So, for today's topic. We will understand what things should be considered by an auditor before starting his audit of local bodies. We will discuss three aspects of financial administration in a local body. These are:

1. Budgetary Procedure
2. Expenditure Control
3. Accounting System

Let's discuss each of these aspects in brief.

Budgetary Procedure:

The budgetary procedure is geared to serve two considerations, viz. financial accountability and control of expenditure.

The main objective of this procedure is to ensure that the funds are raised and moneys are spent by the executive departments in accordance with the rules and regulations and within the limits of sanction and authorisation by the legislature or council.

Mostly, the levels of taxations and rates and the ceilings on expenditure are determined on the occasion of Budget preparation.

Municipal budget formats and heads of accounts vary from state to state. There are variations between the corporation and municipalities.

One important feature of the municipal budgets is that there is no strict separation between revenue and capital items; usually there is a ‘head’ called extraordinary items which cover most of the capital transactions.

There are, however, a number of special funds (e.g. roads) or in some cases separate budgets for specific municipal functions (e.g. education) or enterprise activities (e.g., water supply and sanitation, transport, electricity, etc.)

Expenditure Control:

One thing to note in case of local bodies is that unlike state and central governments where legislation and executive powers are separate, these are integrated in a local body. Because of this, it becomes difficult for its executive to function as its inquisitorial body as well.

Moreover the separation of executive powers and functions in municipal government cannot accommodate the existence of an independent finance officer responsible to the municipal council or its executive committee. This leaves the system of external audit by state government as the only instrument of controlling municipal expenditure.

Accounting System:

The municipal accounting and budgeting format are considered as neither simple nor comprehensible. At some times, it is seen to provide inadequate informations and at other times a surplus of (unnecessary?) information. Frankly speaking, neither of these situations are conductive to a proper system of management information.