Para 3.20.6 — MSO (Audit)

3.20.6 The first step will be to find out the basic objective or activity of the entity. Thereafter, the organisational pattern of the entity as indicated in its organisational chart and procedural manuals should be studied to make sure that a clear and logical plan of organisational functions that establishes clear lines of authority and responsibility for financial and operational activities keeping in view the entity’s basic objective or activity is available. A flow chart could be prepared in order to examine whether:

(i) the units are functionally segregated to ensure professional, functional and/or technical specialisation and to achieve functional independence for purposes of internal management control;

(ii) proper distribution and clear demarcation of functional responsibilities exist among the personnel working in the entity;

(iii) the entity’s staffing pattern conforms to norms or standards prescribed for the purpose and has the approval of the competent authority;

(iv) the financial functions are separated from other administrative functions;

(v) the employees within the financial unit responsible for the custody of financial or material resources are separate from those who record transactions, maintain accounting records and prepare financial reports;

(vi) the financial powers of each authority of the unit and its responsibilities have been clearly defined and are updated to depict the correct position at any given point in time;

(vii) checks and balances have been integrated into transactions in such a manner as to ensure added reliability without increasing costs or creating new positions or new operating units;

(viii) there is an effective system of follow-up to determine whether assignments are properly carried out;

(ix) the organisational units are designed to obtain maximum effectiveness at the minimum cost;

(x) staff requirements are reviewed from time to time keeping in view changes in the entity’s functions and relevant factors;

(xi) posts remain vacant for long periods affecting adversely the entity’s functioning; and

(xii) there is any overstaffing with reference to the entity’s functional responsibilities.

- Analysis of system of authorisation and recording

What This Means

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Key Points

• 1Start by understanding the basic objective of the entity
• 2Study organizational charts and procedural manuals for structure and reporting lines
• 3Prepare a flow chart to trace how functions are organized
• 4Check for 12 critical organizational elements including segregation of duties, staffing norms, and cost-effectiveness
• 5Financial functions must be separate from custody of assets

Practical Example

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Frequently Asked Questions

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.