Para 3.7.14 — MSO (Audit)

MSO (Audit)mso-audit

3.7.14 If considered necessary, cases of the following type may be scrutinised in consultation with the Propriety Audit Section:
(i) Inclusion of any new item not originally contemplated in the contract.
(ii) Cases involving extension of the stipulated delivery schedule when payment of higher prices had been agreed to initially on grounds of urgency of requirements and early delivery.
(iii) Cases involving payment of compensation to contractors/suppliers’ firms.
(iv) Contracts, even if sanctioned by the competent authority including the Government, containing any extraordinary or unusual stipulations.
(v) Cases involving adoption of any special and apparently objectionable procedures of purchase, inspection and payment.
(vi) All contracts concluded on cost plus profit basis.
(vii) All contracts entered into with private firms for functioning as Government stockists.
(viii) Sanctions to ex gratia payments.
# C. Audit of bills for purchases and supplies of stores

What This Means

Certain types of contract cases require deeper scrutiny and should be examined in consultation with the Propriety Audit Section. These include contracts with new items not originally contemplated, delivery extensions on urgent-premium contracts, compensation payments to contractors, contracts with extraordinary stipulations, unusual procurement procedures, cost-plus-profit contracts, private-firm government stockist arrangements, and ex gratia payments to contractors.

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

Key Points

1Eight categories of contract cases require Propriety Audit Section consultation
2New items not originally in the contract need special scrutiny
3Delivery extensions on urgency-premium contracts are red flags
4Compensation payments to contractors/suppliers require examination
5Extraordinary or unusual contract stipulations must be reviewed
6Cost-plus-profit contracts always need propriety review
7Private firm government stockist contracts require scrutiny
8Ex gratia payments to contractors must be examined

Practical Example

A government department had a supply contract with a firm at prices 20% above market rate, justified by 'urgency of requirement and early delivery.' Six months later, the department extended the delivery schedule by 4 months without reducing the premium prices. The audit team flagged this for Propriety Audit Section consultation because the original justification for higher prices (urgency and early delivery) was nullified by the delivery extension, resulting in avoidable extra expenditure of Rs 8 lakh.

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

Frequently Asked Questions

What is a cost-plus-profit contract and why does it need special scrutiny?▼

In a cost-plus-profit contract, the government pays the actual cost of production/service plus a percentage as profit. This type of contract provides no incentive to the contractor to minimize costs, potentially leading to inflated costs. It requires propriety audit to verify that costs are genuine and the profit margin is reasonable.

What are ex gratia payments in the contract context?▼

Ex gratia payments are voluntary payments made by the government to a contractor/supplier without any contractual or legal obligation — often as goodwill gestures for losses suffered due to unforeseen circumstances. Since these are discretionary, they require careful scrutiny to ensure they are justified and not a disguised benefit.

When is consultation with Propriety Audit Section mandatory?▼

It is not strictly mandatory but recommended ('if considered necessary'). However, the listed categories represent high-risk situations where propriety concerns are likely, and prudent audit practice would involve consulting the specialized section for their expertise.

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

Para 3.7.14 — MSO (Audit)

Original Rule Text

What This Means

Key Points

Practical Example

Frequently Asked Questions

Related Rules