Operationalising Thirteenth Finance Commission Recommendations - Urban
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Audit System  in Urban Local Bodies

The 13th FC observed that it could not get credible data on the performance of local bodies. This was mainly because a majority of local bodies do not maintain up to-date and audited accounts inhibiting a study of the local bodies. To overcome this problem and handicap, the Commission made three related recommendations. They are:

  1. C&AG must be entrusted with TG&S for all local bodies;
  2. CA&Gs Annual Technical Inspection Report should be placed before the state legislature; and
  3. The Annual Report of the Director, Local Fund Audit should be placed before the state legislature.
  1. C&AG must be entrusted with TG&S for all local bodies;

    The 13th FC noted that in a majority of the states (Andhra Pradesh , Kerala, Tamil Nadu, Orissa, Goa, Maharashtra, Goa, Maharashtra, Haryana, Himachal Pradesh, Jammu & Kashmir, Uttar Pradesh, Uttarakhand, Assam, Manipur, Tripura) the C&AG conducts audit of PRIs and ULBs under section 14 of the C&AGs (Duties, Powers and Conditions) Act, 1971 wherever applicable. Karnataka has not entrusted the TG&S for ULBs including city corporations but excluding the notified committees under Section 14(2) of C&AGs (DPC) Act, 1971 in May, 2010. According to the Commission the remaining states viz., Arunachal Pradesh, Bihar, Chhattisgarh, Jammu &Kashmir, Jharkhand and Punjab have not entrusted the TG&S for all local bodies to the C&AG. Karnataka and Tamil Nadu has not entrusted the TG&S for gram panchayats. It is necessary that these states entrust the TG&S of all local bodies to the C&AG.

    Most states entrust the TG&S to the C&AG under Sections 14 or 20. But it is desirable to entrust under Section 19 (3) of the Act. This was done by Karnataka in case of first two tiers of Zilla Panchayats and Town Panchayats. This will have the twin advantages of complying with condition relating to entrusting the audit to C&AG as well placing the consolidated report of the C&AG on the table of the state Legislature.


  2. CA&Gs Annual Technical Inspection Report should be placed before the state legislature; and

    In six states viz., Andhra Pradesh, Karnataka, Tamil Nadu, Kerala, Rajasthan, and Maharashtra, according to the 13th FC, C&AGs Audit Report on local bodies prepared under Section 14/19(3) of the C&AGs (Duties, Powers and Conditions of Service) Act, 1971 are laid before the respective state legislatures. In Karnataka this is a statutory requirement under Section 253 of The Karnataka Panchayat Raj Act, 1993. The reports of the C&AG for different states can be seen at http://www.cag.gov.in/html/localbodies.htm for a clear and better understanding of the nature of the Reports.
  3. The Annual Report of the Director, Local Fund Audit should be placed before the state legislature.

    The system of placing the Annual Report of the Director, Local Fund Audit before the state legislature exists in states like Andhra Pradesh, Kerala and West Bengal. In Kerala and West Bengal this is a statutory requirement, while in Andhra Pradesh State Audit Act mandates this. The Uttar Pradesh Audit Act, 1984 also seem to provide for placing the Audit Report of the Director, Local Fund Accounts on the table of the State Legislature.

    The states may adopt any of the methods either making a provision in the State Audit Act or incorporating the provisions in the respective municipal laws.
  • Compliance
    • Certification from C&AG that TG&S was given to C&AG, CA&Gs Annual Technical Inspection Report and Annual Report of the Director of Local Fund Audit were placed before the Legislature

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