Audit Guidelines Procurement

1PRACTICE GUIDE FOR AUDIT OF PROCUREMENT

PRACTICE GUIDE FOR AUDIT OF PROCUREMENT

Sr.No. Audit Objectives Issues

I Policy guidelines anddocumentation by theOrganisation forprocurement

——Whether theorganization hasuniform and welldocumented policyguidelines so thatprocurement is done ofspecified quality, atmost competitiverates, in a fair and justmanner, ensuringefficiency, economyand accountability?

1. Whether there exists a well documentedpurchase manual containing detailedpurchase procedures, guidelines, and properdelegation of powers?

2. Has the procurement manual been regularlyupdated?

3. Whether the codified purchase manualassures systematic and uniform approach indecision making process for procurement?

4. Whether accountability centres have beenproperly identified and demarcated?

5. Have appropriate time frames for each stageof procurement been prescribed by theDepartments, to reduce delays in meeting theoperational, production and maintenancerequirements and make concerned purchaseofficials more alert?

6. Whether delegation to lower functionaries,with approval of competent authority, has beendone for speedy decision making andplacement of contract?

II Record managementand documentation ofpurchase /procurement

—Whether adequacyof the documentationand filing system ofdecisions anddeliberations ofindividuals /TenderCommittee has been

7. Whether detailed recording/documentationprocedures of all procurement exist?

8. Have decisions/deliberations of individuals /Tender Committee been properlydocumented so that accountability can befixed if serious lapses are established?

9. Were part files which are opened as andwhen new action is initiated, merged with themain file so as to ensure continuity andprevent arbitrariness in decision making?

2 PRACTICE GUIDE FOR AUDIT OF PROCUREMENT

assessed so as toprevent dilution ofaccountability andarbitrariness indecision making.?

10. Were files properly paginated?

III Requirement/provisioning

—Whether quantitiespurchased were not inexcess of requirementand of standard qualityso as to avoid wastefulexpenditure andavoidable inventorycarrying cost?

1. Were excessive, fraudulent or infructuouspurchases avoided by taking intoconsideration important aspects e.g.consumption during last 3-5 years, duringcurrent year, average rate of consumption,available stocks, outstanding dues/supplies,past consumption pattern, average life ofequipments/items etc?

2. In making forecasts, did the indenting agencyonly consider “True issues” i.e. actualconsumption excluding inter-depotadjustments, non-recurring issues etc?

3. Was inventory carrying cost assessedespecially in respect of material lyingunutilized for years?

4. Were there cases of purchases less thanthe actual requirement that might haveadversely affected the progress of works andresulted in subsequent procurement atadditional and may be higher costs?

5. Were demands for stores received fromdifferent wings/units clubbed together so asto reap the benefits of bulk buying?

6. Were requirements intentionally bifurcated/split so as to avoid approval from higherauthorities?

7. Was obsolescence factor taken into accountby ensuring that the equipment to bepurchased conformed to the latestspecifications and technology available in themarket?


8. Were the specifications drawn up withemphasis on factors like efficiency, optimumfuel/power consumption, use ofenvironmental friendly materials, reducednoise and emission levels, low maintenancecost etc?

9 Did the specifications take care of thecountry’s mandatory and statutoryregulations, if any, applicable for the goodsto be purchased?

10. Where Indian Standards exist for the requiredgoods, whether the same was adopted?

11. Was preference accorded to procure goodswhich carried the Bureau of Indian Standards(BIS) mark?

12. Where Indian standards do not exist or,alternatively, decision was taken to try theforeign market also, were InternationalStandards (e.g. ISO etc) adopted?

13. Was cost benefit analysis done to establishjustification for procurement?

14. Were requirements prioritized so as to ensureoptimum utilization of scarce resources?

15. Was there rush of expenditure onprocurement at the close of the financial yearor fictitious booking merely with the view toutilizing budget grants?

IV Rate analysis/Estimatedrates

—Whether estimatedrates were worked outrealistically so as to

16. Whether the rates were estimated in aprofessional manner and not simply byextrapolating prices of low capacityequipment or by applying uniform yearlycompounded escalation over prices of similarequipment purchased earlier?


17. Was Rate analysis done in a realistic andobjective manner on the basis of prevailingmarket rate, last purchase prices, economicindices for raw material/labour and other inputcosts etc.?

18. Whether comparison of rates vis a vis otherdepartments/zones procuring similarcommodities was done through exchange ofinformation?

19. Was last purchase price (LPP) of pastsuccessfully executed orders of similarmagnitude and scope of supply, used as aninput for assessing rates?

V Inviting Tenders

—Whether theprocedure ensuredwide publicity,generated competitionand obviatedfavouritism?

1. Whether in respect of standard type, common-user items, needed on a recurring basis forwhich DGS&D has concluded rate contracts,the Department has operated such ratecontracts, in order to save time, effort andother related costs in repetitive tendering andreduce lead time in procurement?

2. Whether prices paid by a Department, whichdirectly procured DGS&D’s rate contractedgoods from the suppliers, were not more thanthose stipulated in the rate contract?

3. Were other salient terms and conditions of thepurchase in line with those specified in therate contract?

4. Whether the tender enquiry was the mostpreferred and transparent mode of Tenderingviz Global Tender Enquiry/Advertised TenderEnquiry?

5. Was the estimated value of procurementproposed for Limited Tender Enquiry within thefinancial limit prescribed under extant rules?

establish thereasonableness ofprices?


6. Was the number of supplier firms in LimitedTender Enquiry, at least three?

7. In cases where Limited Tender Enquiry wasadopted even where estimated value wasmore than permissible limit, was there acertification by the competent authority thatthe demand was urgent, the nature of theurgency, the reasons why the procurementcould not be anticipated and that theadditional expenditure involved in notprocuring through advertised tender wasjustified in view of urgency?

8. Was there confirmation by the procuringagency that the sources of supply weredefinitely known and possibility of freshsources beyond those being tapped wasremote in cases of Limited Tendering?

9. Whether the credentials of the firms andcriteria adopted for selection of limited numberof vendors were recorded?

10. Whether detailed justification was given/recorded for propriety purchases and selectinga single vendor?

11. Was there a certification by the userdepartment that only a particular firm was themanufacturer of the required goods?

12. Was there recorded advice of a competenttechnical expert, duly approved by thecompetent authority, that for standardizationof machinery or compatibility of spare parts tothe existing set of equipment, the requireditems was to be purchased only from aselected firm?

13. Was a list of firms of known reliability,periodically examined and revised, maintained


for the purpose of “limited” and “single” tenderprocedures?

14. Were firms registered as approved suppliers,done carefully, after assessing the capacitycum capability and financial standing,credentials, manufacturing capability, qualitycontrol systems, past performance, after salesservice, financial background etc. of the firm,using the services, if required, of DGS&D orResearch Design and Standards Organisation,Lucknow as in the case of Railways?

15. Whether the performance and conduct of asupplier was regularly monitored/watched bythe concerned organization through a vendordevelopment cell?

16. Whether addition/deletion of suppliers from theapproved list was effected every year inconsideration of their performance andconduct?

17. Was sufficient/wide publicity given so as togenerate competition and avoid favouritism toselect vendors?

18. Were tender notices put on the web-site of theorganization?

19. Whether the advertisement was issued inNational News Papers and in Indian TradeJournal (Govt. Publication)?

20. Were tender notices sent by post to pastsuccessful suppliers and likely suppliersregistered with the department?

21. In case of imported stores, were copies oftender notices forwarded to Indian Missions/Embassies?


22. Whether adequate time was given in order toreceive sufficient responses from thecompetent suppliers?

23. In cases where tenders were opened withinvery short periods, was the urgency/emergency recorded and established?

24. Whether in respect of such short-term tendersbased on urgency of requirement, theprocessing was also quick and fast?

25. Were sale of tenders kept open for adequateperiod or were they closed much in advanceof tender opening thereby defeating thepurpose of generating competition?

26. Whether detailed instructions in respect of 2-bid system been indicated in the documentinviting tender as to the requirements ofsubmitting technical bid and financial bidseparately?

27. Whether Government’s instructions onreservation of items and price preference toSSI units were incorporated in the biddocuments?

28. Whether purchase preference policy (PPP)applicable to Public Sector Enterprises as perthe latest guidelines of July 2005, circulatedby Department of Public Enterprises beenincorporated in the bid document?

29. Was PPP support extended as per DPEguidelines, only to the contracts of the valueof Rs. 5 crore and above but not exceedingRs.100 crore?

30. Was PPP applied only to Central Public SectorEnterprises (CPSE) and their subsidiaries andnot also to joint ventures owned by a PSE anda private sector partner?


31. Whether the PSE which had the benefit ofPPP, on failing to perform, was also subjectedto payment of liquidated damages or any otherpenalty included in the contract?

VI Tender Document

—Whether the biddocuments have beenc o m p r e h e n s i v e l yprepared, haveadequately addressedthe interest of the Govt.and ensured evaluationof bids on equitable andfair basis and in atransparent manner?

1. Were the terms and conditions in the biddocuments, sketchy and insufficient,conflicting and vague, resulting in wronginterpretation, disputes, time and cost overruns?

2. Was the tender document complete in allrespects and included instructions totenderers, date, time and place of openingthe bid, general and special conditions ofcontract, specifications, schedule givingparticulars of stores to be supplied, priceschedule to be utilized by the bidders forquoting their prices, agreement form to besigned by tenderer, statement of deviationsfrom specifications, statement of deviationsfrom conditions of contract?

3. Whether the important clauses relating toEarnest Money, Delivery Schedule, Paymentterms, Performance Warranty, BankGuarantee, Pre-despatch inspection,Arbitration, LD/penalty for the delayedsupplies, Risk purchases, settlement ofdisputes etc. been incorporated in the biddocuments?

4. Whether the earnest money was reasonableand justifiable to establish the earnestnessof the bidder and eliminate frivolous/speculative bidding?

5 Was the EMD/bid amount an absolute amountand not a percentage of the quoted value ofgoods to be purchased?

6. Was the bid security in the form of Account


Payee Demand Draft, Fixed Deposit Receipt,Banker’s Cheque or Bank Guarantee from anycommercial bank in an acceptable form, dulysafeguarding the purchaser’s interest in allrespects?

7. Were suitable clauses incorporated to checktechnical and financial capability of suppliers,past experience and performance,manufacturing facilities etc?

8. Were evaluation/ loading criteria with respectto important items like payment terms, deliveryperiod etc. specified in unambiguous termsin the bid document, so that evaluation of bidsafter tender opening could be made withoutany subjectivity?

9. Were payment terms clearly stipulated toprevent bidders from quoting prices based onvarying advance payments and thereby alsoenabling evaluation on an equitable basis?

10 Whether detailed technical specificationsincluding performance parameters andtechnical evaluation criteria, if required, werespecified in the bid document in unequivocalterms so as to ensure evaluation of offers onan equitable basis, avoid subjectivity indecision making and prevent leverage tobidders?.

11 Were training, technical support, after salesservice and annual maintenance contractrequirements, if any, recorded suitably?.

12. Have specific delivery periods as per termsof delivery such as FOR station of dispatch/destination been incorporated?

13. Have specific dates been stipulated not justfor supply of equipment but also for installation


and commissioning, where this is to be carriedout by supplier?

14. Have specific pre dispatch inspection dates,been indicated especially where terms ofdelivery are on CIF/FOR destination basis?

15, Whether a detailed warranty clause wasincorporated and whether it was reckonedfrom the date of installation/commissioning soas to ensure that warranty did not expire beforeinstallation?,

16. In case of “by back”, when existing items arebeing replaced with a new one, whether asuitable clause was incorporated in the biddingdocument so that prospective and interestedbidders could formulate their bids accordingly?

VII Postponement andCorrection/Changes toTender notice

—Whether equalopportunity has beengiven to all bidders?

1. Whether corrections/changes in the NoticeInviting Tender have taken place?

2. Whether any correction/changes made in thebid document have been notified to all thebidders sufficiently in time?

3. Was the tender opening date extended in viewof corrections/amendments in order to giveprospective bidders adequate and reasonabletime?

4. Has the notice of extension been publishedin newspapers?

VIII Receipt of Tenders

— Whether the systemis temper proof?

1. Whether a proper arrangement for receipt oftenders at scheduled date and time throughtender box been devised?

2. In cases where tenders are too bulky to beput in the tender box, whether officers weredesignated for receiving the same and did thelatter issue receipts bearing date and time to


the bearer of the tender, record the bidsreceived, in a register and store them in safecustody?

3. Whether the procedure for receipt of tendersensures that tempering is over ruled?

IX Opening of Tenders

— Whether the systemensures completetransparency?

1. Was total value of tender the criteria fordeciding the ‘competent authority’ foracceptance of the tender?

2. Was the Tender Committee properlyconstituted comprising of representativesfrom Accounts, Indenting Departments,Inspecting Agency etc?

3. Whether the tenders have been opened inpublic i.e.in presence of the traderepresentative thereby preserving the sanctityof tendering system and ensuring totaltransparency?

4. Were bids not accompanied with earnestmoney deposits along with tenders, ignored/rejected?

5. Whether at the time of opening, tenderdocuments have been numbered serially,initiated and dated at the first page?

6. Whether the pages of the tender documentswere numbered and particularly importantitems like prices, important terms andconditions etc. been encircled and initiated?

7. Whether technical bid and financial bids wereduly superscribed and sealed separately incases of 2-bid system?

8. Whether technical bids were evaluated by thecompetent authority at the first stage?

9. Whether financial bids were considered onlyafter a technical bid was found acceptable?


10. Whether at the second stage only thosefinancial bidders were considered that weretechnically acceptable and ranked beforeawarding a contract?

11. Was the EMD in case of a two bid systemincorporated at a fixed amount on the basis ofestimated value of the purchase, instead ofas a stated % of tender value so as to obviatethe possibility of giving the bidders anindication of prices quoted by competitors andusing this information to the disadvantage ofhis competitor if prices are subsequentlymodified?

12. Were overwritings attested by the tenderopening officer/committee to make it clear thatsuch alterations were present on the tendersat the time of opening?

13. Were bidders permitted to alter or modify theirbids after expiry of the deadline for receipt ofbids?

14. Were ‘late bids’ i.e those received after thespecified date and time for receipt of bids, alsoconsidered?

15. Whether ‘On the Spot Statement’ wasrecorded by the tender opening officer/Committee giving details of the quotationsreceived and other particulars like the prices,taxes duties and EMD etc, as read out in theopening of tender been recorded?

16. Was the tender finalized within the initial validityof offer?

17. Whether additional features which were nevera part of the original conditions or


1. Whether during any post tender negotiation CVCguidelines were followed? Was negotiationdone with other than L-I?

2. Whether in case the quantity to be orderedwas much more than what L-I alone couldsupply, the quantity order was distributed in afair, transparent and equitable manner?

specifications, also considered whenevaluating the bid?

18. Whether contract was awarded to the lowestbidder whose offer conform to the technicalspecification and other conditions given in thetender document, without recourse toextrinsic evidence?

XI Advance payment

Whether advancepayment wasunavoidable and ifresorted to, was donewith suitable safeguardsto fully protect Govt.interest?

1. Whether current policy of Govt.of no advancewas adhered to?

2. If unavoidable, was payment of advanceagreed to only in exceptional cases ofcontract for manufacturing of equipmentsystem or for a project with long executiontime?

3. Whether advance payment was made tosuccessful bidder/supplier only againstappropriate Bank Guaranty?

4. Whether mobilization advance if paid,wasinterest- free, in contravention of CVCguidelines?

X Post tender Negotiation

Whether post tendernegotiation was on linespermissible by extantguidelines/orders andone major source ofcorruption was plugged?

XII Performance BankGuarantee(PBG)

Whether adequatemeasures were taken toavoid loss to Govt. in the

1. Was PBG too low in comparison to contractvalue?

2. Was the guidelines of the BG checked fromthe issuing Bank?


event of nonperformance of thecontract?

XIII Contract Management

___ Whether thecontract terms andconditions werecomprehensively drawnup, and whether they areunambiguous, free fromuncertainities, indefiniteliability andmisinterpretation andserve to protect Govt.interests?

(a) Completeness of thecontract

1. Whether documents forming integral part of acontract were together viz., (i) tendercomprising instructions to Tenderers,conditions of contract, standard of specialspecifications, schedule of items, quantitiesand rates Agreement form and Tender form (ii)Formal Acceptance of tender?

2. Did the contract place beyond all reasonabledoubt all the matters upon which partiesintended to agree viz.,

(i) What the contractor is to do, when, whereand to whose satisfaction it is to be done;

(ii) What Govt. is to do; and on what terms

3. Was the validity of the BG monitored, and incase of extensions in delivery period, whetherthe BG was appropriately extended?

4. Whether Bank Guaranty accepted wasconditional and thereby against the financialinterest of the organization?

5. Whether timely action for encashment of theBank Guaranty was taken so as to protectGovt. interests in case of non- supply?


(iii) What payment is to be made; what is tocover, to whom it is to be made and themethod and basis of making it.

(iv) The responsibility of the contractor inrespect of adequate supervision,care ofGovernment property.

(v) The terms on which variations andmodifications, if any are to be permittedthe authority; competent to order and toassess them, and the occasion and basisof such assessment.

(vi) The measures to be adopted in the eventof a breach of a contract by either partythereto, and the method of and groundsfor the determination thereof.

(vii) The method of settling disputes.

3. Whether legal advice was sought for, beforedrafting and entering into a contractagreement?

(b) General Conditions 1. Whether the terms of contract were preciseand definite and free from ambiguity or wasthere misconstruction thereon?

2. Whether the contract was placed only aftertenders have been invited and cases wherethe lowest tender was not accepted reasonthere for recorded?

3. Whether a standard form of contract wasused and terms thereof scrutinizedbeforehand?

4. Whether the terms of contract includingscope and specifications were materiallyvaried after entering into, without consultationof the competent financial authority?


5. Where material variation in any of the terms orconditions in a contract were unavoidable,whether such changes in the form of anamendment to the contract duly signed by allparties to the contract?

6. Whether there were any uncertain or indefiniteliabilities or any condition or an unusualcharacter having no consent of the competentfinancial authority?

7. Whether at least a written agreement has beenmade for placing an order where a formalwritten contract has not been made?

(c) Price Variation 1. Whether a price variation clause has beenprovided even in short terms contracts notexceeding 18 months?

2. Where a price variation clause is provided,whether the price agreed upon has specifiedthe base level viz. the month and year to whichthe price is linked, to enable variations beingcalculated with reference to the price levelsprevailing in that month and year?

3. Whether a formula for calculation of the pricevariation has been incorporated in the contractdocument, in case of long term contract byusing indices published by the Governmentof Chambers of Commerce periodically?

4. Whether the Price Variation Clauseincorporated in a contract specified a cut offdate for material and labour before thescheduled delivery date, as the inputs taperoff well before scheduled delivery date?

5. Whether the Price Variation Clause provideda ceiling on price variation, in terms ofpercentage or an overall ceiling or both?


6. Whether there is a clause stipulating aminimum percentage of variation of the contractprice above which price variations will beadmissible e.g.where resultant increase islower than two percent, no price adjustmentwill be made in favour of the supplier?

7. Whether a stipulation of non admissibility inprice variation was made in the Price VariationClause on such portions of the price after thedate of such payment, where advance orstage payments were involved?

8. Whether a stipulation has been incorporatedin the conditions of contract that no pricevariation would be admissible beyond theoriginal scheduled delivery date for defaultson the part of the supplier?

9. Whether a clause has been included in thecontract for price variation beyond the originalscheduled delivery date by specific alterationof that date through an amendment to thecontract in cases of Force Majeure or defaultsby Government?

(d) Delivery 1. As time is the essence of any contract,hasthe period for delivery of the ordered goods,and completion of allied services e.g.installation, commissioning, operators trainingetc., been properly specified with definitedates?

2. Have vague terms such as ‘immediate’, ‘asearly as possible’ etc been used to immediatedelivery period?

3. As terms of delivery, date of delivery andquoted prices are closely linked, have termsof delivery been clearly specified viz ex-works, ( date the supplier delivers the goodsto purchaser at its ( supplier’s) factory


premises); FOR, Station of Despatch, ( dateon which goods are placed by supplier on railwith clear RR); FOR Destination ( date on whichthe ordered goods reach the destination railwaystation specified in the contract); CIP,Destination ( date on which delivery is effectedat destination mentioned in contract); FAS,port of shipment, ( date on which supplierdelivers the goods alongside vessel atspecified port of shipment); CIF, port ofdestination ( date on which goods arrived atthe destination port)?

(e) Taxes and Duties 1. Does the contract include a provision forpayment of all applicable taxes by thecontractor to the supplier?

2. Where contracts are for supply of importedequipment, goods etc (subject to customs dutyand foreign exchange fluctuations) and/or arelocally manufactured (subject to excise dutyand other duties and taxes) have the % andelement of duties and taxes been specificallystated and selling rate of foreign exchangeelement taken into account in calculation ofprice of the imported items?

3. Have the mode of calculation of variations induties and taxes and foreign exchange ratesand documents to be produced in support ofclaims for such variations also been stipulatedin the contract?

(f) Warranty Clause 1. Has a warranty clause been incorporated inthe contract requiring the supplier to, withoutexchange, repair or rectify defective goodsor to replace such goods with similar goodsfree from defect?

2. Was there stipulation that goods required orreplaced by the supplier shall be delivered atthe buyer’s premises without costs to buyer?


—Liquidated Damages etc.

1. Whether provision has been made to givepurchaser options/remedies for delays insupply/non-supply for which supplier isresponsible?

2. Whether clause for Liquidated Damages,forfeiture of performance security,cancellation, imposition of other sanctions/penalties been incorporated in the contractcondition?

3. Whether a condition has been incorporatedin the contract for levy of Liquidated Damageon the price for delivery beyond the scheduleddate, as varied by the operation of the PriceVariation Clause?

4. Whether provision exists to cancel thecontract for failure to deliver within the timeperiod or non performance of any otherobligation at any time after the expiry of noticeperiod when entering into a long termcontract?

5. Whether provision exists to terminate thecontract, by written notice, withoutcompensation, if the supplier becomesbankrupt or insolvent?

(g) Remedies for delay

(h)Dispute reconciliation 1. Has legal advice been sought whereverdisputes arrive before initiating action forreferring to conciliation or arbitration or to filea suit?

2. Whether draft of the plaint has been vettedby obtaining legal advice?

3. Have documents to be filed in the matter ofresolution of dispute, if any, been carefullyscrutinized before filing, to safeguard Govt.interest?


1. Has implementation of the contract been strictlymonitored and notices issued promptlywherever a breach of provisions occur?

2. Have requisite databases/registers inprescribed format been maintained bydesignated officials e.g. rejection registersshowing names of firms found to be unreliablein view of rejected supplies; register ofpurchase orders which contains importantinformation relating to delays in supplies;register of defaulting firms containing detailsof firm’s failure to supply in terms of contract;funds register which enables watching theincurrence of liabilities against the budgetgrant; history cum rate card which is an indexcard usually kept by the purchase section inRailways dealing with the item that gives acomplete history of the past procurement andalso the position of current duties includingbranches still to be supplied by the firms?

3. Whether procedure for same custody andmonitoring of Bank Guarantees or otherinstruments has been laid down and is beingfollowed?

4. Is the review of the progress of supply beingmonitored?

5. Whether extensions of Bank Guarantee orother instruments, where warranted, havebeen sought immediately?

6. Have extensions of the scheduled delivery orcompletion dates been granted as providedfor in the contract and followed by formalamendments duly signed by the parties?

7. Have such extensions without imposingpenalty on the supplier been accorded only incases of delay where contractor was not

XIV Post ContractManagement

Whether priority wasaccorded to postcontract follow upincluding disciplining ofsuppliers so as to avoidtime and cost over runs,loss to Govt. and/ orundue benefit tosuppliers?

(a) Monitoring ofcontract


removed to a place set apart for the purposeto avoid possibility of their getting mixed upwith other stores?

2. Was the supplier informed that such storeswould lie at his own risk and that he shouldarrange for their removal within specified daysfrom the date of issue of rejection memo?

3. In case the stores have not been removedwithin the specified period, whether theDepartment has exercised its rights todispose of such stores at the contractor’s riskand recover ground rent and demurragecharges?

responsible e.g. delay in approving samplethough submitted by the supplier in time?

(b) Inspection 1. Whether as soon as the contract was awardedfor articles which required inspection and/ortesting during manufacture or before dispatch/shipment, a complete copy of the contractwith specifications, drawings, conditions ofcontract and other relevant documents weresent to the nominated inspecting agency?

2. Did the nominated inspecting agencycomprise of technically qualified andcompetent personnel?

3. Whether the contractor was informed of theagency, nominated to carry out the inspectionand with whom they should furthercoordinate?

4. Were all articles subjected to inspectionbefore acceptance and did they conform tospecifications and/or satisfied the prescribedtests?

(c) Rejected Stores

1. Were rejected stores


(d) Risk purchase 1. In case of defaulting firms did the contractingagency purchased the material elsewhere, atthe risk and cost of defaulting firm?

(e) User readiness 1. Did the user keep site and/or space inreadiness for installation and/or storage ofequipment and materials?

2. Were adequately trained personnel/manpowerin position for operationalisation of machineryand equipment especially in cases ofprocurement of new technologies?

3. Was training to be provided by the suppliersand if so, was the same done before expiryof contract?

4. Did the material or equipment lie unutilizedor get damaged due to lack of trainedmanpower?

5. Were there changes in site location from thatenvisaged at the time of contracting therebygiving the suppliers ample excuse/opportunityto justify delays on their part?

(f) Modifications ofcontract terms

1. Were specifications diluted by authorizingalternatives makes/models of lower price,thereby giving undue benefit to the supplier?

2. Were payment terms amended in favour ofthe supplier e.g. advance payments beingauthorized even when there was no provisionin the contract for making advance paymentsor higher advance payments being made thanthat stipulated in the contract?

3. Whether pre dispatch inspection thoughincorporated in the contracts was waivedwithout any reasons, thereby jeopardizing thequality aspects?


4. Was submission of Performance BankGuarantee waived?

5. Whether despite contracts being placed onFOR destination, the locations of theconsignees were changed nearer to thesupplier’s premises, without considering thebenefit of freight charges accruing to thesupplier?

6. Have maintenance contracts (paidmaintenance) been entered into even for theperiod of warranty which required freemaintenance by supplier, in maintenance ofcontractual provisions?

7. Whether in cases even after expiry of deliveryschedule stipulated in the contract and withoutextension of time granted by the purchaser,the consignees kept the contract alive byexchanging correspondence with the suppliersthereby creating possibility of legalcomplications especially if it is intended tocancel the contract?

(g) Repeat Orders 1. Was there adequate justification that additionalquantities required during the contract periodwere not sufficiently large to justify invitationto fresh tenders or would not have resulted inmore favourable terms?

2. Was there sufficient evidence to indicate thatit was not placed to split requirement to avoidsanction of the next CFA?

3. Whether it had been ascertained that therewas no downward trend in prices asdetermined through market intelligence?

(h)Dispute reconciliation 1. Has legal advice been sought whereverdisputes arise before initiating action for


referring to conciliation or arbitration or to file asuit?

2. Whether draft of the plaint has been vetted byobtaining legal advice?

3. Have documents to be filed in the matter ofresolution of dispute, if any, been carefullyscrutinized before filing, to safeguard govt.interest?

(i) Post-procurementactions

1. Does a system for obtaining feedback from usersexist and how effective is it?

2. How many/often have suggestions and/ orrecommendations of users been implementedand to what effect?

3. Has the organization deployed informationtechnology to enhance the efficiency andeffectiveness of its functioning?

Introduction

The Performance Auditing Guidelines issued by this office constitutethe authoritative basis for the conduct of Performance Auditing in thisdepartment. This includes the entire gamut of activities commencing with theformulation of strategic plans, selection of topics based on these plans,planning of individual audits, audit execution, finalization of reports andsubsequent follow up. During the conference of Accountants General held inthe year 2005, it was recommended that supplementary guidance was requiredto be issued to facilitate due implementation of Performance AuditingGuidelines when undertaking Performance Audits. It has now been decidedthat supplementary guidance will be issued at two levels, one will be a seriesof ‘Supplementary Guidelines’, and the other will be a series of ‘PracticeGuides’. This Practice Guide entitled ‘Practice Guide on Audit of Procurement’,is the first in the series. The Practice Guides are to be taken as facilitativerather than as mandatory in their application.

In the process of planning an audit, the framing of issues is a vitalstep, because it forms the very basis of the entire audit effort in the field, andequally important is the fact that only if issues are properly identified andformulated, will the field audit result in findings that are relevant to the auditobjectives. Procurement forms a major component of a wide variety ofprograms cutting across the diverse sectors of the economy. This PracticeGuide is intended to facilitate the identification of issues involved inprocurement. It is not necessary that all the possible issues relating toprocurement that have been identified in this Practice Guide be included inthe issue analysis, because the significance of procurement as an area ofaudit will vary from one audit to another, and so will the scope and intensity ofthe audit examination of procurement. It is expected that this Guide willenable those concerned to frame the ‘Issue Analysis’ and ‘Study DesignMatrix’ more cogently insofar as the area of procurement is concerned.

Audit Guidelines Procurement

Documents

Transcript of Audit Guidelines Procurement