Master audit program of administration expenses



1.Check whether comparative quotations have been called for or not see whether the best quotation has been selected – Annual rate contract can be checked.


2.See the register kept by the Administration Dept. Showing the list of items dispatched by courier.The register should give name, address of the party to whom document is dispatched,date of dispatch,weight of document dispatched.


3.Check whether the proof of deliveries is received by the Department or not.


4.Test check a few proof of deliveries with the register maintained by the Department.


5.The monthly courier bills should be verified with the register before payment.




1.The payments to be made against only original bills and not Xerox bills.


2.Review the register maintained for STD calls – the register should specify the name of person making the call, duration of each call.


3.It should be seen that the duration of each STD calls is not too long – there should be adequate control over the duration of each STD call.


4.Check whether every personal STD call has been recovered from the employee.


5.The STD lock facility should be utilised – code known by authorised persons only.


6.Check to see whether all the telephones are being properly utilised or not – MTNL gives the facility of 150 free calls – it should be seen that this facility is used for all telephones – it might so happen that in one of the telephones only the rental charges are paid.




1.See that the meter readings physically verified and recorded by the Administration Department at least once a week – this register should be signed by Departmental Head once in a month.


2.Review the readings and see whether there have been vide fluctuations in units consumed in two months – check the variances.


3.Check the units consumed as per the bill and as per the register.




1.Review the policy of insuring the assets – which department is responsible,when is the asset insured flow of information for costs between the department.


2.Read the insurance policy and check whether all conditions have been adhered to – for example the policy might state that the Annual Maintenance Contract be submitted.


3.See that all the new assets have been insured on time.


4.Check that all incidental costs incurred to install and accept the have been included in the value of the assets.


5.See that the change of location of the asset has been informed to the insurance company.


6.Review the database prepared for the insurance policies every policy to be renewed on time.


7.The following assets to be insured in following manner:


a. Premises including branch office to be insured.


b. Cash-in-transit policy to be removed – check that the cash withdrawn from the bank does not exceed this amount.


c. Spare Part to be insured under fire policy.


d. Laptop Computers – special policy.


e. Software installed – cost of software tapes and systems software to be insured under electronic equipment policy.


f. Assets which take a longer duration for installing  or acceptance – erection cum fire policy.




1.Review  the agreement entered with the owner.


2.Read the Board resolution on any new lease rent agreement to be entered into.


3.Check and see that the rent and other charges are paid as per  the agreement .


4.See that the renewal of lease has been done.


5.If the rent paid exceed Rs. 1,20,000/- p.a.  the TDS to be deducted @ 23% if it is a Company else 1% TDS to be deducted.


6.It should be seen that if the agreement specifies that the maintenance charges to be borne by the owner then the same if incurred to be recovered from the owner.






1.Review the quotation invited – compare the rates offered – price quality equation to be maintained.


2.It should be seen that the reason for choosing  a  particular quotation has been documented.


3.Review the Annual Rate Contracts entered into.


4.Review the stock register maintained – all details should be entered into – issues  to which department.


5.Compare the physical stock with the stock shown by the register.


6.The quantity purchased and recorded should not show any discrepancy.


7.The Head of the Dept. should see that there is proper utilisation of the stationery items – any high consumption to be reviewed.


8.See that proper control over utilisation is there.


9.Payment according to contract and rates charged accordingly.




1.Review the quotations invited.


2.Agreement, if required annually or per contract, to be entered into.


3.Payment to be done according to the agreement.




1.Review the travel policy of the Company which specifies the grade-wise entitlement to class of travel, hotel expenditure, reimbursements of expenses,expenditure limits,allowances given.


2.Review the policy on travel advances.


3.See that if there is any delay in settling the advances.


4.It should be seen that no further advance is given before settling earlier advances.


5.Review the trade advance book-see whether reviewed by Finance Manager, to be maintained employee-wise instead of date-wise.


6.Check the travel requisitions memos – this should be signed by the Departmental Head.


7.Link the travel requisition memos with the bills of travel agent.


8.Review the cancelled tickets.


a.See that the tickets are not cancelled too often – reasons to be seen.


b.If  cancelled within time then only cancellation charges to be paid.


9.See that the requisition memos are cancelled if the tour has been cancelled.


10.Check the retained ticket jackets – to ensure travel was undertaken – number of days of travel.


11.See that proper discount has been availed on foreign travel tickets – agent to be fixed.


12.Reimbursement of lodging and boarding, conveyance has been paid according to the policy of the Company.


13.Allowance per day paid according  to the days of travel based on the tickets – for international travel the number of days can be calculated by reviewing the passport of the employee.


14.If personal telephone calls are not allowed, then it should be seen that the same has been recovered  from the employee.




1.If there are Xerox machines installed see that minimal photocopies have been taken outside.


2.Review  the contract entered with the manufacturing  company.


3.Compare  the meter readings mentioned in the bills with the meter reading s recorded by the Department.


4.See that the machine does not get spoil too often – check to see whether this is due to the fact that the machine is overloaded – if this is so then recommend purchase of another machine.




1.Review  the Contract/agreement entered into.


2.See that the work is completed on time.


3.Payment to be checked as per agreement.


4.If the fees paid exceed Rs. 20,000/- per contract then TDS to be deducted.




1.Review the policy of the company.


2.See that the payment done accordingly.


3.Check that the voucher has been authorised by departmental head.




1.See that the payment of petrol expenses done as per the policy of the Company if on actual then according to the bills  submitted – if there are limit to reimbursing the employee then the payment should not go beyond the limits.


2.See that the payment done accordingly.


3.Check that the voucher has been authorised by departmental head.
Source : Third Eye



Questionaire for Audit of HR Department

Prepared By: Amitkumar Tiwari


Human Resource department plays an vital role for providing and managing employees in any organizations. Being an Internal Auditor of a company, the performance of the HR Department should be properly analysed and provide effective suggestions to management for improving the salary structure, cost control and proper allocation of work. The audit can be carried out in two ways. First one is that you follow the traditional way of going through all the records maintained by department and second one is to prepare certain questionnaire and give it to the employees and HOD’s and do detailed verification of only those areas in which the response given by employees and management is not satisfactory.

The format of questionnaire which can be useful for audit of HR Department is given below. However, the readers are encouraged to draft their own questionnaire in accordance with the work manual, internal guidelines of the organization.

Please leave the comment after going through the articles. Any comments, criticism, suggestions are highly appreciated.


S.No Question Yes No N/A Comments
1 Does the department have an overall mission?
2 Does the department have an organisation chart
3 Does the department have a written policies and procedure manual
4 Has the department undergone other reviews in the past 3 years
5 Does the department have the time , tools and resources to effectively accomplish its objectives and mission
6 Are there any special issues or areas of concern to which the department feels that the team of Internal audit be aware of or devote additional time
7 Whether new recruitment is made only after following proper procedure
8 Whether salary paid is as per the appointment letter and increment sanctioned by the competent authority
9 Whether any analysis is done by the department to check out the need of recruitment over requisition received from various department
10 Whether department have any plan or coordination with other department to track the review whether volume of staff is commensurate with work or not
11 Whether organisation is maintaining records of department vice employee’s list (manager level, supervisor level, staff/operation level total) or not
12 Whether the record of all recruiters interview sheet with comment by the person taking interview is maintained
13 Whether organisation is maintaining the records of grievance handling file and providing monthly report over grievance short out issue to management or not
14 Whether organisation is maintaining records of feedback form of all employees after completion of recruitment /training procedure
15 Whether any Person is responsible for providing timely training to different department’s employee and provide timely guidelines over organization policy?
16 Whether organization is maintaining any   Record of exit interview of all employees with reason and providing any feedback/suggestion to higher management to implement any policy to reduce employee turnover?
17 Whether organization is providing Monthly department wise reports over   persons recruited and dispelled or not?

Drawing Power Calculation

Prepared By: Sanjok Bartaula


Drawing Power is calculated on the stock and book debt by reducing the margins as per banks norm. Drawing Power calculation sounds to be simple by definition. but it requires number of adjustment to be made before arriving at real Drawing Power of borrowers. following is the simple format for Drawing Power Calculation that can be applied on manufacturing concern and also on other cases with slight modification as per the requirement.

Drawing Power Calculation:

  1. A.     Physical Inventory (Stock)


Particulars Amount
Value of Stock as shown in stock statements as of 31.12.2012i)                    Raw materialii)                  Stock in process/stock in transitiii)                Stores and spares

iv)                Finished stock

Add: Stock given on job work
Less: Stock received on job work


  1. B.      Stock eligible for Drawing Power Calculation:


I)  Value of stocks as arrived at as per above statement
Less: unpaid stocks
Less: stock received under DA L/C/LG or under bills
Less: value of slow moving/obsolete stock
Less: Difference in value of stock between stock statement submitted by borrower to bank and stock as per excise register.
Total Stock eligible for DP Calculation
  1. C.      BOOK DEBTS:


Particulars Book-Debts up to 90 Days (as per banks norm)
Book-Debts as on 31.12.2012 up to 90 Days
Less: Book Debts not eligible for DP Calculation
Total Book-Debts eligible for DP Calculation
  1. D.    Calculation of Drawing Power:

Sr. No.



1. Stock
2. Book-Debts
Less: Margin (say @ 25%) on both Stock & Book Debts
  Total Drawing Power

Stock Audit of Bank Borrowers

Stock Audit of Bank Borrowers

Stock Audit of Bank Borrowers

Introduction –


Working capital finance in the form of cash credit against the security of hypothecation of stock and debtors is one of the most common modes of finance frequently adopted by various bankers. The borrowers in such cases are expected to submit the details of stock and debtors every month on the basis of which Drawing Power after reducing the prescribed margin is calculated by the banks. Stock and debtors being the primary security, bankers for ascertaining the genuineness & correctness of such statements appoint chartered accountant firms at frequent time intervals to conduct stock audit specifically where the exposure exceeds the predetermined threshold limit (generally over Rs. 100 Lacs).


This article therefore makes an attempt to throw light on the procedure of stock audit, its objectives and utility in a brief manner.



Appointment of Stock Auditors and period of audit –


The appointment of stock auditors is generally made by the regional or zonal offices in case of nationalized banks, while in case of co-op banks sometimes concurrent auditors only are asked to conduct stock audit of select borrowers of the branch. Terms of appointment are prescribed by such offices which sometimes involves conducting of stock audit as one time exercise only while in others it may be a contract for two half yearly visits during a particular financial year, of which first visit to be conducted before September and second visit before March. The stock audit involves audit of latest stock and debtors information of the borrower and the report should give the position of stock and debtors ideally on the date of visit. Further it will also make examination of past data submitted by the borrower to the bank and appearing in the books of accounts of the borrower, to check reliability of information submitted by the borrower.



Objectives of Stock Audit –


The banker appointing the CA firm for conducting stock audit has main objective of ascertaining whether the security (borrower’s stock and debtors) against which finance has been made is safe and is valued correctly.


The various purposes expected to be achieved through stock audit may be summarized as   follows –


  • To ensure proper preservation / storage and handling of stock.
  • To identify whether there exist any obsolete stock & if yes, whether it has been segregated & written off.
  • To verify whether the stock is adequately insured against fire and other natural calamities (in appropriate cases against other risks like theft, burglary, marine, riots etc. as per sanction)
  • To ascertain whether physical stock tally with the stock statement submitted to the banker
  • To ascertain whether hypothecated stock is realizable.
  • To confirm that stock is owned by the borrower and finance is made against value of paid stock only.
  • To examine the age wise debtors outstanding as per books and as per statement submitted by the bank, steps taken for recovery of long pending debtors and likely instances of debtors turning bad, if any.



Steps involved in stock audit


Stock audit is necessarily required to be conducted at the borrowers place for obvious reasons. But before visiting the borrower, understanding the entity, its banking operations and financial affairs is must.


Therefore, it is advisable to visit the respective branch where the borrower is having the account so as to gather the information relating to Sanction, account operations, nature of business, performance of the borrower and other fundamental information along with the comments / observations noted by other auditors (like Internal Inspectors, Concurrent Auditors etc) to have a brief understanding about the borrower and its financial affairs.


  • Visit to Borrower’s Branch


o   Banks generally has the system of maintaining two folders (in few cases only one folder) for each borrower of which one is used for keeping original documents executed by the borrower (viz. Demand Promissory Note, Hypothecation Deed, Guarantee Bond etc.) while other folder contains Application form, project report, Sanction Letter, Audited Financial Statements, previous stock audit report etc. Stock statements submitted each month by the borrower are filed with the correspondence file or may be kept in a single file meant for keeping stock statements of all the borrowers. Scrutiny of both the files along with the account operations and DP Register with reference to terms of Sanction helps stock auditor to gain insight about the borrower’ affairs and conduct of the account.


  • Visit to borrower and verification of stock


o   Once the basic information is collected from the bank branch, it is time to visit the borrower. It is advisable to carry audit questionnaire at the time of visit so that no important point / area is missed out. Visit to borrower involves verification of stock and debtors, inquiry about MIS and internal control, future projections and financial plans of the borrower and analysis of past results and bank operations.

o   Although audit is related to stock and debtors only, understanding of overall financial scenario and inquiry as to sister concerns & their businesses may also help the stock auditor to finalize the report in a better manner.


  • Preparation of Audit Report and discussion about audit findings


o   After conclusion of visits, stock audit report in the prescribed format, if available is to be prepared. In the absence of format, questionnaire prepared can itself also act as a report format. However, at the end of the questionnaire or in the covering letter itself (where auditor has to report in bank specified format) summary of major adverse findings (or points for future action) must be submitted by the auditor. Before submission of audit report, discussion about audit findings with the monitoring branch as well as borrower may be a good practice which may bring further clarity in reporting. But, it should be done depending upon the circumstances of case in hand.



Format for stock Audit –


Format for stock audit report may vary from bank to bank. Some banks have customized stock audit report formats while others may hint only the important areas to be reported by stock auditors. Irrespective of the formats, it is good to have questionnaire to be prepared by stock auditor covering following important areas of stock audit –


  • Compliance with terms and conditions of sanction.
  • Timely & adequate submission of stock statements & other important financial information.
  • Account operations – overdrawing, credit summation and cash withdrawals.
  • Drawing power calculations by banks and by the auditors & discrepancies, if any along with the reasons.
  • Physical maintenance and storage of stock and adequacy of facilities at the borrowers place.
  • Systems / procedures implemented by borrower to identify the slow and non-moving stock items.
  • Borrower’s Management information system, its adequacy & Internal controls to safeguard stock.
  • Method of valuation of stock, time interval for valuation and adequacy & sufficiency of procedures thereof.
  • Insurance of stock.
  • Verification of Debtors.


The list of common irregularities / observations given below will give the better idea about preparation of stock audit questionnaire on above stated areas.





Common irregularities / observations in stock audit –


The common irregularities that may be observed by the CA firm during stock audit can be summarized as follows –


Observations about statement submission & Scrutiny –


Observations about account operations – Observations about Insurance coverage –  
  • Stock Book Debts statements not submitted / not submitted in time.
  • Inadequate details viz. rate, quantity and amount of different type of stock items not stated in the statement.
  • Scrutiny of stock statements not done.
  • DP Register not written up to date.
  • Age wise analysis of Debtors not given / done. Debtors over 90 days (or as per sanction) considered for drawing power.
  • Drawing power not correctly calculated.
  • Latest visit report by branch official not on record.


  • Operations in the accounts not scrutinized with reference to projections, QIS statements, audited accounts etc.
  • Defects pointed out by the Internal Auditors / Inspectors / Concurrent Auditors are not complied with.
  • No / belated review / renewal of A/c.
  • All sales as per financial statements not routed through account.
  • Account not operated actively.
  • Cash withdrawal during current period is abnormal.
  • Frequent overdrawing in the account.
  • Balance over drawing power although within Sanctioned Limit.
    • Under insurance of stock.
    • Insurance expired and not renewed.
    • Premium for renewal policy paid but policy not on record.
    • Insurance Policy without Bank Clause.
    • No coverage of all risks as per sanction.
    • Wrong items / description of goods on insurance policy.
    • Location of goods wrongly stated.
    • All locations of stock not covered.
Observations about verification of stock and creditors –


Observations about verification of Sundry   Debtors –


General Observations –


  • Stock book not maintained/ not updated.
  • Obsolete stock not excluded from stock figures submitted to bank.
  • Deteriorating stock turnover ratio.
  • Stock figures submitted at the year end and as per financial statement not matching.
  • Stock debtors as per statements submitted and as per books not matching.
  • Confirmation for inventory with third party not obtained or physical verification of Inventory not done.
  • Material received from third parties for job work not excluded while calculating drawing power.
    • Existence of long pending debtors.
    • Long pending debtors shown as below 90 days debts to bank.
    • Increase in the average collection period of debtors.
    • Dispute with debtors and pending court cases.
    • Amount receivable from Sister concern considered for calculation of drawing power.
    • Advances received from debtors not reported resulting into lower DP than calculated by bank.
  • Diversion of funds and inter account transfers are not properly monitored.
  • Borrower having operations with other bank for which permission of lender not obtained.
  • Bank name plate not displayed.




Above list is illustrative only and not the exhaustive one. In actual practice, there may be other observations / irregularities over and above stated in the list.


Findings of Stock Audit and its uses –


Stock audit by external CA firm is one of the important tools of credit monitoring for the bank. Apart from ensuring safety of realizable security, it also helps the bank to discipline the borrower or may act as a warning signal against probable future NPA. It may aid the bank to take timely remedial measures to avoid substantial future losses. It also highlights the weaknesses, if any in the existing monitoring system of the branch through comments about maintenance of DP register, scrutiny of statements, review of accounts and compliance of audit findings.


Over and above, stock audit also has the utility for the borrower. Comments about insurance inadequacies, wrong product description and locations stated in the policies, if rectified timely may save the borrower from avoidable future losses.


Therefore, in my opinion unlike Statutory Audit where there is thrust only on the compliance under respective statute, the Stock Audit is a knowledge value addition exercise for both – bankers as well as borrowers.


Source : originally posted by CA Pranjal-