DG (Audit) – Does the Board take it seriously?

By Vijay Kumar

Only 8 out of the 92 Commissionerates maintain proper records

In July 2000, a separate Directorate General of Audit headed by a Director General of Audit was created by the CBEC. To begin with, it was a small set up consisting of the Director General and a handful of officers to assist him in headquarters. The first DG was sitting in a small room in the Central Excise Commissionerate along with three other officers. He had already been promoted as a Board member, but while commissioners and even Additional Commissioners in the building had lavish individual rooms for them, the DG was sharing a room with his junior colleagues. The CBEC had sent a strong message – The DG (Audit) does not find an important place in the scheme of things. When an inconvenient Commissioner in a premier investigating agency had to be removed from there, because he was stepping on too many toes, they posted him as ADG(Audit). The organisation was expanded in November 2002 with the implementation of cadre restructuring when zonal units were created. At present, the Directorate has seven zonal units across the country each of them headed by an Additional Director General (of Commissioner rank). The Zonal units are functional at Delhi, Ahmedabad, Mumbai, Bangalore, Chennai, Hyderabad and Kolkata.

Role of Zonal units:- There has been a charter of functions for the DG. Although the role of Zonal units has not been separately defined in the Charter of functions, their primary role is to maintain a close interface with the Commissionerates from the point of view of

++ Ensuring that the EA 2000 methodology is observed in conducting audits and the provisions of the Central Excise Audit Manual as well as the Service Tax Audit Manual are complied with;

++ Identifying problems, if any, in complying with these provisions and making suggestions for suitable changes to headquarters;

++ Keeping track of audit performance of the Commissionerates and carrying out Quality Assurance Reviews;

++ Analyzing Audit reports for identification of important audit objections and modus-operandi for quick circulation among filed formations;

++ Building up a database regarding peculiarities (in accounting system, movements of goods, procedures prone to evasion etc.) of particular industries/ services that have a strong presence in the zone.

++ Coordinating (not conducting) the audit of multi-location units;

++ Keeping track of the performance of the Computer Assisted Audit Programme centre- if there is one in the jurisdiction

++ Identifying the training needs of auditors in the Zone and coordinating the provision of adequate and wholesome courses by the Regional Training Institutes as well as NACEN;

++ Ensuring that the Quarterly Audit Reports and other MIS reports are compiled and sent to Headquarters in a timely manner.

Though a posting in the DG(Audit) is considered anything but prestigious, some officers posted there have been trying to make the organisation relevant, though not with much success. There is a priority for all the officers posted in the directorate. The seniors have to get to an executive post and the juniors are there because they want a particular place. But some officers in the directorate who want to contribute for a change for the better believe that Audit can bring in better results. They feel that:-

++ Audit v/s Anti Evasion : Audit a tool of choice in today’s time being more democratic, participative and open as compared to Anti Evasion which is coercive use of absolute power. But Anti Evasion is more glamorous!

++ Audit is the last frontier for the department to check evasion.

++ Audit performance compared with Anti Evasion performance : figures of detections at par. Audit has added advantage of assessees agreeing and paying willfully without long drawn legal battle.

++ Why should Zonal Units not be directed to do audit.

++ DG(Audit) should have a web site

++ Need to shift in Customs as well as excise from routine audit to strategic audit say for sensitive commodities, area based notifications and other sensitive notifications.

The DG had conducted a Quality Assurance Review for the year 2004-05 and has come up with some startling findings.

1. Staff strength and deployment of auditors: The staff strength in the Internal Audit Branch of the Commissionerates was generally not adequate. Only 33.7% of the total Commissionerates have adequate staff strength.

2. Training of officers posted in IAD:'font-size:10.0pt; font-family:Verdana;color:windowtext; '> EA 2000 audits, in order to be meaningful, presuppose the existence of financial literacy skills among the auditors. Training of auditors in the skills of financial literacy and EA 2000 methodology is the key to improving the performance of EA 2000. The QAR findings revealed that approximately 60% of the officers posted in IAD have undergone training in EA 2000 and financial literacy. In 11 Commissionerates 100% of the officers posted in IAD have been trained, whereas in 3 Commissionerates none of the officers posted in IAD have been trained.

3. Maintenance of records and registers in the IAD: The officers in the Commissionerates do not give much attention to the maintenance of records and registers. Only 8 out of the 92 Commissionerates were found to maintain all the prescribed records and registers in the IAD in the format laid down in the Central Excise Audit Manual. These are Vishakapatnam-I, Tirupati, Noida, Jalandhar, Ahmedabad-II, Kolkata-VII, Kolkata-I and Panchkula. In terms of percentage, therefore, 8.7% of the Commissionerates are maintaining and regularly updating the records / registers. The registers are often not updated making regular supervision and monitoring over the working of audit difficult.

4. Systematic Conduct of audit: This included checking of some important pre-audit steps like, re-audit planning, filling of Working Papers, Approval of Audit Plan, regular conduct of Monitoring Committee Meetings, etc. The review showed that in only 41.3% of the Commissionerates the audits were being conducted in a systematic manner i.e. all the steps were being properly followed.

5. Exclusive charge to senior officers handling audit:'font-size:10.0pt;font-family:Verdana; '> As few as 3.26% of the total Commissionerates have senior officers who hold exclusive charge of audit. This implies that the critical function of audit is perhaps not receiving unpided attention at the senior management level.

6. Working of Monitoring Committees: The institution of the Monitoring Committee, headed by the Commissioner himself, has been built into the EA 2000 system to ensure that the quality of objections raised by the auditors is of a high standard. It discourages the tendency to raise frivolous or legally unsustainable objections since the auditors’ work is evaluated face-to-face with the Commissioner. Besides, this is the only opportunity available to the Commissioner to evaluate the skill endowment and technical prowess of his auditors, first hand. The review findings showed that the Monitoring Committee was regularly meeting only in 14 Commissionerates out of the 92 Commissionerates.

7. Infrastructure: Providing facilities like, computers, space, furniture, manuals, library facilities, fax / telephones is one of the basic requirements having a direct bearing on the audit performance. About 52.17 % of the Commissionerates have adequate infrastructure. Out of the 47.83% of Commissionerates that have inadequate infrastructure, 9.78 % of Commissionerates have grossly inadequate infrastructure.

8.Reward scheme for officers posted in IAD of the Commissionerate: The issue of differential treatment in the matter of rewards to Audit and anti-evasion was examined afresh particularly in view of increasing reliance on audit for ensuring compliance. A detailed proposal for extension of Reward Scheme to cover officers of audit containing elaborate justification was submitted to the Board by DG (Audit) vide letter F. No. 381/87/2004/404 dated 2.2.2005. This was followed up by another D. O. letter dated 01.4.2005 reiterating the earlier proposal and also citing a live example of extra ordinary detection and recovery by the audit officers of Thane-II Commissionerate. But obviously the Board has better things to do than follow Audit’s suggestions.