cost of material issued to the Departments to

the concerned head of account and has credited equal amount to the 'Stores in Hand-General store-concerned

Department, as indicated in para 11.14 of KMAM

•

In case of MINs issued to contractors for ULB works, Accounts Department has passed necessary accounting entries,

as and when received from SK, debiting the value of sores issued to 'Creditors-contractors' Payable' and credited to

'Stores in Hand-General Stores-public work related stores' or 'Stores in Hand-General Stores-Lighting related stores',

as the case may be, as indicated in para 11.12 of KMAM

(v) Statement of Half yearly closing stock of stores

•

An Half Yearly Statement of Closing Stock of stores in KMF No.57 is prepared by the SK and sent to Accounts

Department

•

Accounts Department has reconciled the closing stock of stores furnished in the Half Yearly return with the ledger

account relating to Stores

•

After closure of the financial year, the MC/CO has made arrangements for annual physical verification of stores by

some other officer other than the SK and his assistants and a statement of closing stock as per Register of Stores

and actual physical balance of stock got prepared and the same sent to Accounts Department for verification and

furnishing a statement of difference in stock of stores with valuation

•

Appropriate and effective follow-up action is taken on statement of difference in stock of stores for making good any

losses, shortages, etc. and to fix responsibility on the person or persons found responsible

•

Adequate precautionary measures are taken to prevent such discrepancies in future

•

No Purchase of stores are made without actual need or in excess of requirement, resulting in accumulation of idle stock

d) Where huge stores are procured for use of various Departments of ULB, audit may verify whether adequate storage

facilities are available and precautionary measures have been taken to protect stores from damage and undue deterioration.

e) Officials entrusted with custody of stores or holding charges of stores have furnished the security as per KM (Furnishing of

Securities) Rules, 1966

7 .4

Disposal of stores

a) Audit has to ensure that the SK or any other official authorized by the MC/CO has prepared a statement of surplus,

unserviceable, obsolete stores are prepared with cost paid for acquisition and approximate total value that may be expected

on its disposal

b) Such statement of disposable stores got scrutinized by the Engineering Department of the ULB is placed before the

Standing Committee/Council for approval, by the MC/CO

c) The disposable stores are disposed through auction duly following the auction sale procedure as in the case of auction of

right of collection of fees or by inviting tenders

d) Stores disposed as above is accounted in the 'Register of Miscellaneous Sales/Auctions' in KMF No.34

e) Profit or loss arising out of sale of stores is accounted as indicated in para 11.18 by passing:

•

RV for the amount of sale realization by debit to 'Cash in Hand' and credit to 'Stock in Hand-General Stores-concerned

Department'

•

JV for the amount realized less than the value of stores disposed i.e. loss, by debit to 'Stores written off' and credit to

'Stock in Hand-General Stores-concerned Department, or

•

JV for the amount realized in excess of the value of stores disposed i.e. profit treated as 'Other Income' by credit to 'Other

Income-others'.

7 .5

Audit of accounting of other movable fixed assets

a) For procurement of other movable assets like furniture, equipments, plants and machinery, vehicles etc, the procurement

procedure discussed in para 7.2 have to be followed by the ULBs. As such, audit checks applicable for stores mentioned

above have to be exercised in audit of procurement and accounting of other movable fixed assets.

b) In case of other movable assets, audit has to see that SK of the ULB:

•

Has maintained for each fund a 'Register of Movable Properties in KMF No.46 by allotting separate folios for each type

of movable assets or separate registers maintained for it.

•

Unique Asset Identification numbers given for each asset and its location noted in the register

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•

All movable assets procured out of grants given for schemes or earmarked fund or out of specific grant are distinctly

accounted and not disposed without specific approval of the authority that gave grants/funds or manages the fund.

•

EMD collected from the contractor/supplier are accounted properly and refunded only on fulfillment of the contract

•

Procedure of accounting of movable assets in the prescribed stock register by the SK, payment procedure by Accounts

Department laid down in rule 37 of KMABR,2006, are followed

•

Accounting entries are passed by debit to 'concerned movable asset account'(like furniture, equipment, plant and

machinery, vehicles, etc,) on acquisition of movable assets and credit to 'Creditors-Suppliers-Payable' as indicated in

Chapter 19.5 of KMAM

•

Depreciation at the rates mentioned in Schedule VII of KMABR,2006 are calculated every year as provided in Rule 89

of rules ibid and checked by the Accounts Superintendent /Accountant before recording necessary accounting entries.

Accounting entries on depreciation of Fixed Assets is passed by debit to 'Depreciation account of the concerned asset'

and credit to 'Accumulated Depreciation of concerned asset' (refer to illustration given in para 19.11 of KMAM

•

Where any movable assets are disposed either by auction sale or by inviting tenders, SK has prepared a list of item or

items of movable assets proposed to be disposed with cost and submitted it to the Standing Committee/Council for

approval.

•

On approval, the movable assets are transferred to 'Fixed Asset under disposal Account' passing accounting entry

'debit' to Fixed Asset under disposal Account' and credit to 'asset account' of concerned asset

•

Transferred asset are removed from the 'Register of Movable Properties' in KMF No.46

•

Accumulated depreciation value of the asset as on the date of disposal has been transferred to 'Fixed Asset under

disposal Account'

•

Sale realization accounted following the usual accounting procedure by debit to ' Cheques in Hand' and credit to 'Fixed

Asset under disposal Account'

•

Depending on the sale proceeds realized, profit/loss is arrived at as illustrated in para 19.14 (f) of KMAM

•

Profit / loss arrived at is accounted in the 'Fixed Asset under disposal Account'

•

'Fixed Asset under disposal Account' shows nil balance after adjustment of the above transactions as illustrated in para

19.15 of KMAM i.e. cost of movable asset transferred to 'Fixed Asset under disposal Account' is equal to value of

accumulated depreciation Plus Depreciation if any allowed for the year depending on date of disposal, Plus sale

realization and amount of profit/loss from the sale

7 .6

Audit of accounting of land

a) Rule 87 (1) of KMABR,2006 stipulate that all land of ULB to be accounted in a Register of Land in KMF No.44 and Land

under Roads in KMF No.44A. Audit should therefore see whether separate account of land under roads is maintained in

KMF No.44A showing details of all land under roads and no lands under roads are disposed or utilized for other purposes

without the sanction of Council and Government

b) Audit should verify and ensure that all land other than land under roads are entered in Register of Land in KMF No.44 duly

indicating the usage of land and whether they are yielding any revenue (being used for compost pits, pasture land,

plantations, etc.)

c) If any land is leased for any purposes, such lease files are verified and ensured that no land has been leased for a period

beyond the powers vested with the Council without sanction of Government

d) Separate account of land of Government or other entities vested in ULB with obligations is maintained and is not leased out

without sanction of Government or approval of such other entities.

e) All other immovable properties like buildings, structures, etc, are entered in the Register of Immovable Properties in KMF

No.45, fund-wise,(including water tanks/reservoirs, water supply pump houses, booster stations, milk booths, street lamp

posts, etc.)

f) Purchase procedure laid down in KTPP Act, Rules and practice in force for those not coming under the purview of KTPP

Act have been followed for new additions, if any, during the period of accounts being audited

7.7

Audit of public works accounts

a) In Chapter 14 of KMABR,2006, Procedure for accounting Public Works has been laid down. Besides, KM (Preparation of

Plans and Estimates and Execution of Municipal Works) Rules, 1966 are also to be followed.

b) Chapter 10 of KMAM prescribe the procedure for accounting of public works executed by other agencies, delegated loan

works, etc, besides accounting entries to be passed under different circumstances

c) KM (Limitation of powers of Standing Committee) Rules, 1977 specify the powers of the SC to sanction plans and

estimates of works or enter into contract. TMC with less than average normal income less than Rs. 3 lakhs- Rs.7000/-,

more than 3lakhs-Rs. 10,000/- & CMC up to Rs,20,000/-. Any subsequent amendments in this regard shall be taken into

cognizance.

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d) ULBs may get public works got executed by:

(i) Executing the work Departmentally engaging labour and procuring required materials for the work

(ii) Entrusting works to contractors observing the procurement procedure discussed in para 7.2.

(iii) Entrusting works to Public Works Department of GOK, as Deposit works, and

(iv) Authorizing any other agency to raise loan from Government or from any other funding agency with the sanction of

Government, and execute the work as 'Delegated Loan Works' (Rule 73 of KMABR,2006)

e) General points to be verified in audit of works executed under a) to b) above are:-

(i)

Work covered is included in the Programme of Works/Action Plan approved for the year by the council

(ii)

Budget provision is made under relevant fund and budget head of account to meet the work expenditure

(iii) The estimate is prepared by ULB Engineer or Engineer of Public Works Department/Karnataka Urban water Supply

& Drainage Board, or any other agency approved by Government

(iv) The estimate is covered by Technical Sanction by the competent authority, as per KM (Preparation of Plans and Estimates

and Execution of Municipal Works) Rules, 1966.

(v)

Administrative sanction of Standing Committee/Council/DC/DMA/Government obtained

(vi)

Mode of getting the work executed is decided by the competent authority

(vii) If the estimated cost of the work exceed Rs. 5 Lakhs in the case of construction work or Rs. 2 Lakhs, if it relates Mini

water Supply works or construction of class room in school, Procedure prescribed under KTPP Act is followed and if it

is less, the usual procurement procedure of inviting open competitive tenders is followed

(viii) Works executed are recorded in 'Register of Public Works' in KMF No.41

(ix)

Work executed are recorded in Measurement Book (MB) maintained and claims preferred in the bills are based on the

entries in the MB

(x)

Bill is prepared in the prescribed form (NMR in KMF No.39 in case of departmentally executed works and KMF

No. 38 where work is entrusted to contractor)

(xi)

Bill is processed by the Engineering Department and Accounts Department as laid down in Rule 37, 76 and 77 of

KMABR,2006 and payment of transaction accounted as laid down in Chapter 10 of KMAM.

f) Works executed departmentally

Audit has to verify and ensure compliance to the following requirement;-

(i)

Estimate for the work is technically sanctioned by an engineer i.e. by a Municipal Engineer or an Engineering

subordinate or appropriate level Engineer of the Public Works Department, as per the financial limits prescribed in the

rules-(refer rule 8 (3) of KM rules 1966 mentioned above)

(ii)

Work is approved administratively by the MC/CO or Standing Committee or Council or DC or DMA as the case may be

depending on the estimated cost of the work

(iii)

Labourers are hired on daily wages basis in respect of works executed under labour oriented schemes and not for all

works

(iv)

The rates at which the work turned out are valued at and paid are not excessive compared to those allowed to

contractors

(v)

Payment of wages to labourers engaged for a week, fortnight or a month, as may be required for the work, is based

on Nominal Muster Roll in KMF No.39 prescribed under rule 78 of KMABR,2006 and procedure laid down therein like

using machine numbered NMR, writing of NMR, marking of attendance, etc, are strictly complied with

(vi)

Subordinate in charge of the Departmental works has furnished Daily Labour report in KMF No.40 to the Engineer or

the MC/CO on daily basis and the same have been entered in the Measurement Book. Materials, if any issued for the

work has been entered in the NMR. The entries in the NMR, daily labour report and MB are verified at the time

authorizing payment by the Engineering Department and Accounts Department following the procedure laid down in

rule 37 of KMABR,2006

(vii) The paid NMR disclose that payment has been made in the presence of Engineer, MC/CO and a certificate to the

effect that value of work turned out is commensurate with the amount spent has been recorded in the NMR by the

officer-in-charge of the work and other requirement of rule 78 of KMABR 2006., complied with.

g) Execution of works relating to repairs and maintenance Expenditure on works relating Repairs and Maintenance of assets of

the ULB fall under 'Revenue Expenditure', as they are incurred to bring back the asset to original useful condition. This has

been covered in Chapter 6 dealing with audit of 'Revenue Expenditure'.

h) Execution of capital works by entrustment to contractors

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In case of capital works entrusted to contractors for execution, apart from the points mentioned in para 7.7 (e) above, audit has to verify

concerned work files and ensure that:

(i)

Estimates prepared are based on the Schedule of Rate of PWD in force for the circle under which the ULB is situate

(ii)

For items not provided in the Schedule of Rates, Data Sheet is prepared, as per the procedure followed in PWD and

got approved by the Technical authority next higher to the authority which technically sanctioned the estimate

(iii) If the estimated cost of the work attract compliance to KTTP Act, the tender procedure like, publication of notice of

tender, publication in the tender bulletin, making available tender document to contractors in time, opening of tender

by the tender opening officer on the stipulated date and time, evaluation of tender, awarding of tender to lowest bid

tenderer, compliance to other conditions in the tender document, etc, fulfilled

(iv)

If compliance to KTPP Act is not required, usual open tender procedure has been followed and work has been

awarded to lowest bid tenderer

(v)

Computation of lowest bid is in order and has been checked and approved by the MC/CO and work order has been

issued with the approval of the authority competent to approve it based on the financial implication

(vi)

Whether the tendered cost of the work warrant preparation and approval of a revised estimates and if so, the same

have been complied with

(vii) The bill has been prepared in KMF No.38 and items of work executed, rate claimed in the bill are in accordance with

the sanctioned estimate, contract document, etc, and no item has been included in the bill

(viii) Quantities of items work executed are not abnormally in excess or less compared to tendered quantities in the tender

document

(ix)

Quantities of items work executed and billed are based on entries recorded in the MB and check measured by the

MC/CO or by the EE of the PWD of the jurisdiction of ULB, as laid down in rules

(x)

Computation of the claims in the bill is correct and all deductions to be effected from the bill towards statutory

deductions, security deposit, advance recoverable and other recoveries payable to other agencies/accounts, have

been proposed for recovery and adjustment in the bill

(xi)

The bill verified and passed for payment with a Payment Order signed by the Municipal Engineer has been sent to

Accounts Department

(xii) The bill is verified by the Accountant with reference to the connected records and JV prepared for the bill debiting

gross expenditure of the work to 'Capital Work in Progress-concerned asset account' and crediting net amount

payable to the contractor to 'Creditor-contractors payable account' and crediting deductions to concerned 'Recoveries-

payable account' (refer para 10.36 of KMAM)

(xiii) In the case of 'Running Bills', security deposit to be deducted is deducted and shown in the JV

(xiv) On approval of the bill for payment and availability of funds, PVs are prepared for payment to contractor and for

remittance of recoveries payable to other agencies/accounts (refer para 10.39 and 10.40 of KMAM)

(xv) A summary Statement of Status of Capital work-in-Progress in KMF No.42 is sent by the Engineering Department to

Accounts Department by extracting details from Register of Public Works in KMF 41, every quarter to facilitate the

latter to reconcile the balances with respect to ledger account

i)

Capitalization of asset

(i)

As 'Capital Works-in-Progress' are to be capitalized on completion of the work in keeping with the accounting concept

and in terms of rule 86 of KMABR,2006, audit has to verify and ensure that:

•

On completion of a work, a completion certificate is prepared by the Engineering Department and the fact of

completion of work noted in the 'Register of Land' in KMF No. 44 against the land on which building / structure

constructed.

•

an entry is made in the 'Register of Immovable properties' in KMF No.45 recording the details of the construction

work completed and how it is going to be utilized

•

completion certificate and the two registers mentioned above are verified and signed by the MC/CO

•

a copy of the above certificate and the registers sent to the Accounts Department

•

Accountant has passed necessary entries by preparing a JV debiting the cost of the asset created to ' asset account

concerned' and crediting equal amount to 'Capital Work in Progress-concerned asset account' (refer illustration under

para 10.45 of KMAM)

•

If the capital work completed has been met out of loan raised, interest on loan paid/payable for the period of

construction has been included in the cost of construction by passing necessary accounting entry

•

Cost of the asset capitalized and entered in KMF No.45 shows cost of construction capitalized and interest for the

period of construction paid/payable on the loan

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•

The procedure of capitalization of asset has been followed by the ULB in respect of capital works carried out by

other agencies as 'Deposit Works' under 'Delegated Loan Works' and Loan Works

j)

Deposit works

In respect of works entrusted to PWD or KUWSDB or ESCOM as Deposit works, audit has to verify and ensure compliance to the following

requirement:

(i)

Administrative approval for the work obtained from the competent authority

(ii)

Included in the Programme of Works /Action Plan

(iii) Budget provision made in the budget

(iv)

Estimate is approved by the competent authority and countersigned by the MC/CO on behalf of ULB

(v)

Estimated cost of work is released to the executing agency in one or more installments, as per the agreement

entered into

(vi)

The deposit paid is treated as asset and accounted as advance paid to the executing agency in the accounts by

passing accounting entry debiting the amount to 'Advance to Government type agency-Deposit Work' and crediting it

to concerned 'Bank account' (refer to illustration given under para 10.53) and entry of the payment made in the

Register of Advances in KMF No.61

(vii) The executing agency has furnished every month outlay incurred on the work in KMF 42 and Accounts Department

has passed entries debiting the expenditure incurred to 'Capital work-in-Progress-concerned asset account' and

crediting the amount to 'Advance to Government type agency-Deposit Work'

(viii) On completion of the work, the executing agency has furnished the final outlay statement along with a completion

certificate and has also refunded the excess amount of advance, if any, received by it

(ix)

The Accounts Department has passed necessary entries in the accounts adjusting the advance paid for deposit work

as follows:-

(x)

Balance value of outlay incurred has been debited to 'Capital work-in-Progress- concerned asset account' and

credited to 'Advance to Government type agency- Deposit Work'

(xi)

Unspent mount of advance refunded has been debited to 'Cheques in Hand account' and credited to 'Advance to

Government type agency-Deposit Work'

(xii) Total amount debited to 'Asset account concerned' and credited to 'Capital work-in- Progress-concerned asset

account'

k) Delegated loan works/loan works

Accounting of transactions relating to Delegated Loans i.e. an authorized agency raising loans from specified financial

institutions for execution of works pertaining to ULBs are laid down in rule 73 (b) of KMABR,2006 and entries to be passed

for accounting the transactions arising in delegated loan works are given in para 10.56 to 10.59 of KMAM. The accounting

procedure prescribed for Delegated Loan Works apply to Loan Works executed by other agencies. The difference is that

loan amount is released to the executing agency for execution of capital works by Government or funding agency without

the responsibility of raising loans for execution of works of ULBs

Checks to be exercised in audit of accounts relating to delegated loan works has been discussed in paragraph 9.3 Audit of

liabilities accounts in this manual.

l)

Quantum check of work bills

Auditor assigned to audit Public Works accounts shall check paid bills w. r. t. all connected register and documents to the

extent indicated below:

(i)

Running Bills involving gross payment less than Rs.25,000/- -50% of the bills

(ii)

Running Bills involving gross payment in excess of Rs.25,000/- 100%

(iii) Final Bills-100%

(iv)

Review of all accounting records relating to public works maintained in Finance Department -100%

(v)

Review of all accounting records relating to public works maintained in Engineering Department -100%

m) Audit of other accounting records relating to Public Works Accounts

Audit is also required to review the overall state of maintenance of all other accounting record prescribed in KMABR,2006

and KMAM to ensure that transactions have been accounted in the relevant records accurately and in a complete manner.

Therefore, audit has to verify and see that following accounting record/forms/statements have been properly maintained by

the Engineering Department and transactions reconciled with ledger accounts maintained by Accounts Department of ULB

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(i)

Departmental Register of Bills Received in KMF No.21 is maintained and all bills received are accounted and payment

details noted against each of the bill. The procedure to be followed before admitting the claims for payment are followed.

At the end of each month, an abstract of memorandum of position of balance of bills outstanding at the beginning of the

month (OB), number of bills received during the month, total number of bills, number of bills paid during the month and

number of bill pending payment (CB) are worked out and recorded in the Bill Register and reconciled with the bills pending

payment with Accounts Department. A statement of Bills pending approval is prepared in KMF No.60 by the department

and sent to Accounts Department to facilitate making provision, in terms of rule 109 of KMABR,2006

(ii)

Register of Works in KMF No.41 is maintained and all works executed Departmentally and executed through contractors

are noted separately allotting separate folios and each entry signed by the head of the Engineering Department

(iii) Stock account of Measurement Books is maintained in the form prescribed for Stationary and MBs received from

Government Press accounted therein. MBs are issued to Engineering subordinates from this stock and issues

correctly recorded. The instructions regarding taking measurements, writing of measurements, crossing of entries in

the MBs, custody of MBs, etc, as laid down in rule 80 to 82 of the KMABR,2006 are complied with

(iv)

Stock account of NMRs is maintained in the form prescribed for Stationary (KMF No.65) and NMRs received from

Government Press/authorized printer and issues there-form to Engineering subordinates and balance are recorded.

NMRs utilized for recording engagement of labour and payment of wages are issued from this stock. Daily Labour

reports based on which NMRs are passed for payment, are neatly arranged work-wise and available for verification

(v)

Register of Deposits of Deposits in KMF No.67 is maintained and EMD and Security Deposits deducted from the

Contractors are accounted therein besides recording their refund/adjustments. At the end of the year, outstanding

deposits as per the Departmental register reconciled with the Deposit register maintained in the Accounts Department

(vi)

Bank guarantees, if any, received as per terms and conditions of granting Mobilization Advances to contractors

are accounted in the Deposit Register by allotting separate folios or maintaining a separate register and currency

watched till advance with interest thereon is fully recovered/adjusted, as per agreement. Advance Register is also

maintained to watch the recovery/adjustment of the advances paid to the contractors

(vii) Stock account of Materials if any, issued to the contractors, based on the MINs issued by the SK and noting it in the

register of recoveries to be effected from contractors bills

(viii) Registers relating to Fixed Assets: As Engineering Department of the ULB is responsible for accounting all Fixed

Assets of the ULBs, audit has to verify the following registers and ensure that instruction relating to valuation of

Fixed Assets, Depreciation, Re-valuation etc, are complied with, At the end of the year, a statement of Depreciation

computation based on the rates prescribed in Schedule VII of the KMABR,2006 is prepared for all fixed assets and

sent to Accounts Section for passing necessary accounting entries

•

Register of Land in KMF No. 44

•

Register of Land under Roads in KMF No.44A

•

Register of Immovable Properties (other than land) in KMF No.45, and

•

Register of Movable Properties in KMF No.46

(ix)

Register of Works got executed other Agencies: This register is maintained and Deposit Works, Delegated Works

and Loan works got executed recorded therein allotting separate folios for each category. A separate Summary

Statement of Status of capital Work-in-Progress in KMF No.42 is prepared for these categories and sent to Accounts

Department, every quarter for review and needful action

(x)

Register of Recoveries effected from contractors bills: Work Bill-wise deductions of various recoveries effected from

the contractors bills are recorded to facilitate preparation of consolidated statement for individual type of recovery, at

the time of remittance of recovery to concerned authority

(xi)

Duplicate copies of work bills passed for payment: Duplicate copies of work bills paid are kept on record for

reference in the relevant work file and available for verification

(xii) Petty Cash Book/Imprest Register for accounting expenditure incurred out of Permanent Advance

(xiii) Contractor-wise Sub-Ledger for accounting transactions relating to individual contractor

Chapter 8

Audit of Investments and Other Current

Assets

The transactions relating to following accounts fall under Current Assets:

•

Investments

•

Receivables

•

Loans and Advances to employees, contractors and suppliers

•

Cash and Bank balances

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8 .1

Audit of investments account

ULBs may deposit and invest its surplus funds not required for immediate payment, to earn interest, in terms of Section 85 of the KM

Act. Surplus municipal funds may be deposited in Government Savings Bank, with the sanction of Government in any Scheduled or

Co-operative banks, public securities of States/Central Government, or any other security specifically sanctioned by Government

In Chapter 18 of the KMAM, the detailed procedures to be followed in respect of Investments made by ULBs are laid down. Depending

on the tenure of investments, investments shall be classified as short term (less than one year) or long term. Fixed Deposits are not

investments. Audit is required to see that:

•

a register of investments in Form KMF No:66 is maintained and details of investments made from the Municipal Fund

and from other Earmarked Fund and Sinking Fund are recorded allotting separate folios for investments out of each

fund in this register

•

funds deposited in banks as Fixed Term Deposits are accounted separately under relevant chart of account under

bank account and not treated as investment

•

securities, term deposit receipts, other documents connected with investments are kept in the safe custody of MC/CO

and are made available for physical verification

•

interest due on long term investments are recognized and accrued as and when due and proportionately accrued at

the period ends

•

interest on short term investments are accounted on receipt

•

dividend if any received accounted on receipt

•

interest dividend due are promptly realized and accounted

•

income on investment of Earmarked funds or Specific Grant are recognized and credited to the concerned fund and to

the general fund

•

investments made out of earmarked or specific grant funds are re-invested if not required for expenditure

•

profit or loss arising on account of disposal of an investment made out of Earmarked fund or Specific Grant fund is

recognized and credited or debited, as the case may be to the concerned fund account in the year of disposal

•

investment account recorded in the 'Investment Register' is closed at the end of the accounting period and reconciled

with ledger account

•

surplus general municipal funds not required for immediate expenditure or for a reasonably long period are invested

and not kept idle

8 .2

Audit of receivable accounts

Under Double Entry Accruable Accounting System 'Receivable accounts are required to be maintained in respect all accruable

income of the ULBs. The procedure of accounting accruable income discussed in detail in Chapter 6 to 8 of the KMAM as well as in

Chapter 5 relating to audit of Receipts.

The income accounts for which 'Receivable' accounts are required to be maintained by passing necessary accrual entries through a

Journal Voucher are ;-

•

Receivables-Property Tax

•

Receivables-Cesses Control Account

•

Receivables-Advertisement Tax

•

Receivables-Rental Income

•

Receivables-Fees, User charges & other charges pertaining to water & UGD charges

•

Receivables- Trade License Fees

•

Receivables-Other Fees, User charges & other charges

•

Receivables from Government (pertaining to general grants receivable)

Audit has to verify and ensure that:

•

JVs are prepared by the Accounts Department in KMF No. 11 based on the summary statement of demand raised or

income accrued received in KMF No. 13 from the concerned Department/Section by debiting the demand/accrued

amount to 'Receivables- concerned income account' and crediting equal amount to the concerned 'Income account'

•

The amount accrued is posted to the respective Ledger account

•

On collection of the accrued income, amount is debited to the 'Cash/Bank account' and credited to the 'Receivables-

concerned Income account'

•

Any changes in the demand/accrued amount reported through monthly statements in KMF No. 13A by the concerned

Department/Section are accounted in the respective 'Receivables account' by debit or credit of the net difference.

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•

Entries which are entered in suspense register in KMF No 28 for want of adequate details in respect of receivables

such as receivables of property tax, water charges etc., are cleared within stipulated time and corresponding entries

are made in KMF No 13A in case of year wise suspense cleared in accounts by passing suitable entries.

•

In case of receivables from Government i.e. State Finance Commission grant, it has to be ensured that grant

receivable is accounted by debit to 'Receivables from Government' on receipt of the orders of Government sanctioning

the grant. On receipt of the grant, the amount is debited to Bank account concerned credited to 'Receivables from

Government' account. Care is taken to see that adjustments towards any dues of municipalities to Government or

other agencies in the sanction orders are correctly accounted in the books of accounts of the ULB

•

DCB registers updated every month posting the collections made and remissions and writes off any granted by the

municipal council

•

The collections posted are verified with collection register, cash/bank books and the bank accounts concerned.

•

Receivables appearing in Schedule B-14 agree with the current years balance plus the arrears of previous years

accounted in the DCB register

8 .3

Audit of loans and advances accounts

The Municipal councils may sanction following advances to its employees:

•

Festival Advance- as per standing orders of Government-interest free

•

Bicycle Advance/Motorcycle/Motor car Advance under KM(Grant of advances to the employees for purchase of

Motor car, Motor Cycle and Bicycle)Rules, 1987-interest bearing advance

•

Advance for construction, purchase or repairs to house under KM (Grant of Loans to Municipal Servants for

construction of Houses) Rules, 1967 -interest bearing advance

•

Travelling Advance and Advance of Pay on Transfer as per KM (Conditions of Service) Rules, 1980 and Rule 102 of

KMABR,2006

Auditors should be conversant with the above rules and orders if any, issued from time to time

The following points should to be observed in Audit of advances.

a) Festival advance

(i)

Office order sanctioning the amount of festival advance mentioning the name of the festival for which it is sanctioned

are forthcoming

(ii)

Previous festival advance taken by the employee is completely recovered.

(iii) Necessary sureties are taken from permanent officials in cases of sanction of festival advance to temporary

officials/Local candidates.

(iv)

In case of transfer of any employees to other offices, the balance of festival advance if any outstanding is noted in the

Last Pay Certificate for recovery and remittance to this municipality.

(v)

Advance Recovery Register in KMF No. 61 is maintained and all advances granted and its recovery are noted therein,

as per Rule 110 (1) of KMABR,2006

(vi)

Advance is sanctioned only once during a financial year and recovered in 10 monthly installments by deduction from the

pay bills

(vii) Advance is sanctioned for the National and other festivals notified by the DMA

(viii) Amount of advance sanctioned does not exceed the maximum amount prescribed

b) Bicycle advance, motor cycle, motor car advances

In case of Bicycle advance, Motor Cycle, Motor car advances, auditor should see that:

(i)

Budget provision exist to pay advance

(ii)

In the case of Bicycle advance, employees is not given more than three Advance in his entire service

(iii) The Bicycle Advance along with interest is recovered in 22 months

(iv)

Conditions governing eligibility of advance, amount of advance, security for the advance, period of repayment of

advance , rate of interest payable, procedure for sanction of advances, as prescribed in the case of Government

employees under KFC are followed

(v)

Sanction is accorded by DMA in the case of employees of CMCs, DCs of the Districts in the case of Employees of

TMCs and by such Officer notified in the other cases.

(vi)

In respect of Motor car and Motor Cycles advances, conditions relating to obtaining invoice for sale, production of sale

receipt, production of RC book and hypothecation of vehicle purchased out of advance in favour of municipality,

comprehensive insurance of the vehicle , etc, prescribed in KFC are complied with

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(vii) All documents connected to advances are kept in the custody of sanctioning authority concerned.

(viii) Recovery of advance is watched through Recovery register prescribed

(ix)

In case of Transfer of any employee to some other office/Department, the balance ofadvance is noted in the Last Pay

Certificate and the balance got adjusted DDs to the Municipal Funds., from the transferred office

(x)

When advance sanctioned is fully recovered along with interest thereon, certificate to that effect is issued by the

drawing officer of such employee after due verification and is duly countersigned by the Assistant Controller, Local

Audit Circle of the jurisdiction, of State Accounts Department

(xi)

The certificate issued and pledged deeds given back to employees.

(xii) Where Motor Cycle/ Motor Car advance is sanctioned a Government employee on deputation to the ULB, a copy of

the sanction order is sent to the Accountant General and the Treasury Officer concerned

(xiii) In the event of death of an employee while in service, only the outstanding interest including the penal interest is

waived

(xiv) In case of Interest bearing advance, the details of interest demand and collections are to be verified with reference to

in KMF No 62.

c)

Grant of loans to municipal servants for construction of houses

Audit has to ensure that loans to municipal employees are sanctioned by the municipal council by specific resolution and the following

important conditions stipulated in the KM (Grant of Loans to Municipal Servants for construction of Houses) Rules, 1967 are complied

with:

(i)

Budget provision is made in the budget estimates of the ULB for payment of loans to employees for construction of

houses

(ii)

Advances sanctioned to employees is noted in form KMF No. 61 as per rule 110( c) of Karnataka Accounting and

Budget Rules 2006

(iii) The employee has put in a minimum of 5 years of continuous service

(iv)

Not more than one loan is sanctioned to an employee

(v)

The employee is not eligible for loan under Low Income Group Housing Scheme

(vi)

Amount of loan does not exceed the number of months pay as stipulated in Rule 5 of the rule ibid

(vii) The rate of interest chargeable is as prescribed in rule 6

(viii) Period of repayment of loan with interest is determined as stipulated in rule 7 depending on whether the employee

owns a site or wants to acquire a site and then construct a house

(ix)

Repayment has commenced from the sixth month following the drawal of loans in case an employee owns plot and

obtains loan for construction

(x)

In case of an employee not owning a plot and has drawn first installment but has not drawn the second installment

within one year, the recovery has commenced from twelth month following the drawal of first installment

(xi)

The employee has mortgaged the house in FORM 1 prescribed in the rules ibid, in favour of the municipal council as

Security and retained till repayment of loan together with interest, as required under Rule 8

(xii) All documents relating the loan are kept in the safe custody of the MC/CO and returned to the employee only on

repayment of loan with interest thereon

(xiv) In case of employee who has less than 15 years of service remaining and allowed to repay the amount of loan with

interest in convenient monthly installments, a clause to the effect that the municipal council shall be entitled to

recover the balance of loan together with interest thereon outstanding at the time of retirement or death preceding

death from out of the Insurance amount due on policy or policies assigned in favour of the municipal council and

or whole or any portion from gratuity or DCRG, is incorporated in the Agreement and the Mortgage Deed.

(xiv) The loan is disbursed to the employee at such percentage of the loan sanctioned, depending on owning a plot or

otherwise, as laid down in Rule 9

(xv) The employee has met all expenses like cost of encumbrance certificate, stamp duty and registration charges

(xvi) Compliance to other conditions and stipulations laid down in the rules are strictly followed by the employee as well as

MC/CO

(xvii) In case of Transfer of any employee to some other office/Department, the details of balance of loan outstanding, the

no. of installment in which it is to be recovered, the rate of interest and the no. of installment in which it has to be

recovered are noted in the Last Pay Certificate and receipt of the balance of loan and interest from the transferred

office watched and when received, adjusted to the Municipal Funds.

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d)

Travelling advance for journeys on tour

Audit has to see that:-

(i)

Tour Programme of the employee is approved by the MC/CO.

(ii)

Tour advance covering actual fare for to and fro journeys and 90% of the DA for the duration of halt is sanctioned for

meeting expenditure on tour expenses, by the competent

(iii) Tour Advance sanctioned is adjusted in the regular TA bill after completion of the Journey.

(iv)

If the advance sanctioned was more than the actual TA claim, balance is adjusted in the regular TA bills, if not

recovered from the next TA bill. In case balance is remaining unadjusted, the same is pointed out for recovery from the

pay bill .

(v)

Where advance of TA is drawn and regular TA bill is not preferred adjusting the advance for more than a year of the

journey for which advance is drawn, the TA claim shall stand forfeited and TA advance is proposed for recovery from

the official

(vi)

Local Candidates/Temporary Employees have given necessary sureties from permanent Employees for the drawal

Tour Advance.

e) Traveling advance on transfer

Following points needs to seen in audit;-

(i)

Employee is transferred to a place involving change of station and is in the interest of public service

(ii)

Advance of TA is sanctioned for the journey to his new place of posting for self and his family members including

probable charges for transportation of luggage, as admissible under rules

(iii)

Amount of transfer TA advance given is noted in the Last Pay Certificate of the employee

f) Advance of pay on transfer

The following points should be seen in audit;-

(i)

One month's basic pay of the employee is sanctioned as advance of pay on transfer involving change of station and is

in the interest of public service

(ii)

Noted in the Last Pay Certificate that advance of pay to be recovered and sent to the municipality through cheque or

DD, and its receipt watched and got adjusted to Municipal Fund

g)

Advances to contractors/suppliers

Generally no advances shall be granted to contractors and suppliers.

Only where contractor is required to invest substantially to get machinery/equipments for execution of any work and is one of his

conditions of the contract, the municipal council also feels that some mobilization advance is justifiable, advances may be given, with the

approval of Government

Wherever any advances are given to a contractor, audit is required to verify the relevant file and ensure that:

•

There is justification for grant of advance explained by the contractor

•

Council has considered the request and obtained approval of Government

•

An agreement is obtained from the contractor incorporating clauses for repayment of advance within a specified

period or in number of installment, at what percentage of advance, rate of interest to be paid by the contractor, when

repayment to commence and penalty for default, etc,

•

Advance granted is recorded in the 'Register of Advances and its recovery watched by the MC/CO

•

Advances paid to contractor is debited to bank account concerned and credited to 'Advances-contractors/supplier

account' and on recovery, debited to 'Advances- contractor/suppliers account'

•

Payment Voucher for payment of advance and Journal Voucher for recovery of advance in the bills are prepared as

per procedure laid down in the KMAM

h)

Advances paid to departmental officers

On certain occasions Departmental Officers of the ULB might have been paid some advance to meet some urgent expenses

subject to rendering of accounts. Such advances might have been recorded in the 'Register of Advances in KMF No.61. In such

cases following points have to be verified in audit:

•

Reasons for which advance has been sanctioned and terms and conditions of sanction

•

Authority which has sanctioned the advance

•

How the amount has been drawn

•

Payment Voucher has been prepared for its drawal debiting it 'Advances to Departmental Officers for other

expenses' and credit to 'Bank account'

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•

Whether accounts for the advance has been rendered by the Departmental officer and adjusted and unspent amount

of advance if any, refunded to office, as per the entries in the Advance Register.

•

Expenditure incurred classified under relevant head of account passing necessary adjustment entries through a JV.

•

Vouchers in support of the expenditure disclose that advance has been spent for the purpose for which it was

sanctioned

•

There has been no abnormal delay between drawal of advance and rendering accounts

•

If the advance has not been adjusted till the end of the financial year, the outstanding advance is reflected in the

schedule to Balance sheet under current assets

i)

Permanent advances sanctioned to officers of the ULB

Audit has to see that:

•

Permanent Advance is sanctioned by the MC/CO with the approval of the Deputy Commissioner

•

Permanent Advances sanctioned are recorded in a 'Register of Permanent Advances in KMF No.63 by the Accounts

Department

•

It is recouped once in a month or earlier if the advance is spent

•

At the end of each year, a certificate of permanent advance held by the officers to whom it is sanctioned, is obtained

and reconciled with the balances appearing in the accounts

•

At the time of recoupment, the expenditure charged to the relevant head of account

j)

Advances paid to other executing agencies for Deposit Works

Audit has to verify and ensure that:

•

Advance paid for Deposit Works entrusted to other agency has been entered in this register recording the purpose,

reference to agreement No. & date, terms of deposit made, date of commencement of work, probable date of

completion of work, periodical outlay statements received from the executing agency, etc.

•

On execution/completion of the work, monthly/quarterly outlay statement is received in KMF No 42 and advance

adjusted by debit to 'Capital Work-in-Progress -asset concerned' and credited to 'Advance to Government type

agency-Deposit Work' by preparing a JV (refer to illustration under para 10.54 of KMAM).

•

Any excess advance refunded by the executing agency has been accounted by debit to 'Cheques -in- Hand account'

and credit 'Advance to Government type agency-Deposit Work' by preparing a JV.

•

The expenditure on deposit work has been capitalized on receipt of completion certificate from the executing agency.

k) Audit of cash and bank accounts

Audit of accounts of books of accounts namely, Cash Book, Bank Book and Journal Book is dealt in Chapter 10 However, while

auditing the balance sheet of the ULB it has to be confirmed that:

•

Cash and Bank Books which serve as ledger accounts of cash and bank transactions are reconciled every month with

reference to actual cash balance on hand as per the cash book and the relevant bank accounts

•

Certificate of closing balance of cash as per cash book by the MC/CO is furnished in respect of cash book maintained

for each fund as well as specific grants and earmarked funds

•

Certificate of closing balance as per the bank account is obtained from the concerned banks in respect of the bank

accounts operated by the municipal council and produced for audit besides Bank Reconciliation Statements of each

bank account

Chapter 9

Audit of Liabilities Accounts

9 .1

Audit of grants accounts

a) Grants received by ULBs are of two kinds, viz. General Grants and Specific Grants.

b) Rule 2(19) of KM ABR 2006, defines a specific grant as a grant given for specific purpose and requires submission of a

periodical utilization certificate and is recoverable from the ULBs if not used according to terms and conditions of grant.

Example: Swarna Jayanthi Shahari Rozgar Yojana (SHSRY), MP Local Area Development scheme (MPLADS), etc.

c) Rule2 (20) of KMABR,2006 define a general grant as a grant which has no conditions attached to it and can be used for

carrying out general functions devolved on the ULBs. They are devolution grant released as determined by the State

Finance Commission (SFC grant), Development grant etc. Such grants will be credited to Treasury / Bank account where

general municipal funds are kept or to a specified Bank/Treasury account that may be stipulated by Government

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d) The Karnataka Municipal Accounting Manual -Vol-1. Chapter 15 deals with the procedure of accounting as well as

accounting treatment of grants received by ULBs. The auditor should be acquainted with the Accounting Policies,

accounting procedure and accounting entries to be passed in respect of general purpose grant and specific purpose

grants, indicated in the KMAM.

e) Distinction between the two categories of grants are:

•

Specific purpose grants are treated as 'Liabilities' where as general grants are treated as 'Income' of the ULBs

•

In the case of specific grants, though the full amount is required to be accounted as receipt in the 'R&P' Account, only

the grant utilized during the year will have to be accounted as Income as well as expenditure in the 'Income and

Expenditure Account' reflecting the unutilized portion of grant as 'liability' in the Balance Sheet.

•

In respect of general grant, the amount will be reflected as receipt in the 'R&P' account and 'I&E' account and spent for

any purpose exhibiting the expenditure under relevant account and budget head in both the above financial statements.

•

In respect of specific grants, the ULBs are required to submit utilization certificate to the sanctioning authorities for

the expenditure incurred out of the grant and the refund the unspent grant or carry forward it as liability in the

accounts for future utilization, if it is permissible as per conditions of sanction. Normally, such UC should be based on

the audited statement of accounts /audit certificate given by a designated auditor. No UC is required to be submitted in

respect of general grants

f) Audit is expected to ensure whether these aspects have been complied with or otherwise., keeping in view the terms and

conditions attached to each type of specific grant sanctioned

g) Audit is required to ensure that the ULBs have maintained a Grant Register in Form KMF No. 35 wherein details of specific

grant received, payments made there-from, unutilized grant available at the end of the year or grants refunded, etc. are

recorded. Audit should see that the transactions relating to grants are reconciled monthly with the Specific Grant Account

Ledger and the designated Bank account.

h) Audit should verify and ensure that grants received through cheques are accounted by preparing a Receipt Voucher and

included in the Daily Summary of cheque collection in KMF No.19 and accounted in the Cash Book as followed in revenue

collections by cheques. In case of direct credit to Bank/Try account, the receipt of grant is accounted in Daily Bank/try

collection account in KMF No. 20 and recorded in the Bank Book.

i)

Audit of specific grants and Local contributions (from NGOs and other individuals)utilized for capital works:

Whenever a portion of the specific grant or local contribution received is utilized for capitalworks as per conditions of grant

or as per the purpose for which local contribution is received, audit should verify and ensure that following requirement are

complied with; as per Rule 72 of KMABR,2006:

•

Amount spent on capital works and debited to 'capital work in progress' is transferred from specific grant account to

'deferred income' account through a JV as indicated in para 15.16 of KMAM

•

On capitalization of the expenditure on capital works earlier debited to 'capital work in progress', the amount of

depreciation charged on the concerned asset over the period, is allocated to income account by credit to 'deferred

income' account, as indicated in Para 15.18 and 15.19.

•

In case of capital work involving municipal fund, grant and loan, the grant portion is accounted as shown above and

loan portion treated as 'liability' to be cleared in future

•

Wherever a portion of the specific grant is allocated to meet revenue expenses, as per the terms of grant, on

utilization of such portion of grant for revenue expenses, amount to that extent is transferred to 'income' account from

the specific grant account, passing a JV as laid down in para 15.15 of KMAM.

j)

Accounting of deductions from the bills of the contractors/suppliers in respect of works/goods and services procured out of

specific grants.

(i)

Wherever the ULB follows the procedure of consolidating the statutory deductions effected from the contractors and

suppliers bills and making payment from the bank account of general funds are followed or where the EMD/ Security

Deposits recovered are transferred and accounted as liability towards 'Deposits', it is likely that deductions from bills

relating to expenditure from specific grants may also be clubbed along with deductions from general fund bills. This

may result in retention of specific grant in the closing balance at the end of the year and additional liability on the

general fund.

(ii)

In such cases, normally the deductions from the bills of specific grant expenditure should be transferred from the bank

account of that fund to the bank account of general fund by a 'Contra Voucher' by debit to bank account of general

fund and credit to the bank account of the specific grant bank account, as illustrated in para 15.27 of KMAM.

Audit should verify JVs passed in respect of expenditure bills of specific grant transactions and ensure that additional

liability on general fund is not created as indicated in a) above, by correctly following the procedure indicated at b) above

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k) Accounting of adjustments made out of State Finance Commission grants payable to ULBs

State Government may adjust dues of the municipalities to Government or other agencies out of State Finance

Commission grants payable to it. In such cases, how it has to be accounted and accounting entries to be passed are

indicate with example in para 15.9 of KMAM. In these cases, audit has to verify and satisfy itself that the total amount of the

grant payable to the municipality as indicated in the Government order is taken as State Finance Commission grants

sanctioned and released by Government and the amounts adjusted towards dues to Government (such as audit charges,

pension contribution) or to other agencies (towards electricity charges to Escoms, Water supply/maintenance charges to

KUWSDB, etc,) are accounted as expenditure in the books of accounts of the municipalities. If these are not accounted

correctly but net amount of the State Finance Commission received by the municipality is only accounted, it will result in

reflection of wrong amount as receipt of State Finance Commission grant and the dues adjusted towards dues will go

unaccounted towards relevant expenditure heads.

l)

Accounting of expenditure reimbursable

Wherever any orders of Government permits ULBs to incur expenditure out of its funds and claim it for reimbursement

example Census expenses, the ULB may incur expenditure by debit to 'concerned expenses head.' and credit it to 'Bank

Account', in the first instance. The ULB has to prefer a bill for reimbursement of expenditure to the concerned authorities

furnishing detailed accounts and vouchers supporting it. On reimbursement of the amount claimed, the same will have to

be debited to 'Bank Account' by credit to '1621-Grants received for reimbursement of expenses-Census grants-from

State/Central Government'

m) Grants received under Central/State Government schemes

Wherever the ULBs have received grants under Schemes of Central/State Government like SJSRY, Infrastructure

Development Scheme for Small & Medium Towns, MPLAD, etc, audit should see that the grants received are treated as

'liability' and accounted in the case of specific grants. Chapter 15 KMAM also deal with various grants that are being

received by the ULB, purpose, accounting treatment, etc.

The ULBs generally receives the following grants:

(i)

Swarna Jayanthi shahari Rozgar Yojana (SJSRY)-Para 15.29 of KMAM.

(ii)

Infrastructure Development Scheme for Small and Medium Towns (IDSSMT) Para 15.31 of KMAM

(iii) Urban Infrastructure Development Scheme for Small and Medium Towns (UIDS SMT) Para 15.33 and 15.34

of KMAM

(iv)

Local Bodies grants recommended by Twelth Finance Commission. Para 15.37 of KMAM

Audit should ensure that the ULB complies with the following conditions attached to the grants.

(i)

Separate accounts including separate cash book, separate bank account and other subsidiaries records are maintained

for each scheme as per the guidelines

(ii)

Grants as sanctioned, are received in full from state/central Governments/ other institutions fully

(iii)

Grants are received in time as per guidelines.

(iv)

Bank accounts opened are all savings bank account (S.B a/c) and not current account.

(v)

Interest on schemes' funds kept in S.B a/c of the bank and interest on investments from out of schemes' surplus fund is

credited to the concerned S.B account of the schemes as and when accrued/received.

(v)

Funds of scheme are not diverted to other schemes/other purposes.

(vi)

Funds are utilized for the very purpose for which they are released, to its best advantage.

(vii) Action plan is got approved and estimates got sanctioned before execution of any work.

(viii) Funds utilized have actually reached the genuine beneficiaries and best possible results are achieved.

(ix)

Municipal share of fund, if any to be contributed for the operation of the scheme is transferred from its General Fund to

the concerned scheme account/earmarked funds account.

(x)

Utilization certificates are sent for each year for each scheme separately well in time in the prescribed format

(xi)

All grants received are accounted for in U.C.

(xii) Interest and other amounts received relating to scheme are also indicated in UCs.

(xiii) Expenditure shown in U.Cs tallies with the expenditure as per relevant ledger account, compiled accounts/ Classified

Abstract of Receipts and Payments (KMF No.7).

(xiv) Previous years' Closing Balance is correctly brought forward as Opening Balance for the current year in U.C.

(xv) Provisions of KTPP act 1999 and KTP rules 2000 are compared with wherever applicable in spending the funds under the

scheme.

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(xvi) Any cut in release of grants from central/state governments for having not fulfilled the conditions laid down in the

guidelines of the schemes. for example: i) for not spending prescribed proportion of the grants within the stipulated time

ii) for delay in sending U.Cs to state/central governments, is pointed out in the UC/Audit Certificate

(xvii) Assets created out of scheme grants are accounted separately in the register of fixed assets and its value exhibited in the

balance sheet of the scheme

(xviii) On closure of the scheme balance, amounts available under the scheme are returned to the concerned authority or utilized

in the next year with approval of the concerned sanctioning authority

n) Audit of accounts of External Aided Projects (EAP)

In case any external aided projects accounts are required to be audited by an independent auditor acceptable to the donor

agency, including the statutory audit of ULBs and furnish the audit report/audit certificate to such agencies, audit is required

to ensure that the terms and conditions specified in the legal agreements of the EAPs with Central /State Government are

strictly complied with.

o) Accounting value of assets in kind like lands and buildings received as grant from Government / other entities.

Audit should see that any asset like lands and buildings received as Grant from Government / other entities are accounted in

the concerned asset register at a nominal value of Re.1/- passing accounting entry debiting the value to concerned

Fixed Asset

account(land/building) and crediting equal amount to 'Municipal Fund Balance' on the lines indicated in para 15.26 of KMAM

Audit should ensure that the ULB has put in place the Internal Controls relating to grants, indicated in para 15.39 of KMAM.

9 .2

Audit of borrowings

Audit has to ensure compliance to the following aspects by the ULBs:

a) A resolution is passed at a Special General meeting of the council duly indicating the purpose of loan, amount of loan,

source of loan, number of installment in which to receive the loan, rate of interest proposed to be paid, period within which

loan is proposed to be repaid, how it proposes to repay the amount of loan

b) An application is made to Government with all details indicated in Rule 3 (2) of KM Rules mentioned above

c) Government has published a notice along with a copy of the application of the ULB in the Karnataka Gazette calling for

objections, if any from the public to the proposal of the ULB for raising loan for the intended purpose, within a specified time

limit or has waived the procedure of enquiry and publication

d) Where notice is published, Government has considered the objections if any received and has considered it necessary and

has accorded sanction.

e) ULB has paid the cost of enquiry and publication, if the same is published by Government

f) Where loan is raised from Government, the ULB has agreed for the general stipulations prescribed in Rule 7 of KM rules

cited above

g) In case of loans from Government and other than Government sources, the general stipulations in Rule 8 and conditions

to be fulfilled by the ULB for sanction of ULB in Rule 9 including liability of the ULB to pay guarantee charges to Government,

creation of a Sinking Fund where loan is not repayable by annuities or annual drawings in the manner specified in the rules

and other requirement s are strictly adhered to

h) Loan raised for a specific purpose is kept in a separate bank account as stipulated in Rule 120 of KMABR,2006

i)

The accounting policies relating to borrowings by ULBs prescribed in para 16.4 of KMAM are kept in view raising loans as

well as accounting the transactions in the books of accounts of the ULB

j)

Loan Register in KMF No 71 is maintained and where a loan is raised in the open market and is repayable by means of

sinking fund , a Register of Sinking Fund for Repayment of Loan is maintained in form No: KMF no 72, as prescribed in Rule

119 of KMABR,2006

k) Where Government has permitted to open an 'Escrow Account' for repayment/redemption of loan/ bonds by transfer of

stipulated portion of an item of revenue or an item of revenue, required amount is being transferred to such account regularly

l)

Interest payable are accrued and reflected not only in the accounts but also in the budget estimates of the ULB

m) Accounting entries for the above types of transactions are passed as laid down in Chapter 16 of KMAM

9 .3

Delegated loan

Delegated Loans are loans raised for execution of capital works on behalf of the ULBs, by any agency including the PWD of GOK,,

authorized by Government. Audit should see whether the following procedure laid down in rule 73 (b) of KMABR,2006 have been

complied with:

a) Agreement between the ULB and the authorized agency has been executed authorizing the agency to raise loan on behalf

of the ULB and repay the principal and interest as per terms and conditions of loan

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b) An advice indicating the details of loan raised, date of receipt of loan, rate of interest agreed and other terms and conditions

is sent to ULB in KMF No. 36, by the agency

c) The ULB has made entries in the Register of Loans KMF No.71 and Register of Advances by passing accounting entries

as loan received from Government or specified source as a liability and accounting the loan amount with the agency as an

advance given to the authorized agency for execution of capital work , as indicated in para 10.58 of KMAM

d) Agency has executed the work and sent monthly statement of outlay incurred during each month showing the progress of

work in form KMF No.37, to the ULB and the latter has passed necessary accounting entries as illustrated in para 10.59 of

KMAM

e) Audit should also verify and ensure that the repayment of principal and interest thereon have been regularly made in

accordance with the conditions of loan and overdue installments of loan and loan outstanding are reflected in Schedules-

B-05 & 06 to the balance sheet

9 .4

Audit of earmarked funds

a) ULBs are required to maintain separate accounts in respect of any amount earmarked for specific purposes, like:

(i)

SC/ST Development (18% of income earmarked for developmental activities of the ULB are transferred to a separate

account for providing specified amenities to people belonging to SC/ST - revised to 22.75% with effect from 1st April

2009)

(ii)

Sinking Fund for redemption of loan bonds or for replacement of an asset

(vi)

Revolving fund created under certain schemes Endowment fund created for providing benefits to students or persons

belonging to a specific class or community as per the wishes of the donor of the endowment

(vii) Any other ear-marked fund which the Council decide to create (e.g.: Welfare Fund, City Development Fund, etc.,).

b) As per Rule 120 of KMABR,2006, loans, endowments and other specific purpose funds are required to be kept in separate

bank accounts and accounts maintained in KMF No.73. Besides, these amounts cannot be appropriated for other than the

purpose for which it is earmarked.

c) The Karnataka Municipal Accounting Manual has laid down the procedure to be followed in respect of Earmarked Funds

vide chapter 17 of KMAM. Audit should see as to:

•

Whether a separate Bank Account has been created for each of the earmarked fund

•

Separate bank accounts and accounts in KMF. No. 73 are maintained

•

Transfers to Earmarked Funds are made at such intervals as per terms and conditions for creation of Fund.

•

Earmarked funds are treated in the accounts of ULBs as 'Liability'

•

All payments pertaining to such an ear-marked fund are made from the concerned Bank Account.

•

Earmarked funds are not diverted to meet other expenses even for temporary period

•

Earmarked fund accounts are closed at the end of each month and reconciled with the fund account and the bank

account

•

Accounting procedure and accounting entries for earmarked funds are followed as provided in Chapter 17 of KMAM

•

If any earmarked fund ordered to be closed by Government, the balance of fund is transferred to general municipal

fund or to any other fund as indicated by Government

•

In case of Sinking fund created for repayment of loan or for replacement of an asset, the balance amount (excluding

any outstanding liability, if any) in the respective account are transferred to the general municipal fund account on

achieving the objectives for which they are created

9 .5

Trust and agency funds:

The ULB may receive funds from the Government/Government Agency for implementation of a scheme like Ashraya Scheme. In such

an event the ULB will act as a Trustee for the fund and as a nodal agency for implementation of the scheme.

9 .6

Revolving fund

a) The ULB may be required to maintain a revolving fund for specific purpose as per the terms of the scheme or policy of

Government The accounting of transactions under revolving fund is similar to transactions of Earmarked Fund.

b) Audit is also required to see that balances under Earmarked Funds, Grants and Contributions for specific purposes are

reflected in Schedules-B-02 & 04 respectively

c) Audit to verify and ensure that ULB has followed the procedure indicated in para 17.33 of KMAM in respect of creation of

'Revolving Fund' as illustrated in the case of commercial complex constructed under 1DSSMT scheme.

9 .7

Audit of deposits

a) Accounting procedure in respect of deposits received or recovered from tenants or lessees / recovered from the bills of the

Contractors/Suppliers by the ULBs are laid down in Rule 115 of KMABR,2006.

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b) Audit is required to verify and ensure the following aspects while checking deposit accounts:-

(i)

Deposits received/recovered are treated as 'Liability' in the accounts of ULBs

(ii)

All deposits received or recovered are accounted in 'Register of Deposits in form KMF No.67 duly allotting separate

folios for

•

Deposits received from tenants and lessees

•

Deposits received from suppliers, contractors' security deposit and retention money recovered from the running bills,

and

•

Other deposits

(iii)

Deposits received in cash or cheques are supported by RVs and deposits deducted from bills are based on JVs

(iv)

Where Bank Guarantees (BGs) are received from contractors in lieu of deposit, as per terms of procurement

orders/contract, such Bank Guarantees are accounted in Register of Bank Guarantees' in KMF No.68 and are kept in

the safe custody of the MC/CO and made available for verification

(v)

Accounts Department has kept a watch over the period of currency of the Bank Guarantees and ensured its

renewal from time to time till compliance to the requirement for return or cancellation of Bank Guarantees

(vi)

Only Earnest Money Deposit (EMD) given by the successful bidder in an auction is accounted in the deposit register

and EMD collected from other unsuccessful bidders are entered in 'Register of Miscellaneous Sales or Auction' in

KMF No.34 are returned immediately, after conclusion of auction

(vii) Deposits collected for providing water supply connections not refundable, as per bye- law of the ULB are accounted as

income and not brought to deposit account

(viii) Any non-refundable premium received at the time of auction of shops/buildings in addition to rent or lease amount are

treated as income by allocating the amount over the period for which the shop/building is let out/leased

(ix)

In case of refund of deposits to the depositors, the Payment Voucher is supported by a 'Deposit Refund/Adjustment or

Lapse Advice' in KMF No. 69 passed for payment by the MC/CO recording a certificate that the deposit is actually

outstanding as per register of deposits and the entry in the register initialed by him

(x)

Deposits remaining unclaimed for three consecutive years of its falling due for refund, are lapsed by preparing an

advice in KMF No. 69 with the approval of the MC/CO and passing entries debiting the amount to 'Deposit' account

and crediting it to 'Misc income -Lapsed Deposits'.

(xi)

Register of Deposits is closed at the end of each month and reconciled with the ledger account and the closing balance

correctly reflected in the monthly trial balance. The outstanding deposits are reflected in Schedule-B-07 to the balance

sheet.

(xii) Wherever securities are obtained from the contractors and employees in the form of deposits in savings bank, NSCs,

Municipal Bonds, etc, pledged in favour of the municipality, all such securities are entered in 'Register of Securities' in

KMF No. 70 and kept in the safe custody of the MC/CO and are available for verification in audit.

9.8

Liabilities towards payables

a) The liability of ULBs towards payable is required to be reflected under in the balance sheet preparing Schedule B- 08 for

'Other Liabilities'. This schedule will include:

•

Recoveries Payable

•

State Government Dues Payable

•

Advance Collection of Revenues, and

•

Other Liabilities

Audit should verify and see that;-

•

Recoveries effected from the bills of the employees, contractors and suppliers by preparing JVs but not actually paid

to the concerned agencies till the end of the financial year are listed and the total liability exhibited in this schedule.

•

any amount due to Government, like Pension Contributions, Audit charges, Contribution towards Karnataka

Municipal Administrative Service, etc, remaining unpaid to concerned Government Head of account are listed out by

the ULBs by preparing JVs and reflected as liability

•

Computation of dues towards pension contribution of municipal employees is based on the details furnished in the

Annual Establishment Return furnished to the Controller, State Accounts Department in form KMF No. 52 in respect of

pensionable posts in terms of Rule 104 of KMABR,2006.

•

Revenues collected in advance or in excess of the actual dues and accounted as 'advance collection of revenues in

the books of accounts are correctly listed and included in the schedule.

•

claims of employees, contractors and suppliers accrued by passing JVs but remaining unsettled till the end of the

financial year verified from the Accounts Department's Bill Register are listed and exhibited as liability'.

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Chapter 10

Audit of Accounting Procedure and Books

of Accounts

Audit of accounts of the municipal councils involves verification of accounting procedure laid down in the rules and manual, accounting

system followed books of accounts and other accounting records maintained, periodical closing of books of accounts, financial statement

prepared and comments on it.

In this chapter, audit of books accounts from the point of view of statutory audit is covered briefly, as check of vouchers, books of

accounts, ledger, trial balance and financial statements will be covered exhaustively in the chapters covering Financial Statement Audit

Audit has to verify and ensure that accounts of the municipalities included in Schedule 1 of KMABR,2006 are maintained in double

entry accrual based accounting system, as prescribed in rule 3 ibid. Audit should satisfy itself that municipal councils have:

•

Ensured that Cash and Accounts Departments/Sections function independently and are not merged in one section

•

Maintained separate books of accounts for each fund by using separate sets of vouchers, separate bank accounts

and if found not convenient, operated in one bank with the approval of the DMA

•

Books of accounts mentioned in Rule 10 are maintained properly

•

Followed the accounting procedure laid down in Chapters 4 to 22,

•

Financial statements and annual performance report are prepared as provided in chapters 21 and 22 respectively.

•

Accounting Policies with regard to financial transactions taking place in the municipal councils are followed, and

•

Transactions accounted in the books of accounts reflect the double entry accounting treatment as indicated in KMAM

10.1 Audit of accounting procedure

Under double entry accounting system, all financial transactions will be classified under Income (also called as 'Revenue' in governmental

accounting parlance), Expenditure, Liabilities and Assets.

The financial transactions relating to Specific purpose/conditional Grants, Loans, Deposits received, Sundry Creditors (expenditure

payable), Ear-marked funds, etc, falls under 'Liabilities' and all transactions relating to Fixed Assets like purchase of equipments,

vehicles, plant and machinery, land, construction of building, roads drains, advances paid, investments, bank balances etc, fall under

'Assets'

The broad classification of transactions of 'Liabilities' and 'Assets' are explained with accounting treatment for these transactions in

KMAM and to required extent in the relevant chapters dealing with audit of Income/Revenue and Expenditure, items of liabilities and

assets, in this audit manual.

The KMABR,2006 has laid down the accounting procedure relating to income and payments besides prescribing forms of books of

accounts and other records to be maintained by the municipal councils

Expenditure: Under double entry accrual accounting system, an 'Expenditure' is the cost of goods and services procured or works

executed in a period whether paid or not. The expenditure is also broadly classified as 'Revenue Expenditure' and 'Capital Expenditure'

Revenue Expenditure is incurred for day today operations like maintenance of equipments /furniture, electricity /water charges, etc. They

are recurring in nature. Benefits from these expenses expire in a short period of time. E.g. Salary, Repairs etc.

Capital Expenditure is long term in nature, the benefit of which will be derived in future. E.g. amount spent on purchase of Fixed Assets

like vehicles, plants and machineries, equipments, etc, and construction of Fixed Assets like buildings, drains, bridges, etc. The value of

such expenditure will be carried forward to next year after due depreciation as per rules and exhibited in the Balance Sheet of the

institution.

To facilitate proper classification of financial transactions of the municipal councils under double entry accounting system, the

transactions have been grouped under Income, Expenditure, Liabilities and Assets and a Chart of Accounts assigning Account Codes

for these have been devised and provided in the KMAM-Volume-II

Audit is required to verify and vouch that all the transactions of the municipal councils are classified accordingly and accounted in the

books of accounts and reflected in the financial statements, as envisaged in KMABR,2006

10.2 Audit of receipts

Municipal Councils receive money which include tax and non-tax income, grants from State Government, loans if any raised, cesses

collected on behalf of Government or other agencies, recoveries of advances paid to employees and contractors, etc,. Thus, all

amounts received are not income/revenue of the municipal council. Therefore, the KMABR,2006 and KMAM prescribe how to classify the

receipts and account them in the books of accounts.

Audit should see that ULB has clearly identified the revenue falling under the category of accrual income and non-accrual income from

among the items of income collectable by it under the provisions of the Act and rules/bye-laws, keeping in view the guidelines given in

Rule 19 and 20 of KMABR,2006.

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10.3 Audit of accounting of collections of municipal revenues

a) Check of accounting of receipts

(i)

As per Rule 23 of KMABR,2006, all moneys received in the municipal office and by the authorized collection staff are

required to be acknowledged by issue of a 'Receipt' in KMF No.14, in triplicate or in any other form specifically

provided in the rules. Original copy of the receipt should be handed over to the party remitting the municipal dues,

duplicate handed over to the concerned Department of the ULB for updation of records or for processing the relevant

files for required action and the triplicate shall be retained in the receipt book for accounting the collection in the

collection register. Thus, accounting of financial transactions of receipts starts with recording a transaction in a

primary document i.e. 'Receipt'.

(ii)

In Rule 16 of KMABR,2006, 'Receipt Voucher'(RV) in form KMF No.8, 'Payment Voucher'(PV) in form KMF No.9,

'Contra Voucher'(CV) in form KMF No.10 and 'Journal Voucher'(JV) in form KMF No. 11 are prescribed for

accounting financial transactions in the books of accounts of the ULBs. Further, Rule 17 of KMABR,2006 stipulates

that each category of voucher shall be numbered separately with distinct codes for each of the funds.

(iii) Auditor has to ensure that correct form of voucher prescribed in the rule cited above are used and correct Account

Codes, Budget Codes, purpose, amount and Fund Codes are recorded in the vouchers, indicating the two fold effect

of each transaction under DEAS

(iv)

In Receipts Audit, audit has to first understand the mode of collection actually followed by the ULB, as rules have

prescribed the following modes of collection:

•

By Bill Collectors-(Rule 25)

•

At municipal office by a person authorized in this behalf by the MC/CO-(Rule 26)

•

Directly at banks -(Rule 27)

(v)

A municipal council may follow any or all three modes of collections. Therefore, audit has to first verify and understand:

•

mode of collection followed

•

types of receipts that may be collected by Bill Collectors, the persons authorized to collect revenues in the municipal

office

•

the revenues that may be directly remitted to banks

•

The internal checks if any put in place for check of these collections before remittance to bank or when collections

are directly received by the banks.

(vi) As issue of receipts to the payer of municipal dues is possible in the cases mentioned at bullet points one & two of

para 10.3 (a) (iv) above, audit has to ascertain the form of 'Receipt' authorized to be issued and number of such

receipt books issued to the authorized collection staff. This Receipt does not constitute as a prime document for

accounting under DEAS. This only forms as a supporting document evidencing collection of municipal dues. Audit

also has to check whether Stock account of 'Receipt Books' is maintained and receipt books issued to the collection

staff correctly recorded therein.

(vii) As direct payment of municipal dues to banks is generally permitted only for payment of Property Tax (PT) by the tax

payers along with Form of self assessment and declaration of PT as per the rules, the challan copies duly

acknowledged by the bank affixing the bank seal for having received the tax, forms document for having paid the tax

directly to bank. Wherever an ULB has followed collection of other municipal dues also through banks only, the

challan copies acknowledging the receipt of money by the bank forms receipt for such dues paid. These challans will

be relied upon as receipt for payment of any fees or dues to ULBs, for providing required services

b)

Check of accounting of collections

Audit shall verify and ensure that:

(i)

A receipt in KMF No. 14 or in any other form specified in the rules are issued by the collection staff (by Bill Collectors

and persons authorized to collect municipal dues in the office)

(ii)

Receipts used and accounted for collections are actually issued to such collection staff as could be seen from the 'stock

account of receipt books'

(iii)

Collections made by the collection Staff are brought to account correctly and entered receipt-wise in the 'Collection

Register' in KMF No.16, without delay and daily collection totals are correctly worked out

(iv)

Action has been taken for safe custody of cash as laid down in Rule 31

(v)

Wherever collections are received through cheques drawn on local banks, it is recorded on such receipt that the

amount is 'subject to realization' and details of cheque collections recorded in the 'Register of Cheques Received' in

KMF No.15

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(vi)

Collections made by the collection staff are handed over to the Cashier or designated person and his

acknowledgement obtained in the collection register

(vii) All collections handed over by collection staff, collections received in the municipal office are accounted in the Chitta

in KMF No.17 maintained by the Cashier or authorized person

(viii) A summary of Daily Cash Collections in KMF.No.18 duly classifying the receipts under relevant receipt heads and a

similarly, a classified Summary of Cheque collection in KMF No. 19 based on cheques received from the 'Register of

Cheque Received' are prepared by the Cashier or authorized person

(ix)

The cash section has transmitted the daily collection summary statements mentioned above to the Accounts

Department of the municipal council for accounting of collections

(x)

The Accounts Department has prepared separate 'Receipt Vouchers' based on summary statements KMF Nos 18

& 19, in KMF No.8 for cash and cheque collections

(xi)

Cash and Cheque collections are remitted to the relevant bank/treasury account preparing Contra Vouchers, as laid

down in Rule 32 read with instructions in chapter 5 of the KMAM.

(xii) In respect of direct remittance of tax /revenues to banks/treasury directly by the tax payers, a Collection Register in

KMF No.16A for each bank is arranged to be prepared by allocating some staff for obtaining bank pass sheets/ bank

scroll/treasury schedules and SAS declaration forms, for this purpose, by the MC/CO.

(xiii) Based on the bank-wise collection register in KMF. No. 16A, a separate summary of Daily Bank Collection is

prepared in KMF No.20 and 'Receipt Voucher' in KMF.No.8 is prepared, passing necessary accounting entries

debiting the collections to bank/treasury account and crediting it to concerned revenue head of account.

c)

Accounting of receipts in the books of accounts

Audit has to verify and satisfy itself that:

•

cash collection transactions are accounted in the prime books of accounts namely, Cash Book-KMF No.1 based on

'Receipt Vouchers' in KMF No.8 by debit to cash and credit to concerned revenue account(income account)

•

cheque collections are accounted in the cash book by debit to 'Cheques in hand' and credit to concerned revenue

account

•

cash collections are remitted to bank/treasury account concerned preparing 'Contra Voucher' by debit to concerned

bank/treasury account and credit to cash book

•

cheque collection are remitted to bank/treasury account concerned by preparing a 'Contra Voucher' by debit to

bank/treasury account and credit to 'Cheques in hand' account

•

instructions given in Rule 32 regarding remittance of cash and cheques to bank/treasury are strictly followed and a

'Remittance Book' is maintained such remittances are recorded therein besides pasting the challans/pay-in-slips in

the said book

•

Remittance register is periodically verified by the office manager and the MC/CO, as stipulated in the above rule.

•

cash and cheque collections remitted to bank/treasury account by preparing contra vouchers by debit to bank/treasury

are accounted in Bank Book-KMF No 3,

•

Transactions not involving cash or bank like accrual of 'Receivables..income account' concerned are accounted in

Journal Book-KMF No.4, based on Journal Vouchers prepared in KMF No.11.

•

Refer to the Flow Chart indicating accounting flow of receipts given in Para 20.3 (a)- Figure-1 (Chapter 20 of. FS audit)

d)

Advance collection of tax pertaining to future year:

Audit has to verify and ensure that the collection is accounted by debit to cash/bank account and credit to 'Advance collection account'

and treated as a liability, and accounted as 'income' in the accounts of the year when the amount collected becomes due for payment,

by credit to income account and debit to 'Advance collection account'

e)

Dishonoured cheque

In the case of 'Dishonoured cheque', auditor has to see that:

•

action has been taken as laid down in Rule 34

•

the amount of the cheque is collected in either in cash or through DD

•

The dishonoured cheque is not handed over to the collection staff till the amount is collected from the party.

•

original receipt entry has been reversed by preparing a 'payment voucher' in the cash book as well as in the DCB

register concerned

f)

Check of accounting treatment of accrual items of revenue

Audit has to verify and satisfy itself that in respect accrual items of revenue (income items for which demand, collection and balance

account is required to be maintained), the respective departments have computed the 'Income Receivable' for the year under income

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head pertaining to them and transmitted the same to the Accounts Department. And the latter has passed accrual entries 'debiting'

the amount computed as receivable as 'Receivables-Income account' and 'crediting' equal amount to concerned income

account. On collection of any amount accrued, the Accounts Department has passed entries through JV debiting the collection to bank

account and crediting it to concerned 'Receivables income account'.

Where, orders/letters communicating sanction of above are received

Wherever ULBs receive orders/letters communicating sanction of grants, loans, contributions, donations well in advance and require

ULBs to prepare any bills and submit them to concerned authorities for countersignature or issue of cheques, audit has to see whether

the ULB has prepared JV passing accrual entry for 'Receivable account' for the same and on receipt of the sanctioned amount, the

same has been debited to concerned bank account by credit to the concerned 'Receivable account'.

g)

Check of accounting treatment of Non-accrual items of revenue

Audit should ensure that in respect of non-accrual items of revenue for which DCB account cannot be maintained, all receipts are

accounted on receipt of cash, as indicated in Para 10.3 c) above and the receipt debited to cash/bank account, as the case may be and

credited to concerned income account.

h)

Check of procedure prescribed for accounting of expenditure

Audit has to see whether General Procedure for accounting of expenditure laid down in chapter 6 of the KMABR,2006 are strictly followed

or otherwise,

•

Charge of expenditure on municipal funds

•

Accrual of expenditure: (a) accruing expenditure on acceptance of the claim, (b) accruing expenditure relating to

establishment expenses and procurement of goods, services and works on approval of bills supported by supply

orders or work orders and, (c) accounting of other revenue expenditures on payment accruing only outstanding claims

at the end of each year.

•

Presentation of claims against municipal council in the forms prescribed in the rules.

•

Maintenance of Departmental Register of Bills for accounting bills received in KMF No 21, processing of bills and

responsibility of Departmental officers in respect of bills passed with 'Payment Orders, transmission of bills to Accounts

Department/Section ,

•

Accounting of bills received from other Departments/Sections in Bill Register of Accounts Department in KMF

No.23, scrutiny of bills in the Accounts Department/Section, Preparation of JVs in KMF No.11 for accrual of

expenditures by the Accountant, approval of bills for payment, preparation of 'Payment Vouchers' for the net amount

payable to the employees, Contractors/suppliers and recoveries payable to other agencies, writing of cheques,

signing of cheques by the MC/CO, issue of cheques to parties concerned obtaining acknowledgement on the

payment voucher or remittance of it to the bank account of the concerned party, affixing of 'paid and cancelled' on

the bills/invoices, return of the bill/invoices along with file to the concerned Department /Section, retention of the

'payment order' along with the JV and PV by the Accountant

i)

Check of procedure prescribed for accounting payments

Audit is also required to satisfy itself that 'General Procedure for accounting of Payments' laid down in Chapter 7 of KMABR,2006

covering following aspects are complied with;-

•

Settlement of all liabilities with least possible delay.

•

Payment of arrear claims relating to pay and allowances not preferred one year of its becoming due, with the sanction

of the municipal council.

•

Making payment from municipal funds only by cheques signed by the MC/CO or the officer authorized by him.

•

Requirement of Signature on Bills/Claims preferred against municipal fund and exceptions where bills signed with

facsimile signature or electronic format may be entertained.

•

Cash payments out of Permanent Advances and its accounting.

•

Affixing of Stamp " Paid by Cheque No" on the bills/invoices concerned by the Accountant, when payments

are made by cheque.

•

Cheque books to be in the personal custody of the MC/CO, recording of certificate as to the number of cheque leaves

the cheque book contains in the format given, cheque books to be given to the Accountant only when cheques are to

be written, not to sign cheques unless required to be given to the party, writing of cheques in English or Kannada,

cheques , 'Account Payee' cheques to be drawn in favour of the party to whom the amount is payable or in favour of

the bank account authorized by the party, amount drawn in a cheque is written both in words as well as in figures and

writing next higher rupee of the cheque amount across the cheque as well as its counterfoil as "Under Rupees..",

on relief of the MC/CO, obtaining a receipt from the relieving officer as to the number of cheques received by him.

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•

All payments made in cash or cheque to be supported by a receipt duly signed, stamped wherever necessary,

obtained from the person receiving it.

•

All payment voucher to bear acknowledgement of the 'payee', details of cheque number and date are noted in the PV

by the Accountant

•

Procedure to be followed when a signed cheque is cancelled or when a cheque is lost before payment or when a

cheque is not encashed within the period of currency (Stale Cheques)

j)

Accounting treatment

Accounting treatment relating to various categories of expenditure is explained in KMAM chapters 10 to 14.

Audit is required to verify the vouchers prepared for each payment and ensure that debit and credit account codes and budget

heads recorded therein are in accordance with the instructions in the KMAM, correctly reflected in the cash/bank book and

ledgers

k)

Rectification in the accounts

Any error in accounting needs to be rectified through a rectification voucher in appropriate form. The nature of Voucher to be

prepared depends upon the transaction type in which error has occurred and the affecting transaction. This aspect has been

dealt in detail with illustrations in Chapter 5 of KMAM- para 5.10. Audit should examine whether rectification in accounts have

been effected as per the instruction in the KMAM-Chapter 5.

10.4 Audit of books of accounts maintained

Chapter 5 of KMAM has exhaustively dealt the principles of double entry accrual accounting system and about maintenance of Books of

Accounts. Audit is required to verify and satisfy itself that Books of Accounts are maintained accordingly in the ULBs.

Some of the important aspects to be seen in audit of prime books of entry i.e. Books of accounts are indicated below:

a) Audit of cash book

Audit should see whether:

(i)

Cash transactions relating to deposit of collections (remittances) to bank/treasury and funds transferred from

bank/treasury to other bank accounts charged off in the cash book are supported by Contra Vouchers in KMF No.10

and reflected in the concerned Bank Book as a debit entry.

(ii)

Other receipts like grants, grants for schemes, loans, contributions, donations etc also are accounted in the cash

book/bank book concerned, depending on the nature, purpose, mode of release/receipt, etc, are supported by receipt

vouchers.

(iii)

Amounts drawn on self cheques for meeting various cash payments as per the Bank Book are supported by Contra

Vouchers and accounted in the Cash Book on the receipt side as amount drawn on self cheque giving reference to the

CV.

(iv)

'Register of Cash drawn and disbursed' in form KMF No.2 is maintained as required under Rule 11((3) for all cash

drawn and disbursed, and payment vouchers are based on this

(v)

All cash payments charged off in the cash book towards expenditure are supported by payment vouchers duly passed

for payment by the MC/CO based on the bills preferred in the prescribed forms (which are considered as supporting

vouchers for the claims), wherever so prescribed

(vi)

Cash Books maintained for different funds are closed daily and closing balances carried forward to the next day, as

stipulated in Rule 11(2) of the rules

(vii) Cash Book is periodically examined by the MC/CO and cash balance with the cashier is physically verified at least

once a week, as evidenced by the signature and certificates recorded in the cash book

b)

Audit of bank book

Audit has to verify and see whether:

(i)

Bank Book in form KMF No.3 is maintained for recording bank/treasury accounts of ULB, either by allotting folios for

each bank/treasury account operated for different funds/schemes/purposes, or through separate bank accounts, as

laid down in Rule 12 of KMABR,2006.

(ii)

Payments recorded in the bank book are supported by payment vouchers in KMF No.9 or Bill of other expenditure in

form KMF No.59 prescribed under Rule 108(1) of KMABR,2006

(iii)

Contra Vouchers in KMF No. 10 are prepared in respect of amounts drawn on self cheques and for transfer of funds

from one bank/treasury account to another

(iv)

The payment vouchers are based on claims preferred in the bill forms prescribed in the rules, which constitute as sub-

vouchers for the payment

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(v)

The claims are scrutinized and recommended for payment by the concerned Department or Section of the ULB and

the claims processed and passed for payment with a 'payment order' by the MC/CO, before a cheque is prepared and

got signed, as laid down in Rule37 of KMABR,2006

(vi)

Journal Voucher reference are indicated and JVs are forthcoming in the case of payment vouchers relating to

accrued items of expenditure

(vii) The Bank Book is closed daily and closing balance arrived at and the closing balance at the end of each month

reconciled with the bank/treasury balance by preparing a Bank Reconciliation Statement. (The Bank Book is similar to

the General Cash Book prescribed under KMAR-1965).

c)

Audit of journal book

Audit has to verify the entries recorded in the Journal Book and ensure that:

(i)

All transactions relate to non-cash and/or non-bank transactions

(ii)

Every transaction recorded is supported by JV duly indicating the Debit and Credit Account

heads and they are equal

d)

Audit of general ledger

Audit is required to ensure that:

(i)

All transactions accounted in the Cash Book, Bank Book and Journal Book are posted date-wise in the General

Ledger(GL) maintained in form KMF No.5 for each of the financial transactions-Account Code-wise.(separate ledger

accounts in respect of Cash and Bank accounts need not be maintained as the cash book and bank book themselves

serves the purpose of Ledger)

(ii)

Ledger accounts are closed and balanced at the end of every month and the difference amount between the debit and

credit accounts are correctly worked out and carried down to the next month's account as opening Debit or Credit

balances.

(iii)

The closing Debit or Credit balances are worked out correctly and taken to the Trial Balance

e)

Audit of sub-ledger account

Audit has to see whether sub-ledgers are maintained for any group of subsidiary accounts for which a control account is

maintained in the general ledger, as provided under Rule 15 of KMABR,2006. For example, for 'payable account- cesses' sub-

ledgers for individual cesses are maintained and similarly for 'payable account-Contractors/Suppliers/other agencies' separate

sub-ledger accounts are maintained for Contractors, suppliers and other agencies. In such cases, auditor has to verify and satisfy

itself that sum total of the sub-ledger accounts falling under a control account agree with the amount accounted in the ledger

account

f)

Classified register of receipts and payments

Audit should see that the ULB has maintained Classified Register of Receipts and Payments in KMF No.6 as laid down in Rule 15 (2)

of KMABR,2006

g)

Check of other accounting records

ULBs are required to maintain several subsidiary accounting records pertaining to financial transactions of the ULBs, as prescribed

in the KMABR,2006 and other rules framed under KM Act. These are discussed in the chapters dealing with income (Revenue),

expenditure, liabilities and assets

h)

Detailed audit checks

Detailed checks to be exercised in audit of accounts of individual type of receipt, subsidiary records to be seen regarding proper

assessment, collection and accounting, connected vouchers, etc, are explained in the Chapter 5. Similarly, detailed audit checks

in respect of Expenditure are given in Chapter 6 and 7.

Chapter 11

Audit Procedure and Audit Report

The Controller State Accounts Department (CSAD) is head of a major Department of Government of Karnataka. He is responsible for

audit of accounts of various categories of institutions in the State, including Universities, as per provisions in the respective Acts and

Rules. The auditorial function devolved on the CSAD is carried out by his office in Bangalore and by the Assistant Controllers of Local

Audit Circles functioning in 29 Districts of Karnataka. Audit of accounts of the Universities is conducted by the Government Auditors

appointed to the Universities in the State.

As the Assistant Controllers and their staff working in the Local Audit Circles are appointed as Statutory Auditors of Municipalities in the

State under Section 290 of KM Act, 1964, responsibility of ensuring completion of audit of these institutions within the stipulated time also

devolves on the CSAD.

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CSAD has issued guidelines to the Assistant Controllers of LACs how to prioritize and plan audit of accounts of institutions coming

under the purview of the Circles well before the commencement of the year and get the Annual Audit Programmes approved by his

office. However, in view of the requirement of audit of Financial Statements of ULBs by a Chartered Accountant as per

KMABR,2006, some adjustment in planning Statutory Audit by the LACs may be required, taking into account the time limit prescribed

for completion of FS Audit within four months of closure of the financial year. Therefore, audit of municipalities shall be planned by the

Assistant Controllers of LACs as per the instructions given by the CSAD, from time to time. They shall send audit intimation, at least

fifteen days in advance to the concerned MC/CO of the institution, the Deputy Commissioner of the District concerned, DMA and the

CSAD, as per the approved annual audit programme. For reasons recorded in writing, Assistant Controllers, LAC may programme audit

with a shorter notice to the institution concerned, under intimation to other authorities mentioned above.

The Assistant Controller, LAC (hereafter referred as 'Auditor') may take up detailed audit or special audit when:

a) So ordered by the CSAD having regard to need for such audit. Such audit may be ordered for a specified type or types of

transaction, or pertaining to a specified period or whole year, as may be found necessary in his opinion

b) on the request of the DMA/DC in special circumstances, with the approval of CSAD

c) When such an audit is felt necessary by him on account of some serious irregularities noticed during current audit

warranting detailed verification of transactions of earlier or future period of incumbency of an official dealing with the

transaction, to finally arrive at a decision or quantum of loss. In such case, matter shall be reported to the CSAD for

ratification of action and copy marked to the MC/CO concerned, and DC/DMA

11.1 Audit preparedness

CSAD and the Assistant Controllers Assistant Controllers of LACs shall ensure that auditors are:

•

Conversant with the provisions of KM Act, Rules, KMAM, Bye-laws and orders applicable to ULBs.

•

Familiar with the system of accounting followed by the institution programmed

•

Aware of the powers and duties of the auditors under KM Act and rules framed under it

•

Updated with latest GOs, OMs, Circulars issued from time to time by Government

•

Realize the importance of issue of audit enquiries and obtaining replies from the MC/CO during audit and also

discussing the important audit observations made in the draft report with the MC/CO

•

Punctual in commencement of audit on the specified date and complete audit within the man-days allowed

•

Motivated to peruse previous audit reports and understand the state of maintenance of accounts and nature of

irregularities pointed out, before taking up audit

11.2 Audit procedure

Leader of the audit party shall ensure that:-

•

He is conversant with the general principles of audit explained in Chapter 3 of the Manual

•

He is in possession of a copy of the audit intimation sent to the ULB

•

He and his team members meet the MC/CO on the date of commencement of audit and request him to arrange for

production of relevant accounting records to the auditor assigned for audit of specified category of transactions

•

Audit work is allotted to his team mates retaining important areas of transactions for himself and a copy of work

allocation sent to the circle office

•

Auditor assigned audit of particular category of transactions issues a list of accounting records required to be

verified by him, to the MC/CO through the Accountant/Accounts Superintendent

•

Himself obtain following documents from the MC/CO/Accountant and review them.

1. Budget document of the year of accounts being audited and budget of next financial year,

2. Annual Performance Report (APR) pertaining to the year of audit prepared under rule 126 of KMABR,2006 (in the form

prescribed under Chapter 25 of KMAM), Audit Report of the Financial Statement Auditor (FSA) of the year of audit taken up

by him, and

3. Council Meeting Minute Books

This will enlighten him about the magnitude of financial transactions of the year to be checked in statutory audit, financial

performance and financial position of the ULB, extent of services delivered during the year of audit and cost involved,

important policy decisions taken and sanctions accorded by the Council, etc.

•

Himself issues a list of records/.documents required for audit of transactions assigned to himself

•

Verify physically cash balances, securities held, unused stock account of receipt books, measurement books, money

value forms kept for sale to public, etc.

•

Verify the stock account of receipt books and see that:

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(i)

auditors assigned with the task of 'Receipt Audit' prepare a list of receipt books issued to the collection staff whose

accounts they are expected to audit w .r. t the receipt books issued to such staff, as per stock account

(ii)

Auditors first do a cursory review of accounting or otherwise of the receipt books received by the collection staff, in the

Collection Register maintained by them

(iii)

Thereafter verify the individual receipts passed w. r. t. entries in the collection register

(iv)

Trace the daily collections to the Chitta and the remittance register and concerned treasury / bank account

•

The Accounts Department has reconciled cash and bank book balance with treasury / bank passbooks and Bank

Reconciliation Statement drawn

•

All vouchers and connected records are made available for audit

•

Auditors exercise audit checks of the transactions as prescribed in the relevant chapters in Section 1 of this manual

and if need be, guide them in their task. Exceptions, deviations and violation noticed during transaction audit are

incorporated in the audit report

•

All Audit Enquiries regarding observations in audit shall be in the form given in SAP-1. Separate enquiries are issued

for each of the Department of ULB.

•

If replies furnished to Audit Enquiries are not satisfactory enough to accept it or to incorporate in the same form in

the audit Report, Audit Enquiries may be re-issued to the MC/CO indicating further observations on the replies,

•

Statement clarifying/explaining the doubts if any of the auditor or other information is obtained from the official in

writing, wherever so required. If such clarification/explanation is required from the President/Vice President/Members

of the council, an invitation to meet the auditor is sent, duly mentioning the points on which the auditor wishes to

discuss and obtain explanation.

•

No auditor correspond directly with the President/Vice-President of the ULB

•

Audit Enquiries issued by him/auditors regarding non-production of any accounting records/vouchers for audit or

observations made in audit, not replied within three days from the date of issue, if need be, he may appraise the MC/CO

about the same

•

No observations are incorporated in the Audit Report pertaining to non-production of vouchers/records unless

supported by Audit Enquiries issued

•

In case of lack of response to Audit Enquiries despite reporting to the MC/CO, the same may be brought to the

notice of the President of the ULB and if no replies are received within three days, the same brought to the notice of

the Assistant Controllers, LAC for initiating action to report the matter to the DMA through CSAD, for action under

Section 292 of KMA.

•

No vouchers, receipt books, files, documents or accounting records removed from the office of the ULB without

previous written permission of the MC/CO. In case of serious irregularities / malpractices, on reasonable

apprehension that the same may be removed or destroyed or tampered if allowed the remain with the official

concerned, he may take possession of the same only after giving an acknowledgement for having taken those

vouchers/receipt books/records, to the MC/CO. The fact is reported to the Assistant Controller, LAC submitting a copy

to the CSAD

•

If any serious irregularities like fraud or embezzlement of money are noticed in audit, the same shall be reported

confidentially in writing to the MC/CO and to the Assistant Controller, LAC/CSAD immediately. After the matter is

completely investigated in audit, a detailed separate report is submitted to the Assistant Controller, LAC/ CSAD. The

CSAD shall send a copy of the report to the DC and DMA and the MC/CO concerned

•

Audit Report is prepared in the format given in SAP-2, by editing the observations raised by himself and his co-

auditors

•

Discretion is used while proposing amounts for recovery and placing them under objection

•

Care is taken to incorporate only relevant audit observations that stand the test of law and grouping them under the

categories indicated below under 'Contents of Audit Report'

•

Certain observations made in the FS Audit Report are incorporated in the Audit Report, as suggested in Chapter 13 of

the manual

•

Co-auditors co-operate and carry out statutory audit as per the instructions in this manual and guidance given by him,

and submit their audit observations along with copies of the Audit Enquiries issued

•

Draft Audit Report is submitted to the LAC within one week of completion of statutory audit to facilitate review of the

same and issue of Audit Report to the concerned authorities by the Assistant Controller, LAC within One month of

completion of Statutory Audit.

Note: Some of the above instructions are based on Karnataka Municipalities (Powers and Duties of Auditors), Rules, 1 965

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11.3

Contents of the audit report

Sections 294 of the Karnataka Municipalities Act 1964 stipulate that the auditor shall include in his report a statement of:

a) Every payment which appears to him to be contrary to law

b) The amount of any deficiency or loss which appears to have been caused by the gross negligence or misconduct of any

persons.

c) The amount of any sum received which might to have been but is not brought into account by any persons: and

d) Any material impropriety or irregularity, which he may observe in the accounts other than those mentioned in clauses (a) (b)

and (c).

11.4 Selection of audit objections/observations for incorporation in the audit report

Result of audit of transactions amounts to disclosure of exceptions, violations, etc, noticed on scrutiny of each transaction w. r. t. audit

against provision of funds, regularity and propriety. Therefore, auditor should himself be clear as to which rule/procedure has been

deviated or violated and financial implication involved. He should understand the spirit of the rules and regulations but not the letters

and select audit objections/observations judiciously.

a) Generally, objections that may be grouped under clause (a) under Section 294-Payment made contrary to law, may include

(i) cases that may be proposed for surcharge, (ii) cases that may be sanctioned by higher authorities like Council, DMA and

Government, (iii) cases that may subject to certain action by the ULB/DMA may be recommended to Government for

condoning the irregular payment as an exceptional case, etc,. Some objections that may be grouped under this category

are given below. These are only illustrative but not exhaustive cases.

(i)

Payment not permissible under the Act or rules but paid by the MC/CO or authorized for payment by the Council

(ii)

Payment of cost of procurements made without following the prescribed purchase procedure

(iii) Approval of higher rate disregarding the lowest rate quoted without assigning any reasons for such a decision, in

respect of procurement of good, services and works

(iv)

Payment made in respect of procurement of goods not required and remaining unutilized for years

(v)

Payment in excess of actual amount legally payable

(vi)

Payment made in the absence of sanctioned estimates/revised estimates

(vii) Payment of claims beyond the powers of the MC/CO/Council, without sanction of the competent higher authority

(viii) Payment of allowances and advances not extended to employees of ULBs

(ix)

In respect of Section 294 (b)- amount of any deficiency or loss which appears to have been caused by the

gross negligence or misconduct of any persons, which are cases that can be charged on the person or

persons responsible, the following nature of objections may be grouped;-

(x)

Deficiency in cash noticed at the time of physical verification of cash in audit

(xi)

Deficiency in stock due to non-accounting/short accounting of stores, money value forms, noticed in audit

(xii)

Loss on account of materials becoming unusable due to inadequate storage facilities,

(xiii)

Loss arising on account of negligence, misuse or misconduct of officials dealing with stores. cash and other assets of

ULB

b) In respect of Section 294 (c) - amount of any sum received which ought to have been but is not brought into account by any

persons, illustrative cases given below may be brought under this category. The amount of loss may be charged on the

person or persons responsible for the loss.

(i)

Revenue collected by collection staff or any other person authorized to receive money on behalf of ULB not brought to

account and remitted to office/bank

(ii)

Short accounting and short remittance of collections as per collection register

(iii) Collections handed over by collection staff but not accounted or partly accounted and remitted to bank by the Cashier

or person authorized to function as Cashier, in his absence

c) The fourth category under Section 294 (e) i.e. any material impropriety or irregularity, which the auditor may observe in the

accounts other than those mentioned in clauses (a) (b) and (c). Under this category, all other observations in audit pertaining

to non compliance to procedures, non maintenance of supporting accounting records prescribed, etc, which do not by itself

involve monetary loss to ULB but needs to be complied with. Some illustrative types of observations are given below.

(i)

Excess expenditure over budget provision not covered in the revised estimates

(ii)

Abnormal variation between budget provision and actual

(iii) Non-remittance of deductions made from bills of employees, contractors and suppliers

(iv)

Non-recovery/short recovery of statutory deductions from the bills of the contractors and suppliers

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(v)

Non-compliance to the requirement of holding public meetings by the council before finalizing of budget

(vi)

Non-compliance to the procedure of auction sale of lease of rights or for disposal of unserviceable, obsolete stores, etc

(vii)

Failure to record prescribed certificates on the bills, registers and statements

(viii)

Non-compliance to the requirement of conducting annual verification of fixed assets and stores

(ix)

Non-maintenance/non-production of prescribed subsidiary accounting registers and records

d)

Placing amount under objection or proposing for recovery

Auditors shall take care to see that amounts involved in any observation in audit are not indiscriminately placed under objection or

proposed for recovery. The following points may be kept in view while dealing with objections having financial implications;-

(i)

Excess expenditure over budget provision, sanctioned estimates, etc, which may be regularized by competent

authority or relate deviations/violation of prescribed procedure and which cannot be legally enforced for recovery,

should normally placed under objection

(ii)

Only in cases where an amount is paid in excess of actual entitlement, excess payment due to arithmetical error,

wrong computation of cost due to error in the rate or quantity, loss has occurred due to negligence, misuse or

misconduct of any person, non-accounting /short accounting of collections, non-remittance/short remittance to

Bank/Treasury, deficiency in cash or stores, etc, where the only remedy lies in recovery of the amount involved,

should be proposed for recovery

e)

Non-production of payment vouchers/bills & sub vouchers

In the present accounting system, preparation of Payment Voucher in respect of every payment is a must. However, every

Payment Voucher has to be based on bills/sub- vouchers/invoices, etc, in support of the claim against ULB.

To focus the attention of the authorities of ULBs in cases where either PVs or supporting bills/sub-vouchers are not produced

for audit and there are no corroborative records to verify and satisfy as to the genuineness and correctness of the claims paid,

following procedure shall be followed in audit, having regard to the provision of Section 292 of KMA;-

(i)

' An Audit Enquiry shall be issued to the MC/CO by the auditor, listing out the details of payment for which Payment

Vouchers or Payment Vouchers with supporting bills o/ sub-vouchers are not produced for audit with a specific notation

'If the Vouchers/sub-vouchers listed are not produced within three days it will be reported to DMA for initiating action

under Section 292 of KM Act'.

(ii)

After expiry of three days time and if no reply is furnished, the matter shall be reported to the LAC and a copy

submitted to the President through the MC/CO for information and action in terms of rule 5 of KM (Powers and duties

of Auditors) Rules,1965

(iii) If no response is received from the President /MC/CO after further three days, the auditor shall send a status report to

the Assistant Controller, LAC for initiating further action in the matter

(iv) The Assistant Controller, LAC shall address a letter to the DMA enclosing a copy of the status report of the auditor

and request him to initiate action in terms of Section 292 of KMA, submitting a copy of the letter to the CSAD for

further action. CSAD may also pursue the matter through a special letter to DMA and later recommend for surcharge

proceedings, after issue of the audit report by the Assistant Controller, LAC.

(v)

CSAD may also pursue the matter through a special letter to DMA and later recommend for surcharge proceedings,

after issue of the audit report by the Assistant Controller, LAC.

(vi) Pending production of connected voucher/supporting vouchers, the amount involved may be placed under objection

in the audit report of the ULB by the Assistant Controller, LAC, mentioning in the report earlier reference made to

DMA in this behalf

11.5

Review of draft audit report

a) The Assistant Controller, LAC who is required to review the draft audit report submitted by the audit staff or any other

officer of the State Accounts Department authorized by the CSAD in any specific instance shall ensure that:

(i)

Leader of the audit party submit the draft audit report in a complete manner to the office, at the earliest, not later than

one week after completion of audit, along with copies of Audit Enquiries issued and letters if any, submitted to his office

(ii)

Draft audit report is prepared in the format prescribed in this manual

(iii) Review programme fixing the date of review of the draft audit report is communicated to the MC/CO, in advance.

Review should not be delayed beyond one month from the date of completion of audit

(iv)

Any action required to be taken on the letters/status report submitted by the auditor is taken promptly

(v)

Leader of the audit party is directed to assist him in the review

b) The Reviewing Officer is responsible to ensure following aspect before discussing the report with the MC/CO:

(i)

Auditors have covered all types of transactions of the ULB

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(ii)

A review of all accounting records shows evidence of verification of the same in Statutory Audit

(iii)

Audit observations have been properly classified and grouped under relevant heading in terms of Section 294 of the

Act

(iv)

Presentation and language of the audit paras are clear and do not give room for any ambiguity

(v)

Audit observations are well supported by facts and provisions of the Act, rules, regulation and orders it affects

(vi)

Audit observations not tenable or raised due to wrong interpretation of rules and orders, in his opinion, are deleted

duly recording the reasons for deletion

(vii) Any objection though not serious in nature involving loss but required to be complied with as per the provisions of

Act/rules or further non-compliance may lead to serious violation of rules, may be retained

(viii) Accounting flow, internal controls followed by the Accounts Department and the field departments are reviewed and its

adequacy examined and commented, wherever found necessary

(ix)

Vouchers and sub-vouchers and books of accounts, Ledger accounts maintained by the ULB are reviewed and

omissions and commissions, if any, are incorporated

(x)

Review the financial position of the ULB and see whether contributions payable to Government and other municipal

dues to other agencies are not despite availability of funds in the ULB.

(xi)

Review the Financial Statements prepared and audited by the FS auditor.

(xii) Any serious or valid observations not incorporated in the report are added appropriately.

(xiii) Audit Report of the FS auditor pertaining to the year of accounts audited by his office is reviewed and important points

raised therein required to be incorporated in the SA audit report, as per Chapter13.. of the manual are incorporated.

(xiv) Audit Enquiries issued and replies received and objections dropped are reviewed and replies to any objections

furnished by ULB but not accepted by the auditor are again examined and dropped, if in his opinion the replies are

acceptable, furnishing his views on it

c)

Discussion of the draft audit report with the MC/CO

The Reviewing Officer shall discuss the contents of the report with the MC/CO and if he absent or on leave, with the Officer-in-charge of

his duties and take action as follows;-

(i)

His attention is drawn to the position of audit paras of previous years outstanding pointed out in Part I of the audit

report and requested to expedite replies

(ii)

Cases of non-accounting/short accounting and other recovery paras in the report are brought to his notice for urgent

action to recover the same

(iii)

Audit objections likely to be recommended for charge/surcharge proceedings are pointed out to him and expedite

remedial measures, immediately

(iv)

Any objection raised by the auditor relating to some procedural or non maintenance of prescribe records, but

dropped by him subject to compliance henceforth by the ULB, are specially brought to the notice of the

MC/CO and requested to issue instructions to the official concerned for its compliance

(v)

Other serious violation of rules and procedure are highlighted and requested to initiate action to avoid them at least from

now onwards.

(vi)

Action required to be taken on the FS auditors audit report are appraised and requested to take action to comply with

the observations.

(vii) Any observations in Statutory Audit having effect on the balances reflected in the Balance sheet of the ULB are

pointed out for effecting necessary adjustment entries in the opening balances of next year's account.

(viii) Accept satisfactory replies furnished during review, which entail deletion of observations incorporated in the report

(ix)

He may discuss any other points that he feels appropriate to be discussed with MC/CO or officer-in-charge

(x)

Obtain dated signature of the officer with whom he discussed the audit report

d)

Issue of audit report

The Assistant Controller, LAC shall ensure that audit report is finalized and issued as early as possible, to the authorities indicated in

Section 293 of KMA.

Along with the copy of the audit report that is being sent to the CSAD, he shall also send a report indicating:

(i)

List of serious irregularities noticed in SA with amounts involved

(ii)

Number of audit paras dropped by him from the draft audit report during review

(iii)

Number of paras added by him during review, and

(iv)

His opinion on the performance of the audit staff assigned for audit of the ULB

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11.6

Special letters to CSAD

The Assistant Controllers of Local Audit Circles shall address Special letters to the CSAD, for communicating following matters:

•

Instances of fraud, embezzlement, misappropriation and other serious irregularities reported by the auditors or noticed

by him during his visit to ULB- a preliminary report followed by a final report after detailed investigation

•

Report of the auditors intimating non-production of vouchers for audit despite issue of Audit Enquires MC/CO and

President, for initiating action under Section 292 of the Act.

•

Report of seizure of any vouchers/receipt books/record by the auditor in case of serious cases of fraud,

embezzlement/misappropriation etc, followed by a report indicating result of the case

FORM SAP 1

Format of Audit Enquiry

Audit Enquiry No.

Name of the ULB.

Date:

Sl. No.

Nature of

Financial

transanction

Receipt No./Vr.

No. & Date

Nature of receipt

or payment

Observation

Reply of the MC/CO

1

2

3

4

5

6

FORM SAP 2

Format of Audit Report of Urban Local Bodies

Details to be furnished n the facing sheet of the report

•

Name of the Urban Local Body:

•

Name of the District

•

Period of accounts audited

•

Name of the President

•

Name of the Vice president

•

Name of the Municipal Commissioner/Chief Officer:

•

Names of the Auditors(indicating Name of the Team leader first):

•

Date of commencement of audit

•

Date of completion of audit

•

Number of mandays utilized

•

Name of the Reviewing Officer

•

Date of Review

Part I: Status of pending audit paras

1.

(In this part, furnish an abstract of year-wise position of pending audit paras with money value objections pending at the end of

previous year's audit, audit paras and money value settled between previous audit and present audit and the pending paras and

money value involved)

Period of Audit

report (Year of

A/R)

Details of audit paras pending at the

end of previous year

Details of audit paras settled between

the previous audit and present audit

Details of audit paras pending as on

today

No.of

Paras

Proposed

for

recovery

Placed

under

objection

No.of

Paras

Proposed

for

recovery

Placed

under

objection

No.of

Paras

Proposed

for

recovery

Placed

under

objection

1

2

3

4

5

6

7

8

9

10

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Annexure for details:-

Details of audit paras pending at the end

of previous year

Details of audit paras settled between the

previous audit and present audit

Details of audit paras pending as on

today

Period of Audit Report

(Year of A/R)

Para No.

Brief Description

Amount Proposed for

recovery

Amount under objection

Total Amount

Para No.

Brief Description

Amount Proposed for

recovery

Amount under objection

Total Amount

Para No.

Brief Description

Amount Proposed for

recovery

Amount under objection

Total Amount

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

Audit paras settled as per orders of Ad-hoc Committee:

2.

The above position of settled audit paras include audit paras settled as per orders/recommendation of the Ad-hoc

Committee;-

Period of

Audit Report

Amount Recovered at the

instance of Ad-hoc Committee

Audit Paras settled out of

amount placed under objection

Total Clearance

No. of Para

Amount

No. of Para

Amount

No. of Para

Amount

1

2

3

4

5

6

7

Annexure for details:-

Period of

Audit

Report

Amount Recovered at the instance of

Ad-hoc Committee

Audit paras settled out of amounts placed

under objection

Total Clearance

Para No

Brief

Description

Amount

Para No

Brief

Description

Amount

Para No

Brief

Description

Amount

1

2

3

4

5

6

7

8

9

10

3.

Comments may be made if no clearance is made during the last year despite letters issued by CSAD, if any. Or orders of Ad-hoc

Committee.

4.

Position of Surcharge/Charge proceedings initiated by the DMA.

Audit

Report

Period

Cases Pending at the end of

previous year

New Cases initiated during the

year ………. (mention the year)

Total Cases disposed during

the year

Total Cases outstanding by the

end of year

No. of Para

Amount

involved

No. of Para

Amount

involved

No. of Para

Amount

involved

No. of Para

Amount

involved

1

2

3

4

5

6

7

8

9

Annexure for details:-

Period

of Audit

Report

Cases Pendin at the end of

previous year

New Cases initiated during the

year ………. (mention the year)

Total Cases disposed during

the year

Total Cases outstanding by

the end of year

Para

No.

Brief

description

Amount

involved

Para

No.

Brief

description

Amount

involved

Para

No.

Brief

description

Amount

involved

Para

No.

Brief

description

Amount

involved

1

2

3

4

5

6

7

8

9

10

11

12

13

Part II: Audited Financial Statements of the ULB

The auditor appointed by the DMA to audit the financial statements of .. pertaining to the financial year., in

terms of Rule 130 (2) of KMABR,2006 has conducted audit and furnished the audit report along with audited financial statements to the

concerned authorities and the SA in his letter No. .Dated .

The said report has been perused in Statutory Audit and result of audit and comments made by FSA, found relevant to be brought to

the notice of the Administrative Authorities are furnished below.

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1.

Over all Cash Flow during the year (Give over all Cash-flow during the year of accounts audited i.e. summary of R&P

account)

2.

Surplus or Deficit in the Income and Expenditure account (as exhibited in the Income and Expenditure account)

3.

Financial position as per Balance Sheet (Furnish abstract of Balance Sheet indicating the position of excess assets over

liabilities or vice-versa)

4.

Result of Audit and Comments made in the Audit Report of the FSA

(i)

Opinion expressed by the FSA (give extract of the opinion furnished by the FSA on the financial statements keeping in

view the guidelines given in Chapter 13 of the manual)

(ii)

Reasons given by the FSA, if opinion is expressed with qualifications or adversely or with Disclaimer

(iii)

Any other points having bearing on the accounting policies, state of maintenance of books of accounts, aspects

where management had expressed difference of opinion or non compliance to the requirements of the FSA, etc,.

5.

Discrepancies, if any noticed in SA having an impact on the audited financial statements The discrepancies noticed if

any, during audit of transactions and tracing them to the books of accounts, which have an impact on the figures exhibited in

the financial statements, but not pointed out in FSA audit, should be enumerated furnishing full details and the figures in

the financial statements that will undergo modification. Care should be taken to avoid frivolous transactions or petty

amounts involved which may not result in changing the opinion expressed by the FSA (refer to chapter 13).

Part III: Serious irregularities noticed in Statutory Audit

1. Defects in the system or rules relating to internal controls in collections, accounting, remittance to bank/treasury,

payments, etc.

(i)

During the course of audit, if any lacunae in the system of accounting or in respect of non compliance to the

prescribed internal controls are noticed, the same shall be highlighted under this para

(ii)

If any instance of fraud, misappropriation or defalcations are noticed, it necessary to specify in audit as to whether

lapses if any, in the system or lack of internal controls has contributed/enabled such serious criminal misconduct

besides suggesting remedial measures

2. Payments made contrary to law (Section 294 (a) of the Act)

Cases falling under the types of observations mentioned in Para 11.4 (a) of the manual shall be grouped and listed under

this para.

3. Amount of any deficiency or loss which appears to have been caused by the gross negligence or misconduct of any

persons (Section 294 (b) of the Act)

Cases falling under types of observations mentioned under para 11.4 (b) of the manual or those similar in nature shall be listed

under this para.

4. Amount of any sum received which ought to have been but is not brought into account by any persons (Section 294 (c)

of the Act)

Cases falling under types of observations mentioned under para 11.4 (c) of the manual or those similar in nature depending on

the materiality shall be listed under this para.

5. Material impropriety or irregularities noticed in the transactions(Section 294 (d) of the Act)

Illustrative types of irregularities mentioned under para 11.4 (d) of the manual or similar ones shall be listed under this para.

Note:

(i)

The Statutory Auditor shall keep in view the instructions given in para 11.4 of the manual regarding selection of

observations for inclusion in the audit report of the SA.

(ii)

The nature/type of observations mentioned under the above para are only illustrative and not exhaustive.

(iii) Any other nature of irregularity noticed in any transaction, which in the opinion of the auditor, is likely to be repeated

or may ultimately result in a very serious irregularity resulting in loss to ULB, may be incorporated in the report, under

appropriate heading.

(iv)

The SA shall also exercise proper discretion while placing amounts under objection or proposing for recovery, as

stipulated in Para 11.4 (e) of the manual)

(v)

If observations of particular nature/type are many, the same may be given in the form of a statement giving annexure

numbers furnishing cross reference to the para no.

6. Non production of payment vouchers/sub-vouchers for audit

If the ULB has failed to produce payment voucher/sub-vouchers in support of payments charged off in the Cash Book and the

auditor is unable to vouch the correctness of payment, action taken as per the guidelines given in Para 11.4 (f) of the manual

may be mentioned and the amount involved proposed for recovery

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7. Comments on the Revised Estimates of previous year and the Budget Estimates of the year of accounts audited

If in the opinion of the auditor, the ULB has violated any provisions of the Act, Rules and orders of Government in the matter

relating to preparation budget and excesses or abnormal savings between budgeted figures and actual may be pointed out under

this para

8. Comments on trend of revenue collections of accruable items of revenue

(i)

In respect of accruable items of revenues, it is desirable to point out revenue projections as per the budget estimates

and actual collections with percentage of collection w.r.t. budgeted figures, pertaining to the year of accounts audited

and two preceding years and comment on the trend of collection in the last two years.

(ii)

Especially, in the case of Property tax, comparison of entries of amounts relating to Property tax -Receivable account

passed during the above said periods and actual collections against it will give a good account of performance of the

ULB with regard to collection of Property Tax

(iii) Annual Performance Report prepared by the ULB as per Rule 126 of KMABR,2006 will provide auditor ample

information on which comments may be made by the auditor

9. Comments on the allocation of fund and actual for various activities of the ULB

Comments on the allocation of fund and actual with percentage of expenditure on salary related expenditure, water supply and

sewerage, infrastructure development, health and allied activities, etc, if found relevant by the auditor, may be brought under this

para.

10. Position of overdue liabilities of ULB

Position of liabilities due for liquidation during the year of accounts audited but not discharged by the ULB along with reasons if

any, given for the same by the management shall point out by the auditor under this para.

11. Procedural irregularities i.e. non-compliance to procedures and conventions.

Observations if any, pertaining to non observance of procedures, practices and conventions in respect of financial transactions

not entailing raising of money value objections but necessary to be complied with, may be listed out and given in the form of an

audit note to the MC/CO for future compliance and the fact of having given an audit note mentioned under this para.

12. General remarks of the auditor

Under this para, auditor shall indicate (1) the overall opinion on the maintenance of books of accounts and the financial

statements expressed by the FSA, and (2) his own opinion on compliance to the principles of regularity and propriety by the ULB.

Chapter 12

Follow up action to be taken on the Audit

Reports of Municipal Councils

Section 293 of the KMA stipulate that a copy of the audit report of the municipal council shall be sent to the Controller, State Accounts

Department (CSAD) apart from the municipal council concerned and the DMA, by the auditor i.e. the Assistant Controller of the

jurisdictional Local Audit Circle.

12.1 Action on the audit report by municipal councils

a) The Municipal Commissioner/Chief Officer of the municipal council is required to take immediate action to remedy the

defects pointed out in the audit report and within two months of the receipt of the report, place before the municipal council

the audit report along with his statement of action taken or proposed to be taken thereon with his explanation, as per

sub-section (1) of Section 295. Before placing the report of action taken to the municipal council, the Municipal

Commissioner / Chief Officer shall ensure that an audit minutes book called as 'Audit Compliance Register' is maintained

and audit paras of each of the audit report entered therein. Besides, he shall also ensure action as indicated below

(i)

In respect of audit observations involving indisputable cases of shortage of cash/short remittances/ non accounting of

collections etc, the amount involved is recovered from the concerned staff if they are still working in the municipality

and remitted to municipal fund account and details such as reference to audit para No., receipt No.& date in which the

amount pointed in audit was collected, from whom collected, the date of remittance to bank, etc, are noted in the Audit

Compliance Register(ACR).

(ii)

In case the concerned staff are transferred to other offices, audit observation and the amount to be made good by

them should be communicated to them through the head of the office in which they are currently working and a copy

of the letters submitted to the controlling authority. Such cases should be vigorously pursued by sending reminders till

the matter is settled.

(iii)

Where the audit observations relate to non-production of vouchers, records, files, etc, the same should be

traced/obtained and kept ready for production to audit.

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(iv)

Where observations relate to interpretation of rules and orders, proper explanation in support of his views and action

taken may be recorded in the Audit Compliance Register.

(v)

Where any observation relate to sanctions/approval to be obtained by the Standing Committee or the Council as per

rules and procedure, action should be taken to place them before the concerned authority and sanction/approval

obtained and the fact recorded in the Audit Compliance Register.

(vi)

Audit observations warranting sanction or approval of the Controlling Authorities or Government, the matter should be

referred to the Controlling Authorities explaining the circumstances under which alleged expenditure was incurred

and whether approval of Council was obtained or otherwise etc, and seek sanction or approval and the matter pursued

till a response is received.

(vii) In the case of observations relating of loss to municipal council alleging negligence or misconduct of any employee,

after due preliminary enquiry and on prima facie appearance of negligence or misconduct of the employee, necessary

report should be sent to the DMA for initiating Departmental Enquiry against the employee concerned. A copy of such

recommendation should be sent to the auditor as well as CSAD.

(viii) In respect of procedural irregularities pointed out in audit, action should be taken to ensure that such irregularities do

not recur again and action taken noted in the Audit Compliance Register.

(ix) The Municipal Commissioner / Chief Officer shall prepare a statement of action taken incorporating the actions taken

as above and recorded in the Audit Compliance Register and place it before the municipal council, together with the

audit report for perusal and remarks, if any on his report. He shall also attest at the end of the Audit Compliance

Register authenticating the report of action taken recorded against each audit para therein.

b) Within three months of the receipt of the audit report, the Municipal Commissioner / Chief Officer shall send an intimation to

the CSAD of the defects or irregularities remedied based on his report submitted to the municipal council and supply

any further explanation/clarification the municipal council wish to give with regard to any defects/irregularities pointed

out in the audit report. A copy of such intimation, explanation/clarification (Compliance Report) should be sent to the auditor

and the DMA.

c) Wherever the municipal council is of the opinion that audit observations made are not based on correct facts or based on

certain presumptions/assumptions, proper explanation as to why or how the audit observations are not correct, has to be

furnished to the CSAD.

d) The intimation of the municipal council regarding details of action taken to remedy the defects/irregularities should be clear

and self explanatory to enable CSAD to take a decision as to whether the defect/irregularity has been remedied or otherwise.

The municipal council should know that vague and replies of interim in nature do not help the CSAD to consider them as

remedied and treat them as dropped/settled.

e) As this action by the municipal council is mandatory statutory provision of the Act, non- compliance to this shall attract

serious action by the DMA/Government

12.2

Action on the intimation or explanation furnished to audit report by the municipal councils

a) By audit office (Local Audit Circle concerned)

(i)

Immediately on receipt of a copy of the intimation /explanation to the audit report sent to the CSAD by the municipal

council, the audit office shall take action to review the report of action taken and mark those recovery relating paras

where the amount proposed for recovery has been fully or partly reported to have been recovered duly furnishing

recovery particulars. Recommend such recovery paras to the extent of amount recovered as 'Withdrawn subject to

local verification'

(ii)

In respect of paras for which replies indicate final compliance and may be accepted and treated as cleared/settled, it

shall recommend to CSAD to treat them as 'Withdrawn'

(iii) In respect of paras for which explanation/justification are furnished, re-examine the same in the light of the replies

and arrive at an opinion whether the explanation/clarification or views put forth by the municipal council may be

considered or otherwise. Opinion of audit for such paras may be communicated to the CSAD.

(iv)

Where the explanation or clarification or views expressed in interpretation of rules and orders in support of any action

could not be accepted and objection treated as settled, audit office should indicate to CSAD, why it cannot be

accepted duly expressing its view.

(v)

Where report of action taken do not result in any tangible result entailing settlement of the audit paras, the same

should be communicated to CSAD. To treat such paras un-remedied/unsettled.

(vi)

With regard to paras on procedural matters, audit may recommend to the CSAD to treat them as settled subject to

local verification during next audit.

(vii) Audit office may also point out audit paras which are potential surcharge and charge cases to CSAD

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(viii) Audit office shall ensure that paras which are recommended to the CSAD to treat them as ''Withdrawn subject to local

verification' are invariably verified by the audit batch conducting audit of such municipality, next year.

(ix)

In case no intimation of compliance to audit report is received from the concerned municipal council within three

months of the issue of the report, the fact on non- receipt of compliance the same may be reported to the CSAD as well

as DMA/DC

b) Action by the CSAD on intimation/explanation (Compliance Report)

(i)

The CSAD is empowered to take decision as indicated below, on receipt of Compliance Report (Intimation of

action taken on the audit report) from the municipal council (within three months of the issue of report), as per

sub-section 2 of Section 295 of the Act. The recommendatory action by the audit office proposed in the above para is

i) to ensure that audit office is aware of the compliance given by the municipal council and ii) to give an opportunity to

the audit office to examine the compliance and give its opinion to facilitate CSAD to take a decision. The decision of the

CSAD need not necessarily be as recommended by the audit office but may be different. The very purpose of

providing this provision of taking decision on the compliance report by the CSAD is that he may take an unbiased

and judicious decision on the compliance, being head of the Local Fund Audit Department

(ii)

As action by CSAD stipulated under sub-section (2) and (3) of Section 295 are statutory provisions, the CSAD

should ensure that timely issue of audit reports of municipalities by the Audit Offices (Assistant Controllers of the Local

Audit Circles) are monitored and necessary watch registers are maintained for this purpose in the Controller's Office.

(iii)

Further, sub-section (4) of Section 295 stipulate inclusion of un-remedied defects/irregularities and the

recommendation of the CSAD under sub-section (3) of Section of Section 295 in the Annual Administration Report of

the municipal council, the CSAD should ensure that copies of the audit reports relating to municipalities /Town

Panchayats (herein after called as municipal councils)received from the Circle Offices are promptly reviewed and action

taken and reports sent within the prescribed time limit.

(iv)

On receipt of the compliance report from the municipal council, the CSAD may, in respect of all or any of the matter

discussed in the report that;-

a. Accept the intimation/explanation furnished by the Municipal Commissioner / Chief Officer and withdraw the

concerned para fully or partly depending on the compliance; ( if compliance indicate details of recovery or

authority for any expenditure not earlier shown during audit or some convincing and acceptable explanations are

furnished) subject to local verification, or

b. Direct that the matter be re-investigated at the earliest or at the time of next audit (where it appears that the

objection raised needs to be examined in the light of the explanation furnished or new aspect related to it are

brought out in the intimation), or

c. Hold that that intimation/explanation furnished for the audit observations do not remove or remedy the

defects/irregularity pointed out in the report. Such decision on the compliance report of the municipal council

should be communicated to the DMA, Municipal Commissioner / Chief Officer, and the audit office, within one

month from the date of receipt of compliance report.

c)

Action by the CSAD after three months of the issue of audit report

(i)

The CSAD, after expiry of the three months referred to in sub-section (1) of Section 295, when the report of

compliance is not received, shall take action in terms of sub-section (3) of Section 295, furnish a report to the

Municipal Commissioner / Chief Officer, and the audit office, marking copy to the DMA, indicating:-

•

Which of the audit paras are held as not removed or un-remedied and whether in his opinion, the

defects/irregularities can be regularized and if so, what action needs to be taken to regularize them,

•

If the defects/irregularities cannot be regularized, whether they can be condoned and if so, by which authority, and

•

Amounts pertaining to any defect or irregularity, which in his opinion, be surcharged or charged.

(ii)

The above provision enables CSAD to review the audit reports as to the relevancy of observations made therein and

examine:

a)

Whether any of the objections raised are not tenable in view the changes in rules or due to erroneous interpretation of

rules or lack of understanding of the circumstances or have no financial implication or is insignificant to pursue, etc,

and treat such objections as withdrawn

b)

Identify the objections which are raised for want of sanction / approval of any authorities of the municipality, controlling

authorities or Government , -may be pointed out that such objections will be regularized if the concerned authority

accords sanction or approval Here, it is necessary to point out the name of the specific authority competent to

sanction/approve as per rules (power of expenditure rules or other rules prescribing the delegation of powers), if not

already pointed out in the report by the auditor.

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c)

Objections relating to non-observance of procedural aspects which have no financial implication and the remedy lies in

ensuring strict adherence to rules and procedure in future by the authorities concerned and no fruitful purpose will be

served in continuing such objections-may be recommended for regularization by the council considering the

circumstances subject to the condition that such cases do not recur.

d)

Where objections relate to peculiar circumstances prevailing at that time but not a regular feature-may be

recommended for regularization considering peculiar circumstances provided this is not taken as precedence for

other cases.

e)

Any other objection relating to an action taken in good faith though not in accordance with rules but regularisable

considering the result of action taken fulfilling the objective without loss-may be recommended for regularization

since objective has been achieved without any loss.

f)

Where any payments are made contrary to law prevailing at that given point of time but later such payments are

permissible under rules, but from a later date, if the amount is not substantial and beneficiary is not in service and

also not justifiable to recover from him or his family members, may be recommended to obtain condonation from Govt..

g)

As this report on the audit reports of the municipal councils is an obligatory function of the CSAD whether

compliance reports are received or not and the result of which is required to be reflected in the annual report of the

municipal councils as mentioned in para b (iii) above, the CSAD shall send this report in the form given in below :

Form No.

Report of CSAD on the action to be taken on the Audit Report of the Municipal Councils sent as required u/s 295(4) of KM Act

Name of the Municipal Council/Town Panchayat: .

Year of accounts to which the audit report relate: 

Ref. No. .date of the Assistant Controller, Local Audit Circle.

Part I - Audit Objections treated as withdrawn or settled

Sl. No.

Audit Para

No.

Audit Objection in brief with amount

involved if, any

Reasons for withdrawal/settlement of the audit para, with

amount

1

2

3

4

Part II- Audit paras that may be regularized

Sl.

No.

Audit Para No.

Audit Objection in brief with amount

involved if, any

What action is required to

regularize the objection

By whom it may be regularized

1

2

3

4

5

Part III- Audit paras that may be condoned

Sl.

No.

Audit Para No.

Audit Objection in brief with amount

involved if, any

Whether it can be condoned ?

If so, the reasons

By what action and by whom it

may be condoned

1

2

3

4

5

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12.3 Surcharge and charge recommendations

While recommending the amount to be surcharged or charged, the CSAD should ensure that they are proposed with judicious

care keeping following aspects in view:

a) Generally, the surcharge arise where a payment is made contrary to law or loss on account of negligence or misconduct,

that too if found not recovered before completion of audit. Therefore loss should have been clearly established in audit

duly explaining the circumstances and person or persons who could be reasonably held responsible for the loss.

b) Such amount can be surcharged on the person making or authorizing the making of illegal payment. Therefore, who is to be

surcharged is a point for consideration. Audit can only say who has made the illegal payment (Ml. Commr. / CO), if the

payment is authorized by the Council, then the members of the council who supported this illegal payment are to be

surcharged. Therefore, it is prudent that the circumstances in which payment is made, the amount paid with details are

given and name of the Officer who paid this is provisionally indicated, if audit is definite that this payment is not approved

by Municipal council. Care should be taken not to recommend for surcharge if value for the money paid is obtained in the

form of supplies or services or execution of works, as per the relevant records, as this will constitute loss. Only the excess

amount if any paid over and above the legally payable amount on account of higher rates, the difference amount can be

surcharged.

c) With regard to charge cases, amount of loss on account of deficiency in cash or stores, where responsibility can be

attributed to the person who has received/handled cash or stores could be easily made out and indicated, may be

recommended for charge. The instances of non/short-accounting of collections, non/short -remittance of collections, etc,

may be recommended for charge if the concerned officials are not in the municipality but transferred out of it.

d) Charging or Surcharging an amount on anybody involves a kind of humane and legal action and a sense of punishment

also, as such, should be approached with extreme care and precision. This process involves no doubt a semi judicial

procedure and calls for highly guarded usage of terms and explanations. Terms used should not give rise to ambiguity.

Therefore, as far as possible, simple and well meaning terms should be applied while explaining the circumstances

leading to charging or surcharging Terms like "mis- appropriation" "fraud" defalcation "Loss" "fine" "fee " etc., have to be

used only when the auditor is quite sure of the applicability of such term in the given circumstances..

e) It must be noted that the CSAD is only a recommending authority and the DMA is the authority empowered to surcharge

or charge duly following the procedure laid down in Section 296. However, CSAD has a right to know about the action

taken by the DMA on his recommendations, as a statutory auditor.

f)

All surcharge and charge recommendations may be in the format indicated below:

Table 4: Surcharge and charge recommendations

Sl.

No.

Audit

Para No.

Audit

Objection in

brief

Amount that may be

certified to be due

Name of the person or persons on whom the amount may be

surcharged or charged after due enquiry or obtaining

explanation, deemed fit, u/s 296

1

2

3

4

5

The CSAD, may at any time bring to the notice of the DMA, any information/ circumstances leading to suspect criminal misappropriation

or fraud, which in his opinion deserve special attention or immediate investigation, as per Section 295(5) of the Act. Such reports to

DMA may also arise when any serious instances of suspected misappropriation, fraud or glaring violation of rules and orders resulting

in loss are reported to the CSAD through special letters by the auditors, either during the course of audit or after completion of audit.

12.4 Surcharge and charge proceedings by DMA

a) The DMA is empowered to initiate action for surcharge or charge of the amount recommended by the CSAD u/s 295(3)

of the Act. The DMA after considering the recommendations of the CSAD, may issue notices to the concerned and obtain

their explanation. He may make such further enquiry to ascertain the full facts and determine the person or persons

responsible for the loss. He is required to disallow any item which appears to be made contrary to law and surcharge such

amount on the person making or authorizing the making of illegal payment; and charge any person responsible for the

amount of any deficiency or loss caused by the negligence or misconduct of that person, or any amount received which

ought to have been brought to account but not done so by that person, and shall in every such case certify the amount due

from such person.

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b) In every surcharge or charge case, the DMA shall state in writing the reasons for his decision to surcharge or charge the

person responsible and shall send a copy thereof to the concerned person by registered post. It is necessary that a copy of

surcharge and charge order is sent to the CSAD. In case the person to whom surcharge/charge decision is sent refuses to

take delivery of it, it shall be deemed that he has received the decision of the DMA on the day he refuses the registered post.

c) The persons against whom any amount is certified as due by the DMA u/s 296, such persons are required to remit the

amount certified into the treasury or bank in which municipal funds are kept, within one month from the date of receipt of the

decision by him or within that time prefer an appeal against it to the Court or Government, as provided u/s 298, in terms of

Section 297..Pending disposal of the appeal by the Court or Government, further recovery proceedings will be stayed, till the

decision of the appellate authority.

d) If the aggrieved person fails to pay the amount certified or has preferred an appeal to the Court or Government, on receipt

of the decision of the court or Government declaring the sum due by the person, the same shall be recoverable on an

application made to the Court by the Deputy Commissioner, as if it is an amount decreed by the Court in favour of the

Deputy Commissioner.

12.5 Decision of appellate authorities

a) Where an aggrieved person has preferred an appeal to the District Court against the surcharge or charge orders of the

DMA, the Court may, confirm the orders of the DMA or modify or remand (remit) back to the original authority, as it thinks

with cost or otherwise, in terms of Clause (a) of sub-section(1) of section 298. Instead, where an appeal is made to

Government as provided under Clause (b) of sub-section (1) of section 298, the Government may pass such orders as it

thinks fit.

b) Unless the surcharge /charge orders of the DMA is set aside by the concerned appellate authority but orders are passed

with such modification or remitted back, the matter needs to be pursued by the DMA till its final disposal. The CSAD is

required to ascertain the outcome/status of the surcharge/charge recommended by him, periodically and keep track of it.

Chapter 13

Incorporation of Result and Comments made in the Financial Statements Audit

Report

Rule 130(4) of KMABR,2006 stipulate that a copy of the audit report of the Financial Statement Auditor shall be sent to the

Assistant Controller of the jurisdictional Local Audit Circle, apart from the ULB concerned, DC and DMA by the auditor i.e. the

auditor appointed by the DMA for audit of financial statement of a specified ULB, in terms of Rule 129(2) of KMABR,2006

13.1

Incorporation of result and comments of Financial Statements Auditor in the report of the Statutory Auditor

(i)

Chapter 26 of this manual on Audit Report of the Financial Statements Auditor, stipulate details of coverage of check of

accounts prepared, what the audit report should contain, report of certain matters not incorporated in the audit report to the

management, additional matters to be reported in the audit report as required under Rule 130(4) read with Schedule IX of

KMABR,2006, etc. This gives an idea of important points that will be covered in the audit report of the FSA. The SA should

be conversant of these rules, before taking up review of the audit report of the FSA.

(ii)

The Statutory Auditor entrusted with the audit of accounts of the ULB specified by the Assistant Controller, LAC, shall after

completion of statutory audit i.e., audit of transactions, shall peruse the audit report of the FSA and ensure compliance of

the requirements specified in Rule 130 (2) and other aspects stipulated in Rule 130 of KMABR,2006.

(iii) Ensure that audited financial statements of the ULB for the year of accounts audited by FSA is enclosed to the audit report of

the SA.

(iv)

The nature of opinion expressed by the FSA in respect of :-

a) State of maintenance of books of accounts by the ULB

b) Agreement of figures reflected in the financial statements with those recorded in the books of accounts

c) True and Fair view given by the financial statements namely,

(i)

Financial position of the ULB as at the end of the last day of the financial year, as per the Balance Sheet prepared, and

(ii)

Performance of the ULB during the period ended on that day indicating surplus or deficit

(v)

The SA shall incorporate the opinion expressed by the FSA in respect of the above along with comments, if any made,

pointing out omissions and commissions in the books of accounts and financial statements of the ULB.

(vi)

In case the FSA has expressed an opinion that the financial statements reflect a true and fair view of the affairs of the

ULB in question, without any qualification, this amounts to certifying the financial statements as correct. This fact

should be mentioned in the audit report of the SA. If any discrepancies were noticed during the course of statutory audit

of accounting of the financial transactions in the books of accounts and such discrepancy or discrepancies have an

impact on the figures exhibited in the financial statements, especially affecting the surplus or deficit arrived at in the

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Income and Expenditure Account or closing balances shown in the Balance Sheet, such discrepancies should be pointed

out with details of the transactions and its impact on the audited financial statements.

(vii)

Where FSA has expressed his opinion with qualifications, SA should see as to what are the reasons given in the report

compelling him to express his opinion with qualification. He should examine the reasons given and incorporate the

same in his audit report, appropriately.

(viii)

If the FSA has expressed adverse opinion on the financial position reflected in the Balance Sheet or as to the financial

operations exhibited in the Income and Expenditure Account, the SA should see what are the major or important

deviations or omissions from the prescribed accounting practices followed by the ULB, pointed out in the FSA's report.

These should be highlighted in the audit report of the SA and suggest that the ULB take immediate steps to comply with

the generally accepted accounting practices.

(ix)

Where FSA has expressed an opinion of 'Disclaimer' which signify that FSA is not in a position to express any opinion

on the financial statements on account of non availability/non-maintenance of required accounting records/information

limiting his scope of audit etc, the SA should examine what are the reasons furnished in this behalf in the FSA's report

besides the remedial action suggested to make financial statements to reflect true and fair view of financial affairs of

the ULB and enable audit to express opinion. This type of opinion by the FSA not only discloses some basic defects

in the system of accounting followed by the ULB but also defeats the very purpose of audit. Therefore, SA should bring

it to the notice of the ULB/DC/DMA by a special letter for initiating remedial action.

(x)

Any other points observed in the FSA's report relating to accounting policies, fixed assets accounting, depreciation

procedures, opening balance sheet items, etc, found relevant to be brought to the notice of the Controlling authorities of

ULBs and Government This may be incorporated in the SA's audit report.

(xi)

Normally, any omissions and commissions in accounting of financial transactions in the books of accounts of the ULB

noticed during audit by the FSA would be got rectified before auditing and certifying it. However, if the report of the

FSA indicates that certain discrepancies in accounting noticed and pointed out during audit were not rectified and

remain as it is, the SA shall point out such discrepancies in his report for necessary action by the ULB

13.2

Incorporation of impact of Statutory Auditor's findings on the financial statements

(i) During the course of statutory audit of transactions of the ULB and tracing them to books of accounts, certain omissions and

commissions may be noticed. If such instances have gone unnoticed till the Voucher preparation stage and beyond, and

have an impact on the Receipts and Payments account or other financial transactions appearing in the Income and

Expenditure account or Balance Sheet, not commented up on by the FSA in his audit report, such cases are required to be

pointed out in the SA's audit report for necessary action by the ULBs. Few examples are given below;-

a) Grants received by the ULB not accounted

b) Accounting of net amount of State Finance Commission grants received without taking into account the deductions

made towards dues of the ULB, out of gross grant payable

c) Liability towards new delegated loan works taken up by an executing agency

d) Direct remittance of Duty on transfer of immovable properties collections to ULB's account by the Registration

Department

e) Direct remittance of Electricity charges to Escom concerned towards street lighting by the ULB and adjustment of the

same amount out of State Finance Commission grants by Government, also.

f) Fictitious postings of collections in the DCB registers

(ii) The SA should Check that any financial transaction not accounted or short accounted in the books of accounts of the ULB

and has a bearing on the financial statements are pointed out in the audit report of the FSA. Wherever such discrepancies

are not taken care of while auditing the financial statements by the FSA, these should be brought out in the audit report of the

SA under a separate caption "Adjustment entries required to be passed in the Financial Statements of the ULB" duly giving

details of transactions accounted short or not at all accounted in the books of accounts

13.3

Comments on Annual Performance Report of the Municipality

Rule 126 of the KMABR stipulate that the municipality shall prepare f an Annual Performance Report (APR) of the municipality containing:-

a)

City Management Report;

b)

Financial Auditor's Report on the Financial Statements;

c)

Audited Financial Statements;

d)

Cost and Performance Indicators; and

e)

Budget Variance Statement;

The objectives and contents of each of these reports/statements are specified in Chapter 25 of the KMAM.

This report is required to be published not later than Six Months from the end of the financial year, ie by 30th of September, as per table

given in para 25.16 of the manual.

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The Auditor shall get this report for the year of accounts audited by him and by the Financial Statements Auditor and peruse it. If the APR

for the year of accounts audited is not ready or made available, the APR of the previous year and FSA's Audit Report of that year obtained

and following aspects examined;-

•

The APR contains the reports/statements mentioned above, required to be prepared as a part of the APR.

•

Information required to be given in the CMR are furnished along with Management Discussion and

analysis for the functions/activities proposed in the financial year but not complied with or partly complied.

•

Audited financial statements are forthcoming along with the audit report of the FSA and the opinion expressed on the

state of affairs of the municipality as reflected in the financial statements. If has made any comments on the financial

statements-with qualifications or adverse, the reasons for such comments are forthcoming in his audit report and the

same are also mentioned in the APR along with the explanation of the municipal council.

•

Cost and performance indicators are furnished along with basic information about the municipality, status of

infrastructure facilities available, provided during the year under report and proposed in the next years, cost of major

services delivered with reference to benchmark levels if any, prescribed and the financial performance ratios relating to

various parameters laid down for municipalities.

•

Actual position of income and expenditure against budgeted figures are furnished in the budget variance statement

along with reasons for variations.

Based on the outcome of review of the above factors, appropriate comments on the financial position of the municipality, financial

performance, extent of service delivery in respect of basic civic amenities and infrastructure may be incorporated suitably in the Audit

Report of the Statutory Auditor.

Chapter 14

Constitution of Ad-hoc Audit Committee

14.1

Need for Ad-hoc Committee

Section 295 and 296 of the Karnataka Municipalities Act, 1964 provide sufficient scope for enforcing expeditious settlement of

audit objections of municipalities. However, inadequate man power and system to enforce the provisions of the Act has

rendered huge number of audit paras spread over the years 1965-66 to 2007-08 unsettled involving aggregate money value of

several Crores.

It is felt that, if constructive and effective administrative mechanism is not set up by Government for monitoring settlement of

audit paras of ULBs and powers vested with some authorities for condoning the irregularities, compounding the irregularities of

serious nature by collecting compounding fees or order recovery of a reasonable portion of loss sustained by the ULB from the

Officers/officials responsible for the same, the present state of affairs may likely to continue. In the circumstances mentioned

above, constitution of an Ad-hoc Committee for Monitoring and Settlement of Audit Para of ULBs is proposed with duties and

powers elaborated hereunder

14.2

Constitution of Ad-hoc Committee:

An Ad-hoc Committee comprising of Officers of the Departments Government, DMA, SAD and Deputy Commissioners of the

District concerned shall be constituted, as indicated below:-

(i)

The Secretary, UD Department, GOK,

Chairman

(ii)

The DMA

Member

(iii)

The CSAD/Additional Controller (HO)

Member

(iv)

The Deputy Commissioner of the District (concerned)

Member

(v)

An Officer nominated by the AG, Karnataka...

Member

(vi)

Joint Director (Finance), DMA

Member Secretary

14.3

Duties and Powers of the Ad-hoc Committee

The Ad-hoc Committee shall:-

(i)

Review and ensure that the ULBs and DMA initiate appropriate action on the recommendations made by the CSAD

under Section 295

(ii)

Recommend relevant cases for according sanction to the authorities competent to regularize the deviations or excesses,

pointed out in the report of the CSAD

(iii)

Recommend for condonation by Government of extraordinary cases of irregularities not normally occurring in ULBs and

not likely to happen again

(iv)

Recommend to Government for levy of appropriate amount of penalty on the MC/CO for having not taken action as per

the directions of the Committee, either in case of any specific audit paras or furnishing compliance report to any Audit

Report

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(v)

Recommend to Government for initiating action against any MC/CO who fail to take any action on the recommendation of

the Committee, even after a lapse of Six months

(vi)

Issue such instructions to the ULBs in the matter relating to expeditious settlement of audit paras

(vii) Submit to Government an annual report indicating position of unsettled paras at the beginning of the year, new paras

added, para cleared and pending paras with details of money value

14.4

Office of the Ad-hoc Committee

An exclusive office of the Ad-hoc Committee shall function in the Directorate of Municipal Administration under the direct

control of the Joint Director (Finance), supported by an Assistant Director (Disposal of Audit Paras) and other ministerial staff.

14.5

Meeting of the Ad-hoc Committee

The Committee shall meet once in every two months or at such intervals as may be decided by the Chairman

14.6

Functions of the Member Secretary

•

The JD (F), who is the Member Secretary of the Committee, shall convene meetings of the Committee in consultation

with the DMA and co-ordinate the meeting

•

Prepare an annual programme of Ad-hoc Committee meetings proposed to be held during the financial year

indicating the names of the ULBs and tentative dates and get it approved by the DMA

•

Obtain latest position of pending audit paras of the concerned ULBs from the CSAD/LAC, at least a week before the

scheduled date of meeting. This will invariably be based on the report of the CSAD sent in the format given in para 12.

•

Review the paras and classify them under recommendatory categories under (ii) to (viii) indicated in para 14.4 above,

in a statement

•

Prepare agenda for the meeting clearly indicating the audit reports of the ULBs proposed to be reviewed by the

Committee

•

Communicate meeting agenda enclosing a copy of the statement mentioned above, well in advance to the

concerned ULBs, DCs, Assistant Controllers of LACs, CSAD, AG and submit a copy to the Chairman

•

Maintain Committee's Meetings Proceedings Minutes Book and record the proceedings in it and obtain signature of

the Chairman

•

Send copies of the proceedings of the Committee meetings to the members, promptly

14.7

Obligation of the MC/CO of the ULBs to attend the Ad-hoc Committee Meetings

The MC/CO of the ULB (concerned- during whose tenure in the ULB objections have been raised and the present ) requested

to attend the Committee meetings shall attend the meeting on the scheduled date without fail, with all relevant record pertaining

to the paras included in the statement sent to them by the JD (F). They shall also furnish any information/explanation desired by

the members of the Committee.

14.8

Consideration of outstanding paras of Audit Reports of ULBs by the Committee

(1) Cases that come for consideration of the Committee shall be other than those coming under the purview of

Charge/Surcharge under Section 296 of the KM Act.

(2) Cases which can be sorted out by the ULBs at their level in consultation with the auditor and CSAD should be got settled by

addressing CSAD and not brought to Committee's consideration

(3) Where cases falling under (1) and (2) above are found in the statement prepared by the JD(F), the Committee may give a

reasonable time to the DMA/ULB to initiate appropriate action.

(4) In respect of other cases, the Committee may, having regard to the following aspects, may recommend any one or more of

the recommendations referred to in clauses (ii) to (viii) of para14.3 above;-

(i)

nature of irregularity

(ii)

financial implication involved- recurring or non-recurring

(iii)

year to which it relate

(iv)

action, if any taken by the ULB

(v)

person or persons responsible for the irregularity committed and their existence in service as on the date of meeting

(vi)

possibility of recovery of the amount involved from the person or persons presently in service and degree of his/their

responsibility

(vii) lenient view, if taken in the case, will not encourage others to commit such irregularity in future

(viii) waiver of the amount of loss will not be taken as a precedence for other cases

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(5) The recommendations of the Committee shall be processed by the DMA and action taken as follows:-

(i)

Recommendations of the Committee which require approval of Government, proposal is submitted to

Government for approval and on receipt of approval treated as 'settled'

(ii)

Where Committee has recommended for levy of penalty or for recovery of a portion of the loss, orders are issued

to the concerned ULB to effect recovery and furnish recovery particulars, marking copy to CSAD and LAC

(iii)

On receipt of recovery particulars, orders are issued for 'settlement' of the concerned objections in the light of the

recommendations of the Committee and recovery effected

(iv)

A consolidated statement showing cases wherein recovery of losses have effected to the extent recommended by

the Committee (as per clause (ii) above) may be submitted to Government for 'Ratification' of the action taken

(6) The Committee shall take serious note where in any ULB, the same nature of irregularities have been repeated after the

date of recommendations made as above, indicating gross indifference to the provisions of the Act, Rules and instructions

of the Committee by the ULB and the concerned MC/CO, and recommend for action as proposed under clause (xi) of Para

14.3 above.

(7) The Assistant Controller, LAC concerned and the CSAD shall have watch over the implementation of the recommendations

of the Committee and update their records based on the intimation/orders of the DMA

SECTION-B

FINANCIAL STATEMENTS

AUDIT

Chapter 15

General Principles governing Financial

Statements Audit

15.1

Introduction

This Section deals with audit of financial statements of municipalities by chartered accountants or firms of chartered accountants. It

seeks to provide the 'Financial Statements Auditor with ready information on the statutory and other requirements of the financial

statements audit, the accounting system, relevant forms and formats, reporting requirements etc, and serves as a handbook which will

guide the auditor in carrying out the audit effectively. It also aims in providing information to the municipalities on the objective, scope

and the methodology of the financial statements audit and on their roles and responsibility vis-à-vis the audit. It has used sources such

as the applicable laws, rules and regulations as well as relevant auditing and assurance standards which the financial statements

auditor has to apply extensively during the course of his audit.

15.2

Meaning of Financial Statements Audit

Financial Statements Audit is the examination of the financial statements of a municipality by an independent auditor. Karnataka

Municipal Accounting and Budgeting Rules, 2006 (KMABR, 2006) states that the financial statements of a municipality have to be

audited by a chartered accountant, or firm of chartered accountants. The purpose of the audit is to form an opinion on whether the

financial statements reflect the financial performance of the municipality for the year, and its financial position as at the end of the year, in

a true and fair manner. In other words, it provides answers to questions like:

•

Does the balance sheet properly reflect the assets of the municipality and its liabilities as at the date of the balance

sheet?

•

Does the Income and Expenditure Statement properly reflect the income and expenses of the municipality during the

year ?

The opinion of the auditor is expressed in the audit report. The financial statements contain approximates and estimates with regard to

many items such as depreciation, provision for doubtful debts, inventory valuation etc. Moreover, the auditor's opinion is based on the

information and records made available to him by the management. However, he is responsible to follow audit procedures that will

provide him with a reasonable assurance that the financial statements give a true and fair view of the performance and state of affairs of

the municipality and financial statements are free from material mis-statements. Though the primary responsibility of prevention and

detection of fraud is of the management, the auditor has to satisfy himself by following audit procedures, that frauds and errors that

have material impact on the financial statements have not occurred.

15.3

Scope of Financial statements audit

The scope of financial statements audit is determined by:

•

Requirements of applicable law (For example, the relevant rules of KMABR,2006).

•

Terms of engagement or appointment.

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Scope defined by KMABR,2006:

Rule 130 of MABR,2006 defines the scope of the financial statements audit. Sub rule (1) of rule 130 states that the financial statement

auditor has to 'perform his duties in such manner as he thinks fit, having regard to the character and effectiveness of internal controls

and recognized professional standards and practices. Sub rule (2) which deals with the contents of the audit report states that the

auditor has to report on whether in his opinion:

i)

proper books of account as required by the Act and Rules have been kept by the municipality;

ii)

the financial statements are in agreements with the books of account; and

iii)

the financial statements reflect a true and fair view of the performance of the municipality during the year, and its state of

affairs as at the last day of the year.

The books of accounts which municipalities have to maintain, and the manner in which they have to be maintained are prescribed in

Chapter 3 of KMABR 2006 (Rules 10 to 18), and explained in detail in Chapter 5 of KMAM. The auditor has to take due care to ensure

that books of account, vouchers and other prescribed records are maintained properly. Forming an opinion on the financial statements is

the basic function of a chartered accountant, and the audit of a municipality is no different While the Rule defines the auditor's role with

regard to the books of account and financial statements of the municipality, the auditor has to use his professional expertise and

judgment to decide the manner in which to carry out his audit. The Rule also requires him to follow recognized professional standards

and practices while carrying out the audit.

Additional matters covered by Schedule IX:

Under Sub-rule (4,) the auditor has to report on additional matters mentioned in Schedule IX of the Rules. The Schedule lists out a

number of matters on which the auditor to specifically report. The matters mainly pertain to internal control and propriety aspects- for

example item (m) of the Schedule pertains to the existence of internal control system with regard to purchase of stores, plant &

machinery and other assets. Item (b) requires the auditor to comment on whether earmarked funds are utilized for the purpose for which

they are created, which necessitates him to look into the propriety aspect of utilization of earmarked funds. In addition, Schedule IX

also covers areas such as valuation of stores, reconciliation procedures etc which have bearing on 'the true and fair' presentation in the

financial statements.

Scope defined by terms of appointment:

The terms of appointment of the financial statements auditor are decided by the appointing authority i.e. DMA. The DMA may include

additional matters to be covered by the auditor, in the appointment letter. The auditor has to carry out the additional duties with regard to

the accounts of the municipality for which he is appointed as the auditor. Examples of such additional matters may be certification of

utilization of earmarked funds and specific grants, physical verification of stores or fixed assets etc.

15.4

Manner of conducting the Financial Statements audit

a) Audit planning

Audit planning enables the auditor to carrying out the audit in an efficient and timely manner, and helps him in deciding the

areas to be checked, extent of check, time required, audit staff to be deployed etc. Audit planning involves the following

steps:

(i)

Acquiring knowledge of the applicable laws and regulations, prescribed accounting system, policies and procedures,

(ii)

Acquire knowledge of the municipality's activities and practices followed, organization structure, levels of authority

etc.

(iii)

Check the internal control procedure.

(iv)

Determine the areas and extent of check required (whether 100% or sample check, and if sample check, the sample

size).

(v)

Prepare an audit programme covering the areas to be checked, extent of check, allocation of work to the audit staff,

time within which each area has to be completed, checklist for the audit procedures etc.

b) Gathering audit evidence

The auditor forms his opinion on the financial statements based on audit evidence obtained during the process of audit. The

auditor obtains evidence by using substantive and compliance procedures.

Substantive and Compliance Procedures:

'Substantive tests' are checks carried out by the auditor to substantiate a transaction. It involves gathering evidence as to the

completeness, validity and accuracy of accounting entries and balances. Substantive tests are classified as:

i)

Tests of detailed transactions and balances. This includes verification of vouchers with bills, receipts, files, registers etc,

verification of ledger balances with subsidiary registers and confirmation of balances, physical verification etc. For example,

an auditor may physically verify cash balance, or value of inventory as on the balance sheet date. He may ask the bank to

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confirm the balance in the municipality's fixed deposit account to satisfy himself that the balances shown in the balance sheet

are correct.

ii) Analytical procedures i.e analysis of significant ratios and trends, comparison with previous year's figures etc to detect

unusual fluctuations either in the income and expenditure account, or balance sheet.

By applying substantive tests, the auditor satisfies himself that the assets and liabilities exist as at a given date, there are no

unrecorded assets, liabilities or transactions, assets or liabilities or transactions are recorded at appropriate values, revenue and

expenses are allocated to appropriate periods, transactions are described, classified and recorded in accordance with recognized

accounting policies, and standards and relevant statutory requirements, if any.

'Compliance procedures' are checks designed to obtain reasonable assurance that internal control procedures are in place, and are

being complied with. These tests help the auditor in assessing the degree of reliance he can place on the internal control procedures.

For carrying out compliance and substantive procedures, the auditor applies the following evidence gathering techniques:

•

Inquiry of staff and officers of the municipality

•

Vouching of transactions with supporting documents.

•

Physical examination of fixed assets, cash balance etc.

•

Obtaining confirmation of balances from debtors, creditors, lenders etc.

•

Checking of balances, reconciliation etc

•

Analytical procedures such as ratio analysis, comparison of current year's values with previous years or with the

budget etc. with the objective of identifying and analyzing the reason for any unusual or abnormal variation.

The degree of reliability of audit evidence depends on the source of evidence, and the means of collection. External evidences gathered

directly by the auditor (for example confirmation of balances received directly by the auditor from third parties such as lenders,

creditors, etc) are more reliable than internal evidences (for example, bills, statements, entries in registers etc in the municipality.

c)

Test check

Test check is the selection and checking of a representative number of entries of each class of transactions instead of going

through every entry. The extent of check depends on a number of factors such as volume of transactions, existence of a sound

internal control system, the existence of a sound internal audit system etc. However, the following precautions must be taken

by the auditor while carrying out test check of transactions:

•

The sample selected must be representative of the transactions throughout the year.

•

There should be an element of surprise in selection of the sample, and the client should not know the period selected

for test check.

•

The sample should include the first and the last month.

•

The remaining months for test check should be selected at random. The months selected should be different from that of

the previous year, to the extent possible.

d)

Surprise check

'Surprise check' is verification of an area selected for audit without prior intimation to the person handling it. Surprise check is

normally used for carrying out physical verification of cash, inventory, fixed assets etc. Surprise check is carried out by an

auditor to satisfy himself about the effectiveness of the internal control system. If the surprise check reveals material

discrepancies which could not be explained satisfactorily by the concerned staff, the auditor has to carry out a detailed and

thorough verification.

15.5

Audit report

The audit report should normally include the auditor's opinion on:

•

whether proper books of account prescribed by the relevant law have been maintained;

•

whether the financial statements are in agreements with the books of account;

•

whether the financial statements reflect a true and fair view of the financial position and state of

affairs of the entity;

•

whether all material facts are adequately disclosed; etc

The audit report is of four types:

a) Unqualified or clean report - This is the most frequent type of audit report. An unqualified audit report is issued by an

auditor when the auditor is satisfied that the financial statements are prepared as per Generally Accepted Accounting Principles

(GAAP) and prescribed accounting policies; comply with relevant statutory requirements as well as disclosure requirements.

b) Qualified Report - A qualified report is issued by the auditor when in his opinion, there is deviation from prescribed accounting

standards or policies in one or more items in the financial statements, or when there are one or more items which are nor

presented properly in the financial statements, but otherwise, they represent a true and fair view of the financial position and state

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of affairs of the municipality. For example, if the auditor finds that there is an under-provision for doubtful debts, but the financial

statements are otherwise properly prepared, he issues a qualified report. A qualified report is also issued when there is a

disagreement with the management of the municipality regarding certain accounting policies, practices and disclosures.

c) Adverse Report - Adverse opinion is one where the auditor is of the opinion that the financial statements do not represent the

municipality's financial position and result of operations in a true and fair manner. This type of opinion is issued only when the

financial statements contain material departure from generally accepted accounting practices (GAAP) and prescribed accounting

policies.

d) Disclaimer - A disclaimer of opinion is one, which declares that the auditor is not in a position to express an opinion on a

particular matter/area relating to financial statements. A disclaimer of opinion is appropriate in the case of inadequacy/absence

of sufficient appropriate audit evidence to facilitate him in forming an opinion on a particular matter/area on the financial

statements.

Whenever the auditor gives a qualified/adverse/disclaimer report, he should substantiate with reasons, and indicate the effect on the

financial statements to the extent possible.

Chapter 16

Relevant Statutory Provisions

16.1

Annual financial statements

Till KMABR, 2006, came into effect, municipalities were following a cash basis, single entry accounting system. The annual budget

served as the annual financial statement. KMABR,2006, which introduced fund based, double entry, accrual accounting system also

introduced a new set of financial statements to be prepared annually. Rule 125 of Karnataka Municipal Accounting and Budgeting

Rules, 2006 (KMABR,2006) deals with annual financial statements. The financial statements comprise of:

•

Receipts and Payments Account (KMF No 74)

•

Balance sheet (KMF No 77)

•

Income and Expenditure Account (KMF No 78)

The financial statements are accompanied by notes forming part of the accounts, and a statement on significant accounting policies.

Comparative figures of the previous year have to be provided except in first year.

Preparation of financial statements is the responsibility of the Commissioner or Chief Officer.

16.2

Annual Performance Report (APR)

Rule 126 of KMABR,2006 deals with annual Performance Report or Annual Performance Report. The Annual Performance Report

consists of:

•

City Management Report.

•

Auditor's Report on the financial statements.

•

Audited financial statements adopted by the Council.

•

Cost and performance indicators.

•

Budget variance report.

City Management Report: This report provides an analysis of the financial statements, and discusses the future plans. In case of any

adverse performance, it explains the reasons, and the corrective steps taken. It also gives explanations for adverse remarks, if any, in the

financial statements audit report.

Cost and performance indicators: Schedule VIII of KMABR,2006, prescribes cost and performance indicators which have to form part of

Annual Performance Report. These indicators comprise of basic city statistics, Council details, service statistics, cost of services,

financial indicators etc. Information on indicators has to be provided for the current year as well as the previous year.

Budget Variance Report: This Report gives the variance between the sanctioned budget for each budget head, and the actual receipts

and payments for the year. Reasons for variances that are more than 15% of the budget have to be explained.

16.3

Publishing the financial statements

Rule 128 requires that the abridged financial statements have to be published by the Municipality in two news papers having highest

circulation in the District. The municipality should also publish a notice in two news papers advising the publication of the annual

performance report, and also that copies of the Report are available at its office. A detailed version of the Annual Performance Report

has to be published in the municipality's website, if the website has been hosted.

16.4

Time limits for various activities connected to annual financial statements:

The time limit for preparation, audit, adoption and publishing of the financial statements of municipalities are prescribed in KMABR,2006,

and are as given in the Table below:

Table 5: Deadlines for financial statements related activities

Preparation of annual financial statements

Within two months from the year end (i.e. on or before 31st May)

Completion of financial statements audit

Within four months from the end otf the financial year (i.e. on or before 31

st July)

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Adoption of financial statements by the Council

Within five months from the end osf the financial year (i.e. on or before 31

st

August)

Publishing the annual performance report

Within six months from the end ofththe financial year (i.e. on or before

30

th September)

16.5 Audit of municipalities

a) Audit by State Accounts Department

Under Section 290 of Karnataka Municipalities Act, 1964, the accounts of municipalities have to be audited from time to

time (at least once a year) by an auditor appointed by the Government, and also by such other agency, if any, as may be

prescribed in the rules of the municipal council. The State Accounts Department audits the accounts of the municipality

every year. This audit primarily focuses on verifying the propriety of transactions of the municipality, and the manner in

which its affairs are conducted. Irregularities, if any, including non-compliance with relevant statutes etc have to be reported

by the auditor. The powers and duties, and reporting requirements are prescribed in Karnataka Municipalities (Powers and

duties of Auditors) Rules, 1965.

b) Financial statements audit

The financial statements of a municipality is relied upon by various people such as the public, the management, the

Government, lenders, credit rating agencies etc to know and understand its activities, performance and financial strength.

The audit of financial statements needs to be carried out, primarily to get an opinion on the extent of their reliability, and to

know whether they present a 'true and fair view of the performance of the municipality during a particular year, and its state

of affairs as at the end of the year. Rule 129(1) of KMABR,2006, prescribes that the financial Statements of a municipality

have to be audited by a chartered accountant holding a certificate of practice, or by a firm of chartered accountants.

16.6

Appointment of Financial Statements Auditor

The 'financial statements auditor' is appointed by the Director of Municipal Administration (DMA) in consultation with the Controller. The

appointment of auditor is by rotation on such basis as determined by the DMA in consultation with the Controller. The remuneration

for the financial statements audit is fixed by the DMA, in consultation with the Controller, and is paid by the Municipality concerned. The

appointment of 'financial statements auditor, the procedure for determining the audit fees, and the reporting requirements are governed by

Chapter 23 of KMABR,2006 (Rules 129 and 130).

16.7

Audit report

The audit report has to be prepared in the manner prescribed in KMABR,2006, and along with a certified copy of the financial

statements, it has to be submitted to the Municipal Council, with copies to the Deputy Commissioner, the Director of Municipal

Administration, and to the Assistant Controller, Local Audit Circle. The audit report is discussed in detail in Chapter -11.

16.8

Powers of the Financial Statements Auditor

As per Rule 129(3), the Financial Statements Auditor will have the same powers as the auditor appointed under Section 290 of the

Act, and will have access to all books of account and records of the Municipality. Section 291 prescribes the powers of the auditor

appointed under Section 290(1) as:

•

The auditor may, require in writing the production of such vouchers, statements, returns, correspondence, notes or

other documents in relation to the accounts as he may think fit;

•

He may ask municipal staff accountable for, or having custody of such vouchers, statements, documents etc, or

having custody of any municipal property, to appear in person before him at the municipal office and answer any

question;

•

He may ask any person having any share or interest (directly or indirectly, by himself or his partner) in any contract ,

to appear in person before him at the municipal office and answer any question;

•

In case he requires any explanation from the president or other honorary officer, or member of the municipal council, he

may invite such person in writing to meet him at the municipal office, and ask in writing, the point on which his

explanation is required;

•

In all the above cases, he may fix a reasonable period, not being less than three days within which his requisition or

invitation has to be complied with.

Chapter 17

Sources of Information

17.1

Acquiring knowledge of municipal accounting system, policies and procedures

For carrying out the audit in an efficient manner, the auditor should acquire knowledge about the municipality's activities, accounting

system, procedures etc. Studying the relevant statutes, rules, bylaws, manuals, etc will equip the Financial Statements Auditor with

sufficient information required for his audit. The different sources of information necessary for the auditor are discussed in the

paragraphs below.

17.2

The Karnataka Municipalities Act, 1964 (KM Act, 1964)

The Act is applicable to all municipalities other than corporations. It deals with the management of transaction of business by municipal

councils, functions of municipal councils, manner of conducting elections to the council, procedure for levy and assessment of taxes and

fees, regulatory powers, accounts and audit etc.

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17.3

The Karnataka Municipal Corporations Act, 1976 (KMC Act, 1976)

The Act is applicable to all city corporations. Similar to the KM Act,1964, it prescribes the manner in which municipal corporations will

carry on their transactions, manner of conducting elections to the council, powers and functions of the corporation and other

authorities, assessment procedures, accounts and audit etc.

17.4

Bye-laws

Section 324 of KM Act empowers municipal councils to make bye-laws for:

•

the regulation of markets, public places used for sale of sale of articles and slaughter houses, for regulating the sale

of fruits, flowers, vegetables, meat etc in municipal markets;

•

Prescribing conditions for grant of licenses for slaughterhouses, specified trade, registration of births and deaths,

regulation of advertisements and their display, supply and use of water. Building construction, fees to be charged for

granting permission for inspection of records, or grant of copies of documents etc

However, any such bye-law passed by the municipal council will come into effect only after it is approved by the Government

Model Bye-laws

Under Section 325 of the KM Act, the Government has the power to issue model byelaws on any of the matters specified in Section

324. A municipal council may adopt a model bye-law by passing a resolution, with or without any modifications. The modifications, if

any, have to be approved by the Government The Government may also direct a municipal council to adopt a model bye-law within a

specified period.

17.5

Karnataka Municipalities Accounting and Budgeting Rules, 2006

The Karnataka Municipalities Accounting and Budgeting Rules, 2006 (KMABR,2006) replaces the earlier Karnataka Municipalities

Accounts Rules, 1965. The Rules were first made applicable to 51 municipalities with effect from 1-4-2006, and then extended to other

municipalities in phases. From 1- 4-2009, all the municipalities are covered by KMABR,2006.

Though rule 17 of Financial Rules applicable to Corporations, prescribes that the Corporations have to make regulations to provide for the

form in which their accounts have to be maintained, the government, by Notification No.UDD16 CAR 2006 dated 03-05-2007, has

made KAMBR,2006 applicable to all Corporations, except BBMP, with retrospective effect from 01-04-2006. KMABR,2006 prescribe the

accounting policies and procedures to be followed, and the forms to be used by municipalities under the "Fund-based Double Entry

Accrual Accounting System (FBDEAAS). The rules are accompanied by the following schedules:

Table 6: List of Schedules to KMABR, 2006

Schedule I

List of municipalities to which the rules apply (The list has been extended to other municipalities in

phases by separate Government Orders.

Schedule II

Funds with codes

Schedule III

Functions with function codes (Used in budgets)

Schedule IVA to IVB

Chart of accounts

Schedule V

Sources of financing codes (presently not in use)

Schedule VI

Forms including financial statement forms

Schedule VII

Rates of depreciation

Schedule VIII

Cost and performance indicators

Schedule IX

Additional matters to be reported by the Financial Statements Auditor.

17.6

Karnataka Municipal Accounting Manual (KMAM)

Rule, 145 empowered the Government to prescribe an accounting manual for further explaining the accounting concepts and

accounting treatment of various types of transactions, for proper implementation of the Rules. Accordingly, the Government has

prescribed the Karnataka Municipal Accounting Manual (KMAM). It complements KMABR, 2006 and explains in detail, the accounting

treatment and entries for various types of transactions with illustrations.

Volume I of the Manual is divided into 26 Chapters, which deal with different types of transactions, besides dealing with financial

statements, audit report, budgeting etc. Volume II deals with Chart of accounts, and explains with illustrations, the applicability and use of

account codes.

17.7

Karnataka Municipal Forms (KMF)

Schedule VI to KMABR, 2006 prescribe various forms to be maintained by municipalities. The forms relate accounts related forms such as

books of account, vouchers, financial statements etc as well as other forms such as forms for recording daily collection, DCB Registers,

fixed asset registers, register of bills, register of public works, contractor's s bill format etc.

The study of KMABR,2006 and KMAM provides the Financial Statements Auditor with detailed information about the prescribed

municipal accounting system. The auditor can compare the existing practices followed in the municipality with the prescribed procedures

and policies, to form an opinion on the reliability of the system, and decide on the audit plan.

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17.8

Karnataka Municipal Asset Management and Valuation Methodology Manual (KMAM & VM)

The Government has issued Karnataka Municipal Asset Management and Valuation Methodology Manual (KMAM & VM) prescribing

and explaining the methodology for fixed asset classification, asset valuation methodology, depreciation rates etc. The Financial

Statements Auditor may refer to the Manual, and satisfy himself whether the prescribed procedures with regard to fixed assets are

followed.

Chapter 18

Salient Features of FBDEAAS

18.1

Fund accounting

Chapter 2 of KMABR,2006 prescribes a Fund-Based, Double Entry, Accrual Accounting system (FBDEAAS) for municipalities. The

three funds to be maintained are:

•

General Fund

•

Water Supply and Sewerage Fund

•

Enterprise Fund

Rule 4 of KMABR,2006 provides that separate books of accounts and vouchers have to be maintained for each Fund. Separate fund-

wise bank accounts also have to be maintained. However, if maintenance of separate fund-wise bank accounts is found to cause

undue hardship, bank account of one fund can be used for other funds with the approval of the Directorate of Municipal

Administration.

18.2

Double entry accounting

Till 2006, municipalities were following single entry accounting system, as prescribed in Municipal Accounting Rules, 1965.

KMABR,2006 has made it mandatory for the municipalities to follow double entry accounting system. The accounting procedures to be

followed, the accounting treatment for various transactions, and illustrative entries are given in KMAM.

18.3

Accrual accounting

Rule 3 of KMABR,2006 prescribes that municipalities have to follow accrual accounting. Rule 19 which deals with accrual of income

stipulates that all items of revenue in respect of which the municipality's right to receive is established, amount is determinable, and no

significant uncertainty exists about the realization are to be accrued. Rule 37 which deals with accrual of expenditure stipulates that

claims against work orders, supply orders and indents, bills pertaining to establishment expenses and procurement of goods and services

have to be accrued, and all other expenses have to be accounted on payment.

Chapter 3 of KMAM on Accounting Policies explains that accrual method of accounting has to be followed for accounting revenues and

expenditure, to the extent feasible. What is "feasible" with regard to accrual accounting is also explained in the relevant Chapters in detail.

18.4 Vouchers and books of account

Chapter 3 of KMABR,2006 prescribes the following books of account to be maintained by municipalities for recording their transactions:

•

Cash book (KMF No 1)

•

Bank Book (KMF No 3)

•

Journal Book (KMF No 4)

•

General Ledger (KMF No 5)

•

Sub-ledger (In the same format as Generalb Ledger) for contractors, suppliers etc

The various voucher types to be used by the municipalities are

•

Receipt Voucher (KMF No 8)

•

Payment Voucher (KMF No 9) • Contra Voucher (KMF No 10)

•

Journal Voucher (KMF No 11)

18.5

Chart of accounts

Municipalities have to follow six-digit account codes for maintaining their accounts. Schedule IVA to IVD prescribe the account codes to

be used by the municipalities. The account codes prescribed in the Schedule comprise of major codes (2 digits), minor code (1 digit) and

sub-minor code (1 digit). These four digit account codes are uniform throughout the State. Municipalities have to add 2 more digits

(detail codes) to the four digit account codes. The detail codes are created by the municipalities to further classify the accounts

according to their specific requirements.

18.6

Functions

The services or activities of municipalities are classified into 'functions'. Activities or services of similar nature are grouped together

under 'function groups'. For example - Health-General, Public Health, Hospital services, Burial and Cremations, and Vital Statistics

grouped are under the Function Group "Health'. Function codes are mainly used in budgeting. Function codes combined with account

codes form the budget codes.

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18.7

Maintenance of accounts in electronic form

During transition from single entry, cash basis system to FBDAAS, the Government has asked the municipalities to maintain their

accounts in manual system and in electronic form in parallel. The intention of the Government is to have a fall-back system till the

municipalities are able to have a completely reliable computerized accounting system. Once this happens, the manual system will be

discontinued.

Chapter 19

Audit of Fund Accounts

19.1

Three sets of books of accounts

As prescribed in of KMABR,2006 municipalities maintain separate sets of vouchers and books of account for different funds. The

financial statement formats (KMF No 74, 77 and 78) have separate columns for the three funds as well as for consolidated amounts for

the municipality as a whole. The Financial Statements Auditor has to verify the transactions in the fund books of account, and satisfy

himself that transactions have been accounted in the appropriate fund, and have been reflected in the appropriate column in the financial

statements

19.2

Identification of funds

Fund accounting is explained in detail in Chapter 4 of KMAM. It also explains how to classify a transaction under appropriate fund.

To explain briefly, all water supply related transactions such as expenditure on water supply and sewerage, collections of user

charges i.e water charges, new connection charges, sewerage charges, if any, creation of water supply and sewerage related assets,

receiving and repayment of loan etc are accounted in 'Water Supply and Sewerage Fund. However, Road-cutting charges collected for

digging a road for water supply related work is accounted in General Fund. An activity carried out by the municipality with an intention

'to generate surplus or at least recover costs' has to be accounted in Enterprise Fund. A few examples of activities in the nature of

'enterprise' are building commercial complexes for the purpose of sale or lease of shops, developing layouts and selling plots, and

earning revenue from letting out convention halls. All activities which are not classifiable either under Water Supply and Sewerage Fund

or under Enterprise Fund, are accounted under General Fund, which is the residual fund. Examples of such activities are collection of

property tax, issue of trade license, building license, construction of roads, flyovers, storm water drains etc.

19.3

Inter-Fund transactions

KMABR,2006 prescribes maintenance of separate bank accounts for different funds. It also allows use of bank account of one fund by

another fund with the approval of DMA where maintaining a separate bank account for each fund causes undue hardship on the

municipality. Whenever a bank account of one fund is used to deposit a receipt of another fund, or to make a payment pertaining to

another fund, an 'inter-fund transaction' is said to have taken place. Since separate books of accounts are maintained for the three funds,

entries have to be passed in the books of accounts of all concerned funds in case of inter-fund transactions. The Chart of Accounts

provide for inter-fund transfer accounts as follws:

a)

Inter-fund Transfer Account-General Fund

486100

b)

Inter-fund Transfer Account-Water Supply and Sewerage Fund

486200

c)

Inter-fund Transfer Account-Enterprise Fund

486300

Each fund has to maintain the inter-fund accounts relating to the other two. The net balance in all these accounts should be nil at any

point of time, and it should show nil balance in the total column of the balance sheet.

An important example of an inter-fund transaction is payment of salary of municipal staff from State Finance Commission grant received

from the Government The Grant is normally credited to the main bank account of the municipality which is maintained in 'General

Fund'. Payment of salary of staff working in Water Supply Department from this bank account results in an inter-fund transaction. The

entries to be passed to account these transactions are:

Table 7: Inter-Fund Transfer Entries

In the Books of General Fund:

Inter-fund Transfer Account-Water Supply and Sewerage Fund (Account Code 486200)

Dr

Bank Account

Cr

In the Books of Water Supply and Sewerage Fund:

Salary Payable Account

Dr

Inter-fund Transfer Account-General Fund (Account Code 486100)

Cr

19.4

Financial Statements Auditor's responsibility with regard to fund accounts

The Financial Statements Auditor has to audit the books of account of each fund, verify whether transactions are accounted under

appropriate funds and whether inter-fund transactions are accounted properly, and that the inter-fund accounts are reconciled. He

should also satisfy himself that the fund accounts are reflected properly in the financial statements, and the net balance in inter-fund

transfer accounts in the balance sheet is nil.

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Chapter 20

Audit of Income related Transactions

20.1

Accruable and non-accruable income

a) Accruable income

All incomes which are 'amenable to accrual' have to be accounted as and when the right to receive is established, and there is

no significant uncertainty about their receipt. In practice, all items of revenue in respect of which demand arises in regular

periodicity, and for which the municipality maintains DCB Registers and issues demand notices are considered to be

'amenable to accrual'. KMAM (Refer chapter 3) states that the following incomes have to be accounted on accrual basis:

•

Property tax, advertisement tax, or any other tax levied by the municipality. • Water Charges, and sewerage charges, if

any.

•

Trade License Fees

•

Rent from municipal properties (for example, shops, commercial complexes etc) which have to be collected

periodically (say monthly)

•

Ground rent on advertisement hoardings on municipal land

•

Any other income in respect of which demand is ascertainable, and can be raised in the regular course of operations

of the municipality.

KMAM specifies that accrual entry in case of existing demands have to be passed in the beginning of the year. Therefore

even though rent and water charges are due for collection on monthly basis, accrual entries are passed in the beginning of

the year for the total amounts due for the entire year. The accounts department has to pass entries for changes in demand

for all accruable items on monthly basis. In case of new demands, accrual entries have to be passed as and when the new

demands arise (i.e. in the month in which they arise). For example, in the case of new water connections, accrual entry

has to be passed in the month in which the connection is given, on the basis of amounts to be received for the remaining

portion of the year.

b) Non-accruable Income

Revenue items in respect of which the earning of money coincides with actual receipt of money are accounted on cash

basis. The municipality doesn't carry out assessment, and raise demand for these items. Examples of revenue items that

have to be accounted on cash basis are new water connection charges, building license fees, rent from guest houses,

community halls and auditoriums, birth and death certificate fees, khata extract and khata transfer fees, copy fees,

crematorium charges, betterment fees, etc.

20.2

Records relevant to demand and changes in demand

Assessment and collection of various types of revenue is the responsibility of concerned departments (for example. Revenue

department collects property tax. Trade license is collected by health department. Water charges are collected by Water Supply

Department or Revenue Department, depending on the organization structure of the municipality. The concerned departments have to

maintain the following records with regard to accrual of demand in the beginning of the year, and changes to the demand during the

course of the year:

Table 8: Different types of registers pertaining to accrual of demand

DCB Registers:

KMF No 24

for Property Tax

KMF No 25

for Rent, Water Charges etc which are collectible on monthly basis

KMF No 26

for rent, fees and other charges collectible otherwise than on monthly

basis (Advertisement tax)

KMF No 26A

for Trade License Fees

Other Registers/Statements:

Summary statement of demand raised or income

accrued (KMF No 13)

Statement prepared based on relevant DCB Register (and in the case of

property tax KMF No 13A), and sent to accounts department in the

beginning of the year for passing accrual entries,

Summary Statement of Changes in Demand or

Adjustments (KMF No 13A)

Statement prepared from KMF No 27 on monthly basis, and sent to accounts

department for passing entries

Register of Changes in Demand or Adjustments (KMF

No 27)

Register maintained by concerned department. Separate Register is to be

maintained for each type of income, with separate pages for each month.

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20.3 Accounting of accrued income and change in demand

The procedure for accounting of 'demand and change in demand is explained in the following diagram:

Figure 1 : Demand and change in demand

Based on KMF No 13 received from concerned departments at the beginning of the year , accounts department passes entries for

accrual of income. Subsequently, based on MKF No 13A received from the departments on monthly basis, entries are passed for changes

in demand and other adjustments.

20.4 Collection accounting procedure

Daily collections are of three types - Collection by bill collectors or other field staff, office collections and direct remittance by parties in

municipalities' bank accounts. Collection includes receipt of tax and non-tax revenue (property tax, water charges, rent, birth and death

registration fees, fees for khata extract or khata transfer, road cutting charges etc. It also includes grants, loans, EMDs, etc. The

procedure for accounting daily collections and the forms to be used are given in KMABR,2006 and KMAM. Figure 1 below explains the

receipt accounting procedure followed in municipalities.

Accrual of Income at the

beginning of the year

Change in Demand

during the Month

Summary Statement of

Demand mised/income

accrued (KMF No. 13)

Sumary Statement of

Change in demand or

ajustment (KMF

No. 13A)

Joumalentry for accrual

(KMF No. 13)

Journalentry for

accrual (KMF No. 13)

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20.5

Verification of income related transactions by the Financial Statements Auditor

a) Verification of entries for accrual of income and for changes in demand and other adjustments

The Financial Statements Auditor has to verify the following entries with regard to accruable income:

•

Accrual entry passed for each type of accruable income

•

New assessments during the year

•

Changes in demand on account of self-assessment declaration filed by parties, assessment by the municipality, refund

ordered by the court on application by the tax payer etc.

•

Other adjustments on account of rebate allowed to parties, penalty, interest levied, etc.

Accrual entry passed for each type of accruable income has to be checked with KMF No 13 attached to the journal voucher.

The Auditor should also verify the relevant DCB Register, and the method followed by the concerned Departments to arrive

at the amount to be accrued from the Registers. Comparison of the amount with the income shown in the previous year's

Income and Expenditure account helps him in satisfying himself about the reasonableness of the income accrued. In case of

any drastic increase/decrease, he has to look into the reasons - for example, construction of a new commercial complex at

the end of the previous year. For new demands and changes in demand and other adjustments during the year on account

of assessment by ULB, the Auditor has to verify the monthly entries passed with KMF No 13A attached to the voucher,

along with KMF No 27 and relevant DCB Register.

b) Verification of entries for daily collection of revenue

The Financial Statements Auditor has to carry out the following checks on 'test check' basis:

•

Verification of receipts, bank challans and bank statements to Collection Registers.

•

Verification of Collection Register to relevant DCB Register to check whether DCB Registers are properly updated.

•

Verification of Collection Registers to Chitta and Register of Cheques Received.

•

Verification of Chitta and Register of Cheques Received to respective Summaries of Daily Collection and Receipt

Vouchers.

•

Verification of receipt vouchers and contra vouchers with Cash Book/Bank Book.

•

Verification of ledger posting.

•

Verification of Register of Cheques Received for realization of Cheques. In case of dishonour of Cheques, Financial

Statements Auditor has to verify whether entries are properly reversed in the books of account as well as DCB

Register.

By test-checking the process of collection accounting in the above manner, the Financial Statements Auditor will be in a

position to assess the reliability of the internal control system in the ULB. Based on his findings, he can decide on the extent of

further check required.

c) Other important aspects to be verified

i)

DCB Register (KMF No 24/25/26/26A)

In the case of accruable income, the Financial Statements Auditor has to check the DCB Registers, and satisfy himself that

they are properly updated from time to time for accrual of income, changes in demand, collections etc. The entries in

KMF No 13 and 13A have to be cross checked with relevant DCB Registers. It should also be checked whether the

total of balances due at the end of the year match with the receivables as per General Ledger.

ii)

Register of Changes in Demand or Adjustments (KMF No 27)

A separate Register is maintained in KMF no 27 for each type of demand. This Register reflects every change in

demand i.e difference between amount accrued and actual demand on assessment, any new demand arisen during

the year, rebate allowed, levy of penalty interest etc. Therefore, this is an important register from the point of view of the

Financial Statements Auditor. He has to review it for all demand related transactions.

iii)

Suspense Register (KMF No 28)

Sometimes, the daily collection of the municipality may include receipts with inadequate details. This happens

especially in the case of direct remittances in bank where the payer does not fill in the challan properly, or does not file

the return with one copy of the acknowledged challan as he is expected to do. The concerned department cannot

update the details of such collections in the DCB Register for want of details. KMABR,2006 mandates that

departments responsible for assessment and collection of any accruable income maintain a "Suspense Register" in

KMF No 28 to record receipts with inadequate details. The Accounts Department has to credit such collections to a

"Receivables Suspense" Account instead of receivables account of the relevant year. The concerned department has

to gather necessary details of such collections within 15 days, and include the information in KMF No 13A of the

relevant month. It should also make a record of the information in the Suspense Register, and update the DCB

Register with details of the receipt. The accounts department has to pass a journal entry to transfer the receipt from

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Suspense Account to the relevant "Receivables" Account. The Financial Statements Auditor has to verify the

Suspense Register to ascertain that all the items which were recorded in the Suspense Register are cleared, and that

the Suspense Account shows "nil" balance.

iv)

Compulsory Assessment by Local bodies (CAL)

In case of failure to pay property tax, and file the return before 30th June, or in case an incorrect return is filed, Section

105(4) of the KM Act requires that the Municipal Commissioner or Chief Officer, or the authorized officer has to

conduct the assessment and raise a demand for property tax. This is called "Compulsory Assessment by Local

Bodies" or "CAL". In case, the Commissioner or Chief Officer finds that the property tax paid by the owner or occupier

falls short of the property tax amount due from him, he should raise a demand for the balance amount. He may also

levy penalty in addition to the tax.

The Financial Statements Auditor has to satisfy himself that all the properties have been assessed either by self-assessment

or by Compulsory Assessment by Local Authority, and that entries for accrual of income and change in assessment, if

any, have been passed properly in respect of all the properties. Similarly, in respect of other accruable income such

as water charges, trade license fees, etc, the Financial Statements Auditor has to ensure that the relevant DCB

Register and Register of Changes in Demand or Assessment (KMF No 27) have been properly updated, and accrual

entries have been properly passed.

v)

Cess collected on behalf of the Government

The municipalities collect different types of cess (Health Cess, Library Cess, Beggary Cess etc) along with property

tax. The cess so collected is remitted to the Government, retaining 10% as collection charges. KMAM prescribes that

accrual entry has to be passed for property tax, inclusive of total cess, crediting the cess component to a separate

'Cess Control' Account. On collection of property tax, the cess liability has to be recognized by debiting Cess Control

Account, and crediting various Cess Payable Accounts. 10% of the total cess collected has to be treated as

'collection charges' (income) of the municipality. The Financial Statements Auditor has to verify whether the entries

pertaining to cess are correctly passed, and whether the cesses collected are remitted to the Government regularly.

vi)

Cess Income

In the preceding paragraph, we have discussed about cess which the municipality collects on behalf of the State

Government Depending on the prevailing law, municipalities also levy and collect other cesses. In some cases, a

specified percentage of the cess collected has to be remitted to the Government (for instance slum improvement

cess collected along with building license fees). The cess amount, if any to be remitted to the Government has to be

treated as a liability, and the amount to be retained by the municipality has to be treated as income. The Chart of

Account has provided separate account codes (1821 to 1828) for cess income. The Financial Statements Auditor

has to ensure that the municipality has correctly distinguished between cess liability and cess income, and has

accounted the transactions correctly.

vii) Refunds, remissions, rebates etc.

KMAM has prescribed the accounting procedures to be followed and the entries to be passed in respect of refunds,

remissions, rebates etc. The Financial Statements Auditor has to check whether the prescribed policies and

procedures have been correctly followed.

viii) Dishonoured cheques and stale cheques

Rule 34 of KMABR,2006 explains the procedure to be followed in case of dishonoured cheques (cheques received but

not realized). As per the rule, in case of a Dishonoured cheque, the receipt issued to the party stands cancelled, and

a payment voucher has to be prepared to reverse the effect of the receipt entry. The Financial Statements Auditor

has to satisfy himself that all Dishonoured cheques have been reversed by passing appropriate entries.

Rule, 51 which deals with stale cheques (cheques issued, but un-encashed by the payees for six months) prescribes a

similar accounting treatment. The rule says that the stale cheque has to be reversed by preparing a receipt voucher.

The Financial Statements Auditor has to satisfy himself that all stale cheques have been reversed by passing

appropriate entries.

ix)

Departmental collection of revenue vs "farming out"/ "Leasing out"

In the case of items such as daily market fees, slaughter houses, bus stand fees, etc, the municipality can either

collect the revenue departmentally (i.e collection by municipal staff) or by farming out (i.e leasing out the right to

collect revenue by auction). In the case of departmental collection, ticket books are issued to municipal staff entrusted

with the responsibility of collection. KMF No 32 (Stock register of ticket books), and KMF No 33 (Register of ticket

books issued to collection staff) help in exercising strict control over issue of ticket books to municipal staff and

receipt of used ticket books. The daily collections by municipal staff are handed over to the Cashier at the end of the

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day following prescribed procedure. The Auditor has to verify whether KMF No 32 and 33 are properly maintained, and

all used and unused ticket books are properly accounted for.

In case the right to collect revenue is farmed out by the municipality, the auditor has to verify KMF No 34 (Register of

Miscellaneous sale or auction) for the terms of the contract, and verify EMD and Security Deposits received from the

contractor, and also check whether the terms and conditions with regard to payment of lease amount have been

complied with. In case the contract terms require periodical payments by the Contractor, accrual entry has to be

passed for the lease amount.

In case of sale of municipal waste or scrap, produce, compost manure etc by auction, the Auditor has to verify KMF

No 34, and also satisfy himself that the amount to be received as per the auction are actually received.

20.6

Verification of Receivable Accounts

The Chart of accounts prescribed in KMABR 2006 provides for separate receivable accounts for different types of income. It also

provides that separate accounts have to be maintained for receivables upto 3 years (5 years in the case of tax receivables) by using

detail codes. This is for control purpose, and also because provision for unrealized receivables has to be maintained at different

percentages on the basis of their age. The Financial Statements Auditor has to satisfy himself that the balances in the various

receivable accounts tally with the respective DCB Registers.

20.7

Verification of Provision on unrealized receivables

Rule, 58 of KMABR,2006 prescribes for provision for unrealized taxes to be made at the end of the year, at certain percentages of the

receivables outstanding at the end of the year. The percentages to be provided for are:

Outstanding for more than 2 years, but not exceeding 3 years

25%

Outstanding for more than 3 years, but not exceeding 4 years

50%

Outstanding for more than 4 years, but not exceeding 5 years

75%

Outstanding for more than 5 years

100%

Rules 60, 63 and 70 of KMABR,2006 which deal with provision for unrealizable water charges, trade license fees and other income

respectively prescribe that provision for unrealized receivables has to be made on balances outstanding at the end of the year, at the

following percentages:

Outstanding for more than 2 years, but not exceeding 3 years

50%

Outstanding for more than 3 years

100%

The provisions have to be made on overall balances in the receivable accounts in the General Ledger, and will not have the effect of

reduction in demand or writing off of dues. The Financial Statements Auditor has to verify whether provisions against various receivable

accounts have been made in the prescribed manner.

Chapter 21

Audit of expenditure related transactions

21.1

Charge of expenditure

According to Rule, 35 of KMABR,2006, no expenditure can be charged against the Municipal Fund', (except in the case of direct debits

by the Treasury under the orders of the Government), without first being accepted by the municipality. Rule 36(2) states that bills have to

be accrued on approval.

21.2

Claims against municipal fund

Rule, 37 states that a bill presented to the municipality should, as far as possible, be in the prescribed format. Wherever such bill is not

in the prescribed format, the concerned officer or staff has to prepare a bill in the prescribed format, and attach the Party's bill to this bill

as a supporting document. The prescribed formats for different types of claims are:

Table 9: Prescribed forms for different types of claims

Sl

No

Type of claim

Form to be used

Form No

1

Bills of the contractors

Contractor's bills

KMF No 38

2

Original/Supplemental Pay Bills

Monthly Pay Bill and Abstract

KMF No 50 and 50A

3

Suppliers' bills, Telephone bills, KEB bills or any

other bills

Detailed Bill of Other Expenditure

KMF No 59

21.3

Payments from municipal fund

According to Rule 39 all payments Rs 500 and above have to be made by cheques signed by the municipal commissioner or chief

officer or other authorized by him. Payment of less than Rs 500 can be made by cash.

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21.4

Accruable and non-accruable bills

Rule 36 states that bills pertaining to:

•

Establishment expenses, and

•

Procurement of goods and services supported by work orders/supply orders/indents

have to be accounted on accrual basis on approval of bills, by passing journal vouchers. All other expenses have to be accounted on

payment. Procurement of goods and services include contractors' bills, suppliers' bills, service providers' bills etc.

21.5

Processing of bills in municipalities

The procedure to be followed for accounting various types of bills and payment thereof is explained in Chapter 5 and Chapters 9 to 14. A

diagram explaining the procedure for accounting and payment of bills is given in Figure 2 below:

21.6

Accruable and non-accruable bills

Rule 36 states that bills pertaining to:

•

Establishment expenses, and

•

Procurement of goods and services supported by work orders/supply orders/indents,

have to be accounted on accrual basis on approval of bills, by passing journal vouchers. All other expenses have to be accounted on

payment.

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21.7

Verification of transactions related to public works

a) Capital works and repair works

Work bills are classified into capital works and repair work depending on whether the expenditure is for creation of a new

fixed asset, or for maintenance of an existing asset. For example, laying of new roads, laying of water supply or sewerage

pipelines, construction of water tanks, reservoirs, flyovers, culverts, drains etc are considered as capital works. Repair of

these municipal assets are considered as 'repair works' or 'revenue works'. It also includes outsourced operations for

garbage clearance etc. --The account codes for capital works are listed under Schedule IVD whereas the account codes for

repair works are listed in Schedule IVB. While carrying out the audit, the auditor has to check whether the expenditure

has been classified properly under appropriate head of account, using appropriate account code from the Chart of

accounts. It is not always easy to differentiate between capital and revenue expenditure. In cases such as expenditure on

renovation of an existing building, or relaying of a road, the auditor has to exercise his judgment to decide whether the work

results in maintaining the asset in good condition, or in extending the life of the asset. Expenditure on assets not belonging

to the municipality has to be treated as revenue expenditure - for example, construction of a school building where the

ownership of the building vests with the school authorities. The auditor has to verify expenditure bills in the following manner:

b) Contractors' bills

A contractor's bill has to be in KMF No 38 format, and signed by the Contractor as well as concerned officials of the

Municipality. The Financial Statements Auditor has to verify whether the bill is prepared in the prescribed format and

passed properly by the concerned officers as per the terms of the contract, and whether deductions on account of statutory

recoveries, adjustment of advance, material supplied by the municipality etc are deducted from the bill and accounted

properly. The bill has to be verified with the following supporting documents/records:

•

Contract, Work Order and notings in the relevant file.

•

Register of bills received (KMF No 21) maintained by the concerned department and Register of bills received by

Accounts department (KMF No 23).

•

Measurement Book.

•

Schedule of rates. In cases where the items are not included in the Schedule of rates, the rates should have the

approval of the next higher authority than the authority competent to sanction the estimate (Refer Rule 75 of

KMABR,2006).

•

Payment voucher to check whether the bill is paid properly.

•

Entry in Register of Public Works (KMF No 41)

•

Entry in relevant Fixed Asset Register in respect of completed capital works. The Auditor should also verify the entry

for capitalization of expenditure (i.e transfer from CWIP to relevant Fixed Asset Account).

c) EMD and security deposits of contractors

The following are the document/records which the auditor has to verify with regard to receipt/recovery of EMD/Security

Deposit and refund thereof :

(i) Receipt of EMD:

•

Copy of Receipt (KMF No 14) issued to the Contractor for cash or D.D received.

•

Collection Register of the Cashier (KMF No 16)

•

Summary of Daily Collections

•

Chitta

•

Register of Cheques Received (In the case of D.Ds)

•

Register of Deposits (KMF No 67)

(ii) Recovery of security deposits:

Security Deposits are recovered from bills of contractors at 2.5% of the bill amount. While verifying the contractor's bill,

the Financial Statements Auditor has to check whether security deposit has been deducted from the bills and properly

accounted. Entry in Register of Deposits (KMF No 67) should also be verified.

(iii) Refund of EMD/Security Deposit:

EMD is refunded to all unsuccessful bidders on the basis of duly authorized Deposit Refund/Adjustment/Lapse Advice

(KMF No 69) and KMF No 59 received from concerned department. The EMD (and security deposit) of the contractor

to whom the contract is awarded is refunded after the performance period stipulated in the contract in the same manner.

The Financial Statements Auditor has to verify the refund of deposit against the entry in the Deposit Register for the

municipality having originally received the deposit. He should also check the refund against duly authorized Deposit

Refund/Adjustment/Lapse Advice (KMF No 69) and the noting made in the Deposit Register for refund of deposit.

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d) Recovery of statutory and other recoveries:

The Financial Statements Auditor has to verify whether statutory recoveries such as income tax deducted at source, works

contract tax, royalty If any), contribution towards Contractors' Beneficiary Fund (CBF) etc are recovered from the bills, and

are remitted to the authorities in time. If any advance is paid to the contractor either in cash or in the form of issue of

material issued, the auditor has to verify whether the advance paid is recovered at the time of payment of bills.

e) Contractor's sub-ledger

According to Chapter 10 - Public Works of KMAM (Paragraph 10.41), the accounts department of a municipality has to

maintain a contractor's sub-ledger showing individual accounts of contractors. The Financial Statements Auditor has to

check whether the contractors' bills and payment thereof are posted to their account in the sub-ledger. He should also

check the Sub-ledger Schedule to see whether the creditors' balances match with the balances in the sub-ledger, and

whether the total matches with the control account balance.

f) Deposit works and delegated loan works

A Deposit Work is work executed by PWD or other executing agency on behalf of the municipality. The Municipality makes

lump sum payment to the Agency which is treated as advance. Expenditure is accounted on the basis of periodical

statement of account received from the Agency. In the case of Delegated Loan Works, the executing agency (for example,

KUWSDB) raises loan on behalf of the municipality for execution of the project. The Financial Statements Auditor will verify

the entries passed for deposit works and delegated loan works on the basis of the following records/documents:

i. Deposit works

•

The relevant contract or work order and noting on the file.

•

Monthly Statement of expenditure

•

Entries in Register of Public Works (KMF No 41)

•

Completion Certificate for completion of work.

ii. Delegated loan works

•

The relevant contract or work order and noting on the file.

•

Advice showing details of delegated loans raised (KMF No 36)

•

Monthly progress Report on the Project undertaken Delegated Loans (KMF No 37)

•

Entries in Register of Public Works (KMF No 41)

•

Register of Loans (KMF No 71)

g) Nominal Muster Rolls (NMR - KMF No 39):

Normally, municipalities do not resort to hiring on daily wages unless the work is undertaken under a labour oriented

scheme. Whenever work is done by daily labour, payment of wages to labourers is made on the basis of Nominal Muster

Roll (KMF No 39), The NMR has to be verified with Daily Labour Report (KMF No 40). Bill has to be prepared by the

concerned department in KMF No 59 (Detailed Bill of Other Expenditure). The Financial Statements Auditor has to verify all

these forms for verification of the expenditure.

21.8

Verification of Stores related transactions

a) Accounting treatment:

As per the accounting policy adopted by municipalities (Refer Chapter 3 of KMAM), material received is accounted as

"stock-in-hand" on admission of the bill till it is issued. Issue of material is valued in FIFO method, and accounted by

debiting to CWIP or repairs & maintenance depending on whether it is issued for capital work or repair work. Material

issued to a contractor is accounted as advance to the contractor.

b) Receipt of material

The material received is normally accompanied by the supplier's bill. The storekeeper has to prepare Material Receipt Note

(MRN - KMF No 54), and record the receipt of material in the Register of Stores (KMF No 53). He should also prepare a bill

in the prescribed format (KMF No 59), and attach the supplier's bill to it. The Financial Statements Auditor has to verify the

following documents/records with regard to procurement of material:

•

Contract, procurement Order and noting in the relevant file.

•

Register of bills received (KMF No 21) maintained by the concerned department/Storekeeper and Register of

bills received by Accounts department (KMF No 23).

•

Register of Stores (KMF No 53)

•

Material Received Note (KMF No 54)

•

Supplier's sub-ledger

•

Payment Voucher prepared for payment of the bill.

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c) Issue of material

Material is issued on the basis of Material Issue Notes (MINs - KMF No 55). In the case of material issued to contractors,

accounting entry is passed for each individual issue on the basis of copy of MIN sent to accounts department. In the case

of material issued to other departments, accounting entry is passed once in a month on the basis of Summary of Material

Issued to Other Departments (KMF No 56) received from the stores-in-charge, with copies of MINs attached to it. The

Financial Statements Auditor has to verify the following documents for issue of material:

•

MINs (KMF No 55)/Summary of Material issues (KMF No 56) as the case may be

•

Entry in Register of Stores

•

Valuation has to be checked to ascertain whether issues are valued at FIFO Method.

d) Stock-in-hand

Verification of stock-in-hand has to be verified by the Financial Statements Auditor in the following manner:

•

Verify the physical verification statement prepared at the end of the year with the Register of Stores (KMF No 53),

and check how material discrepancies, if any, are dealt with.

•

Physically verify stock of material on test check basis, and compare the balances as on the date of the audit with the

balance as per Register of Stores (KMF No 53), and check whether any material discrepancies are there.

•

Verify the Yearly Statement of Closing Stock (KMF No 57) with Register of Stores, and with stock-in-hand as per

General Ledger.

e) Suppliers' Sub-ledger

KMAM (Paragraph 11.24) mandates the accounts department of a municipality to maintain a suppliers' sub-ledger showing

individual accounts of the suppliers. The Financial Statements Auditor has to check whether the suppliers' bills and payment

thereof are posted to their account in the sub-ledger. He should also check the Sub-ledger Schedule to see whether the

creditors' balances match with the balances in the sub-ledger, and whether the total matches with the control account

balance.

21.9

Verification of employee related transactions

a) Monthly Pay Bills (KMF No 50) and Abstract (KMF No 50A):

Detailed pay bill are prepared in KMF No 50 and are in bound books. Abstracts are prepared in KMF No 50A, and are

attached to the journal voucher prepared for accruing the expenditure. The following subsidiary records are also available:

•

Attendance Register

•

Leave records

•

Scale Register (KMF No 49)

•

Periodical Increment Certificate (KMF No 51)

•

Register of Advances (KMF No 61)

•

Register of Interest on Loans and Advances (KKMF No 62)

The accounts department has to account pay bills by passing journal entries and crediting 'salary payable account'. On

payment, 'salary payable account' is debited. As per Rule, 98 of KMABR,2006, salary and festival advance have to be paid

to employees by crediting the bank accounts of employees maintained preferably in the bank where the municipality has its

operating account. Supplemental or arrear claims have to be paid by issuing cheques to the employees. The auditor has to

verify whether the entries for accruing salary, and for payment thereof are passed properly, and whether the salary payable

account correctly reflects outstanding salary at the end of the year.

The auditor has to verify whether pay bills are prepared and accounted properly.

b) Employees recoveries

A few instances of recoveries from the salary of employees are:

•

General Provident Fund (GPF)

•

Family Benevolent Fund

•

Insurance (KGID)

•

Insurance (LIC)

•

Recovery of festival advance/vehicle advance/house building advance

•

Recovery of bank loan installments

•

Recovery of housing advance installment and interest

•

Income Tax

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•

Professional Tax

•

Deduction for excess/unauthorized leave

The Financial Statements Auditor should check the whether the statutory and other recoveries are recovered properly, and

wherever remittances have to be made, they have been remitted.

c) Other employee related transactions

In addition to verification of employees pay and recoveries, the Financial Statements Auditor should carry out the following

checks:

•

Whether the advances as per the General Ledger are reconciled with the balances in the Register of Advances (KMF

No 61).

•

In the case of interest-bearing advances, whether accrual of interest with the Register of Interest on Loans and

Advances to Employees (KMF No 62).

•

Whether pension and leave salary contributions in respect of deputed employees have been paid/provided for, and are

accounted properly.

•

Whether contribution to the Consolidated Fund as stipulated in Section 367 of the KM Act has been made.

•

In the case of claims by employees such as TA bills, medical reimbursement etc, whether they are within prescribed

limits, and are accounted properly.

21.10 Verification of payments

Rule 37 of KMABR,2006 prescribes detailed procedure for payment of bills. In case of accruable bills, preparation of journal voucher

precedes the preparation of payment voucher. The paragraphs 21.7 to 21.9 explain the manner in which accruable bills can be verified.

For verifying payment of such bills, the auditor has to verify whether:

•

there are outstanding liabilities against the payment;

•

the payments are duly authorized; and

•

the payments are properly accounted.

Non-accruable bills are accounted directly through the payment voucher. The auditor can verify the payment of these bills from the

departmental register of bills received maintained by concerned departments (KMF No 21), as well as Register of bills received

maintained by accounts department (KMF No 23). He can also verify the supporting documents attached to the voucher, and the notings

in the relevant file.

21.11 Provision for bills outstanding at the end of the year:

Under Rule, 109 of KMABR,2006, concerned departments should prepare a "Statement of Bills Pending for Approval in KMF No 60 at

the end of the year, and send it to Accounts Department for making provision in the books of account. The Financial Statements Auditor

has to satisfy himself that provision has been made in the books of account for all outstanding expenses at the end of the year.

Chapter 22

Audit of Fixed Assets

22.1

Fixed assets are of the following types:

a) Bought out fixed assets

Bought out fixed assets are items such as plant & machinery, furniture and fittings, office equipment, vehicles etc which are

purchased by the municipality. As explained in Chapter 21, such purchases are supported by Detailed Bills of Other

Expenditure (KMF No 59) which are accompanied by suppliers' bills.

b) Fixed assets created/constructed by the municipality

These assets include buildings as well as infrastructure assets such as roads, bridges, culverts, water supply assets,

sewerage and drainage, public lighting, public parks, playgrounds etc. Normally such fixed assets are created through

construction contracts. Sometimes they are also created through departmental works or through executing agencies such as

PWD, KUSDB etc (Deposit works/Loan Works). In case of fixed assets created by contract works, deposit works or

departmental works, the accounting procedure explained in Chapter 22 for such works are followed.

c) Land

The land owned by the municipality may be vacant land, parks and gardens, land under roads, etc.

22.2

Fixed asset registers

KMABR,2006 prescribes different kinds of Fixed Asset Registers for different types of assets. They are:

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Table 10: Fixed asset registers

Register of lands

KMF No 44

Register of land under Roads

KMF No 44A

Register of Immovable Properties (Other than land)

KMF No 45

Register of Movable Properties

KMF No 46

The Fixed Asset Registers have to be maintained fund-wise, and entry has to be made in the relevant register on purchase of a fixed

asset/or on completion of construction.

22.3

Verification of existing and new fixed assets

•

Verification of bought out fixed assets has to be carried out in the manner explained in Paragraph 21.10 (Verification of

other bills).

•

Construction of fixed assets through contracts/deposit works/loan works etc has to be verified in the manner explained in

Paragraph 21.7 on verification of transactions related to public works.

Other areas to be verified are:

•

Check whether fixed assets purchased during the year are recorded in the relevant fixed asset register with complete

particulars.

•

Check whether incidental charges such as freight, insurance and transportation charges incurred to bring the asset into its

intended location, installation, commissioning expenses etc are capitalized. Check also whether interest on borrowings made

to acquire the asset upto the date of commissioning is capitalized.

•

Check the entries for capitalization of assets constructed with completion certificate and entries in fixed asset register.

•

Check the Capital Work-in-Progress account with Summary Statement of Status of Capital WIP (KMF No 42).

•

Check depreciation calculation from depreciation work sheet. Depreciation rates have to be checked with Schedule VII of

KMABR,2006. In case of assets purchased on or after Ist October, or on assets sold before that date, it has to be checked

whether depreciation is calculated at half the rates.

•

In case of revaluation of assets, check entries passed in the fixed assets accounts and revaluation reserve accounts.

Check whether depreciation on assets for which revaluation reserve is created is debited to Revaluation Reserve.

•

Check the entries and balances in the fixed asset accounts with relevant fixed asset registers.

•

Check whether the municipality has carried out physical verification of fixed assets in a proper manner, and whether

discrepancies, if any are properly dealt with. Cross-verify the list of fixed assets physically existing with fixed assets register.

•

In the case of asset sold during the year, check the entries in the books of account as well as the relevant fixed asset

register.

22.4

Verification of sale of fixed assets

Paragraph 19.12 of KMAM prescribes the procedure for accounting sale or disposal of a fixed asset by a municipality. It states that on

floating the tender for sale/disposal of the asset, the gross value and accumulated depreciation on the asset have to be transferred from

respective accounts to "Fixed Asset under Disposal account. The sale proceeds of the asset should also be credited to the same

account. The balance reflects the profit/loss on sale of asset, and should be transferred to Account Code 1841 (Profit/Loss on disposal

of Fixed Assets. The Financial Statements Auditor has to satisfy himself that the prescribed procedure is followed, and the sales proceeds

are received.

22.5 Other important aspects in verification of fixed assets

i) Capitalization of asset on completion of work:

An asset under construction is accounted as "capital work-in-progress. On completion of construction and preparation of

completion certificate, the asset is recorded in the relevant fixed asset register. In the books of account, the total capital

expenditure on the asset is transferred from capital work-in-progress to the relevant fixed asset account. This process is

known as "capitalization". As per Rule 83(3), the concerned engineer has to prepare a "summary statement of status of

CWIP" in KMF No 42 on quarterly basis, and send it to accounts department for reconciliation purpose. The auditor has to

verify the Ledger balance of various capital work-in-progress accounts to see whether the balances tally with KMF No 41

(Register of Public Works) as well as KMF No 42.

ii) Capitalization of interest during construction period:

If the fixed asset is constructed out of any loan availed by the municipality, interest on such loan up to completion of

construction has to be capitalized. Therefore, in such cases, the auditor has to verify whether interest during the construction

period has been capitalized.

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iii) Capitalization of incidental expenses:

Cost of a fixed asset includes freight, insurance, site preparation, installation etc necessary to place the asset in its intended

location and condition for use. In the case of additions to fixed assets during the year, the Auditor has to verify whether all

such incidental costs are capitalized.

iv) Assets received at free of cost or at concessional rate:

Assets received free of cost are accounted at a nominal value of Rs 1. An asset received at a concessional rate has to be

accounted at the value at which it is acquired.

v) Assets which are not owned by the municipality:

In a case where an asset is created by the municipality, but the asset does not belong to it, the value of the asset is treated

as an expense, and accounted as "grant or contribution paid by the municipality to a beneficiary". For example, where a

school building is constructed by the municipality, and handed over to the school authorities free of cost, the cost of

construction incurred is accounted as grant or contribution paid by the municipality to the school.

Chapter 23

Audit of grants, loans and earmarked funds

23.1

Grants

a) Types of grants

Grants are of two types - General Grants, and specific grants. A General grant is a grant which has no conditions attached

to its usage (Rule 2(19) of KMABR,2006). Devolution grant under State Finance Grant popularly referred as State Finance

Commission Grant is an example of General Grant. This is treated as income on receipt. A specific grant is a grant given

for a specific purpose, for example SJSRY, MPLADS, Integrated Development of Small & Medium Towns/UIDSMT

Grant, 12th Finance Grant etc. As per KMABR,2006 and KMAM, Municipalities have to maintain a separate bank account for

each specific grant, and record the details of transactions in the Grant Register (KMF No 35). The accounting treatments

for different grant-related transactions are explained in KMABR,2006 as well as KMAM.

23.2

Verification of grants

The following are the checks to be carried out with respect to grants:

•

Verify the grants received with respective sanction orders.

•

Check whether grants received are properly accounted (as income in the case of general grants, and as liabilities in

the case of specific grants.

•

Check whether deductions, if any, in respect of KEB dues, loan repayment etc made by the Government while

releasing the grant are accounted by debiting relevant liability account and crediting grant account.

•

Check whether the municipality is maintaining a separate bank account for each specific grant.

•

Check whether amount equivalent to revenue expenditure incurred out of specific grant funds is transferred to

appropriate income account.

•

Check whether amount equivalent to capital expenditure incurred out of specific grant funds is transferred to deferred

income account.

•

Check whether amount equivalent to depreciation on fixed asset acquired out of specific grant is transferred from

deferred income to income account.

•

Check whether grant received in kind is accounted at Rs 1.

•

Check whether a Grant Register is maintained in respect of each specific grant received, and expenditure from it is

recorded in prescribed manner.

•

Check whether the balance in specific grant bank account is properly reconciled with relevant bank statement and

confirmation of balance. The balance in the bank account should normally be equal to the balance in the specific

grant (liability) account, since it represents unutilized grant.

•

Check whether the unutilized balance in specific grant account in the general ledger is reconciled with the unutilized

balance as per Grant Register.

•

In the case of grants such as SJSRY where the municipality functions only as a nodal agency, check whether the

grant transactions are properly accounted in the municipality's books in the prescribed manner, and are not kept

outside the books of account as was the practice before the introduction of FBDAAS.

23.3

Borrowings

a) Powers of the municipality to borrow and its obligations

Under Section 86 of the KM Act, a municipality may borrow from the Government/a Corporation/financial institution/or in the

open market by way of loans, bonds or debentures for capital expenditure. If the terms of the loan/bonds provide for creation

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of a sinking fund/escrow account, the municipality has to provide for the same. Rule 120 of KMABR,2006 provides that a

loan received for a specific purpose has to be deposited in a separate bank account, and has to be utilized for the purpose

for which it is sanctioned.

b) Verification of loan related transactions:

The following verifications have to be carried out with respect to loan accounts:

•

Verify the entries for loan received, with loan sanction letter.

•

Verify whether the municipality is regularly paying its dues and interest as per the terms of loan sanction. Check the

provision for interest accrued and due, and interest accrued but not due. Check the entry for reversal of provision made

for interest accrued but not due in the previous year.

•

In case the sanction terms stipulate creation of a sinking fund/escrow account, check whether this is done, and if so,

check the entries for transfer to and from sinking fund/escrow account. Also check whether the sinking fund

investment and interest earned are properly accounted for. Verify the entries and balances with Register of Sinking

Funds (KMF No 72) and Register of Investments for Sinking Funds (KMF No 66).

•

Verify the entries in the loan account and interest account with entries Register of Loans (KMF No 71).

•

Ask the Municipality to get confirmation of balances from the lending institution, and verify the confirmed balance with

the balance in the loan account in the General Ledger.

23.4

Project comprising of loan component, grant component and municipal contribution

Chapter 20 of KMAM which deals with Special Transactions explains the accounting treatment in

respect of a capital work funded partly by grant, partly by a loan and the balance by municipality's own contribution. The Financial

Statements Auditor has to satisfy himself that the prescribed accounting procedure in followed with regard to such transactions.

23.5

Earmarked funds

a) Types of earmarked funds

(i)

SC/ST Development Fund - A municipality has to mandatorily transfer its specified receipts to a separate fund, and

utilize the funds for specified activities relating to the welfare of SC/ST community.

(ii)

Sinking Funds - A sinking fund for loan repayment or for asset replacement is of the nature of an earmarked fund.

(iii)

Revolving Funds - Certain schemes provide for creation of revolving funds by municipalities. For instance, under

Integrated Development of Small & Medium Towns Scheme, municipalities are required to create a revolving fund out

of non- refundable premium for shops and shop rental, for utilization in specified activities (Refer Paragraphs 17.32 to

17.35 of KMAM).

b) Verification of earmarked funds

The following verifications have to be carried out with respect to transactions in earmarked funds:

•

Whether transfers to SC/ST Development or other earmarked funds have been regularly made by the Municipality as

required, and proper entries have been passed in respect of such transfers.

•

Check whether interest received/accrued out of earmarked funds invested are credited to the Fund, and not treated as

income.

•

Whether revenue expenditure from earmarked fund has been debited to the Fund Account.

•

With respect to capital expenditure out of earmarked fund, whether equivalent amount has been transferred to

earmarked fund (utilized) account.

•

Check whether the balance in the earmarked fund bank account is properly reconciled with relevant bank statement

and confirmation of balance. The balance in the bank account should normally be equal to the balance in the

earmarked fund account, since it represents unutilized grant.

•

Check the entries and balance in the earmarked fund account with the Earmarked Funds Register (KMF No 73).

•

If any investment is made out of earmarked funds (say in the case of sinking fund), the entries for the investment and

the income earned has to be checked with the Earmarked Funds Register (KMF No 73) as well as Register of

Investments (KMF No 66).

•

Check the utilization of funds for loan repayment/asset replacement in case of a sinking fund.

•

In case of closure of a sinking fund after the purpose for which the fund is created is fulfilled, the entries for transfer

from the earmarked fund to municipal fund, and for transfer of balance in earmarked fund bank account to the

municipal fund bank account have to be checked with bank statement, and earmarked fund register.

•

In case of Ashraya Scheme, check whether the transactions are accounted properly in the books of account of the

municipality, and are not kept outside the books of account as was the practice before the FBDAAS was introduced.

Also check the accounting entries are passed in accordance with Table 2 of Chapter 17 of KMAM.

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Chapter 24

Audit of other transactions

24.1

Investments

Types of investments

Investments may be securities or bonds of the central or any state Government Investments may be short term (readily realizable or

intended to be held for not more than 6 months), or long term. Bank fixed deposits are classified under cash and bank balances, and not

under investments.

Verification of investments

•

Check the original bonds or security instruments held in safe custody by the municipality with the entries and balances

in the Register of Investments.

•

Check whether investments and income (interest/dividend) received therefrom are accounted properly in the prescribed

manner.

•

Check whether income accrued at the end of the year is accounted in the prescribed manner.

•

With respect to investment disposed off, if any, during the year, check whether profit/loss on realization of investment

is accounted properly.

•

Check whether permanent diminution in the value of long term investments is charged off to expenses. Also check

whether short term investments are carried at cost or market value whichever is less.

Check whether the balance in investment account is reconciled with the Register of Investments (KMF No 66).

Current Assets:

24.2

Fixed deposits in banks

The municipality may keep its unutilized grant funds and other funds not required immediately in fixed deposits in banks in order to earn

interest. The Financial Statements Auditor has to verify such fixed deposits with deposit certificates as well as confirmation of balance

from the bank as on 31st March. He should also check whether interest accrued and due are accounted properly, and are tallying with

the bank confirmation/certificate.

24.3

Loans and advances given by the municipality

(i) Advance to employees:

Common types of advances to employees are festival advance, vehicle advance, house building advances, etc. The auditor

has to verify different types of advances in the following manner:

•

Check the loan/advance sanction file and payment voucher to satisfy himself that the advance is sanctioned and paid

properly.

•

Check the pay bill and the entries in the 'Register of Advances (KMF No 61)' and satisfy himself that the advances are

being recovered as per the terms of sanction.

•

In the case of interest-bearing advances (say house-building advances), check the 'Register of interest on Loans

and Advances to Employees (KMF No 62)' and see whether interest is being recovered regularly at appropriate rate of

interest.

•

In the case of transferred employees, check whether the transfer of balance of advance and interest due has been

carried out properly.

•

Check the entries and balances in the relevant account in the General Ledger with those in the Register of Advances

and confirm that the balances are properly reconciled.

(ii) Permanent advance

'Permanent Advance' refers to those advances, which are in the nature of imprest granted to the heads of the department

such as engineering department for incurring urgent expenditure, involving payments of small amounts. The concerned

department has to maintain a Permanent Advance Register (KMF No 63) in respect of such advances. At the end of the

year, the accounts department has to reconcile the permanent advance balances in the General Ledger with the Register.

The Financial Statements Auditor has to verify the expenses incurred out of permanent advance. Advances to beneficiaries

under Ashraya Scheme are given by the municipality out of funds received under the Scheme in its capacity as the

implementing agency. The accounting treatment in respect of such advances is explained in Chapter 17 of KMAM. The

Financial Statements Auditor has to satisfy himself that the accounting of such advances is done in the prescribed manner.

(iii) Other Advances:

Other advances include advances such as mobilization advances to contractors, advances to beneficiaries under Schemes

such as Ashraya, SJSRY etc. Such advances have to be verified by the auditor by terms of the contract, the terms of the

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Scheme, notings in the relevant files etc. He should also check whether the advances are being recovered, and whether

the balances in the Register of Advances tally with General Ledger balances, and confirmation of balances, if any.

24.4

Securities held by the municipality

The municipality may receive securities such as NSCs from employees having custody of cash or cash equivalents. Sometimes,

contractors also may furnish securities such as NSCs or bank guarantees in lieu of EMDs or security deposits. As per KMABR,2006,

municipalities have to maintain a register of bank guarantees (KMF No 68) and a register of securities (KMF No 70) t record such bank

guarantees or securities. They have to be kept in safe custody by the accountant or other person authorized by the Commissioner for this

purpose. The bank guarantees have to be kept in force during the contract period by getting them renewed before the date of expiry.

The Auditor has to satisfy himself that all the prescribed formalities are followed with respect to securities/bank guarantees. He should

also physically verify the original securities/bank guarantees, and satisfy himself that they are endorsed in favour of the municipality, and

are in force.

Current Liabilities:

24.5

Earnest Money Deposits and security Deposits, rent deposits etc:

The auditor has to verify deposits in the following manner:

•

Verify receipt of EMDs with the tender documents, receipts issued, and daily collection records such as collection register,

chitta etc.

•

Verify security deposits from deducted from the bills with the terms of the contract, and with relevant bills.

•

Verify rent deposits with rental agreements and with receipts and other collection accounting records.

•

Verify refund of deposits with Deposit Refund/Lapse/Adjustment Advice (KMF No 69) attached to the voucher. Confirm that

deposits are refunded as per the terms of the contract. In the case flapsed deposits, check whether the deposit lapse is duly

authorized, and whether the amount lapsed is treated as income.

•

Verify all deposit related transactions with entries in Register of Deposits (KMF No 67).

•

Check the ledger balances of EMD and security Deposit accounts with the balances in the Register of Deposits.

24.6

Cess Payable Accounts:

Verify cess collected as part of verification of daily collections. Verify whether cesses collected are remitted to appropriate authorities on

regular basis. Verify whether 10% of cess collected is retained as collection charges, and treated as income.

24.7

Revenue received in advance

In the case of revenue received in advance (for example property tax received in advance) check whether the amount received is

treated as a liability, and is transferred to revenue in the year in which it is due.

24.8

Non-cash transactions

The Financial Statements Auditor may come across non-cash transactions such as reinvestment of fixed deposits or investments,

adjustment of advances or expenses from amount due, waiver of loan principal/interest by lenders, etc. He should satisfy himself that

proper such adjustments have been properly reflected in the books of account.

Chapter 25

Audit of Period-End Activities

25.1

What are period-end activities?

Chapter 20 of KMABR,2006 prescribes certain period-end activities which the municipalities have to follow on regular basis. Chapter 21

of KMAM explains in detail, how the period-end activities have to be carried out. These period-end activities are daily/monthly/year-end

procedures comprising of reconciliation of accounts, provisioning with respect to certain accounts, obtaining confirmation of balances

etc.

25.2

Auditor's responsibility with respect to period-end activities

The period-end activities are of considerable relevance to the Financial Statements Auditor as they play a vital role in ensuring that the

financial statements reflect a true and fair view. If the municipality regularly carries out the period-end activities and follows the

prescribed reconciliation procedures, the auditor can rely on the balances shown in the books of account. Confirmation of balances

from third parties (i.e. lenders, creditors, banks etc) reiterates the correctness of balances due to, or from the parties. The Auditor is also

required to comment on some of the period-end procedures carried out by the municipalities in his audit report. Therefore he has to

satisfy himself whether the municipality is following the period-end activities properly. He should also scrutinize the reconciliation

statements prepared for the balances at the year end, and check the balances with the confirmatory letters, if any, received from third

parties. The checks which the auditor has to carry out with respect to period-end and reconciliation procedures are explained in the

paragraphs below.

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25.3

Verification of opening balances

Except in the case of the first balance sheet, every year, the municipality is required to carry forward the balances of the balance sheet

of the previous year to the books of the subsequent year as opening balances. The Financial Statements Auditor has to check whether

the municipality has correctly brought forward all the balances of the previous balance sheet, and satisfy himself that there is no

"opening balance difference".

25.4

Verification of period-end balances

a) Verification of cash balance

Rule 28(3) of KMABR,2006 prescribes physical verification of cash balance with the Chitta (KMF No 17) maintained by the

cashier, and Cash Book (KMF No 1) on daily basis by the person designated by the Commissioner or Chief Officer for this

purpose. The Financial Statements Auditor would normally be appointed after the year is over, and so, he would not be in a

position to physically verify cash balance as on the last day of the year. He has to rely upon the verification carried out by

the authorized person within the municipality. However, he can carry out a surprise check once he commences the audit.

He should also satisfy himself that the Cash Book is maintained in a proper and systematic manner, and that physical cash is

checked and reconciled with the same on daily basis as prescribed.

b) Verification of bank balances

The municipality has to carry out reconciliation of all its bank accounts on monthly basis. The reconciliation procedure is

explained in Chapter 22 of KMAM. The Financial Statements Auditor has to check whether reconciliation has been carried

out regularly in respect of all its bank account. He should also check the bank reconciliation statements, and satisfy himself

that the reconciliation has been done properly, there are no stale cheques outstanding, and that the items in the

reconciliation statements are subsequently cleared. Confirmation received from the Banks for the bank accounts including

fixed deposits as at the last day of the year have to be checked by him with balances shown in the municipality's books

of account.

c) Verification of stores

Rule 106(2)(e) of KMABR,2006 requires the Stores-in-Charge to prepare a statement of closing stock (KMF No 57) from

the Register of Stores (KMF No 53), and send it to the accounts department for reconciliation with the General Ledger.

Rule 122(5) prescribes physical verification of stock at the end of the year. As per Paragraph 21.19 of KMAM, physical

verification of stores has to be carried out by a stock-taking team comprising of personnel from other departments, as well

as the store-keeper. The physical verification details are recorded in Statement of Closing Stock (KMF No 57), and

reconciled by the Stores-in-charge and the Accountant with the Stock Register and the Ledger respectively. The Financial

Statements Auditor has to check whether the physical stock is reconciled with the stock as per Register of Stores as well as

General Ledger. He should also satisfy himself that the Register of Stores is maintained properly, and that receipts and issue

of stores are properly accounted in the books of account. A surprise test check can be carried out by him during the course

of audit.

d) Verification of fixed assets

Rule 122(5) lists out physical verification of fixed assets as one of the year-end procedures to be carried out by

municipalities. Paragraph 21.21 of KMAM requires municipalities to establish a system of conducting physical verification of

fixed assets, and reconciling with the fixed asset registers (KMF No 44, 44A, 45 and 46). The Financial Statements Auditor

should verify whether the procedure followed by the municipality is proper and systematic. He should also check the physical

verification records with the fixed asset register, and test- checking a few items of fixed assets.

e) Reconciliation of other accounts with subsidiary registers:

The Financial Statements Auditor has to verify the following balances in General Ledger with relevant subsidiary registers,

and ascertain whether the balances are tallying:

Table 11 : Reconciliation required between general ledger accounts and subsidiary registers/sub-ledgers

Item

Subsidiary Registers

Balances and entries in Receivable Accounts

Relevant DCB Registers (KMF No 24, 25, 26 and 26A), Register of Changes in

Demand or Adjustments (KMF No 27), and Summary Statement of Change in

Demand or Adjustment (KMF No 13A)

Balance in Receivables - Suspense Account (Balance

should be zero at the end of the year)

Suspense Register (KMF No 28)

Balances in Creditors - Contractors Payable and

Creditors-Suppliers Payable Accounts

Schedule of Creditors - Contractors/Suppliers prepared from relevant

Sub-Ledger.

Balances in Specific Grant Accounts and grant bank

accounts

Grant Register (KMF No 35)

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Delegated Loan

Progress Report on the Project undertaken under Delegated Loan (KMF No 37)

Loan Register (KMF No 71)

Capital Work-in-Progress

Register of Public Works (KMF No 41) Statement of Status of CWIP (KMF No 42)

Sinking Fund for asset replacement

Register of Sinking Fund for Asset Replacement (KMF No 47)

Advances to employees and other persons, if any

Register of Advances (KMF No 61) Register of Interest on Loans and Advances

(KMF No 62)

Permanent Advance

Permanent Advance Register (KMF No 63)

Investments

Register of Investments (KMF No 66)

Deposits (EMD/Security Deposit/Rent Deposit etc

Register of Deposits (KMF No 67)

Securities received (such as NSCs)

Register of Securities (KMF No 68)

Loan

Loan Register (KMF No 71)

Sinking Fund for loan repayment

Register of Sinking Fund for Loan Repayment (KMF No 72)

Earmarked Fund (say SC/ST Development Fund)

Earmarked Fund Register (KMF No 73)

f) Verification of confirmation of balances

(i) Permanent Advance: As per Paragraphs 21.24 of KMAM, the accounts department has to obtain confirmation of balances

from staff or officers to whom permanent advances or miscellaneous advances are given by the municipality. The Financial

Statements Auditor has to check the confirmations received with the Permanent Advance Register (KMF No 63) as well as

the balance in the Permanent Advance account in the General Ledger.

(ii) Borrowings by the municipality: As per Paragraph 21.25 of KMAM, at the end of the year, the accounts department has to

prepare a balance confirmation statement as on the end of the year in respect of each loan and send it to the Government,

or any government owned agency from whom the municipality has taken loan. The Financial Statement Auditor has to verify

the confirmation of balance received from the Lender with the Register of Loans as well as the balance in the General Ledger.

With regard to loan from a bank, if any, the bank statement, and certificate given by the Bank confirming the loan balance

and interest due as on the date of the balance sheet.

(iii) Other Liabilities: A few other areas where obtaining third party confirmation will be very useful to the Financial Statements

Auditor in satisfying himself that the balances are correct are:

•

Cess liabilities (health cess, library cess, beggary cess etc)

•

KEB dues

•

Water charges dues

In all such cases, the auditor has to ask the municipalities to obtain confirmation of balances from appropriate authorities/parties.

Municipalities have to facilitate the audit by complying with the request of the auditor.

g) Provision for accrued expenses and doubtful debts

The Financial Statements Auditor has to ensure that the following provisions are made in the financial statements:

•

Interest accrued and due, and interest accrued but not due on loans

•

Provision with regard to bills pending for approval (on the basis of "Statement of Bills pending Approval" (KMF No 60).

•

Provision for unrealized receivables in respect of property tax (Refer Rules 58, 60, 63 and 70 of KMABR,2006, and

relevant paragraphs of KMAM) in the prescribed manner.

h) Provision for depreciation

Rule 89 prescribes that depreciation has to be provided on all assets in straight line method. The manner in which

depreciation has to be calculated and accounted is described in the same rule as well as in Chapter 19 - Fixed Assets of

KMAM. The rates of depreciation are prescribed in Schedule VII to KMABR, 2006. The Financial Statements Auditor has to

verify whether depreciation has been calculated and provided for in the prescribed manner, and are recorded in the Fixed

Assets Register.

i)

Other items to be verified by the Financial Statements Auditor

(i)

Whether the municipality has been regularly remitting the statutory recoveries to appropriate authorities.

(ii)

Whether amount equivalent to amounts utilized for revenue expenditure out of each specific grant is transferred to

'Income" (Refer Paragraph 15.15 of KMAM)

(iii) Whether amount equivalent to amounts utilized for capital expenditure out of each specific grant is transferred to

'Deferred Income" (Refer Paragraph 15.16 of KMAM)

(iv) Whether amount equivalent to depreciation on fixed assets purchased out of a specific grant is transferred to "Income"

(Refer Paragraph 15.18 of KMAM).

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(v)

Whether amount equivalent to amounts utilized out of an earmarked fund for capital expenditure is transferred to

earmarked fund utilized account (Refer Paragraph 17.12 of KMAM).

(vi) Whether previous year's provision for unapproved bills reversed.

j)

Matters to be reported upon by the Financial Statements Auditor with regard to period-end activities

Rule 130(4) of KMABR,2006 prescribes that the Financial Statements Auditor should report on certain additional matters.

These additional matters are listed out in Schedule IX of KMABR,2006. The Schedule includes a few items pertaining to

period-end activities and reconciliation. They are :

(i)

Whether these fixed assets have been physically verified at reasonable intervals; whether any material

discrepancies were noticed on such verification and if so, whether the same has been properly dealt with in the books

of account;

(ii)

Whether physical verification has been conducted by the Municipality at reasonable intervals in respect of stores;

(iii)

Whether the procedures of physical verification of stores followed by the Municipality are reasonable and adequate if

not, state the inadequacies in such procedures;

(iv) Whether any material discrepancies have been noticed on physical verification of stores as compared to stores

records, and if so, whether the same have been properly dealt with in the books of account;

(v)

Whether proper procedures are in place to identify any unserviceable or damaged stores and, if so, whether loss on

account of such unserviceable or damaged stores has been properly accounted;

(vi) Whether the valuation of stores is in accordance with the accounting policy prescribed whether the basis of valuation

of stores is same as in the preceding year. If there is any deviation in the basis of valuation, state the effect of such

deviation, if material;

(vii) Whether the Bank Reconciliation statements have been properly prepared for all the bank accounts of the Municipality;

(viii) Whether the year-end and reconciliation procedures prescribed have been carried out ;

Chapter 26

Verification of Financial Statements

26.1

Annual financial statements

The Annual Financial Statements comprise of:

•

Receipts and Payments Account (KMF No 74)

•

Balance sheet (KMF No 77)

•

Income and Expenditure Account (KMF No 78)

The above financial statements are accompanied by schedules, significant accounting policies, notes to accounts, and key financial

indicators.

Though trial balance forms the basis for preparation of financial statements, it is not possible for municipalities to reflect all the

accounts in the financial statements. So, from the trial balance (prepared at detail code level), items under the same minor codes are

grouped together to form schedules. The schedule totals are carried to the financial statements, summarizing the financial performance

and status of the municipality at minor code level.

Trial Balance

(Detail Code level)

Schedules & Grouping

Schedules (Minor &

Sub-minor Code level)

Financial

Statements

(Major Code level)

Figure 4 : Steps for Preparation of Financial Statements

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The formats prescribed for the financial statements are meant to reflect the financial position and performance of the municipalities in a

true and fair, and meaningful manner. Strict adherence to the prescribed formats will, to a large extent, ensure that the financial

performance and status of the municipality is reflected in a true and fair, and meaningful manner.

26.2

Verification of financial statements

The main purpose of the financial statements audit is to get the auditor's view as to whether the financial statements reflect a true and

fair view of the financial performance during the year under audit, and the financial position of the municipality as on the balance sheet

date. The verification of the books of account, vouchers and records of the municipality is carried out by the Auditor with the aim of

forming an opinion on the financial statements. He has to verify the financial statements with the trial balance and books of account to

satisfy himself as to whether the financial statements are in agreement with the books of account, whether they are in the prescribed

format, whether transactions are classified properly in the financial statements etc. He should also verify the following specific points:

a) Receipts and Payments account

•

Opening and closing cash and bank balances have totally with the cash book and respective bank book balances,

and also with those shown in the balance sheet.

•

Receipts under accruable income heads (say property tax collections) are accounted in the books of account by

crediting relevant receivable accounts. However, in the Receipts and Payments Account, they are shown under

relevant income heads. For example, receipt of property tax is credited to 'property tax receivable account (Account

code 4611)' of the relevant year. However, in the Receipts and Payments Account, the total collection of property tax

is shown under 'Property Tax income (Account code 111)'

•

Payment under accruable expense heads are accounted by debiting relevant liability accounts in the books of

account. However, in the Receipts and Payments Account, they are shown under relevant expenditure heads. For

example, payment to a contractor for road repair is debited to Creditors-Contractors Payable (Account Code 3812) in

the books of account, but shown under the Repairs & Maintenance - Infrastructure Assets (235) in the Receipts &

Payments Account.

•

The receipts and payments have to be shown under appropriate fund columns.

•

Inter-fund transfers under Receipts (Schedule R-18) and under Payments (Schedule R- 35) taken together, should

be nil, as receipt in one fund will be represented by a corresponding payment in another fund.

•

Transactions accounted through contra entries will not be reflected in the Receipts and Payments Account, as they

represent transfer of funds within the municipality.

b) Income & Expenditure account

•

The income and expenditure items have to be shown under appropriate fund columns.

•

Year-end provisions for depreciation, provision for doubtful receivables, and bills pending for approval, if any, have to

be made in the income & expenditure account.

•

Transactions relating to specific grants have to be reflected properly, i,e :

(a) Transfer from specific grant to income to the extent of revenue expenditure incurred out of grant;

(b) Transfer from specific grant to 'Deferred Income' to the extent of capital expenditure incurred out of grant;

(c)

Transfer from deferred income to income to extent of depreciation on assets purchased out of specific grant.

•

Prior period income and expenses have to be recognized as per prescribed accounting policies.

c) Balance Sheet

•

The assets and liabilities have to be shown under appropriate fund columns.

•

To the extent of capital expenditure incurred out of earmarked funds, equivalent amounts have to be transferred

from the fund account to 'earmarked fund utilized account' (Refer Chapter 17 of KMAM for detailed explanation).

•

Only those loans which are received against tangible securities have to be classified under "secured loans".

•

Fixed deposits in banks have to be shown under "Cash and Bank Balances (Schedule B- 15)", and not under

"Investments (Schedule B-12)".

•

Inter-fund transfers (Schedule B-16) under the Total column (Column No 5) should be nil.

•

Transfer from specific grants to deferred income and transfers from earmarked fund to earmarked fund utilized

account have to be carried out as prescribed.

d) Significant accounting policies

As per Rule 125(2), 'significant accounting policies' are an integral part of the financial statements. Paragraph 3.3 of KMAM

prescribes that wherever there is a deviation from prescribed accounting policies, the details of such deviation, along with

the effect of such deviation on the financial statements have to be disclosed. Paragraph 3.4 of KMAM prescribes

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disclosure of any change in the accounting policy during the year. The Financial Statements Auditor has to verify whether

significant accounting policies and changes, if any, in the accounting policies during the year have been disclosed as

prescribed. Significant accounting policies may be those pertaining to fund accounting, accrual of income and expenses,

method of depreciation, method of valuation of stores etc. Refer Paragraph 23.33 of KMAM for further details on significant

accounting policies.

e) Notes to accounts

Paragraph 23.34 of KMAM explains in detail, the need for notes to accounts in the context of financial statements of

municipalities. The Financial Statements Auditor has to satisfy himself that all relevant notes necessary to give a true and

fair view of the financial performance and status of the municipality have to be included in the financial statements.

f) Comparative figures of previous years

•

Previous year's figures have to be provided in the financial statements in the appropriate column.

•

Previous year's figures have to be regrouped wherever necessary.

Chapter 27

Audit Report

27.1

Completion of audit and submission of audit report

Rule 125(5) of KMABR,2006 prescribes that the FS Audit has to be completed within four months from the end of the financial year.

Since the FS Audit is presumed to end on submission of the audit report, this also the time limit for submission of the audit report. In

other words, the audit report should be submitted on or before July 31st of the subsequent year.

The audit report has to be submitted to the Municipal Council, with copies to the Deputy Commissioner, the Director of Municipal

Administration, and to the Assistant Controller, Local Audit Circle.

27.2

Points to be covered in the audit report

Rule 130 (2) which deals with the audit report prescribes that the audit report has to specify:

a) whether the auditor has obtained all the information and explanation which, to the best of his knowledge and belief, were

necessary for the purposes of his audit;

b) whether, in his opinion, proper books of account as required by the Act and Rules have been kept by the Municipality so far

as it appears from his examination of those books;

c) whether the Balance Sheet of the Municipality, Income and Expenditure Account and Receipts and Payments Account

dealt with by the report are in agreement with the books of account;

d) whether the Financial Statements give a true and fair view:

(i)

in case of the Balance Sheet, of the state of affairs of the Municipality as at the last day of the financial year; and

(ii)

In case of Income and Expenditure Account, of the surplus or deficit of the Municipality for the year ended on that

date.

27.3

Additional matters required to be reported by the auditor

Rule 130(4) prescribes that the financial statements auditor has to report on certain additional matters which are listed out in Schedule IX.

These additional matters are:

a) Whether all sums due to and received by the Municipality have been brought to account and have been appropriately

classified;

b) Whether all grants sanctioned or received by the Municipality during the year, have been accounted properly, and where

any deduction is made out of such grants towards any dues of the Municipality whether such deductions have been properly

accounted;

c) Whether any Earmarked Funds have been created as per the provision of any statute and, if so, whether such Earmarked

Funds have been utilized for the purposes for which they were created;

d) In respect of contracts that are in existence during the year, whether there are any deviations from the sanctioned plans and

the estimates without the sanction of the competent authority;

e) Whether the Municipality is maintaining proper records showing full particulars, including quantitative details and situation

of fixed assets; whether these fixed assets have been physically verified at reasonable intervals; whether any material

discrepancies were noticed on such verification and if so, whether the same has been properly dealt with in the books of

account;

f)

In case of leasehold property given by the Municipality, whether lease rentals are collected regularly by the Municipality and

that the lease agreements are renewed after their expiry;

g) Whether physical verification has been conducted by the Municipality at reasonable intervals in respect of stores;

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h) Whether the procedures of physical verification of stores followed by the Municipality are reasonable and adequate if not,

state the inadequacies in such procedures;

i)

Whether any material discrepancies have been noticed on physical verification of stores as compared to stores records, and

if so, whether the same have been properly dealt with in the books of account;

j)

Whether proper procedures are in place to identify any unserviceable or damaged stores and, if so, whether loss on

account of such unserviceable or damaged stores has been properly accounted;

k) Whether the valuation of stores is in accordance with the accounting policy prescribed. Whether the basis of valuation of

stores is same as in the preceding year. If there is any deviation in the basis of valuation, state the effect of such deviation, if

material;

l)

Whether the parties to whom loans or advances have been given by the Municipality are repaying the principal amounts as

stipulated and are also regular in payment of the interest and if not, whether reasonable steps have been taken by the

Municipality for recovery of the principal and interest;

m) Whether advances given to municipal employees and interest thereon are being regularly recovered;

n) Whether there exists an adequate internal control procedure for the purchase of stores, including components, plant and

machinery, equipment and other assets

o) Whether the Municipality is regular in depositing statutory dues including tax deducted at source, works contract tax, cess

payable to the Government etc., and if not, the nature and cause of such delay and the amount not deposited;

p) Whether the Municipality is regular in remittance of pension and leave encashment - contributions or any other amounts

which the Municipality is liable to remit towards the retirement dues of its employees, including employees on deputation;

q) Whether any personal expenses have been charged to the Municipality's accounts; if so, the details thereof;

r) Whether the Bank Reconciliation statements have been properly prepared for all the bank accounts of the Municipality;

s) Whether the year-end and reconciliation procedures prescribed have been carried out.

Among the above points, there are items covering propriety aspects (for example, items d, f, m and q), internal controls (for

example, g, h and n), and true and fair view of financial statements (for example, a,b,I and k). therefore, the auditor has to

give due consideration for each of the above points during the course of the audit, and report his findings in the audit report.

The auditor has to specifically report on the each of the above points. In case of non-compliance by the municipality of any

of the above requirements, the auditor has to report on the extent of non- compliance, and the effect on the true and fair view

of the financial statements, if material.

27.4

Communication of audit matters with the management

The Financial Statements Auditor may, during the course of the audit, come across a few issues which might be of concern to the

municipality's management. The issues may be any weaknesses in the internal control system, any lapse in prescribed procedures,

suggestions for improvement in the system, disagreement on any subject etc, but which does not form part of the FS audit report. The

auditor may communicate such matters to the management of the municipality by way of a separate report. The report may be

addressed to the municipal commissioner or chief officer, with a copy to Directorate of Municipal Administration.

27.5

Qualification in the audit report

Rule 130(3) prescribes that in case the financial statement auditor issues a qualified or adverse report, the audit report has to include the

reason for issuing such qualified or adverse report, the extent to which it effects the financial statements, as well as the explanation of

the Commissioner or Chief Officer.

Rule 127(3) states that the city management report (CMR) of the municipality should contain explanations with regard to any adverse

comments or qualifications in the audit report, and should state the corrective steps taken.

27.6

Certification of financial statements of municipalities

The Financial Statements Auditor shall, furnish an audit certificate on the Financial Statements of the municipality either unqualified

or with qualifications, along with his Audit Report, as indicated below.

1) On completion of audit of financial statements mentioned in para 26.1 above, the auditor has to come to a conclusion as

to the opinion he can express on the reasonably reliable state of the financial statements presented for audit.

Unqualified Opinion

2) The auditor may give an unqualified opinion that financial statements 'properly presents' or 'presents a 'true and fair view'

of the state of financial affairs of the institution', if the following materials in all aspects

a)

The financial statements have been prepared using acceptable accounting basis and policies which have been

consistently applied.

b)

The statements comply with statutory requirement and relevant regulations, and the view presented by the financial

statement is consistent with auditor's knowledge of the audited institution.

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c)

There is no difficulty in arriving at the conclusion that accounts are well prepared and errors if any noticed during

examination of accounts records, do not affect the figures reflected in the accounts.

d)

The audit certificate shall consist of two parts namely, Scope of Audit and Auditor's opinion

Audit certificate on the financial statement of the municipality with 'Unqualified opinion' may be given in the form of audit certificate

indicated below:-

Audit Certificate

Scope of Audit

(a) The audit of financial statements of the  Municipal Council, established under the Karnataka

Municipalities Act, 1964 is taken up by the undersigned in pursuance of the orders of the Director of Municipal Administration

No.  dated . issued in accordance with Rule 129 of the Karnataka Municipalities

Accounting & Budgeting Rules, 2006, covering the financial year .

(b) The financial statements namely, Receipt and Payments, Balance Sheet and Income & Expenditure Account for the year

.. prepared in accordance with the above mentioned rules and the Karnataka Municipal Accounting Manual have

been examined with reference to the books of accounts prescribed, keeping in view the audit standards applicable.

(c) Necessary information and explanations as are found necessary to arrive at the audit opinion are obtained in the course of

examination of accounts records of the institution.

Auditor's Opinion

" I certify that in my opinion, the financial statements mentioned above properly present the accounts of the .

Municipal Council for the year ending . and the same have been prepared as per the provisions of relevant rules and instructions in

the accounting manual." Audit report on the accounts is appended to this Audit Certificate for necessary action.

Signatory of the Financial Statements Audit

Qualified Opinion

3) The auditor may give a qualified opinion where he is uncertain or disagrees with one or more particular items in the financial

statements that are material but not fundamental to understanding of the accounts.

4) The uncertainty may be on account of inability to obtain all information and explanation or non-availability of connected

accounting records affecting his scope of examination and confirmation of material figures in the account or when the auditor is

unable to reach a objective conclusion as to the outcome of the transaction.

5) The disagreement may arise where the auditor:-

(a)

Disagrees with the inclusion or exclusion of some items in or from the accounts by the institution,

(b)

Figures in accounts not based on the appropriate accounting policies or principles,

(c)

Facts or figures in the account,

(d)

disclosure of facts or accounts in the financial statements.

(e)

Failure to comply with the legislation or regulations

Audit Certificate with qualified opinion may be given in the following form

Audit Certificate

Scope of Audit

(a) The audit of financial statements of the  Municipal Council, established under the

Karnataka Municipalities Act, 1964 is taken up by the undersigned in pursuance of the orders of the Director of Municipal

Administration No.  dated . issued in accordance with Rule 129 of

the Karnataka Municipalities Accounting & Budgeting Rules, 2006, covering the financial year .

(b) The financial statements namely, Receipt and Payments, Balance Sheet and Income & Expenditure Account for the

year .. prepared in accordance with the above mentioned rules and the Karnataka Municipal Accounting

Manual have been examined with reference to the books of accounts prescribed, keeping in view the audit standards

applicable.

(c)

Necessary information and explanations as are found necessary to arrive at the audit opinion are obtained in the course

of examination of accounts records of the institution.

Auditor's opinion

" I certify that I have examined the financial statements mentioned above and the books of accounts prescribed in the Rules and the

Accounting Manual and in my opinion, except for the points observed in paragraphs  to. , I was unable to fully examine the

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income/expenditure referred to therin, they properly present accounts of the .. Municipal Council for the year

ended " Audit report on the accounts is appended to this Audit Certificate for necessary action.

Signatory of the Financial Statements Audit

Disclaimer Opinion

6) Where the auditor is unable to arrive at an opinion on account of uncertainty or restriction on the scope of audit and any

qualification in certain aspects would be inadequate, he may give a disclaimer opinion. In such cases, the auditor has

to spell out clearly the reasons for the uncertainty.

Audit Certificate

Scope of Audit

a) The audit of financial statements of the  Municipal Council, established under the Karnataka

Municipalities Act, 1964 is taken up by the undersigned in pursuance of the orders of the Director of Municipal

Administration No.  dated . issued in accordance with Rule 129 of the Karnataka

Municipalities Accounting & Budgeting Rules, 2006, covering the financial year .

b) The financial statements namely, Receipt and Payments, Balance Sheet and Income & Expenditure Account for the year

.. prepared in accordance with the above mentioned rules and the Karnataka Municipal Accounting Manual

have been examined with reference to the books of accounts prescribed, keeping in view the audit standards applicable.

c) In view of the factors like uncertainty, restrictions in the scope of examination of records, non availability of fundamental

record, etc. it has become difficult to arrive at a specific opinion as to the financial statements properly presenting the

accounts of the institution presently presented for audit, for the year ending .. Even qualified opinion could not be

considered as adequate.

Auditor's Opinion

" In view of failure on the part of the institution in keeping proper accounting records/furnishing of information and explanations and

other material aspects furnished in paragraphs to. of my report appended, I am unable to form an opinion as to whether

the financial statements properly presents the affairs of the Municipal Council for the year ending ." Audit

report on the accounts is appended to this Audit Certificate for necessary action.

Signatory of the Financial Statements Audit

Adverse Opinion

7) Where the auditor is unable to form an opinion on the financial statements taken as a whole due to non compliance to the

provisions of the Act, Rules/Manual or disagreement which fundamentally undermines the opinion which, if qualified in certain

respects would be inadequate, an adverse opinion may be given. In such cases, the auditor is required to quantify the

financial effect on the financial statements presented for audit, as far as possible. In such cases, the certificate may be given

as below:-

Audit Certificate

Scope of Audit

a) The audit of financial statements of the  Municipal Council, established under the

Karnataka Municipalities Act, 1964 is taken up by the undersigned in pursuance of the orders of the Director of Municipal

Administration No.  dated  issued in accordance with Rule 129 of the

Karnataka Municipalities Accounting & Budgeting Rules, 2006, covering the financial year .

b) The financial statements namely, Receipt and Payments, Balance Sheet and Income & Expenditure Account for the year

.. prepared in accordance with the above mentioned rules and the Karnataka Municipal Accounting Manual

have been examined with reference to the books of accounts prescribed, keeping in view the audit standards applicable.

Auditor's Opinion

" In view of the failure to comply with the requirement of the provisions of the Act/Rules / instructions of Govt. or fundamental

disagreements mentioned in paragraphs . to . of my report, in my opinion, the financial statements of the

 Municipal Council for the year ended do not properly represent the accounts" Audit report on the

accounts is appended to this Audit Certificate for necessary action.

Signatory of the Financial Statements Audit

8) The auditor should take care in indicating the relevant paragraphs of the audit report in the audit certificates pertaining to

'Disclaimer Opinion' and 'Adverse Opinion' cases. Only materiality affecting financial transactions reflected in the financial

statements should be highlighted to support the arriving of opinions as above. Non- material errors and procedural errors

not affecting the accounts should not be highlighted the audit report. A note on such items may be given to the

management to avoid repetition in future.

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9) Depending on the circumstances and conclusions leading to forming of opinion, appropriate form of Audit Certificate should

be adopted by the auditor.

Chapter 28

Miscellaneous Topics related to FS Audit

28.1

Responsibility of preparing financial statements

The responsibility of maintaining the accounts and preparing the financial statements lies with the management. Auditor's responsibility

is restricted to expressing an opinion on the financial statements prepared by the management. However, during the course of the audit if

the Financial Statements Auditor finds that the financial statements are not prepared properly in accordance with the prescribed format,

or if he finds any wrong classification of transactions in the financial statements, he should bring the matter to the attention of the

management, and advise the municipality to revise the financial statements before completes the audit and submits his audit report. In

such a situation, his audit report should be based on the revised financial statements.

28.2

Consideration of applicable laws and regulations in audit

The responsibility for compliance of such legal requirements, and detection and prevention of non- compliance lies with the

management. However, during the course of his audit, the auditor may come across any non-compliance which may result in levy of

penalty, fines or damages, or risk of losing some asset due to litigation. It may have potential effect on true and fair view of the

financial statement, and require disclosure. Items no (o) and (p) of Schedule IX which lists out additional matters to be reported by the

financial statements auditor require him to report on:

a) whether the municipality is regularly remitting its statutory dues such as tax deducted at source, works contract tax, cess

payable to the Government etc, and

b) whether the municipality is regularly remitting pension and leave encashment contributions or others retirement dues of its

employees.

During the course of the audit, if the auditor comes cross any such non-compliance, he has to report it to the management of the

municipality and to the DMA. If he concludes that the non-compliance has material effect on the true and fair view of the financial

statement, he should consider this while framing his audit report. If the non-compliance falls within the ambit of the additional matters

listed in Schedule IX, he has to make specific comment in the audit report regarding the non-compliance.

28.3

Auditor's responsibility with regard to fraud and errors

The primary responsibility of prevention and detection of fraud and errors is that of the management, and not that of the auditor. The

auditor's duty is to follow an audit procedure designed to obtain evidence that will provide reasonable assurance that financial

statements are prepared, and give a true and fair view of the financial position and state of affairs of the entity. However, the auditor

also satisfies himself by following audit procedure, that frauds and errors which have material impact on financial statements have not

occurred. Where the auditor detects a fraud during the course of his audit, the matter should be brought to the attention of an

appropriate level of management. If he is of the view that the financial statements are materially misstated, he should suitably qualify

his audit report.

28.4

Reliance on internal control system

Before starting the audit the auditor should review the system of internal control with a view to:

•

find out weaknesses, if any, in the internal control system.

•

form an opinion that the prescribed internal control procedures are being followed by the municipal staff.

•

determine the extent of verification to be performed so as to enable him to express his opinion on the financial

statements.

A proper and effective system of internal control offers advantages such as saving of time for the auditor, reduction in cost of

conducting audit and assurance to the auditor on the reliability of the financial accounts.

The existence of a good internal control reduces to a great extent

the work of the auditor but does not reduce his responsibility.

28.5

Built-in internal control measures in FBDEAAS

The FBDEAAS has a number of built-in internal control measures prescribed through KMABR,2006 and KMAM. A few examples are:

•

No money received by a municipality can be utilized for its expenditure, without first being brought into account (Rule 21(2)).

•

As far as possible, Cashier and the Accountant have to be different persons, and the same person does not receive

collections and make payments on behalf of the municipality (Rule 22).

•

The collection accounting procedure prescribed in Chapter 5 of KMABR, 2006 requires verification and documentation at

each step from the point of receipt of money till the point the money is deposited in bank and realized.

•

Similar to collection accounting procedure, expenditure accounting prescribed in Chapter VI and VII of KMABR, 2006

prescribes verification of expenditure bills and payment at various levels.

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•

The various registers such as DCB Registers, fixed asset registers, grant register, Register of Public Works ensure that the

assets of the municipalities are properly recorded and are reconciled on a regular basis.

The auditor has to check the extent to which these built-in internal control measures are followed by the municipality he is auditing, to

assess the reliability of the accounting system, and to measure the audit risk.

28.6

Rectification entries for errors detected during audit

The responsibility for preparation of the financial statements lies with the municipalities. The audited financial statements have to be

adopted by the council. During the course of the audit, the Financial Statements Auditor may come across certain mistakes in

accounting, mis-classification etc which may affect the true and fair view of the financial statements. The auditor has to ask the municipality

to pass all rectification entries as on the last day of the financial year, and to revise the financial statements. His audit report should be

based on the revised financial statements. The municipality has to carry out all such changes suggested by the auditor. In case of any

disagreement between the municipality and the auditor, which cannot be resolved, the auditor has no other option but to give a qualified

opinion.

28.7

Using the work of Statutory Auditor

As explained in Chapter 2, the accounts of a municipality are subject to statutory audit by state accounts department as well as FS

audit by a chartered accountant. The two types of audits are complimentary to each other, as the ultimate aim of both audits are to

ensure that municipalities manage their affairs in a proper manner, collect their dues promptly, use their funds in a proper manner, and

maintain their accounts in a transparent manner.

The two types of audits differ in their focus and the manner in which they are carried out. The statutory audit is carried out with the

objective of verifying whether there are any payments contrary to law, whether any deficiency or loss has been caused by gross

negligence or misconduct of any person, whether all amounts received are brought into account, whether there are any material

irregularities or improprieties exist in accounts etc. It is in the nature of a propriety audit, and each individual transaction is verified in

detail. The FS audit is carried out with the objective of expressing an opinion on whether the financial statements are prepared in a true

and fair manner. The focus in this case is on classification and presentation. The individual transactions are verified by the auditor on a

random sample or test check basis, to satisfy himself that the accounts reflect a true and fair view of the affairs of the municipality.

When the audit of the accounts of an entity is carried out by more than one auditor with different objectives, it is an accepted practice for

one auditor to go through the audit report of the other auditor, and rely upon that to some extent. In the case of municipalities, statutory

audit (audit by state accounts department) is carried out in a very detailed manner. However, the FS Audit has to be completed within

four months of the year end, and the statutory audit is carried out subsequent to that. So, the Financial Statements Auditor may not be

in a position to rely upon the work of the statutory auditor for the same year. However, he can go through the latest available report of

the statutory auditor, and make use of the information available therein. In case, subsequent to the Financial Statements Audit, the

statutory auditor comes across any mistakes in the accounts for which rectification entry needs to be passed, it has to be attended to in

the subsequent year.

The auditor has to go through the previous year's reports of financial statement auditor and statutory auditor, and satisfy himself that all

necessary rectification entries are passed.

Appendix 1:

Topic wise Listing of KMF Forms

No

Register/Form

Department responsible

Books of account and vouchers

1

Cashbook

KMF No 1

Accounts Department

2

Bank Book

KMF No 3

--do--

3

Journal Book

KMF No 4

--do--

4

Ledger

KMF No 5

--do--

5

Receipt Voucher

KMF No 8

--do--

6

Payment Voucher

KMF No 9

--do--

7

Contra Voucher

KMF No 10

--do--

8

Journal Voucher

KMF No 11

--do--

Income accounting related forms/registers

9

Summary Statement of Demand Raised or Income Accrued

KMF No 13

Concerned Department

10

Summary Statement of Changes in Demand or Adjustments

KMF No 13A

--do--

11

Receipt

KMF No 14

--do--

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12

Register of Cheques Received

KMF No 15

Cashier

13

Collection Register (Cash and Cheque Collections)

KMF No 16

Cashier/Bill

Collector/

concerned person

14

Collection Register (Bank collections)

KMF No 16A

Concerned dept /designated

person

15

Chitta

KMF No 17

Cashier

16

Summary of Daily Cash Collection

KMF No 18

--do--

17

Summary of Daily Cheque Collection

KMF No 19

--do--

18

Summary of Daily Collection through Bank or Treasury

KMF No 20

Concerned

department

/person Concerned

19

DCB cum Form III Register (Property Tax)

KMF No 24

Revenue Department

20

Special DCB Register (For income collectible on monthly basis, say rent

KMF No 25

Concerned

Department

21

Miscellaneous DCB Register (For income other than trade license fees

collectible on monthly basis, say rent)

KMF No 26

--do--

22

DCB Register (License Fees)

KMF No 26A

--do--

23

Register of Change in Demand or Adjustments

KMF No 27

-do-

24

Suspense Register

KMF No 28

--do—

25

Stock Register of ticket books

KMF No 32

--do--

26

Register of ticket books issued to collection staff

KMF No 33

--do--

27

Register of Miscellaneous Sale or auction

KMF No 34

--do--

28

Consolidated statement of DCB (Monthly)

KMF No 76

Concerned department &

Accounts department

Expenditure accounting related forms/registers

29

Departmental Register of bills received

KMF NO 21

Concerned Department

30

Register of bills received by the Accounts Department

KMF No 23

Accounts Department

31

Advice showing the Details of Delegated Loan raised

KMF No 36

From the executing agency

(external)

32

Progress Report on the Project undertaken under Delegated Loans

KMF No 37

--do--

33

Contractor's Bill

KMF No 38

Engineering/Concerned

Department

34

Nominal Muster Roll

KMF No 39

--do--

35

Daily Labour Report

KMF No 40

--do--

36

Register of Public Works

KMF No 41

--do—

37

Royalty Register

KMF No 43

--do—

38

Detailed Bill of other expenditure

KMF NO 59

--do--

39

Statement of Bills pending approval as at the year end

KMF No 60

--do--

Fixed Assets accounting related Registers:

40

Summary Statement of status of Capital work-in- Progress

KMF No 42

Engineering/Concerned

Department

41

Register of Land

KMF No 44

Revenue Department

42

Register of Land under roads

KMF No 44A

Engineering Department

43

Register of Immovable Properties (other than land)

KMF No 45

--do--

44

Register of Movable Properties

KMF No 46

Concerned Department

45

Register of Sinking Fund for Asset Replacement

KMF No 47

Accounts department

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Establishment related forms/registers:

46

Proposition Statement for Revision of Establishment

KMF No 48

Establishment Department

47

Scale Register

KMF No 49

--do--

48

Pay cum Acquittance Roll of permanent or temporary establishment

KMF No 50

& 50A

--do--

49

Periodical Increment Certificate

KMF No 51

--do-

-

50

Detailed Statement of the Permanent/ Temporary Pensionble/Non-Pensionable

Establishment

KMF No 52

--do-

-

51

Register of Advances

KMF No 61

Accounts Department

52

Register of interest on loans and advances to employees

KMF No 62

--do--

Stores related transactions registers/forms:

53

Register of Stores

KMF No 53

Store-keeper

54

Material Receipt Note

KMF No 54

--do-

-

55

Material Issue Note

KMF No 55

--do-

-

56

Summary of material issued to other departments

KMF No 56

--do--

57

Yearly Statement of Closing Stock

KMF No 57

--do--

Other forms/registers (mainly for control purpose)

58

Voucher Number Register

KMF No 12

Account Department

59

Log book of vehicles

KMF No 58

Designated Person

60

Permanent Advance Register

KMF No 63

Accounts Department

61

Stamp Register

KMF No 64

Designated Person

62

Stationery Stock Register

KMF No 665

Designated Person

63

Register of investments

KMF No 66

Accounts Department

64

Register of deposits

KMF No 67

Accounts Department

65

Register of bank guarantees

KMF No 68

Accounts Department

66

Deposit Refund/Adjustment/Lapse advice

KMF No 69

Concerned Department

67

Register of Securities

KMF No 70

Accounts Department

68

Register of Loans

KMF No 71

Accounts Department

69

Register of sinking fund for loan repayment

KMF No 72

Accounts Department

70

Earmarked Fund register

KMF No 73

Accounts Department

71

Stock Book of Forms, receipt books and cheque books

KMF No 87

Designated Person

Financial statement and budget formats:

72

Classified Register of Receipts and Payments

KMF No 6

Accounts Department

73

Receipts and Payments Account

KMF No 74

Accounts Department

74

Trial Balance

KMF No 75

Accounts Department

75

Balance sheet

KMF No 77

Accounts Department

76

Income & Expenditure Account

KMF No 78

Accounts Department

77

Budget

KMF No 79

to 86

Accounts Department

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P.R. 1100

SC-100

PÀ£ÁðlPÀ gÁdå¥Á®gÀ DeÁÕ£ÀĸÁgÀ ªÀÄvÀÄÛ CªÀgÀ ºÉ¸Àj£À°è,

J£ï. ®PÀëöät

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DyðPÀ E¯ÁSÉ (DqÀ½vÀ & ªÀÄÄAUÀqÀ)

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(PÀ£ÁðlPÀ gÀ¸ÉÛ C©üªÀÈ¢Þ ¤UÀªÀÄ ¤AiÀÄ«ÄvÀ)

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2

3

4

5

6

7

8

9

UÀÆæ¥ï - J (»jAiÀÄ ªÉÃvÀ£À ±ÉæÃtÂ)

1

¤zÉÃð±ÀPÀgÀÄ

(48,900-63,600)

01

100%

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UÀÆæ¥ï J »jAiÀÄ ªÉÃvÀ£À ±ÉæÃtÂAiÀiÁVgÀĪÀÅzÀjAzÀ

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2

¨ÁAiÀÄègÀÄUÀ¼À dAn ¤zÉÃð±ÀPÀgÀÄ

(40,050-56,550)

01

100%

-

-

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3

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(40,050-56,550)

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100%

-

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-

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4

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(40,050-56,550)

01

100%

-

-

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1844

PÀ£ÁðlPÀ gÁdå¥ÀvÀæ, UÀÄgÀĪÁgÀ, ªÉÄà 5, 2016 ¨sÁUÀ 3

1

2

3

4

5

6

7

8

9

5

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(30,400-51,300)

01

-

-

-

-

-

¤AiÉÆÃd£É ºÀÄzÉÝ DVgÀĪÀÅzÀjAzÀ «ÄøÀ¯Áw

C£Àé¬Ä¸ÀĪÀÅ¢®è.

UÀÆæ¥ï - J (QjAiÀÄ ªÉÃvÀ£À ±ÉæÃtÂ)

6

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(28,100-50,100)

01

100%

-

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KPÀ ªÀÈAzÀªÁVgÀĪÀÅzÀjAzÀ «ÄøÀ¯Áw

C£Àé¬Ä¸ÀĪÀÅ¢®è.

UÀÆæ¥ï-©

7

¥ÀvÁæAQvÀ ªÀåªÀ¸ÁÜ¥ÀPÀgÀÄ

(21,600-40,050)

04

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-

01

-

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8

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(21,600-40,050)

01

-

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C£Àé¬Ä¸ÀĪÀÅ¢®è.

UÀÆæ¥ï-¹

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(20,000-36,300)

05

100%

-

01

-

01

10

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(20,000-36,300)

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KPÀ ªÀÈAzÀªÁVgÀĪÀÅzÀjAzÀ «ÄøÀ¯Áw

C£Àé¬Ä¸ÀĪÀÅ¢®è.

11

¥ÀæxÀªÀÄ zÀeÉð ¸ÀºÁAiÀÄPÀgÀÄ

(14,550-26,700)

16

50%

50%

01

01

02

12

²ÃWÀæ°¦UÁgÀgÀÄ

(14,550-26,700)

03

60%

40%

-

01

01

¨sÁUÀ 3

PÀ£ÁðlPÀ gÁdå¥ÀvÀæ, UÀÄgÀĪÁgÀ, ªÉÄà 5, 2016

1845

1

2

3

4

5

6

7

8

9

13

»jAiÀÄ ¨ÉgÀ¼ÀZÀÄÑUÁgÀgÀÄ

(14,550-26,700)

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100%

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¥ÀjUÀt¹gÀĪÀÅ¢®è.

14

»jAiÀÄ ªÁºÀ£À ZÁ®PÀgÀÄ

(14,550-26,700)

01

100%

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C£Àé¬Ä¸ÀĪÀÅ¢®è.

15

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(11,600-21,000)

10

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-

01

01

16

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(11,600-21,000)

04

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-

01

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17

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18

¥ÀÆå£ïì,/ PÁªÀ®ÄUÁgÀ/¸ÉÊPÀ¯ï

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(9,600-14,550)

08

-

100%

-

01

01

MlÄÖ

64

-

-

04

05

09

¢: 17-06-2014gÀ ºÁUÀÆ ¢: 4-12-2014gÀ C¢ü¸ÀÆZÀ£ÉUÀ½UÉ C£ÀĸÁgÀ ºÉÊzÀgÁ¨Ázï- PÀ£ÁðlPÀ ¥ÀæzÉñÀzÀ°è «ÄøÀ¯Áw PÉÆÃj ¸ÀܽÃAiÀÄ ªÀåQÛUÀ¼ÉAzÀÄ WÉÆÃ¶¹PÉÆArgÀĪÀ ºÁUÀÆ E¯ÁSÉAiÀÄÄ «ÄøÀ¯ÁwUÉ

¥ÀjUÀt¹gÀĪÀ C¢üPÁj/¹§âA¢UÀ½UÉ «ÄøÀ¯ÁwAiÀÄ£ÀÄß PÀ°à¸À¯ÁUÀĪÀÅzÀÄ.

P.R.260

SC. 25

n.f. ªÀÄAdÄ£Áxï

¤zÉÃð±ÀPÀgÀÄ

ªÀÄvÀÄÛ ªÀÈAzÀ ¤AiÀÄAvÀæt ¥Áæ¢üPÁgÀ

PÁSÁð£ÉUÀ¼ÀÄ, ¨ÁAiÀÄègÀÄUÀ¼ÀÄ, PÉÊUÁjPÁ ¸ÀÄgÀPÀëvÉ ªÀÄvÀÄÛ ¸Áé¸ÀÜöå E¯ÁSÉ.

1846

PÀ£ÁðlPÀ gÁdå¥ÀvÀæ, UÀÄgÀĪÁgÀ, ªÉÄà 5, 2016

¨sÁUÀ 3

Government of India

Ministry of Labour

Labour Bureau

NO. 112/1 (KTK) /2016 CPI, DATED: 2nd MARCH 2016.

CONSUMER PRICE INDEX NUMBERS FOR INDUSTRIAL WORKERS (BASE: 2001=100)

MONTH : JANUARY, 2016.

Group/Sub-Group/Centre

BELAGAVI

BENGALURU

HUBBALLI -

DHARWAD

MERCARA

MYSURU

FOOD :

(a) Cereals & Products

259

268

294

275

258

(b) Pulses & Products

459

462

519

442

448

(c) Oils & Fats

250

302

218

272

240

(d) Meat, Fish & Eggs

389

247

374

336

350

(e) Milk & Products

316

280

252

268

287

(f) Condiments & Spices

278

257

325

322

345

(g) Vegetables & Fruits

427

378

354

350

356

(h) Other Food

303

307

281

264

290

FOOD GROUP

314

319

309

309

306

Pan, Supari, Tobacco & Intoxicants

295

309

319

250

336

Fuel & Light

216

190

212

353

209

Housing Index

277

246

387

102

302

Clothing, Bedding & Footwear

176

164

182

214

168

MISCELLANEOUS

(a) Medical Care

224

271

222

240

209

(b) Education, Recreation and Amusement

174

196

194

368

162

(c) Transport and Communication

299

338

311

300

258

(d) Personal Care & Effects

242

268

250

256

247

(e) Others

237

226

241

212

304

Miscellaneous Group

235

268

244

279

227

GENERAL INDEX

277

276

292

278

273

KAMLA GULERIA

ECONOMIC OFFICER.

dAn ¤zÉÃð±ÀPÀgÀÄ,

DyðPÀ ªÀÄvÀÄÛ ¸ÁATåPÀ ¤zÉÃð±À£Á®AiÀÄ,

PÀ£ÁðlPÀ ¸ÀPÁðgÀ, ¨ÉAUÀ¼ÀÆgÀÄ.

¨sÁUÀ 3

PÀ£ÁðlPÀ gÁdå¥ÀvÀæ, UÀÄgÀĪÁgÀ, ªÉÄà 5, 2016

1847

GOVERNMENT OF KARNATAKA

DIRECTORATE OF ECONOMICS AND STATISTICS

BENGALURU-1

Consumer Price Index Numbers for Industrial Workers

No:

Month: Year: January 2016

State:Karnataka

Base: 1987-88=100

Date: 11-03-2016

Group/Sub Group

BALLARI

BHADRAVATHI

DAVANAGERE

DANDELI

KALABURAGI

HARIHARA

HASSAN

MANDYA

MANGALURU

RAICHUR

TUMAKURU

1

2

3

4

5

6

7

8

9

10

11

12

FOOD

Cereals and Cereals Products

996

1005

1085

821

999

959

1019

1094

810

1062

1005

Pulses and Pulses Products

1288

1367

1388

1434

1309

1349

1353

1216

1245

1440

1357

Oils and Fats

459

405

482

414

418

473

393

499

462

420

429

Meat, Fish and Eggs

1063

1129

1174

1071

1232

1087

1006

1088

1013

1213

1089

Milk and Milk Products

841

786

877

897

776

880

804

868

762

851

816

Condiments and Spices

711

915

1146

1006

728

760

942

1002

747

907

939

Vegetables and Fruits

862

998

1174

964

774

987

1016

1005

849

799

1289

Other food

610

989

874

932

735

628

770

707

864

682

740

FOOD GROUP INDEX

885

965

1035

914

890

882

924

993

855

955

951

Pan Supari, Tabacco and

Intoxicants

948

1080

1030

1004

782

1015

803

956

644

978

1144

Fuel and Light

685

628

768

837

762

804

711

766

600

1023

554

Housing

100

100

100

100

100

100

100

100

100

100

100

Clothing, Bedding and Footwear

367

575

498

521

404

483

671

749

380

730

269

MISCELLANEOUS

Medical Care

876

975

756

599

454

453

926

743

490

701

379

Education, Recreation and

Amusement

1087

857

1375

563

1130

1349

960

749

1217

1651

1448

Transport and Communication

844

821

769

917

725

786

818

1113

920

703

751

Personal Care and Effects

456

578

670

641

763

560

561

557

565

623

580

Others

700

573

769

937

514

543

571

750

430

709

499

MISCELLANEOUS Group

Index

742

722

847

714

734

732

733

722

699

823

689

GENERAL INDEX

719

761

824

763

699

717

768

816

698

822

657

To convert to Base 1960 Multiply

by Linking Factor

7.39

9.19

8.27

-

8.26

8.56

9.26

7.92

9.31

-

-

PR No. 261

SC-05

dAn ¤zÉÃð±ÀPÀgÀÄ,

DyðPÀ ªÀÄvÀÄÛ ¸ÁATåPÀ ¤zÉÃð±À£Á®AiÀÄ,

PÀ£ÁðlPÀ ¸ÀPÁðgÀ, ¨ÉAUÀ¼ÀÆgÀÄ.

1848

PÀ£ÁðlPÀ gÁdå¥ÀvÀæ, UÀÄgÀĪÁgÀ, ªÉÄà 5, 2016

¨sÁUÀ 3

OFFICE OF THE PRL. CIVIL JUDGE & JMFC, GAURIBIDANUR, 561208

No. M.T.No.190/2016, dtd: 15.03.2016

It is hereby notified to the General pubic that the following unclaimed 12 vehicles are in the custody of Gauribidanur TPS

which are seized under the C.Mis 1/2015 and PF No. 94/11, 99/11, 133/2015.

Sl.

No

PF

No

C.R & C

Mis No.

Vehicle Number

Type of Vehicle

Engine Number

Chassis No

1

133/15

01/15

AP-05-AB-

0006

TVS FIERO

M1106F083047

M1106F083047

2

133/15

01/15

AP-02-N-2366

Hero Honda

Passion Plus

06B08M36020

06B09C45280

3

133/15

01/15

KA-40-E-8207

Suzuki

Samurai

9908M437128

9908F387632

4

133/15

01/15

KA-06-S-7718

MAX-100

N6301M502022

1301F446155

5

133/15

01/15

-

TVS Heavy

Duty

OD1BC1838370

MD621BD16C2

BO1780

6

133/15

01/15

MH-12-BU-

7422

Hero Honda

Passion Plus

03C21M15595

03C21C03250

7

133/15

01/15

KA-03-Q-7975

Samurai

7510M600719

7510F557141

8

133/15

01/15

KA-06-X-5380

Discover

DXEBNE26722

MD2DSDXZZN

AE26120

9

133/15

01/15

-

TVS Victor

GX

OF1B51359210

MD625AF7752

B87020

10

133/15

01/15

-

Suzuki

F479232406

MB8NE4BCD88

153250

11

94/11

270/11

KA-09-2515

Yamaha

-

-

12

99/11

295/11

CAP-9408

IND Suzuki

-

-

P.R.263

SANDEEP PATIL

PRL. CIVIL JUDGE & JMFC,

Gauribidanur-

¸ÁjUÉ ¸ÀaªÁ®AiÀÄ

C¢ü¸ÀÆZÀ£É

¸ÀASÉå.¸ÁjE 02 ¸ÁE¤ 2016, ¨ÉAUÀ¼ÀÆgÀÄ, ¢£ÁAPÀ: 05-03-2016.

PÀ£ÁðlPÀ ªÉÆÃmÁgÀÄ ªÁºÀ£À vÉjUÉ C¢ü¤AiÀĪÀÄ, 1957 (PÀ£ÁðlPÀ C¢ü¤AiÀĪÀÄ 35/1957) PÀ®A 16(1) gÀ CrAiÀÄ°è ¥ÀæzÀvÀÛªÁzÀ

C¢üPÁgÀªÀ£ÀÄß ZÀ¯Á¬Ä¹ ªÀiÁvÁ CªÀÄÈvÁ£ÀAzÀªÀÄ¬Ä ªÀÄoÀ, ¨ÉAUÀ¼ÀÆgÀÄ, EªÀjUÉ ¸ÁªÀðd¤PÀ »vÁ¸ÀQÛ ªÀÄvÀÄÛ ¸ÉêÁ ZÀlĪÀnPÉUÀ¼À

»£É߯ÉAiÀÄ°è ¢: 12-03-2016 jAzÀ 15-03-2016 gÀªÀgÉUÉ ¨ÉAUÀ¼ÀÆgÀÄ, ¢: 16-03-2016 gÀAzÀÄ ¨ÉAUÀ¼ÀÆj¤AzÀ ¨ÁUÉÃ¥À°è ªÀÄÆ®PÀ

ºÉÊzÀgÁ¨ÁzïUÉ ºÉÆÃUÀ®Ä ºÁUÀÆ ¢: 20-03-2016 gÀAzÀÄ ºÉÊzÁæ¨Ázï¤AzÀ PÀ£ÁðlPÀzÀ ºÀĪÀiÁߨÁzï vÀ¤SÁ oÁuÉAiÀÄ ªÀÄÆ®PÀ

ªÀĺÁgÁµÀÖçzÀ ¥ÀÄuÉUÉ ºÉÆÃUÀ®Ä F ¸ÀA¸ÉÜAiÀÄÄ ºÉÆA¢gÀĪÀ PɼÀPÀAqÀ ªÁºÀ£ÀUÀ½UÉ MlÄÖ `. 1,22,988/-UÀ¼À ªÉÆÃmÁgÀÄ ªÁºÀ£À ¥ÀæªÉñÀ

vÉjUÉ ¥ÁªÀw¬ÄAzÀ «£Á¬Äw ¤ÃqÀ¯ÁVzÉ.

PÀæ.¸ÀA

ªÁºÀ£ÀUÀ¼À ¸ÀASÉå

ªÁºÀ£À ªÀUÀð

D¸À£À ¸ÁªÀÄxÀåð

1

KL-07-AV-1260

¯Éà ¯ÁåAqï §¸ï

36 SEATS

2

KL-07-BP-6608

¯Éà ¯ÁåAqï §¸ï

52 SEATS

3

KL-07-BP-7811

¯Éà ¯ÁåAqï §¸ï

52 SEATS

4

KL-07-BP-7842

¯Éà ¯ÁåAqï §¸ï

52 SEATS

5

KL-07-BP-9673

¯Éà ¯ÁåAqï §¸ï

52 SEATS

6

KL-07-BY-7819

¯Éà ¯ÁåAqï §¸ï

51 SEATS

7

KL-07-BY-7842

¯Éà ¯ÁåAqï §¸ï

51 SEATS

8

KL-07-BY-7944

¯Éà ¯ÁåAqï §¸ï

51 SEATS

9

KL-07-CE-8215

¯Éà ¯ÁåAqï §¸ï

52 SEATS

10

KL-07-CE-9801

¯Éà ¯ÁåAqï §¸ï

52 SEATS

11

KL-07-CF-1375

¯Éà ¯ÁåAqï §¸ï

52 SEATS

¨sÁUÀ 3

PÀ£ÁðlPÀ gÁdå¥ÀvÀæ, UÀÄgÀĪÁgÀ, ªÉÄà 5, 2016

1849

¸ÀzÀj ¸ÀA¸ÉÜAiÀÄ £ÉÆÃAzÁ¬ÄvÀ ªÁºÀ£ÀUÀ¼À vÉjUÉ «£Á¬ÄwAiÀÄÄ F PɼÀPÀAqÀ µÀgÀvÀÄÛUÀ½UÉ M¼À¥ÀnÖgÀÄvÀÛzÉ.

1.

ªÁºÀ£ÀzÀ ªÀiÁ°ÃPÀvÀé §zÀ¯ÁªÀuÉAiÀiÁzÀ°è vÉjUÉ «£Á¬ÄwAiÀÄÄ gÀzÀÄÝUÉÆ¼ÀÄîvÀÛzÉ.

2.

AiÀiÁªÀ GzÉÝñÀPÁÌV vÉjUÉ «£Á¬Äw ¤ÃqÀ¯ÁVzÉAiÉÆÃ D GzÉÝñÀ §zÀ¯ÁzÀ°è vÉjUÉ «£Á¬ÄwAiÀÄÄ gÀzÀÄÝUÉÆ¼ÀÄîvÀÛzÉ.

P.R.264

SC. 50

PÀ£ÁðlPÀ gÁdå¥Á®gÀ DzÉñÁ£ÀĸÁgÀ ªÀÄvÀÄÛ CªÀgÀ ºÉ¸Àj£À°è

PÉ. ©ÃgÉñï,

¸ÀPÁðgÀzÀ C¢üãÀ PÁAiÀÄðzÀ²ð,

¸ÁjUÉ E¯ÁSÉ.

ªÀÄÄRå EAf¤AiÀÄgïgÀªÀgÀ PÀbÉÃj, ¥ÀAZÁAiÀÄvï gÁeï EAf¤AiÀÄjAUï E¯ÁSÉ,

UÁæ«ÄÃuÁ©üªÀÈ¢Þ ¨sÀªÀ£À, D£ÀAzÀgÁªï ªÀÈvÀÛ, ¨ÉAUÀ¼ÀÆgÀÄ.

«µÀAiÀÄ :

²æÃ zÉÆqÀØgÀAUÀAiÀÄå, ¥ÀægÀÆ¥ÀPÀgÀÄ, ¥ÀA.gÁ.EA. G¥À «¨sÁUÀ, »jAiÀÄÆgÀÄ EªÀgÀ£ÀÄß ¸ÉêɬÄAzÀ

ªÀeÁUÉÆ½¸ÀĪÀ §UÉÎ.

NzÀ¯ÁVzÉ :

1.

¸ÀPÁðgÀzÀ ¥ÀvÀæ ¸ÀA: UÁæ C¥À: 467-f¥ÀC: 2015, ¢£ÁAPÀ: 31-10-2015.

2.

¸ÀPÁðgÀzÀ ¸ÀÄvÉÆÛÃ¯É ¸ÀA:¹D¸ÀÄE: 9¸ÉÃE«: 95, ¢£ÁAPÀ: 26-06-1996.

¥Àæ¸ÁÛªÀ£É:-

ªÉÄÃ¯É NzÀ¯ÁzÀ (1)gÀ ¸ÀPÁðgÀzÀ ¥ÀvÀæzÀ°è C¥ÀgÀ ¥ÉÆ°Ã¸ï ªÀĺÁ ¤zÉÃð±ÀPÀgÀÄ, PÀ£ÁðlPÀ ¯ÉÆÃPÁAiÀÄÄPÀÛ, gÀªÀgÀÄ PÉÆÃjgÀĪÀAvÉ

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R.N.I. No. KARBIL/2001/47147 POSTAL REGN. No. RNP/KA/BGS/2202/2014-16

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