Organisation and coordination of internal audit work. - Income Tax - 485/CBDT

INSTRUCTION NO. 485/CBDT December 13, 1972 Reference is invited to the Board's letter in F.No.66/83/72-Ad.VII dated 6-12-1972 sanctioning additional posts for the Department's audit organisation, and instruction No.484 F.246/76/72-A PAC dated 12th December, 1972, outlining procedures to be followed for dealing with Revenue Audit objections received from C AG's Revenue Wing. The functioning of Internal Audit Organisation of the Department , particularly of the Internal Audit Parties, has also been the subject of criticism by the Public Accounts Committee in their meetings held this year and earlier years and it needs streamlining and improving. It has been noticed that many of the important assessments figuring in the Report of the C. A.G. had either not been checked by the Internal Audit Parties. This reflects badly on the Department and subjects it to avoidable criticism in the Audit Report presented by the C. A.G. to the Parliament and in the subsequent discussions in the meetings of the Public Accounts Committee. It is essential, therefore, that the Internal audit organisation of the Department functions effectively and adequately so that by the vigilant watch it exercises, firstly it has a deterrent and reforming effect in the direction of prevention of mistakes and, secondly, it plays a corrective role by checking up on the mistake and having these remedied without loss of time. This dual role, if properly discharged, can go a long way in improving the Department's performance and image, saving it avoidable comments from the C AG and the PAC and safeguarding the interests of both the revenue and the assessees. Attention is invited in this connection to the Chairman's circular D.O. letter No.8/ML/Ch.DT/72 dated 14.11.72 to the Commissioners. In the above context, the following measures are outlined for revamping the internal audit set-up and procedures, these superseding, to the extent necessary, the earlier instructions on the subject. 2. Administrative steps (a) The D.I. (I.T) with the assistance hereafter of a D.D.I. exclusively for audit work vide Board's above-noted letter No. F. 66/83/72-Ad.VII dated 6th December, 1972 will secure more effective organisation and coordination of internal audit work. (b) As the Additional Commissioners are now under the administrative control of Charge Commissioners it will be the responsibility of the Charge Commissioners, even where the audit work is actually looked after by the Additional Commissioners, to ensure proper set up and functioning of the internal audit wing and that the desired objectives are achieved; for this he should staff the organisation with suitable hand-picked personnel. Internal audit work was the charge Commissioner's overall responsibility and must be treated by him as meriting high priority attention and care. (c) Under the charge Commissioners/Additional Commissioners, the I.A.C. (Audit) have audit (Revenue and Internal) as their exclusive responsibility. The number of IAC's (Audit) has been increased in the Board's above noted letter No.F. 66/83/72-Ad.VII dated 6th December, 1972 and they have now manageable audit jurisdiction. Even where they have additional jurisdiction over another Charge, there is one or more ITO (Internal Audit) now available in that Charge for exclusive attention to the internal audit work and in matters of urgency, the I.T.O. (Internal Audit) may deal directly with the Additional Commissioner/Commissioner of the charge in this behalf. (d) Under the IAC (Audit) and helping him in his internal audit functions will be the new ITOs (Internal Audit). Exclusively responsible for internal audit work, they would also guide and control the IAPs. They would provide technical expertise for IAPs in the handling of difficult and very important cases, exercise supervision over the IAPs work generally, ensure that they take up audit of various cases in the prescribed order of priorities, carry out audit with requisite care and thoroughness, achieve qualitative standards and quantitative outputs expected, maintain proper records of cases audited and objections raised, and watch follow up action on the processing of objections so that remedial action is taken by or through the assessing ITO without undue delay, the resultant demand/refund gets cleared and the officers/officials responsible for mistakes are sounded, alerted or proceeded against as the case may be. The ITO (Internal Audit) would also see that general review or remedies are considered by appropriate authorities where the mistakes detected have wider ramifications; also that timely, accurate and adequate reports pertaining to internal audit are sent to higher authorities as may be required. Where under the IAC (Audit) there are in respect of a Charge CIT's administrative jurisdiction, more than one ITO (Internal Audit), the charge CIT may assign internal audit co-ordination work (the same as the Chief Auditor does for revenue audit work ) to one (or more ) specified ITO (Internal Audit), may be if necessary, in addition to his internal audit field responsibility. (e) The strength of IAPs has been increased with Board's above-noted letter No.F. 66/83/72-Ad.VII dated 6th December, 1972. This has been done mainly for (i) taking over Estate Duty cases audit also, this work till now having been left to Deputy Controllers of Estate Duty and indifferently treated, (ii) paying adequate attention to 'immediate audit' as prescribed in D.I.(IT)'s circular letter No. M-6/7/72/DIT dated 26.6.72 and (iii) quantifying rectification's wherever feasible on the internal audit objections raised so that the ITO concerned has only to give opportunity to the assessee and finalised the order. The thirty new IAPs are to be headed by Inspectors and these Parties together with those already headed by Inspectors on ad-hoc basis should be utilised for audit work of Central circles, company circles, E.D. Circles and other important circles as may be allotted by the Commissioner. The Inspectors/Supervisors and U.D.Cs in the I.A.Ps. should be preferably those who have fully or at least partly qualified in the next assignment Departmental examinations. 3. Procedures. (a) Various steps to be taken in regard to important aspects of Internal Audit have already been indicated in letters No.M-6/7/72/DIT dated 26th June, 1972 and No.M-6/1/72/DIT dated 26th September, 1972 from the Director of Inspection (IT Audit). The Board desire that these instructions should be strictly followed by all concerned. It should now be ensured that all cases falling in the category of 'immediate audit' are checked within the specified time limit and other priority cases at the earliest possible time. The DI(IT Audit) has already directed that only priority cases should be checked unless the workload of such cases in any particular charge is insufficient to keep the IAPs fully occupied. The Commissioners may please ensure that non-priority cases are not checked at the cost of priority cases. The quotas of work prescribed for IAPs should be reached and the pendency of priority cases waiting for audit kept at minimum; the cases due for 'immediate audit' should of course be cleared within the prescribed time limit in any case. (b) The P.A.C. have been pressing for action for failure of the IAPs to check cases/detect mistakes. In view of the new set-up and in the changed context, a more serious view of such lapses should be taken by the Commissioner/Additional Commissioner and the DI(IT) in future. The objective should be that the internal audit is so effective and adequate that there is little scope left for the avoidable comments by Revenue Audit. (c) Where lapses of IAPs are noticed as indicated above and warning given, copy thereof should be placed on the personal file of the official concerned so that in case of further mistakes being noticed. the earlier records can be referred to; the personal file should of course be transferred along with the official wherever he goes. The same procedure should be followed for warnings given to other subordinate staff for mistakes noticed in their work during audit. This sub-para applies to warnings to IAPs and other officials for omissions and commissions noticed both in Internal and Revenue Audit. For the ITOs necessary instructions already exist vide Board's Instruction No. 357 F.238/170-IT(Audit) dated 15.12.1971. (d) The Commissioners should ensure that Audit Cells are necessarily maintained in the Income-tax Circles for attending exclusively to audit matters (Revenue Audit and Internal Audit) as recommended in the 'Manual of Procedure for Functional Units' (Page 17) ; their proper functioning should be watched by the Range IACs. Any deficiency noticed in this regard should be brought by the IAC (Audit) to the notice of the Commissioner for remedy. (e) It has been noticed that the recording of objections raised by the IAPs and their disposal leaves much to be desired in spite of various instructions issued vide letter of the Director of Inspection (Income-tax Audit) No.M-35/18/70/DIT dated 15th July, 1970 reproduced in the Supplement to the Internal Audit Manual. These are reiterated below for strict observance: (i) A separate register (in 3 parts) should be maintained for internal audit objections in prescribed form in Functional as well as Non-Functional Units (Page 11 and 12 of the Supplement). (ii) A separate register should be maintained for showing monthly disposal of internal audit objections (pages 12 of the Supplement). (iii) Official incharge of Audit Cell should send an acknowledgment to the ITO (Internal Audit) in the forms given in Appendix B of the Supplement for each Internal Audit Report to ensure that all the audit objections are entered in the Audit Objections Register (Page 13 of the Supplement). (iv) Information about the number of pending audit objections, objections received during the month those disposed of and the revenue effect of the objections disposed of and pending should be given in the Monthly Progress Report of the ITO (Appendix CII of the Supplement page 13-now Part L of the Monthly Progress Report.) (v) The ITOs (Internal Audit ) have to arrange a special check of the ITO's Audit Objections Registers with their own Audit Reports sent from 1966-67 onwards and point out any ommissions to the ITOs. Similarly, if any item had been rectified but not reported to the ITO (Internal Audit) the ITO (Internal Audit) were to make a note of such items in their own registers (page 13 of the Supplement). If this check has not been completed so far, it should be done now. (vi) Information given in Part L of the Monthly Progress Report about the audit objections should tally with the information given in the Monthly Statement showing work results of the IAPs vide Para 4(ii) of Directorate's letter No. M/35/18/70/DIT dated 30.8.1971. (f) The ITOs (Internal Audit) will hereafter take over the internal audit responsibilities earlier assigned to the Chief Auditors, in the Instructions of the DI(DT) or the Board, vide particularly Board's Instruction No.52 F.5/4/69-IT(AUDIT) dated 26.5.69 (Annexure III).