Action Taken Report (ATR) Module of Audit

(Online Audits of Panchayats)

In 1882, the British Government introduced a resolution that aimed to establish ‘Local Boards’ with elected non-official members as the majority. This resolution also proposed the creation of Rural Local Boards, with two-thirds of their members elected by the population. In spite of these early efforts, progress in the formation of Rural Local Self-governments continued stationary until 1947. The 73rd Amendment to the Indian Constitution in 1992 institutionalized the Panchayati Raj Institutions (PRIs) at three levels in rural India which are Gram Panchayats at the village level, Mandal Panchayats at the intermediate / block level, and Zila Parishad at the district level.

The grants to PRIs have steadily increased as recommended by the Central Finance Commissions (CFCs), from ₹4,381 crore by the tenth CFC to ₹2.37 lakh crore by the fifteenth CFC. Moreover, the Central Finance Commissions have suggested that audited accounts and budgets of PRIs should be made publicly available. The ATR Module of Audit Online that was launched by the Ministry of Panchayati Raj serves the purpose of providing clarity on the actions taken in response to audit findings. With this system in place, the online audit process will be streamlined, ensuring greater transparency and accountability at the grassroots level.

Historical Background and Constitutional Evolution

Since ancient times in India, villages have functioned as vital administrative units. Ancient writings like Manusmriti, Arthashastra, and Mahabharata contain references to panchayats. The influence of panchayats diminished due to factors such as the failure of Kingdoms to follow decentralization principles. Under British rule, the Panchayati Raj System was dismantled and replaced by the District Collectorate, primarily engrossed on revenue collection. The Bengal Chowkidar Act of 1870 granted District Magistrates the authority to establish panchayats in villages, consisting of appointed members for tax collection.

With 68.8 percent of India’s Population residing in rural areas according to the 2011 Census, the local governments at the Panchayat level play a vital role in implementing the vision and developmental policies of both the Central and State governments.

They act as intermediaries between the masses and higher levels of government, promoting grassroots development by encouraging community participation, fostering local stewardship, and advancing sustainability initiatives. However, the efficacy of the PRIs depends on factors such as the availability of adequate resources, the development of capabilities, political support, and active engagement of the local community. The ability of PRIs to fulfil these functions effectively relies on access to sufficient financial resources.

PRIs are expected to contribute significantly to achieving the Sustainable Development Goals (SDGs) set for the nation by 2030. They also serve as an important defence against climate change-induced risks in rural areas.

Revenue Streams of Rural Local Bodies

Before 1992, PRIs had limited sources of revenue. Their primary income streams included:

• Small number of mandatory taxes, such as property taxes,
• Land revenue or rent cess,
• Taxes on animals and vehicles, and
• Professional taxes, etc.

They also relied on various optional taxes and fees, such as:

• Octroi, taxes on shops and markets,
• Pilgrim taxes,
• Fees on goods displayed for sale,
• Drainage fees,
• Lighting charges, and
• Water fees, etc.

These revenue streams were insufficient to sustain the Panchayats without financial support from the State governments, as highlighted in the Balwant Rai Committee Report of 1957.

The Decentralization of funds from the Upper Tiers of Government to the PRIs is provided for by the 73rd Constitutional Amendment in 1992, in addition to their own revenue sources such as taxes, duties, fees, and user charges. Revenue streams encompass:

• Central Government: Central Finance Commission Grants (Tax devolution), Central Finance Commission Other Grants, and Scheme-related Grants.
• State Government: Tolls, taxes, duties and fees collected by State, Grants-in-aid from State Govt., and State Government Transfers (Schemes).
• Internal / Own Sources: Tax revenue and User charges.
• Other External Sources: Grants from International bodies like the World Bank, etc.

Conventional Audit Process and Systemic Bottlenecks

The Conventional Audit Process consists of:

1. An entry meeting with stakeholders.
2. Conducting an Audit Enquiry (AE).
3. Generating a Local Audit Report (LAR).
4. Holding an exit meeting.
5. Generating Draft Notes (DN) and Draft Paras (DP).
6. Preparing Final Audit Paras.
7. Generating the Audit Report.
8. Presenting the Audit Report before the Legislative Assembly.

After the Audit Report is presented, it is reviewed by the Public Accounts Committee (PAC) in collaboration with the concerned department and the government. This periodic review ensures compliance with audit findings, rectification of any omissions or commissions, and follow-up actions to address and prevent mistakes and shortcomings. The Performance Audit also provides Special Audit Reports on important areas to benefit the relevant departments and improve governance. Hence, audit plays a vital role in achieving good governance by adhering to the prescribed rules and regulations.

However, the departments are unable to fully utilize the benefits of the audit process and the suggestions / recommendations of the Accountant General (AG) due to numerous reasons like:

1. The audit system does not support easy monitoring or institutionalization of good governance practices.
2. The movement of paper / files within a department / government is time-consuming and causes unnecessary delays in initiating corrective measures.
3. Accountability is weak, and follow-up actions are slow.
4. It is difficult to identify common mistakes and promptly take remedial action across the field units of the department.
5. The system lacks the ability to easily cross-check across different offices, resulting in the repetition of the same mistakes year after year.

Therefore, the existing manual system is: i. Slow, ii. Cumbersome, and iii. Lengthy. By the time audit observations are reviewed by the Public Accounts Committee, a significant amount of time has passed, rendering corrective action ineffective. The delay between the audit enquiry and the final review by the Public Accounts Committee often leads to frustration and renders the process unproductive. As a result, no meaningful systematic improvements can be made.

Migration to Audit Online and the ATR Module

Recognizing the need to improve the audit system, stakeholders have decided to migrate from the existing “Manual Paper-based System” to an “Online ICT Based System” using “Audit Online”, which is a part of the existing Panchayat Enterprise Suite under e-Panchayat Mission Mode Project (MMP) of the Ministry of Panchayati Raj, GoI. Audit Online was launched on 15th April 2020 to carry out online audits of Panchayat accounts further strengthening the financial management and transparency of the Panchayats.

Audit Online aims to facilitate the ‘Financial Audit’ of accounts by auditors (State AG / LFA) at all three levels of Panchayats namely:

• District / Zila Panchayats
• Block / Intermediate Panchayats
• Village / Gram Panchayats
• Traditional Local Bodies (Sixth Schedule Areas)

The software serves the purpose of both internal and external audit, allowing for online and offline auditing of accounts. It also maintains past audit records of the Panchayats with a list of auditors and audit team members. Additionally, the software ensures proper maintenance of accounts and acts as a reliable financial audit tool, promoting transparency and accountability.

Key Features of Audit Online Application Software

Audit Online is a generic and open-source software application developed as a part of the Panchayat Enterprise Suite (PES), which is a part of the e-panchayat Mission Mode Project (MMP) initiated by the Ministry of Panchayati Raj (MoPR). The main purpose of Audit Online is to record detailed information about audits conducted for Panchayati Raj Institutions (PRIs) by auditors (State AG/LFA/Audit Dept.). It allows the recording of both internal and external audits according to the defined process.

One of the unique aspects of this application is that it is configurable as per every states’ Audit Act / Rules. Also, it is not merely a data-entry application but an audit-processing application whereby the auditors can carry out the audits of Panchayat accounts. Moreover, Audit Online is also linked to the accounting module of e-Gram Swaraj whereby auditors can access various information pertaining to Panchayat accounts viz. annual receipts & payment statements, consolidated abstract register, monthly reconciliation statements, voucher details, cash book report, etc.

The users of Audit Online are expected to have a basic understanding of computer usage and should be familiar with the keyboard and mouse in the local language. The user interface of Audit Online is designed intuitively, making it simple, easy to use, and self-explanatory. The software also allows switching to the local language, ensuring that all textual elements are displayed in the local language for better understanding and effective use.

The software possesses the following key features:

• It is a robust and scalable enterprise version that operates on a single platform, catering to the needs of all departments within the state.
• Furthermore, it ensures transparency, promotes accountability, and enhances efficiency in the audit process.
• The software is also configurable for both internal and external audits of government departments, PRIs, ULBs, etc.
• It captures the entire audit process by seamlessly mapping the processes of the auditor and auditee, allowing for instant replies and follow-ups.
• Additionally, it enables access and usage by various units of the respective departments while maintaining control, privacy, and confidentiality.
• The software enables the seamless flow of audit handling at all stages, with linkage to transactional and back-end data through a uniform web service interface.
• It also facilitates the implementation of corrective measures and triggers the assessments for the need for training and capacity building.
• The software aids in the constitution and management of audit teams, as well as defines the audit schedule.
• It enables the categorization of audit observations into qualitative tags and allows for the dynamic creation of forms to record file/case details and facts.
• The software functions as an e-office in the respective office, facilitating analysis and providing auditors with the ability to view auditee accounts, record observations, and generate various reports applicable to the audit cycle (Audit Enquiry / Local Audit Report / Draft Note / Draft Para / Draft Audit Para etc.).
• It also allows auditees to respond to the queries raised by the auditors.
• The software is adaptable to variations across states and allows for the generation of audit reports and other related documents based on configurable report templates.
• It provides customizable dashboards and MIS reports available in PDF/Excel Format, which are sent to users through email.
• The software ensures complete confidentiality and high levels of security.
• Its technical architecture supports data exchange with other PES family products.
• It is designed to be simple and user-friendly, facilitating transparency in the audit process.
• The software also supports SMS / Email-based alerts and notifications for regular updates.
• It supports multi-tenancy and employs a strong authentication mechanism.
• Additionally, it is workflow-enabled, offers multilingual support, and is based on open-source technologies.
• Lastly, it is web-based and available 24x7.

Audit Progress Report and Strengths of the ATR Module

Since its launch, the Audit Online application has made significant progress, generating over 2,00,000 Audit Reports for the periods 2020-21 and 2021-22. Currently, there are 2,56,795 registered Panchayats on the platform, with 2,11,278 PRI audit reports generated for the audit period 2021-22 (~93%). This commendable achievement showcases the commitment of the states and panchayats towards financial management and transparency. Furthermore, the scope of audits and accountability has significantly expanded. These efforts are in line with the mandate of the XV Finance Commission, which requires audited accounts for all tiers of Panchayats for the Fiscal Year 2023-24.

Enhancing Accountability: The ATR module is a valuable addition to the existing Audit Online Application, which was introduced on April 15, 2020, to enable online audits of panchayat accounts and promote financial management and transparency. One of the primary objectives of the ATR Module is to provide a well-organized approach to conduct audits and ensure clear documentation of the steps taken to address audit findings.

Digital Governance: During the launch event, the Union Minister of State for Panchayati Raj underscored the significance of digital governance at the grassroots level and urged all States and Union Territories to prioritize panchayat account audits to fulfil the criteria set by the Fifteenth Finance Commission. The ATR module of Audit Online plays a crucial role in promoting: Accountability, Efficiency, Empowerment, and Corruption-free practices at the Gram Panchayat level nationwide.

Documentation of Observations: The ATR module aims to address the numerous observations made during audits. To date, an astounding 21,03,058 observations have been documented, reflecting the comprehensive nature of the audit process. This documentation ensures that the necessary actions are taken to rectify any discrepancies and improve financial management practices.

XV Finance Commission Compliance: Approximately 93% of PRI Audit Reports have been generated for the audit period 2021-22, highlighting their commitment towards accountability. According to the operational guidelines of the Fifteenth Finance Commission, starting from the Fiscal Year 2023-24, all 3 Tiers ZPs, BPs and GPs must undergo audited accounts. For the audit period 2022-23, 52% of PRI Audit Reports have been generated (as on 11th March 2024). The ATR Module will play a crucial role in ensuring comprehensive audits of all panchayat accounts, meeting the criteria set by the commission for subsequent grants.

State-Wise Performance Report of Online Audits

Future Outlook

Looking forward, the ATR Module of Audit Online has great potential to enhance the transparency and accountability of panchayat accounts. By prioritizing the audit of all panchayat accounts, states can fulfil the criteria of the Fifteenth Finance Commission, enabling higher allocation of funds for Panchayati Raj Institutions (PRIs) and Rural Local Bodies (RLBs). Strengthening the District Level Financial Advisors (DLFAs) and audit departments will be crucial in achieving timely completion of audit activities.

To conclude, Panchayati Raj Institutions bridge the gap between the rural population and the higher levels of government. They are the most suitable institutions for grassroots development. The recommendations of the Central Finance Commissions and the recent digital initiatives have collectively improved transparency and accountability at the Panchayat Level, thereby significantly contributing to the empowerment of Panchayats. These Institutions continue to heavily rely on grants from higher levels of government. It is necessary for them to develop innovative approaches for generating sufficient revenues for themselves.