Test Check of Scheme Vouchers in a Block Office
The internal audit wing of a Uttar Pradesh district office is examining expenditure of ₹18,00,000 released under a state scheme during 2023-24. Of the 42 payment vouchers test-checked, the following were noticed:
(a) six payments between ₹12,000 and ₹48,000 were made in cash, although the office manual requires every payment above ₹5,000 to be made by cheque or electronic transfer; (b) two payments of ₹9,800 each were made to the same printing firm on 28 and 29 February 2024, under consecutive voucher numbers, both for 'printing of forms'; (c) a voucher of ₹46,000 dated 31 March 2024 was supported by a supplier invoice dated 14 April 2024 and a goods receipt note dated 16 April 2024; (d) a works payment of ₹2,10,000 was passed on a contractor's bill, but three of the billed items have no corresponding entries in the measurement book; (e) a payment of ₹15,000 was made to a firm whose proprietor is the brother of the dealing assistant, and no comparative statements are on file.
The block development officer has already certified the accounts as complete and correct.
1. Classify the five findings into irregularities calling for recovery or regularisation and control weaknesses, and state the audit action you would take on each.
Read the worked answer
(a) Irregularity. Cash payments of this size destroy the payment trail and invite misappropriation. Raise an objection, verify each against the cash book and bank record for double payment, and fix responsibility for breach of the manual.
(b) Irregularity, prima facie serious. Two equal payments to one firm on consecutive days for the same purpose, with consecutive voucher numbers, point to splitting to stay below a limit. Treat as a firm objection until quantity, rate and delivery are independently verified.
(c) Irregularity of cut-off. Goods received in April cannot be expenditure of March; the entry appears to have been made to absorb the year's budget. Objection, with reversal or reclassification as an advance.
(d) Most serious. Payment for work without measurement entries is payment without proof of work done. Raise a recovery objection against the contractor and check whether the items were measured later.
(e) Conflict of interest plus control weakness. Not necessarily a loss, but requires a comparative statement and rate justification; excess over market rate, if any, is recoverable.
The BDO's blanket certificate is itself a control failure and should be reported.
2. What further audit procedures and evidence would you require before framing a firm objection on items (b) and (c)?
Read the worked answer
For (b): obtain the indent or requirement note, the rate contract or quotations, the stock and issue register, and the firm's ledger account. Test whether a single job was split into two bills; check the quantity actually printed and whether the forms were taken into stock; look at earlier transactions with the same firm; and take a written explanation from the dealing assistant and the passing officer.
Only when the quantity is verified and the single-requirement character of the job is established can the objection be worded as 'purchase split to avoid the sanctioning limit'. Otherwise it should be reported as a rate or quantity irregularity, which is a different and weaker finding.
For (c): obtain the bank statement and cheque date, the purchase sanction, the goods receipt note and the March budget register. Establish whether money actually left the bank before 31 March. If the cheque was issued in March against goods not yet received, the payment is an advance and must be shown as such. If the cheque was issued in April, it is a pure cut-off error requiring reversal. Also test whether other March-dated vouchers show the same pattern, since a single instance usually indicates a practice.
3. Recommend two control improvements, each tied to a specific finding in the case.
Read the worked answer
1. Segregate bill preparation, receipt certification and payment authorisation, and make the bank/UTR reference compulsory on every voucher above ₹5,000 before it is accepted for posting. This addresses finding (a) directly: the person who prepares the bill should not also certify receipt and pass it for payment, and a voucher without a banking reference cannot be posted at all.
2. Maintain a monthly purchase register linked to the stock register, with the indent number recorded on every voucher and every stock entry. This addresses (b) and (d): the two ₹9,800 printing bills would have appeared as one indent for one job, and any item paid for but not entered in the stock register would show as a mismatch at the monthly reconciliation.
A supporting measure is a written declaration of relationship with suppliers, filed with every quotation comparison, which addresses (e). Each control should name the officer responsible for operating it, otherwise the BDO's present habit of certifying without checking will simply continue.