Internal controls and Audit of Fixed Assets

 

Fixed assets, in an organization represent the long-term tangible assets which are used,

-to produce and deliver its products or services, and

-to manage its operations.

They are assets held for the purpose of providing or producing goods or services and are not meant for sale in the normal course of business. Therefore, an asset can be classified as a fixed asset or otherwise, depending upon the use to which it is put or intended to be put.

In many capital-intensive industries such as manufacturing, power generation and healthcare, fixed assets represent the largest item on the balance sheet. Historically, fixed assets have received little audit scrutiny and, as a result, some major financial frauds have been perpetrated through significant misstatements of fixed asset balances in the financial statements of public companies.

When asked if fixed assets are represented accurately in year-end financial statements, most organizations will answer with “yes.” However, audits may yield a different answer. Although many organizations do not perform an inventory of current fixed assets and a corresponding reconciliation, these steps provide an essential internal control for the financial reporting of fixed assets.

Moreover, fixed assets need attention to ensure the organization’s records are accurate and its controls provide effective oversight of this area. As with other asset classes, best practices enhance proper accounting, valuations and financial reporting.

Internal Controls over Fixed Assets
Fixed-asset transactions typically represent the acquisition and disposal of assets and the allocation of related costs to reporting periods through depreciation expense. The internal controls over the acquisition of fixed assets include the following:

• Issuance and approval of a purchase order
• Receipt of assets and preparation of a receiving report
• Receipt of an invoice from a vendor
• Reconciliation of the vendor invoice to the related receiving report and purchase order
• Authorization of the payment of the vendor invoice
• Issuance of a check for payment of the vendor invoice
• Posting of the entry in the equipment sub-ledger
• Posting of the equipment sub-ledger activity to the related general ledger control accounts
• Reconciliation of the general ledger control accounts

Audit of Fixed Assets
External Auditors of most manufacturing organizations usually scope in Property, Plant & Equipment (PPE) as a risk area during their annual audit due to its materiality. A combination of controls testing and substantive testing is usually adopted when obtaining audit assurance on PPE.

An auditor should review the system of internal controls relating to fixed assets, particularly the following:

Verification under audit
Verification of fixed assets consists of examination of related records and physical verification. The auditor should normally verify the records with reference to the documentary evidence and by evaluation of internal controls. Physical verification of fixed assets is primarily the responsibility of the management.

Verification of Records

• The opening balances of the existing fixed assets should be verified from records such as the schedule of fixed assets, ledger or register balances.
• Acquisition of new fixed assets and improvements in the existing ones should be verified with reference to supporting documents such as orders, invoices, receiving reports and title deeds.
• Self-constructed fixed assets, improvements and capital work-in-progress should be verified with reference to the supporting documents such as contractors’ bills, work-order records and independent confirmation of the work performed.
• The auditor should scrutinize expense accounts (e.g. Repairs and Renewals) to ascertain that new capital assets and improvements have not been included therein.
• Where fixed assets have been written-off or fully depreciated in the year of acquisition/ construction, the auditor should examine whether these were recorded in the fixed assets register before being written-off or depreciated.
• In respect of fixed assets retired, i.e., destroyed, scrapped or sold, the auditor should examine

(a) whether the retirements have been properly authorized and appropriate procedures for invitation of quotations have been followed wherever applicable;

(b) whether the assets and depreciation accounts have been properly adjusted;

© whether the sale proceeds, if any, have been fully accounted for; and

(d) whether the resulting gains or losses, if material, have been properly adjusted and disclosed in the Profit and Loss Account.

It is possible that certain assets which were destroyed, scrapped or sold during the year have not been recorded. The auditor may use the following procedures to ascertain such omissions:

• Review work orders/physical verification reports to trace any indicated retirements.
• Examine major additions to ascertain whether they represent additional facilities or replacement of old assets, which may have been retired.
• Make enquiries of key management and supervisory personnel.
• Obtain a certificate from a senior official and/or departmental managers that all assets scrapped, destroyed or sold have been recorded in the books.
• The ownership of assets, like land and buildings should be verified by examining title deeds. In case, the title deeds are held by other persons, such as solicitors or bankers, confirmation should be obtained directly by the auditors through a request signed by the client.

Concluding Remarks
In order to help the auditors undertake quality audits and adhere to the audit compliance standards, ICAI has released guidelines advising auditors with regards to conditions that may arise due to COVID-19 pandemic, how they can carefully examine specific circumstances while undertaking audit and assess the risk accordingly. For auditors, it is majorly “remote” auditing, going through virtual data, but continuing to comply with the requirements of standards on auditing.

The COVID-19 outbreak may affect the useful life and residual life of fixed assets which requires management review. In case the expectations differ from previous estimates, then change in estimate should be accounted for in accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors.

It is imperative to ensure that appropriate level of disclosures are done in the financial statements (which in most cases is a judgment call, depending on the facts and circumstances of each case) for the users of the financial statements to understand the impact of pandemic on the company as assessed by the management, Board of Directors and Audit committees.

Source: Internal controls and Audit of Fixed Assets

“Risks” As in Internal Audit

 

Risk-based internal audit is an internal methodology which is primarily focused on the inherent risks involved in the activities or system and provide assurance that risk is being managed by the management within the defined risk appetite level.

Risk is defined as ‘the possibility of an event occurring that will have an impact on the achievement of objectives”. In general, risk management is concerned with positive and negative aspects of risk. The risk can have an adverse impact (downside risk) or it can also have potential benefit (upside risk). It can be applied holistically, and also used on specific activities, from the strategic to the operational.

Types of Risks:
♦ Inherent risk
♦ Control risk
♦ Detection risk

Inherent risk: The risk that could not be protected or detected by the entity’s internal controls. This risk could happen as a result of the complexity of the client’s nature of business or transactions.

Control risk: This is the risk that potential material misstatements would not be detected or prevented by a client’s controls system.

Detection risk: This is the risk that the audit procedures used are not capable of detecting a material misstatement.

Risk Management Framework

Risk management framework (RMF) is structured process to define the strategy for eliminating or minimising the impact of risks, as well as the mechanisms to effectively monitor and evaluate the strategy, for an organisation.

Steps in a Risk Management Framework (RMF)

⇒ Step 1 Identification (Identify potential threats (Risks))
⇒ Step 2 Measurement (Analyze Risks)
⇒ Step 3 Mitigation (Define the strategy for eliminating/ minimising impact of risks)
⇒ Step 4 Reporting & Monitoring (Decide & apply mechanisms to effectively monitor
⇒ Step 5 Governance

Risk Management Frameworks

A number of Frameworks are in use: brief description of some of the commonly used frameworks, is given below.

A. COSO: The COSO framework is one of two widely accepted risk management standards organizations use to manage risks. COSO stands for The Committee of Sponsoring Organizations of the Treadway Commission (COSO). The initial mission of COSO was to study financial reporting and develop recommendations to prevent frauds. This framework is commonly used in the United States and around the world.

The original COSO framework was published in 1992 and later updated in 2013.

5 components of COSO are:

– control environment
– risk assessment
– information and communication
– monitoring activities, and
– existing control activities

17 principles of COSO framework’s effective internal control are:

Internal Control ComponentPrinciplesControl environment1. Demonstrate commitment to integrity and ethical values2. Ensure that board exercises oversight responsibility

3. Establish structures, reporting lines, authorities and responsibilities

4. Demonstrate commitment to a competent workforce

5. Hold people accountable

Risk assessment6.Specify appropriate objectives7. Identify and analyze risks

8. Evaluate fraud risks

9. Identify and analyze changes that could significantly affect internal controls

Control activities10. Select and develop control activities that mitigate risks11. Select and develop technology controls

12. Deploy control activities through policies and procedures

Information and communication13. Use relevant, quality information to support the internal control function14. Communicate internal control information internally

15. Communicate internal control information externally

Monitoring16. Perform ongoing or periodic evaluations of internal controls (or a combination of the two)17. Communicate internal control deficiencies

B. CoCo: The CoCo (Criteria of Control) framework was developed by the Canadian Institute of Chartered Accountants (CICA) in 1995. This model builds on COSO and is thought to be more concrete and user-friendly by some. This framework outlines 20 control criteria that management can use to manage company performance and improve its decision-making.

The CoCo framework outlines criteria for effective controls in the following four areas:

• Purpose
• Commitment
• Capability
• Monitoring and learning

C. COBIT: Stands for Control Objectives for Information and Related Technology. This framework is created by the ISACA (Information Systems Audit and Control Association) for IT governance and management. The COBIT control model guarantees integrity of the information system. It allows to control IT operations of the company so that risk can be minimized and work power enhanced in a disciplined manner. It allows managers to fill the gap between technical issues, control requirements, and business risks.

5. Principles of COBIT:

1. Meeting stakeholder needs
2. Covering the enterprise end to end
3. Applying a single integrated framework
4. Enabling a holistic approach
5. Separating governance from management

Main focus areas of the Cobit are:

• Planning and Organizing
• Delivery and Support
• Acquiring and Implementation
• Monitoring and Evaluating

Risks As in Internal Audit

Complete Guide on Internal Audit in India

 

Internal Audit in India is one of the major areas which aid the organization in enhancing business performance by identifying the growth areas with greater scope for improvement. The process of Internal audit helps in reviewing the existing systems and their effectiveness by benchmark the audit processes and procedures against the best industry practices to meet the global standards.

Internal audit evaluates and improves effectiveness of an organizations risk management, control, governance and accounting processes. Internal audit is performed to identify potential risk (such as misappropriation of assets, misuse of funds, frauds, manipulation of records) an organization may be prone to, managing those risk and reporting on such risk and their management as per statutory requirements.

Internal Audit Objectives:
Internal audit is performed to give assurance to top level management that the risk associated to business are identified and managed properly. It is conducted to provide assurance that management of an organization has an ability to manage risk effectively. It also ensures that governance and internal control processes are operating effectively.

5 Reasons Why Internal Audits are Important
Internal auditing programs are critical for monitoring and assuring that all of your business assets have been properly secured and safeguarded from threats. It is also important for verifying that your business processes reflect your documented policies and procedures.

Let’s take a look at five reasons why internal auditing is important and their purpose in keeping your organization compliant with the common frameworks and regulations.

1. Provides objective insight
2. Improves efficiency of operations
3. Evaluates risks and protects assets
4. Assesses organizational controls
5. Ensures legal compliance

Basic Principals of an Internal Audit
For an internal audit function to be considered effective, the basic Principles should be achieved. Failure to achieve any of the Principles would imply that an internal audit activity was not as effective. The basic principles governing internal Audit are

• Demonstrate uncompromised integrity and independence;
• Display due professional care while performing Audit;
• Demonstrate commitment to competence;
• Maintain Confidentiality;
• Assessment of Risk element and having adequate resources to address it;
• Focusing on Systems and process i.e., Root Cause Analysis;
• Participating in decision making, other than those subject to subsequent audit;
• Adopting procedures to continuously improve the quality of internal audit process and audit reports;
• Align strategically with the aims and goals of the enterprise;
• Achieve efficiency and effectiveness in delivery;
• Communicate effectively;
• Provide reliable assurance to Those Charged with Governance (TCWG);
• Be insightful, proactive, and future-focused.

What is an internal audit report?
An internal audit report is a document with the formal results of an audit. It is used by the internal auditor to show what was examined, highlighting positives, negatives and conclusions, so that the company’s management knows what is going well and what needs to be improved.

The report should be carefully prepared. Yet it is at this point that many internal auditors fail.

The text needs to be clear, objective and impartial in order to ensure that the audit’s results are useful and the organization can use them as a guide to set the direction of actions.

PK Chopra is one of the leading management consultants who have been assisting clients across industries with flexible and result oriented solutions that enhance the organization’s performance by improving efficiency in the business processes.

PK Chopra offers the internal audit services / process audit services in India to the companies. If you wish to know more in this regard, kindly contact us.

TCS Under Income Tax - Provisions Applicable from 01.10.2020

 

Tax Collected at Source Under Income Tax — New Provisions Applicable from 01 October 2020

Introduction
Finance Act, 2020 introduced 3 new provision under Tax Collected at Source (“TCS”):

TCS on foreign remittance through LRS;

TCS on selling overseas tour packages; and

TCS on sales of any goods

TCS unlike TDS is required to be collected additionally along with consideration for certain transaction;

That is TCS is required to be collected by the payee;

Whereas, TDS is required to be deducted on certain payments made by the payer for certain transactions.

TCS ON FOREIGN REMITTANCE THROUGH LRS

The new provisions of tax collected at source are applicable w.e.f 01 October 2020

TCS ON SELLING OVERSEAS TOUR PACKAGES

TCS ON SALE OF ANY GOODS (1/3)

TCS ON SALE OF ANY GOODS(2/3)

TCS ON SALE OF ANY GOODS(3/3)
We have tried to address few practical aspects in implementation of the said provision by way of FAQs:

How to Collect Tax from the buyer? The seller needs to raise the invoice inclusive of the amount of TCS. However, liability of remittance does not arise until the time when amount is to be collectedHow to determine the applicability of these provision?The law does not make mandatory to comply continuously once the seller is obliged to follow, which means the applicability needs to be determined on a year to year basisWhether TCS applicable on sale of property?Sale of property is covered distinctively under the provision of section 194IA for value exceeding INR 50 LakhsWhether TCS should be refunded in case of sales returns?No, only primary sales value should be refunded as the amount of TCS would have been credited as prepaid taxes and will appear in Form 26AS of the buyer. However, if the amount has not been settled or net settlement is being made post adjustment of return then on such net consideration TCS should be collectedWhether the consideration will include the amount collected towards GST?The word consideration is not defined. In terms of section 145A irrespective of the treatment in books of accounts, the value of sales will be inclusive of GST

TCS PAYMENT AND RETURN

• TCS collected needs to be paid within 7 days of the nextmonth.
• Every tax collector shall submit quarterly TCS return i.e., Form 27EQ in respect of the tax collected by him in a particular
• The due date of quarterly return is asunder

WAY FORWARD AND SCOPE LIMITATION

WAY FORWARDSCOPE LIMITATIONWe shall assist in determining the applicability of the above provision, depending on the nature of business and each business transaction;andWe have not considered the current revised rates as proposed by the government in view of the global pandemic COVID — 19;andThe amount on which the tax should be collected and the amount of remittance for each of the transaction.However, for the sake of the completion, the rates w.r.t sale of goods have been reduced to 0.075% for buyer having PAN/Aadhar, for current financial year only

Disclaimer
Please note that the above note is subject to government clarification or changes in law, we have merely discussed the applicability in the current scenario

Source: https://pkchopra.com/blog/index.php/tcs-under-income-tax-provisions-applicable-from-01-10-2020/

Income Tax Audit in India

 

What is a Income Tax Audit in India?
Under Section 44 AB of the Income Tax Act, 1961, provision of Income Tax Audit is covered. Income Tax Audit is a way to examine an individual’s organization tax returns by any outside agency. Income Tax Audit done to verify all income, get the deduction information or about expenditures incurred. To do tax audit is mandated as per the provisions of the Income Tax Act. This act states that all the taxpayers are required to do an audit of all the accounts of their business or organization.

As per Section 44AB, the audit aim is to ascertain the factual veracity of the returns filed and the accomplishment of other requirements as per applicable rules.

The Chartered Accountant performing the tax audit is required to do the submission of all its findings and observations in the form of an audit report. The audit report is given as per format available in the form numbers 3CA/3CB and 3CD.

What is section 44AB?
Section 44AB contains the provisions related to class of taxpayers for whom getting their accounts audited by a chartered accountant is mandatory.

Tax audit objectives
Following are the objectives of tax audits:

1. A structured tax audit ensures all the organizations and businesses are mapped on similar grounds as far as financial transparency is concerned.
2. It ensures all businesses maintain account books and records relating to revenue and expenses
3. It ensures that total income and deductions are claimed accurately and to the best of everyone’s knowledge.
4. It nullifies the chances of any possible fraudulent practices.

Who all are covered under tax audit rule?
Following is the list of people or class of people who compulsorily need to get their accounts audited:
1. An individual engaged in any form of business with turnover more than Rs. 1 crore.
2. Any professional with annual income more than Rs. 50 lakhs
3. Any individual covered under section 44AD, presumptive taxation rule but later on claims and proves that the profits are lower than as calculated for the taxation purpose. Same is the case with an individual who’s on record income is more than the amount which is tax-free.
4. Anybody who earlier qualified under the presumptive taxation rule but later on opted out of it. He/she would lose the option to revert back to the rule for a straight 5 assessment years span.
5. Individual who qualifies for presumptive taxation scheme but later on claims the actual profits are lower than the calculated ones under the section 44AE.
6. Individual who qualifies for presumptive taxation schemes but later on claims that the actual profits are lower than the calculated ones under section 44BBB.

How to get/file Tax Audit Report
​The tax audit report is to be electronically filed by the chartered accountant to the Income-tax Department.

After filing of report by the chartered accountant, the taxpayer has to approve the report from his e-fling account with Income-tax Department (i.e., at www.incometaxindiaefiling.gov.in).

Penalty for not getting Tax Audit
If any person who is required to comply with section 44AB and fails to get his accounts audited or fails to furnish tax audit report ​, the Assessing Officer may impose a penalty.

The penalty shall be lower of the following amounts:
(a) 0.5% of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession.
(b) Rs. 1,50,000.

Hence, it is very important to conduct a tax audit in a timely manner to ensure the transparent and hassle-free running of the business. Any failure in doing so attracts heavy fines and penalty. Being vigilant regarding the financial declarations and filings is important for the smooth running of the business as well as business owner’s mental peace.

If you have any questions or want to know more, kindly contact us.

Internal Auditing Services in India

The Process of Due Diligence Services in India

If you happen to be an entrepreneur or a sale one that has his/her sights on the acquisition of a business, it’s your right to examine the financial records, and research that’s company activity related. Due diligence services in India enters the image at now and ensures that related information is compiled. It also sees if there’s a minimum average which can influence your ultimate decision regarding the acquisition or purchase.

Due Diligence Steps

• The Action Plan: all the parties who are concerned with the deal should agree on what information and issues got to be highlighted in order that due diligence is completed effectively. The ambit of the problems and knowledge may or might not include structures within the organization, annual legal reports, shareholding records, personal and company financial records.
• Reviewing the finances: The Due diligence team makes it some extent to carefully undergo the balance sheets of the corporate additionally to annual reports and cash flows too. All the pertinent files are validated with the assistance of an accountant and therefore the tax office.
• Asset inspection: If there’s a plant and machinery involved within the business, the due diligence team views them as assets, ensuring that each one of the above are in good working condition. A stock value is suggested before the day of settlement. Insurance plans and policies should even be checked beforehand.
• Scale of prospects and therefore the supply chain: The Due Diligence Team requests the list of key clients to work out if they’re active buyers. Existing contracts should even be scanned to seek out out if future business is feasible . Suppliers also fall within the gaze of due diligence and that they are verified to ascertain if outstanding payments remain or if there are settlement invoices.
• Level of the competition and reason for sale: As an investor, you’ll be benefited to understand the precise reasons behind the sale of the corporate . this may entail a touch of digging around and also observing the competition from other players in order that a benchmark are often determined. Industry trends should also not be neglected.

General Financial Rules (GFR Rules)

The General Financial Rules (GFRs) are the general rules of Government of India (GOI) which are applicable to all Government Ministries/Departments. Exceptions are provided in the Rules. These rules are applicable in matters relating to Public Finance, that is, Matters relating to Revenue and Expenditure of Government.

These rules were first introduced in 1947 and modified thereafter in 1963, 2005 and 2017. A task force was established for comprehensive discussion and review of the GFRs set up. GFR sincludes all effects of Reforms introduced by the Government, for example, Direct Benefit Schemes (DBS), merger of Railway Budget with the General Budget, Introduction of Government e-Marketing Portal, Non-Tax Revenue Portal, etc.

These Reforms were introduced due to the changing Business Environment to promote simplicity and transparency in the Government Financial System and procedures.

The various important Rules are further explained as under:

General Principles Relating to Expenditure and Payment of Money

• In case any expenditure is incurred by any officer, then the following should be observed:
• Vigilance:Every public officer is expected to exercise the same vigilance in respect of expenditure incurred from public moneys as a person of ordinary prudence would exercise in respect of expenditure of his own money and expenditure should not be more than situation demands.

Public Interest:Any authority which is benefiting themselves directly or indirectly from the expenditure should not sanction the expenditure by itself, the expenditure shall not be made for particular person or community unless no special orders received in this regards and it should be in public interest.

• The Duties and responsibilities of a Controlling officer is to ensure,
• That the expenditure does not exceed Budget,
• That incurred only for the funds provided,
• That incurred in public interest,
• That adequate controls are there in the department for prevention of wastage of public money and
• Errors prevention and detection
• In case of certain special matters like, relinquishment of revenue; rights of power, water; grant of land etc. unless the power to issue an order is delegated or approved by the President, a subordinate authority cannot issue an order without the previous order of the Finance Ministry.
• A sanction for any fresh charge shall lapse if it is not renewed and if no payment has been made during a period of twelve months from the date of issue of sanction, provided that,
• When the period of sanction is prescribed in the regulations, then on the expiry of such period
• When the regulations say that the expenditure would be met from the Budget provisions, then at the end of the Financial Year

In case of purchase, the sanction won’t lapse if any tender has been accepted within the period of one year, even if no payment, in whole or in part has been made.

• Notwithstanding anything contained above, any sanction related to addition to a permanent establishment, made from year to year under a general scheme by a competent authority, or an allowance sanctioned for class(s) of government servants, but not drawn by the officer(s) concerned, shall not lapse.
• The Reserve Bank of India (RBI) shall be the Banker to the Government. It shall provide various banking services to the Ministries either through its branches or its agent banks. All payments and all receipts (including tax revenues) shall be made or collected by the RBI through its own offices or through the nominated branches of its agent banks.

Public Financial Management System (PFMS)

PFMS is an integrated Financial Management System of Controller General of Accounts.

Budget Formulation and Implementation

Control of Expenditure Against Budget

To maintain the control of expenditure over sanctioned grants, the CG should follow an effective control as follows:-

• Bills with proper classification of account should be presented for withdrawal of money.
• All the drawing officers shall maintain registers in Form GFR-5, physically or electronically, for allocation under each minor Head and submit it with the head of the department on the third day of following month. A register shall be submitted irrespective of nil statement or if there are any adjustments like, inward claims.
• A broadsheet of all the receipts shall be maintained in Form GFR-6. The Controlling officer shall ensure that classifications are done properly, expenditure is less than the Grant amount, reason of the increased expenditure shall be properly noted and it is properly signed by the Disbursing officers
• When all the verification is done, the Controlling Officer shall prepare a Statement in Form GFR-7, wherein the Totals from GFR-5, Statement Totals given by the Disbursing Officers and other Total of Adjustments which have not been taken before, should be incorporated. These new adjustments shall also be communicated to the Disbursing Officer.
• The Head of Department shall prepare a consolidated Statement in GFR-8 in which the complete expenditure with its appropriation into various heads shall be mentioned.
• The Head of Department and the Accounts officer shall reconcile the balances maintained by both of them.
• The Disbursing Officer shall maintain a register in Form TR 28-A in which all the Bills presented to the Principal Accounts Officer shall be entered. The Bills should match with the cheques. All the retrenchments shall also be noted in the register.
• The Accounts Officer shall furnish an extract of the expenditure registers to the Disbursing Officers, in which monthly expenditure apportioned into various heads shall be mentioned. The Disbursing Officer shall tally this expenditure with the expenditure in Form GFR-5 and investigate the differences, if any. The book adjustments from the monthly statements shall also furnished in Form GFR-5. After all this is done, the Disbursing officer shall give a confirmation of the figures.
• The Principal Accounts Officer of each Department shall send a monthly statement showing the expenditure in various heads according to the Budget provisions to the Heads of Departments. They shall discuss over the differences between the Statement and GFR-8 and furnish a quarterly report on 15th of second following month after the end of quarters.
• The Heads of Departments shall prepare a statement wherein all the revenue and capital expenditure figures are entered separately by 15th of the following month. The figures shall be taken from Form GFR-8 and these figures should also be posted in other expenditure registers. The Heads of Departments shall also furnish a progress report of all schemes for which they are responsible. The physical progress, Budget provisions as well the reasons for shortfall shall also be reported therein.
• A broadsheet in Form GFR-9 shall also be maintained by the Heads of Departments wherein the prompt receipt of various returns and actions for any defaults should be mentioned.
• The Controlling officer shall maintain liability registers in Form GFR-3 from the liability statements obtained from spending authorities in Form GFR-3A every month starting from October in each financial year.
• The Department of Central Government shall provide the Finance Ministry a detail of savings noticed in the Grants by them. After the acceptance, these funds shall stand lapse at the end of the financial year. These funds shall be returned to the Government.
• No expenditure on a New Service shall be made which is not provided in the Annual Budget, unless there is a supplementary Grant for it.
• The Disbursing officer shall not approve an excess allotment of an expenditure unless he has taken approval from his superior authority. The authorities shall also maintain these excess allotments in the liability register in the Form GFR-3.
• In case of re-appropriation of expenditure from one primary unit to another within a Grant amount, shall be furnished in Form GFR-1.Re- appropriation shall only be made when it is known or anticipated that units from which the funds are to be transferred are not to be utilised in full or savings can be affected in them. Also proper approval from competent authority should be taken.
• In case any need for an unforeseen expenditure for a New Service not provided in the Budget arises and there is no time for voting of the Supplementary Demand, then an advance from the Contingency Fund, set up under Article 267(1) of the Constitution shall be obtained before incurring the expenditure. The procedure for obtaining an advance is laid in the Contingency Fund of India, 1952.
• The Secretary of a Ministry/ Department, who is the Chief Accounting Authority shall be responsible for all the financial matters of his ministry (including control on expenditure, accounting and appropriation, receipts and collection of funds, appearance to parliamentary committee and to his ministry as required)

Defalcation and Losses

• Any loss or shortage of public money, revenue, receipts, or other property held by or behalf of government, shall be immediately reported to the next higher authority, Statutory Audit Officer, and Principal Accounts Officer even if such loss has been made good by the party responsible. However, the following losses need not to be reported:
• Losses due to mistakes in assessments which are discovered too late,
• Assessments due to interpretation of law by the local authority overruled by the higher authority
• Losses not exceeding Rupees ten thousand
• Cases involving serious irregularities should be reported to Financial Adviser or Chief Accounting Officer of the Ministry or Department and the Controller General of Accounts of Ministry of Finance. A Report of loss should be maintained containing
• An initial report, which should be made as soon as the suspicion arises
• The final report, to be sent to higher authorities
• All losses more than Rupees Fifty thousand due to suspected fire, fraud or theft of Government property, shall be reported to Police for investigation as early as possible, similarly all losses of immovable property of more than Rupees Fifty thousand, such as building, due to cyclone, earthquake, fire, flood etc. shall be reported at once by the subordinate authority.

Source: General Financial Rules (GFR Rules) | Auditing Services