Objectives of Audit of a Local Body

In the earlier article, we discussed about the basics of a local body viz. meaning, history, sources of income and expenditure and some functions of a local body.

A brief Background on Local Bodies

Before we begin, let's recap what we discussed on this topic. For a synopsis, here are some paragraphs from the earlier articles. Alternately, you can access the article Local bodies - A background and Financial Administration of Local Bodies from these links.

Local bodies are institutions of the local self governance, which look after the administration of an area or small community such as villages, towns, or cities. The Local bodies in India are broadly classified into two categories.

The local bodies constituted for local planning, development and administration in the rural areas are referred as Rural Local Bodies (Panchayats) and in the urban areas are referred to as Urban Local Bodies (Municipalities).

The taxation powers of the corporations are confined to a few items and are of a generally compulsive nature; on the other hand the tax powers of the other types of urban local authorities cover a wider range, optional in nature and subject to a procedure for their imposition requiring the final sanction of the state governments. Municipal authorities are endowed with specific local functions covering

1. regulatory,
2. maintenance and
3. development activities.

As regards the financial administration of local bodies, we have discussed the 3 basic financial aspects of a local body, viz.

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

So, with all that being said, let's jump on to our today's topic of discussion;

Objectives of Audit of Local Bodies

The state governments, through the appointment of auditors, exercise the external control of municipal expenditure in order to examine municipal accounts. The municipal corporations of Delhi, Mumbai and a few others have powers to appoint their own auditors for regular external audit.

 Here, the auditor as appointed by the state government or the municipal corporations as mentioned above has certain objectives in respect to the audit of such local bodies. Here is a list of such objectives for your reference.

(a) reporting on the fairness of the content and presentation of financial statements;

(b) reporting upon the strengths and weaknesses of systems of financial control;

(c) reporting on the adherence to legal and/or administrative requirements;

(d) reporting upon whether value is being fully received on money spent; and

(e) detection and prevention of error, fraud and misuse of resources.

Audit is another method of financial control on local governments. This provision is coupled with the privilege of ultra vires.

Ultra vires, is a latin phrase for, beyond one's power or authority. It means that if an act requires legal authority and unless and until it is performed with such authority, it becomes ultra vires. You can note that, most countries have restricted the doctrine of ultra vires in relation to companies by statute.

In addition to the external audit, it is also opined by the learned author that there should be a system of internal audit in all municipal institutions. Internal audit should be provided by the institutions’ own staff. It should be performed on a continuous basis according to a well defined programme.

The external auditor should be able to rely upon the work of the internal audit as forming part of a complete system of internal financial control. Where there is no internal audit, as may happen in the case of small or poorly staffed municipalities, it becomes the responsibility of the external auditor himself to do a detailed checking.

Same as we discussed in one of my earlier articles on Government Audit - What, How and Why?, local bodies too are increasing their attention on what we can describe as 'value for money' audit. This is an additional objective of an auditor to check whether urban institutions are fulfilling their responsibilities with efficiency, economy and effectiveness (sometimes referred to as ‘the three Es’).

So, that is the end of another article on Local bodies. We will conclude this topic in the next article with Audit Programme for local bodies, stay tuned for that.

 If you have any concerns, doubts or suggestions, let me know. Just click on ask question at the left panel of the screen.

Thank You