CAG audits CBDT Internal Audit
INCOME Tax Department (ITD) is subjected to Internal Audit of assessment and accounting functions. Internal audit of assessment work in ITD is undertaken by the Additional Commissioners of Income Tax (Addl. CsIT), Special Audit Parties (SAPs) and Internal Audit Parties (IAPs) of ITD and internal audit of accounting and financial matters is undertaken by Internal Audit wing of Principal Chief Controller of Accounts (Pr. CCA) of Central Board of Direct Taxes (CBDT).
Internal Audit of assessment functions in ITD has evolved over the years and has assumed significance as an independent function with no overlapping between assessment and audit functions. A new Internal Audit System was introduced in ITD with effect from 1 June 2007 providing for a separate audit structure in the ITD to perform the audit work assigning well-defined roles to various authorities for effective functioning and management of Internal Audit. The roles of Supervisory Authorities have been defined in Central Board of Direct Taxes (CBDT) Instruction Number 3 of 2007 and Number 15 of 2013.
CAG conducted Performance Audit on "Functioning of Internal Audit in Income Tax Department" with the objective to derive the following assurance:
(a) whether Internal Audit is effective in providing reasonable assurance to the CBDT and Senior Management regarding achievement of objectives relating to compliance, assessment and other inter-related activities, as determined by CBDT;
(b) whether internal audit is playing an effective role in enhancing the quality of assessments and
(c) whether there is effective and efficient follow-up mechanism of internal audit findings and recommendations.
CAG covered the work done by the Internal Audit wing of ITD and of Pr. CCA, CBDT during the financial years 2010-11 to 2013-14 and up to the date of audit (December 2014). CAG also examined the control issues relevant to CIT (Audit) charges and monitoring mechanism at the level of DIT (Audit) as well as Regional Supervisory Authorities administering the CIT (Audit) charges.
CAG presented its report to Parliament this week.
CAG found:
1. Action Plan was not prepared in 17 CIT (Audit) charges. The Audit Manual, 2011 has not prescribed a standard format for drawing up of Action Plan at field level. Planning is constrained, as information of auditable cases is not being received from administrative CsIT on monthly basis. The list of auditable cases were not received on a regular basis in 19 CsIT (Audit) charges from administrative CsIT under Pr. CCsIT/CCsIT of 12 regions. The Register of Auditable Cases is not being maintained in 12 CsIT (Audit) charges.
2. Out of 7,00,398 cases assigned, Internal Audit examined only 5,73,457 cases resulting in shortfall in coverage of 1,26,941 cases. The practice of selection of high risk units is not in place.
3. Internal audit memos were not issued timely in seven CsIT (Audit) charges. Internal Audit Reports are not being drawn up for issue to administrative CsIT in timely manner in 15 regions.
4. Inadequate follow up of Internal Audit objections resulted in time barring of 1,553 cases involving tax effect of Rs. 392.65 crore in 11 CsIT (Audit) charges. Intra-Departmental Meetings were not held for follow-up and settlement of internal audit objections.
5. The annual target of audit of minimum number of cases, as prescribed by the CBDT, was not met by Additional CsIT (Audit), Special Audit Parties (SAPs) and Internal Audit Parties (IAPs)
Audit Recommendations and CBDT Reactions:
1. CBDT may consider reviewing the monetary norms fixed for IAPs to ensure mandatory scrutiny of top 100 cases in each administrative CIT as present prescribed norms make the 100 cases fall under the purview of Addl. CsIT and SAPs.
The Ministry stated (June 2015) that targets and monetary norms now have been re-examined and target of auditable cases by Addl. CIT has been enhanced from 50 to 150 to cover internal audit of top 100 cases by experienced officer in May 2015.
2. CBDT may consider revising the scope of functioning of Internal Audit in consonance with changes in scope of assessment in recent years in order to ensure Internal Audit of high risk assessment units such as Large Taxpayers Units, International Taxation Units including Transfer Pricing Offices etc.
The Ministry stated (June 2015) that high risk assessment units such as Large Taxpayer Unit and International Taxation Unit are subject to Internal Audit. It was further stated that the decision to audit transfer pricing assessment by the C&AG has been taken accordingly and these cases would also be subject to Internal Audit shortly.
3. CBDT may consider introducing centralised monitoring mechanism to watch timely issue of Internal Audit objections and Internal Audit Reports to ensure effective control.
The Ministry stated (June 2015) that systems to monitor and effective control are already in place. Pr. CCsIT (CCA) and DIT (Audit) periodically monitor performance at state and central level.
4. CBDT may consider making intra-departmental meeting for settlement of objections and follow up as part of Annual Action Plan and monitor it on regular basis.
The Ministry stated (June 2015) that the intra-departmental meeting for settlement of objections and follow up has been made part of Central Action Plan of first quarter of 2015-16.
5. CBDT may consider finding out the reasons for delay in settlement of audit objections and where necessary instruct the AOs to expedite the measures for settlement of audit objection.
The Ministry stated (June 2015) that delay in settlement is due to lack of requisite manpower both in internal audit division and assessment charges.
6. CBDT may consider monitoring actual deployment of human resources positioned under Addl. CIT, SAPs and IAPs in order to determine the overall shortages and effective utilisation of available manpower.
The Ministry stated (June 2015) that the issue of additional manpower for internal audit is under consideration of CBDT.
7. CBDT may consider utilising the Information Technology to aid functioning of the CsIT (Audit) and DIT (Audit) for effective planning, programming, monitoring and control of Internal Audit.
The Ministry stated (June 2015) that the functionality to the ITD module has been rolled out. Initiatives have already been taken by the DGIT(Systems) in November 2014 to use information technology in the internal audit mechanism followed in the ITD.
Source: CAG Report No. 25 of 2015