INTERNAL AUDIT MANUAL - Ministry Of Home Affairs

135 Pages·2010·0.62 MB·English

II AA MM
NNTTEERRNNAALL UUDDIITT AANNUUAALL
22000099

A Guide to Planning, Performing and Reporting on
Internal Auditing Engagements
(For Internal Use)

ISSUED BY
THE O/o CHIEF CONTROLLEROF ACCOUNTS,
MINISTRY OF HOME AFFAIRS
NEW DELHI

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CONTENTS

Page Nos.

1. Foreword 1

2. Introduction 2

3. Internal Audit Charter 9

4. Duties of Internal Audit Wing at Headquarters 11

5. Jurisdiction & Scope 14

6. Performing the Audit Engagement 17

7. Standard Audit Work Programs for Different Types of Audit 29

8. Drafting of Internal Audit Reports 64

9. Modern Techniques and Approaches for Improving the
Effectiveness of Government Internal Auditing 67

10. Sample Audit Report 75

11. Annexure 92
Foreword

In last few years, there has been a paradigm shift in the area of Governance. The emphasis is more 
on  efficient  and  effective  management  of  the  government  functions,  explicit  standards  and 
measures of performance of the government officials and enhanced service deliveries to the citizens 
of the country. These, new dimensions require that resources are effectively and efficiently utilized.  
Thus,  a  systematic  feedback  mechanism  needs  to  be  installed  to  have  an  assurance  that  the 
functions  of  Government  are  being  discharged  efficiently  and  effectively.  Internal  Audit  is  an 
effective  tool  for  providing  objective  assurance  and  advice  that  adds  value,  influences  change  that 
enhances  governance,  assists  risk  management  and  control  processes  and  improves  accountability  for 
results. 
Ministry of Home Affairs with the support of the “Centre of Excellence” established in the O/o Controller 
General of Accounts intends to reorient the internal audit organization of MHA. The Internal Audit Wing 
would now focus on Risk Based and Performance Audits in place of traditional routine audits.  I am confident 
that the Internal Audit Manual of MHA, would serve as a guide for planning, performing and reporting on the 
Internal Audit Engagements of the Ministry. This document brings out the revised structure, charter and 
jurisdiction of the IA function and would help in ensuring that the objectives of the Ministry are achieved in a 
better and more efficient manner. 

                      G.K. Pillai 
                      Secretary (MHA) 

1. INTRODUCTION
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1.1 Internal Audit Function
1.1.1 The General Financial Rule 64 lays down the duties and responsibilities of the Chief
Accounting Authority of the Ministry. It states that the Secretary/Chief Accounting Authority
of the Ministry/Department shall –
• be responsible and accountable for financial management of his Ministry or
Department
• ensure that the public funds appropriated to the Ministry or Department are used
for the purpose for which they were meant.
• be responsible for the effective, efficient, economical and transparent use of
resources of the Ministry or Department in achieving the stated project objectives
of that Ministry or Department, while complying with the performance standards.
• review and monitor regularly the performance of the programmes and projects
assigned to his Ministry to determine whether the stated objectives are achieved.
• be responsible for preparation of expenditure and other statements relating to his
Ministry or Department as required by regulations, guidelines or directives issued
by Ministry of Finance.
• shall ensure that his Ministry or Department maintains full and proper records of
financial transactions and adopts systems and procedures that will at times afford
internal controls.

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• shall ensure that his Ministry or Department follows the Government procurement
procedure for execution of works, as well as for procurement of services and
supplies and implements it in affair, equitable, transparent and cost effective
manner.
An independent internal audit would help the Chief Accounting Authority in all these
functions. Internal Audit and Internal Controls are an integral part of sound financial
management systems world over. It should aim at looking both at the financial and non
financial aspects of the Government operations and ensuring full value for the Government
money. The Internal Audit function would help in improving economy, effectiveness and
transparency in the Government administration in general and financial administration in
particular. It would also help in maintaining a sound record keeping systems with adequate
checks and balances to ensure a sound information system for decision making by the
executives.
1.1.2 Also, the revised charter of integrated finance scheme issued by the Ministry of
Finance lays down the role and responsibilities of CCAs/CAs with regards to internal audit. It
envisages that the Internal Audit Wing working under the control and supervision of the
CCAs/CAs would move beyond the existing system of compliance/regulatory audit and
would focus on:
• The appraisal, monitoring and evaluation of individual schemes.
• Assessment of adequacy and effectiveness of Internal Controls in general and
soundness of financial systems and reliability of financial and accounting reports in
particular.
• Identification and monitoring of risk factors (including those contained in the
outcome budget).
• Critical assessment of economy, efficiency and effectiveness of service delivery
mechanism to ensure value for money; and
• Provide an effective monitoring system to facilitate mid course corrections.
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The above revised functions would be carried out as per the guidelines issued by the CGA
from time to time.
1.1.3 Internal auditing is an independent, objective assurance and consulting activity
designed to add value and improve an organization’s operations. It basically aims at helping
the organization to accomplish its objectives by bringing a systematic, disciplined approach
to evaluate and improve the effectiveness of risk management, control and governance
processes.
Independence is established by the organizational and reporting structure.
Objectivity is achieved by an appropriate mind-set. The internal audit activity evaluates risk
exposures relating to the organization’s governance, operations and information systems, in
relation to:
1. Effectiveness and efficiency of operations
2. Reliability and integrity of financial and operational information
3. Safeguarding of assets
4. Compliance with laws, regulations and contracts
Based on the results of the risk assessment, the internal auditors evaluate the adequacy
and effectiveness of how risks are identified and managed in the above areas. They also
assess other aspects such as ethics and values within the organization, performance
management, communication of risk and control information within the organization in
order to facilitate a good governance process.
The internal auditors are expected to provide recommendations for improvement in
those areas where opportunities or deficiencies are identified. While management is
responsible for internal controls, the internal audit activity provides assurance to
management and the audit committee that internal controls are effective and working as
intended. The internal audit activity is led by the Chief Audit Executive (CAE). The CAE
delineates the scope of activities, authority and independence for internal auditing in a
written charter that is approved by the audit committee.
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An effective internal audit activity is a valuable resource for management and the
board or its equivalent and the audit committee due to its understanding of the organization
and its culture, operations, and risk profile. The objectivity, skills and knowledge of
competent internal auditors can significantly add value to an organization’s internal control,
risk management and governance processes. Similarly an effective internal audit activity can
provide assurance to other stakeholders such as regulators, employees, providers of finance
and shareholders.
1.1.4 Purpose Scope & Future Amendments
The overall purpose of this guide is to assist the Internal Auditing Wing of the Ministry of Home
Affairs in providing independent, objective, value-added and professional assurance and advisory
services to the executive authorities in the Ministry of Home Affairs in order to improve the
operations of the Ministry.
More specifically, this guide is intended to provide IAW with practical guidance, tools and
information for assessing risk in processes and activities; developing an appropriate internal auditing
work program; and planning, performing and reporting on audit engagements.
The guide is primarily for use of internal auditors. It is intended to help facilitate the performance of
audit engagements with the independence and objectivity and proficiency and due professional
care, envisaged in the International Standards for the Professional Practice of Internal Auditing
(Standards) of The Institute of Internal Auditors (IIA).
This guide is not intended to be prescriptive or strictly procedural in nature. It is principles-based
with an expectation that internal auditors comply with the General Financial Rules of the
Government of India and use professional judgment in the conduct of their work.
Any subsequent amendment in the internal audit manual to take care of changing requirements of
the internal audit would be done with the approval of Chief Audit Executive in the routine cases and
with the approval of Chairman of the Audit Committee/Secretary of the Ministry in policy level
changes.

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1.2 Structure of Internal Audit Organization:
1.2.1 Audit Committee: An Audit Committee would be an apex body whose purpose
would be to oversee the :
1. Reliability of the entity s financial statements and disclosures.
2. Effectiveness of the entity s control and risk management systems.
3. Compliance with the entity s code of business conduct, legal and regulatory
requirements.
4. Independence, qualifications and performance of the external auditors and the
performance of the internal audit activity.
The Audit Committee would have the following composition:
• Secretary (Home), Chairman
• AS & FA (Home), Vice Chairman
• CCA (Home), Member Secretary
• Director (Finance), Member
• Director (Fin-Pers.), Member

• The Audit Committee would be responsible for finalizing and approving the Internal
Audit Character for the audit organization and establishing its role, responsibility and
structure within the organization.
• The Audit Committee would periodically review the administration of Internal Audit
Function and would specify the direction in which IA function should move.
• The Audit Committee would also take stock of the audits undertaken by the Internal
Audit Organization and follow up the cases where some serious issues have been
identified.
• The Internal Audit Organization would put up a quarterly review of the Internal Audit
Function before the Audit Committee which would take up the serious issues with the
concerned divisions in writing as well as through review meetings for the Internal
Audit Observation.
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1.2.2 Management Team:
1. Management Team of the Internal Audit Function would be headed by the Chief
Audit Executive who would supervise the Internal Audit Function of the Ministry.
2. The management team would discuss key risk areas and would plan the audit
priorities. The management team would supervise all the phases of Internal Audit:
Annual audit plan, planning the audit engagements, conducting the audits,
preparation and issue of reports, monitoring and follow up with the auditees.
3. The management team would also finalize the available audit resources and their
utilization. The management team would approve audit advisories for the audit team
and would decide on scope of various types of audit. The management team would
also discuss with various audit teams the focus, direction and emphasis of audits.
4. The management team would develop standard audit programs for various schemes
and would provide it to the audit teams which would then conduct the audit
according to the work program. Completing the work program provided to them
would be the minimum expected from every audit team, besides the teams should
exercise their judgement when they actually conduct the audit assignment.
5. Management team would have following composition:
• Chief Controller of Accounts (Chairman)
• Controller of Accounts (Vice Chairman)
• Director (Accounts), BSF (Member)
• Deputy Director (Accounts), CRPF (Member)
• Deputy Controller of Accounts/Assistant Controller of Accounts, IA (Member
Secretary)
• Deputy Controller of Accounts/Assistant Controller of Accounts in various field offices
(Members)
Management team would supervise the entire audit process and would guide the audit
teams to deliver quality in audits.
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1.2.3 Chief Audit Executive:
1. The Chief Audit Executive would be responsible for the overall management of the
audit process and would be the link between the audit committee and the audit
organization.
2. The Chief audit executive as a head of management team would finally take decision
on various issues faced by the audit team after taking inputs from other members of
management team.
3. CAE would decide upon the audit resources, members of the audit team for a
particular audit. He would also approve the annual audit plan. He would provide
guidance on the scope and depth of coverage for various audits.
4. CAE would also approve the advisories to Internal Audit teams as to concentrate on
any specific issue in a particular audit. The audit reports submitted by the audit
teams would be put up to him for approval before being finally issued to the client
and to the Ministry.
5. CAE and the Management Team would meet with the audit teams regularly to guide
them regarding the focus of Internal Audit Function. Also, CAE would facilitate the
audit process by interacting audit clients at an appropriate level if there are any
issues related with providing of records by the audit client.
6. CAE would also finalize and approve the general format of the report and also the
format in which working papers are to be maintained in the audits.
7. Chief Controller of Accounts (MHA) would be the Chief Audit Executive.
Audit Execution Team consists of Officers/ Staff of :
• Internal Audit Organization of MHA including Internal Audit organizations of CPFs
• Other PAOs of MHA
• From other Division of MHA and
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