## Audit of Stores and Inventories

The CAG audits government stores and inventories across seven key dimensions:

### 1. Check Regulations

Verify that regulations governing purchase, issue, sale, receipt, and custody of stores are:

Well-devised
Properly carried out

### 2. Verify Purchases

Confirm that purchases are:

Properly sanctioned
Made economically
In accordance with applicable rules

### 3. Price Reasonableness

Verify the price paid is reasonable
Check that certificates of quality and quantity have been given by the inspecting/receiving department

### 4. Uneconomical Purchases

In cases of uneconomical purchase, identify and report:

Loss due to defective quality
Loss due to short quantity

### 5. Internal Control Deficiencies

Bring to government's notice:

Any deficiency in stores management
Any defect in internal controls

### 6. Excess/Idle Inventory

Report excess or idle inventory
Verify periodic physical verification of stores

### 7. Check Inventory Accounts

Verify accuracy of accounts relating to:

Receipts
Issues
Balances of inventory

Worked example

### Example 1

The CAG audits a government hospital's stores. He finds medicines worth ₹5 lakh were purchased at 40% above market rate without competitive tendering. Under dimension 2 (not economical) and 3 (price unreasonable), he reports this as an audit irregularity.

### Example 2

In a Railway workshop, the auditor finds steel plates purchased 3 years ago lying unused. Under dimension 6, the CAG reports this as excess/idle inventory and flags that no periodic physical verification was conducted in the last 2 years.

⚠️ Common exam mistakes

Limiting stores audit to just checking purchase prices — the scope covers the entire lifecycle: purchase, receipt, custody, issue, sale, and closing balance.
Forgetting that the CAG must verify periodic physical verification was actually conducted — not just that records exist.
Overlooking dimension 4: when uneconomical purchases happen, the auditor must specifically quantify and report loss due to quality defects and quantity shortfalls.

Reference: Section 16 (Audit of stores and stock) — CAG (DPC) Act, 1971

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