Para 3.13.19 — MSO (Audit)
Original Rule Text
3.13.19 In order to safeguard government’s financial interests in respect of such contingent liabilities, the Accountant General (Audit) concerned should satisfy himself that the accounts of the public body or institution whose loan or loans have been guaranteed by Government are subject to audit by qualified auditors acceptable to
Government. Examination of the books of accounts of such a body or institution would not be in order unless its accounts are otherwise subjected to regular audit by the Comptroller and Auditor General. If, however, any guarantee is discharged by actual payment, the audit of the accounts of the body or institution can be considered subject to the provisions contained in the Act governing the duties, powers and conditions of service of the Comptroller and Auditor General. Scrutiny of the accounts of any Sinking Funds created by such a body or institution in pursuance of a scheme for the liquidation of debt under a statutory provision or otherwise should be directed to ascertaining that:
(a) the scheme of liquidation prescribed as the basis of the Sinking Fund is financially sound and consistent with the principles governing amortisation arrangements discussed earlier in this chapter;
(b) the Fund contains the amount that should have been accumulated if the prescribed scheme had been adhered to in respect of both the amounts to be credited to the Fund and the anticipated interest; and
(c) the investments of the Sinking Fund are sound and are valued at not more than their market price.
Defects in the scheme of liquidation, deficiencies noticed in the Fund, and any unsound investments or unusual depreciation in their market price should be brought prominently to the notice of Government.
# Sinking Funds
What This Means
When the government guarantees a loan for a public body or institution, the Accountant General (Audit) must ensure that body's accounts are audited by qualified auditors approved by the government. If a guarantee is actually discharged (government pays up), then the accounts of that body can be audited by the CAG. Any Sinking Fund created by such a body to repay debt must be checked to confirm the repayment scheme is sound, the fund has the right balance, and investments are safe and properly valued.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Bodies whose loans are guaranteed by government must have their accounts audited by qualified, government-approved auditors
- 2CAG audit of a guaranteed body's books is normally only triggered when a guarantee is actually invoked and paid
- 3Sinking Funds created for debt liquidation must be examined for financial soundness of the repayment scheme
- 4The fund balance must match what should have been accumulated per the prescribed schedule
- 5Investments of the Sinking Fund must be sound and valued at no more than market price
Practical Example
A state industrial development corporation has a Rs 200 crore loan guaranteed by the State Government and maintains a Sinking Fund to repay it. During audit, the AG checks whether the fund's balance of Rs 45 crore matches the expected Rs 50 crore based on the repayment schedule, finds a Rs 5 crore shortfall, and also discovers that some fund investments have depreciated below their book value. These deficiencies are brought to the government's notice for corrective action.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
Can CAG directly audit a body just because government has guaranteed its loan?▼
What is a Sinking Fund?▼
What happens if Sinking Fund investments show unusual depreciation?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.