The Kerala Municipality (Manner of Inspection and Audit System) Rules, 1997.

S.R.O. No. 590/97.—In exercise of the powers conferred by section 56 and 295 of the Kerala Municipality Act, 1994 (20 of 1994) read with sub-section (1) and clause (f) of subsection (2) of section 565 thereof, the Government of Kerala hereby make the following rules, namely:—

RULES

1. Short title and commencement.—

(1) These rules may be called the Kerala Municipality (Manner of Inspection and Audit System) Rules, 1997.

(2)They shall be deemed to have come into force on the 1st day of April, 1997.

2. Definitions.—

(1) In these rules, unless the content otherwise requires,- (i) 'Act' means the Kerala Municipality Act, 1994 (20 of 1994);

(ii) 'Auditor' means the Auditor referred to in sub-section (3) of section 295 of the Kerala Municipality Act, 1994 and 'Audit' means the audit Conducted by the Auditor under sub-section (4) of the said section;

(iii) 'Local Fund Audit Director' means the Local Fund Audit Director appointed by the Government under section 3 of the Kerala. Local Fund Audit Act, 1994 (14 of 1994);

(iv) 'Detailed annual audit' means the audit of all money transactions, accounts and all matters connected therewith of a Municipality, for a financial year or the period of more than a financial year;

(v) 'Inspection' means the inspection conducted by the officer authorised by the Government under section 56 and includes the performance audit conducted by the officer authorised by the Government in this behalf or by the system under such officer;

(vi) 'Performance Audit' means the inspection on the administration intended to evaluate whether the developmental and social welfare functions vested in a municipality and financial and controlling powers entrusted to that Municipality are being executed and utilised effectively and. efficiently in accordance with the Acts, rules and directions and giving of timely directions to rectify the defects, if any, and includes the scrutiny of the accounts, records, proceedings and the assessment, demand arid collection of tax and public works and the pointing out of defects, if any, of the municipality or of an institution under the administrative control of the Municipality and the giving of directions to comply with procedures in accordance with law;

(vii) 'Municipality' means a Town Panchayat; a Municipal Council or a Municipal Corporation constituted under sub-section (1) of section 4;

* Published in K.G. Ex. No. 721 dt, 19-5-2001, as G.O.(P) No. 119/2001/LSGD dt. 3-5-2001.

(viii) 'Special Audit' means detailed audit, arranged on special direction or with special intention regarding the money transactions for a specific period for any special purpose or purposes and includes the re-audit of the accounts for a period previously audited;

(ix) 'Section' means a section of the Act.

(2) Words and expressions used and not defined in these rules, but defined in the Act shall have the meanings respectively, assigned to them in the Act.

PERFORMANCE AUDIT

3. Performance Audit, System.— (1) There shall be .a performance Audit Authority at the State Level for conducting the performance audit and that shall be the Secretary to Government in the Local Administration Department.

(2) The Government shall appoint an officer as State Performance Audit Officer to assist the Performance Audit Authority in the State level and the Performance Audit Authority may delegate any or all of its powers to State Performance Audit Officer.

(3) The Government may appoint Performance Audit Officers in regional basis for conducting performance audit and shall conduct performance audit once in three months in the various Municipalities through the performance audit teams constituted under these officers.

(4) The Regional Performance Audit Officer concerned shall prepare in advance the programmes for conducting tri-monthly performance audit of each year, in each Municipality.

(5) Copy of the programmes thus prepared shall be given to the Municipality concerned in advance and the Secretary shall exhibit the same in the notice board of the office.

(6) Special performance audit may, in addition to the tri-monthly performance audit, be arranged on the requisitions of any Municipality or on the direction of the Government or on conviction of the performance audit authority and the special report on the special audit shall be given to the Municipality, Performance Audit Authority and the Government.

(7) The Performance Audit Authority and the State Performance Audit Officer shall have power to observe the working of performance audit teams and the Regional Performance Audit Officers and to give necessary directions and to take and examine the reports.

4. Duties and functions of the Performance Audit Authority.—The following shall, in addition to the rectification of defects and pointing out of the mistakes after inspecting the accounts, money transactions, office functioning and public works of the Municipalities, be the duty of the performance audit authority,—

(i) to ensure that the Municipalities are furnishing, in due time, the copies of their budget to the Government the officer authorised by them in this behalf and the Auditors as per section 289;

(ii) 'to make arrangements for the furnishing within the time limits of the annual reports of administration by the Municipalities, to the Officer authorised by the Government in this behalf under section 63;

(iii) to give necessary instructions to the Municipalities to take follow up actions on the performance audit report and the audit report; and

(iv) to ensure that the performance audit teams are Conducting tri-monthly performance audit in all Municipalities,

(2) Performance Audit Authority shall submit annual reports to the Government by including the following matters, namely;—

(i) Common defects in the assessment of tax and the fluctuations in the collection of tax of Municipalities;

(ii) Details regarding mobilisation of more resources;

(iii) Approximate figure on the liabilities of Municipalities and the progress regarding the refund thereof;

(iv) Problems connected with the Municipal administration to which the Government may draw-attention and the remedies thereof;

(v) Imitable models for Municipalities.

(3) Performance Audit Teams shall have the duty to give to each Municipality, in due time, necessary—guidelines to perform administrative matters in accordance with the procedure, to give directions to the Municipalities to rectify the defects by inspecting records, accounts, financial transactions and to propose the remedial actions by pointing out mistakes,

(4) The Performance Audit Team may, as part of the performance audit, check the records relating to public works of the Municipality, worksite, general quality of the work executed and the materials used in the work.

(5) The Performance Audit Authority shall, in matters of conducting performance audit and inspection, function in accordance with the directions issued by the Government from time to time.

5. Procedure for Performance Audit.— (1) The procedure mentioned below shall be followed in the performance audit:—

(i) The performance audit team engaged for the performance audit shall call for the registers, records and accounts required for the inspection, in the form of a questionnaire, from the Secretary or any other officer under the control of the Municipality and the Secretary or the Officer, as the case may be, shall be bound to furnish the same;

(ii) The money transactions or the procedures connected with any record which has not been made available shall be deemed to have not been done in accordance with law and that shall be recorded accordingly in the performance audit;

(iii) The performance audit team shall inspect the council decisions, registers, records, accounts and vouchers and record the primary observation and the details and

explanations required for further enquiries thereon and give an opportunity to the Secretary or other officers to furnish the reply;

(iv) The performance audit team shall examine the additional details received and give its remarks, findings and directions to the Secretary in writing and the Secretary shall give the reply to the same to the Performance Audit Team within five working days;

(v) Such remarks shall be prepared along with copies and the receipt of remarks shall be recorded in the copy with signature;

(vi) Stress shall be given in the performance audit, in issuing instructions for correcting mistakes and for not repeating the same. The performance audit team shall, in the order of completion of inspections prepare performance audit report, on the basis of the remarks and the reply furnished by the Secretary within the specified time, and give the same to the Chairperson, Secretary and the officer authorised by the Performance Audit Authority within one week and the Secretary shall inform the officer authorised by the Performance Audit Authority such receipt of report.

(2) The follow up action taken by the municipality on the previous reports of performanceaudit shall be the first item in each tri-monthly performance audit. Special reference in this regard shall be included in the report.

(3) The Performance Audit Team shall, alongwith the inspection, give guidelines regarding the procedures to the employees handling registers, records and accounts.

(4) The Performance Audit Team shall, after inspection, discuss with the Chairperson, Secretary and other officers on making the Municipal Administration more effective and revising the job chart on the basis of workload and shall propose necessary measures.

6. Certain matters to be subjected for inspection.—All matters relating to Municipal Administration shall be subjected to inspection in the performance audit and alongwith it, the matters specified below shall be given special attention:—

(i) Whether tax assessments has been made in due time and whether there has been any omission of or under-assessment of tax;

(ii) Whether steps have already been taken to collect the assessment tax;

(iii) Whether the steps for collection of tax have been completed;

(iv) Amount of arrears of tax; the percentage of tax collected in the previous year;

(v) Whether the receipts have been properly accounted;

(vi) Whether the expenditure is in accordance with the authorisation;

(vii) Whether there has been re-appropriation and whether the amount directed to be allocated for each development area has been allocated to that area and whether it has been spent accordingly;

(viii) Whether the amount allocated for special component programme (S.C.P.) and Tribal Sub-Plan (T.S.P.) has been spent for those items themselves;

(ix) Whether the records regarding expenditure is complete;

(x) Whether the expenditure has been made in accordance with the procedure;

(xi) Non-Plan expenditure;

(xii) Plan expenditure;

(xiii) Debts of Municipality and details of repayment;

(xiv) Whether there is any discrepancy between annual budget and expenditure; (xv) Whether the financial transactions are transparent; (xvi) Whether the contract works and other public works are done in accordance with rule;

(xvii) Whether the Municipality is performing its inevitable duties;

(xviii) Whether the council meetings, standing committee meetings and their decisions are in accordance with the prescribed procedure;

(xix) Whether the decisions are duly implemented;

(xx). Whether the ward committees are constituted according to law and whether they are meeting regularly;

(xxi) Efficiency of office administration;

(xxii) Whether the work distribution of employees has to be revised;

(xxiii) Evaluation of the functions of the various institutions of Municipality.

7. Other matters to be included in the Performance Audit Report.—(1) The Performance Audit Report shall in addition to the reference and inferences regarding the, accounts of receipts and expenditures, procedures and money transaction of Municipality, contain the details of any expenditure made by the Municipality not in accordance with the law or contrary of law, if any, and of the loss of money or wasteful expenditure, if any, caused to the Municipality and shall specify the persons responsible for such loss, wasteful expenditure or misappropriation:

(2) Performance Audit Team shall give clear directions to the Municipality for taking further action in cases in which responsibility has been fixed.

8. Consideration of Performance Audit Report.-(l) The Chairperson shall, after receipts of the performance audit report, place it in the next meeting for the consideration of the Council and the Council shall discuss it and take decisions for further action.

(2) The Chairperson shall furnish reply to the officer authorised by the Performance Audit Authority, within one month, by correcting the mistakes and implementing the recommendations pointed out in the report.

(3) The Secretary shall furnish copies of the performance audit report, the decision of the Council thereon and the reply furnished by the Chairperson to the officer authorised by the Performance Audit Authority to the Auditor and publish copies of the same in the notice board of the office of the Municipality and place the same for discussion in the ward committees.

(4) Copies of the performance audit report, decision of the Council thereon and the reply furnished by the Chairperson, shall, afterpublication, be issued to the applicants on realising the fees fixed by the Municipality.

(5) The Secretary shall, if the performance audit report contain anything not acceptable to the Council take up the same separately with the officer authorised by the performance Audit Authority and the Council shall consider the suggestion of that officer in that regard.

(6) The Regional Performance Audit Officer concerned shall, if the Municipality does not take necessary action on the performance audit report, inform it to the Performance Audit Authority and that Authority shall, after necessary further inspection and enquiry, furnish report to the Government and the Government shall, if so found that the Municipality has failed to discharge its lawful duties, take appropriate action.

9. Other rights of Performance Audit Team.—(I) The Performance Audit Team shall have the right to mark documents, after recording the statements of Secretary or other employees, during inspection, in cases prima facie found to be irregular and shall have the responsibility to mention about them in the report.

(2) The performance Audit Team have the power to give special report to the Chairman by recording the statement of any citizen presenting himself personally for giving evidence on any irregularity and by inspecting the concerned documents.

ANNUAL AUDIT

10. Audit to be conducted in detail and continuously on annual basis.— (1) The Auditors shall, from the date of commencement of these rules; audit the preceding year's accounts of the Municipality in detail and continuously, prepare the reports and furnish them to proper places as may be specified.

(2) The Auditors shall, while so auditing, collect the approximate details of the audit arrears of annual accounts and inform the same to the Local Fund Audit Director and the Director shall after informing the same to the Government, conduct summary audit in the form, manner and within the time limit as may be decided by the Government and subject to other general directions, as if the Acts and rules made thereunder were not in force, but subject to the Act and rules in force at that time and submit the same to the" Municipality, Local Fund Audit Director and, for further action, to the Performance Audit Authority.

Explanation.—Audit arrear means that audit arrear remaining after the last audit, conducted in respect of a Municipality, and before the financial year preceding the commencement of these rules.

11. Submission of annual financial statement— (1) The financial statement published under sub-section (1) of Section 294 shall be submitted for audit within four months after the completion of the financial year that is before the 31st day of July, to the Auditor authorised to conduct the audit of the accounts of that Municipality.

(2) The Secretary shall be responsible for submitting the financial statement for audit in accordance with the rules, and within the time limit as above and on default, action shall be taken against the Secretary under sub- section (2) of Section 9 of the Kerala Local Fund Audit Act, 1994 and the provisions of the rules made thereunder.

(3) The Auditor shall return the annual financial statements, submitted for audit, if not prepared in accordance with law or not having sufficient details or having other defects, within one week, pointing out such defects and the annual financial statement shall,

after rectifying the defects be resubmitted to the auditor immediately. It shall be deemed, until such renewed statement is submitted that the concerned Secretary has not produced the statement:

Provided that the Auditor shall not after the expiry of fifteen days from the date of receipt return the financial statement of a Municipality and shall collect necessary details by requisition in Writing.

(4) The auditor shall, two weeks in advance, inform the Secretary of the Municipality concerned, the date fixed for the auditing of that Municipality as per the preplanned agenda prepared by him;

Provided that such notice/is not required for conducting special audit in addition to detailed audit;

(5) The programmes for audit shall be prepared and published in advance in such a way as to complete the audit of all Municipalities in a district once in a year arid audit shall be conducted accordingly.

12. Submission of records, registers and accounts to Auditors.— (1) The Secretary shall submit all the records, registers and accounts required in writing by the Auditor.

(2) If the Secretary fails to submit any records or accounts, it shall be deemed that such record or account is not in existence and may arrive at a conclusion accordingly.

(3) The Secretary and the employees concerned shall have the responsibility for removing the references that may occur in the audit report regarding the objection or disallowance of expenditure that may be brought to notice at the time of audit, by producing records, if available, at the time of audit itself.

(4) The Officer or employee, to whom the work is distributed, shall be responsible for the loss, wasteful expenditure and misappropriation caused due to the failure in carrying out the duties entrusted to him on the basis of office orders and council decisions and his superior officer and, Secretary shall be responsible for supervisory lapse in these matters.

13. Matters regarding administration and financial control to be inspected and reported.—The auditor conducting the detailed annual audit shall inspect all the matters regarding the administration and financial control of the Municipality concerned and shall give special attention in the following matters:

(i) Annual budget and receipts and expenditure;

(ii) Records supporting expenditure;

(iii) Whether reappropriation made;

(iv) Assessment of tax;

(v) Collection of tax;

(vi) Grants and Contributions given by the Municipality;

(vii) Non Plan expenditure;

(Viii) Plan expenditure;

(ix) Inevitable functions arid expenditures;

(x) Appropriation of special funds;

(xi) Whether the expenditure is in accordance with sanction;

(xii) Whether the amount has been spent in accordance with procedure;

(xiii) Financial discipline of Municipality;

(xiv) Administrative efficiency;

(xv) Whether there is loss, wasteful expenditure and misappropriation of money and if so, the details of liabilities;

(xvi) Defects and mistakes of public works;

(xvii) Debts and details of refund;

(xviii) Whether the amount directed to be earmarked for each development sector has been allotted to that sector and whether it has been spent accordingly;

(xix) Whether the amount earmarked for Special Component Plan and Tribunal Sub-Plan has been spent for that item;

(xx) Objection/disallowance of expenditure and surcharge items;

14. Submission of Audit Report-(l) The Auditor shall, as soon as the audit is completed, but before the expiry of three months from such completion, submit the copy of the audit report to the Municipality and the Government as specified in sub-section (4) of section 295. Copy of the audit report shall be given also to the regional Performance Auditor concerned.

(2) The copy of the audit report received by the Municipality, along with the notes thereon prepared by the Secretary, shall be placed for the consideration of the Council meeting specially convened for the purpose.

(3) Special meeting of the Council shall be convened within one month form the date of receipt of the audit report by the Municipality and the detailed discussion shall be made on the report arid suitable decisions shall be taken on pertinent references contained in the report.

15. Council decision on audit report.—(1) Copy of the audit report and the Council decision thereon shall be given to the Performance Auditor within two weeks of such decision and the Auditor shall, after studying the said report and the decisions in detail given necessary guidelines regarding the actions to be taken by the Municipality in the light of the decisions on the report arid shall observe such actions.

(2) Copy of audit report and the decisions taken by the Council thereon shall be placed for discussion in the ward committees and they shall be published in the notice board of the Municipality:

(3) Copies of the audit report and the Council decisions thereon shall, after publication as above, be issued to applicants by realising the fees fixed by the Municipality.

16. Audit in various institutions of the Municipality.—The Auditor shall have the power to inspect the records, registers and accounts kept in any institution of a Municipality, by entering there and he shall include the matters revealed in such inspection in the audit report.

17. Special Funds.—Accounts of the receipts and expenditure of any fund kept by the Municipality, distinct from the Municipal fund, shall be subjected to audit.

18. Grant of remission.—Notwithstanding anything contained in these rules, the auditor may, considering the special circumstance of the money transaction, recommend the Council, to write off any amount, not exceeding Rs. 500 (Rs. Five hundred only), that is certified by the auditor to be collected from any person.

19. Special Audits.—The Performance Auditor or an officer authorised by the Government may, after conducting a preliminary enquiry on any suspected case of defalcation, loss of money, wasteful expenditure, false accounting or misappropriation, at any time, suggest for an extraordinary audit of the accounts of any Municipality for a specific period for a specific purpose and in such case the Local Fund Audit Director shall as per the directions of the Government, arrange a special audit and the Auditor shall submit the copy of report of such audit to the Municipality, Performance Auditor and the Government.

20. Audit closed shall not be re-examined.—An Audit in which final report was submitted shall not, except for special audit, be put to re-examination.

21. Rectification of irregularities and defects.— The Municipality shall, within two months after the receipt of the audit report and taking of decisions by the Council thereon, rectify the irregularities and defects referred to therein and shall give a rectification report, regarding the action taken by the Municipality on the report, to the Auditor and copy thereof to the Performance Auditor and the Government.

(2) The Auditor shall, after the receipt of the rectification report or after the expiry of the time limit fixed for the receipt of the rectification report, take further action on the audit report in accordance with the provisions and procedure contained in the Kerala Local Fund Audit Rules, 1996.

(3) Audit and other matters related thereto of a Municipality, not referred to in the Kerala Municipality Act, 1994 or in these rules shall be conducted in accordance with the provisions, conditions and procedures of the Kerala Local Fund Audit Act, 1994 (14 of 1994) and the rules made thereunder.

LIABILITY FOR LOSS, ETC.

22. Liability for loss, wasteful expenditure and misuse of property and for misconduct of wilful negligence.—(1) Over and above the liability of the officers and employees including the Secretary for causing loss to the Municipality, by failing to act in accordance with the Act or Rule or by acting in contravention of the Act or Rule, the. Chairperson, Deputy Chairperson. Standing Committee Chairman, Councillor or Secretary shall if by misconduct or wilfull default causes loss or wasteful expenditure or misappropriation of the Municipal fund or the fund provided by Government for the charges of the Municipality or causes the same to happen, be liable for such loss, wasteful expenditure or misappropriation and the Government shall taken action under section 27 to recover such loss.

(2) of the liabilities under section 67,—

(i) making expenditure in matters in which, the Secretary or other concerned Officer had pointed out, before taking the decision, that the expenditure might cause loss or there is reason to believe, in the ordinary course, that the transaction would result in loss, shall be considered as loss;

(ii) making expenditures not following procedures in the manner authorised or when there is circumstance, in the ordinary course, to think that the expenditure would not produce the intended result, shall be considered :is wasteful expenditure;

(iii) making expenditure of fund under any items,—

(a) by diverting amounts for plan schemes to non-plan items;

(b) by diverting amounts other than authorised or allocated in the budget;

(c) by diverting amounts intended from special fund;

(d) by diverting amounts allocated to special Component Plan and Tribal Sub-Plan;

(e) not in accordance with directions from Government, the rules and the Act or riot in accordance with the duties of the Municipality or not for matters authorised shall be considered as misuse and action shall be taken accordingly to recover the liability;

Note:—Matters mentioned in this sub-rule are only some examples and the Government may considering the nature and circumstance of the expenditure, fix upon the person concerned any other loss, wasteful expenditure and misappropriation that may be revealed in the enquiry, as his liability.

23. Liability to be reported by the Performance Audit Authority and Auditor.—

(1) Auditor or the Performance Audit Team inspecting a Municipality shall, if notice a financial transaction which may amount to a liability as per section 67, report the fact at once to the Local Fund Audit Director or Performance Audit Authority, as the case may be, and the Performance Audit Authority or the Local Fund Audit Director shall submit detailed report to the Government after conducting further inspection.

(2) The report submitted to the Government shall contain the names and details of the persons in whose names the liability has been fixed.

(3) The Government shall, if they get any complaint or petition in this matter directly, send the same to the Local Fund Audit Director, Performance Audit Authority or any other officer authorised for report, and the Government shall take action on the report send by them after special enquiry.

24. Fixing of liability on the basis of report.—(1) The Government shall, on the basis of the report under rule 23 serve on the person alleged with charge, requiring him to show cause why action should not be taken to recover the liability incurred, and such notice shall contain a brief description of charges, documents supporting liability and the general nature of liability.

(2) The person alleged with charges shall submit his explanation within thirty (30) days of the receipt of the notice. Government shall give an opportunity for personal hearing if so required by the person alleged with charges.

(3) The Government shall, if it is found evenafter the examination of the explanation that there exists the liability, issue an order fixing the amount and direct, in writing, the person liable to repay the amount fixed, to the Municipality, before the date specified.

(4) The amount shall be remitted in the Municipality and receipt obtained within thirty (30) days of receipt of the order, and if the amount is not remitted within that

period or an application under sub-section (4) of section 67 is not filed before the District Court, the said amount shall be recovered from the person liable as arrears of revenue on land and credited to

the Municipal Fund.

25. Enquiry Officer to be a party.—The officer who has submitted the report by conducting enquiry regarding the disputed liability shall, in case an application is filed before the District Court against the order issued by the Government under sub-rule (3) of rule 24, be made as an opposite party in addition to the Government and that officer shall submit the statement of facts before the Court on behalf of the Government.

MISCELLANEOUS

26. Inspection in the institutions handed over by the Government to the Municipalities,— (1) In addition to the Audit and Performance Audit conducted in a Municipality through the Local Fund Audit Director and the Performance Audit Authority respectively, the Head of the Government Department connected with the functions of an Institution handed over by the Government to a Municipality under section 30 or section 52 or the officer authorised by him ' shall have the power to inspect that institution.

(2) Copy of the report of the departmental inspection shall be forwarded to the Municipality for consideration and further action.

27. Relation between audit, performance audit and departmental inspection.—

Performance audit under section 56, audit under section 295, and departmental inspection under rule 26 shall be independent and at the same lime may be inter related and the inference of one report may be depended for the purpose of another report and may be mentioned in the said report.

Explanatory Note

(This does not form part of the Notification, but is intended to indicate its general purpose.)

As per section 56 of the Kerala Municipality Act, 1994 (20 of 1994), Government or an officer authorised by them may inspect any office under the control of a Municipality or the movable and immovable property kept there or any work in progress. As per sub-section (2) of section 56, Government may require any record, return, plan, estimate, statement or account of a Municipality. Section 295 authorises the Director of Local Fund Accounts or an officer authorised by him to audit the receipt and expenditure accounts of a Municipality. Clause (f) and (n) of sub-section (2) of section 565, empowers the Government to make rules regarding the inspection of documents, records etc. Government have decided to make rules for the purpose. This Notification is intended to achieve the above purpose.