# Audit of Local Bodies
## Meaning
A municipality is defined as local self-government in an urban area. 'Local self-government' means administration of a locality - village, town, city, or any area smaller than a State.
## Five Types of Urban Local Authorities (Municipal Govt in India)
1. Municipal Corporations
2. Municipal Councils
3. Notified Area Committees
4. Town Area Committees
5. Cantonment Committees
## Heads of Expenditure
Expenditure of municipalities and corporations is broadly classified under:
- General administration and revenue collection
- Public health
- Public safety
- Education
- Public works
- Others (interest payments, etc.)
Sources of Revenue: Property taxes and octroi are major sources. Taxation powers of corporations are confined to a few items and are generally compulsive in nature.
## Three Types of Grants Local Bodies Receive
| Grant Type | Purpose |
|---|---|
| General Purpose Grants | Intended to substantially bridge the gap between needs and resources of local bodies |
| Specific Purpose Grants | Tied to provision of certain services or performance of certain tasks |
| Statutory and Compensatory Grants | Given as compensation on account of loss of revenue when SG takes over a tax from local Govt |
## Financial Administration
### Budgetary Procedure
Includes financial accountability and control of expenditure. Main objective: ensure funds are raised and moneys are spent by executive departments as per rules and regulations and within limits of sanction and authorisation.
### Expenditure Control
System of financial control at Govt level is conditioned by the fact that there is clear demarcation between legislature and executive. Integration of legislative and executive powers in a municipal council makes it difficult for its executive to function as its inquisitorial body as well.
### Accounting System
Municipal accounting and budget format is criticised as neither simple nor comprehensible - sometimes providing inadequate information and sometimes a surfeit of information.
## Objectives / Reporting Areas of Local Body Audit
External control of municipal expenditure is exercised by SG through appointment of auditors. Important objectives:
- Reporting on fairness of content and presentation of FS
- Reporting on strengths and weaknesses of systems of financial control
- Reporting on adherence to legal and administrative requirements
- Reporting on whether value is being fully received on money spent
- Detection and prevention of error, fraud and misuse of resources
## Audit Programme for Local Bodies
| Aspect | Key Point |
|---|---|
| Appointment | Local Fund Audit Wing of SG is in-charge of municipal accounts audit |
| Auditor's Concerns | Same as objectives of audit (above) |
| Rules & Regulations | Expenditure must conform to law and financial rules framed by competent authority |
| Authorisations | All types of sanctions accorded by competent authority |
| Provisioning | Provision of funds exists and expenditure is incurred from provision |
| Performance | Check that different programmes are running economically and getting expected results |