The State Government sanctioned expenditure for various public welfare and administrative activities during the year 2025–26. During the course of…

CA Intermediate · Auditing and Ethics · MTP · September 2026
The State Government sanctioned expenditure for various public welfare and administrative activities during the year 2025–26. During the course of audit, the auditor came across the following transactions: (i) A Government department purchased high-end office furniture at substantially higher prices than those prevailing in the market, although furniture of adequate quality was available at considerably lower prices. (ii) The head of a department sanctioned a special expenditure for a facility that directly benefited a business entity in which a close relative of the sanctioning authority had a financial interest. (iii) Public funds were used to provide a financial benefit to a particular group of persons. The expenditure was not insignificant, no legal claim existed against the Government for such payment and the expenditure was not covered by any recognised policy or established practice. (iv) Certain officials were paid travelling allowances at rates substantially higher than the actual expenditure ordinarily incurred by them, resulting in the allowances becoming a source of profit rather than merely compensating them for expenditure incurred. Examine the above transactions in the light of the principles of financial propriety and state whether the expenditure in each case satisfies the standards expected in the use of public money. Give reasons for your conclusions.

Suggested Answer and Working Notes:

Principles of Financial Propriety: Audit against propriety seeks to ensure that expenditure conforms to certain recognised standards of financial propriety. These principles may be stated as follows: (i) Expenditure should not be prima facie more than the occasion demands: The expenditure should not be prima facie more than the occasion demands. Every public officer is expected to exercise the same vigilance in respect of expenditure incurred from public moneys as a person of ordinary prudence would exercise in respect of expenditure of his own money. Accordingly, the purchase of high-end furniture at substantially higher prices, when adequate furniture was available at considerably lower prices, would not satisfy this principle. (ii) Authority should not sanction expenditure to its own advantage: No authority should exercise its powers of sanctioning expenditure to pass an order which will be directly or indirectly to its own advantage. Accordingly, sanctioning expenditure that directly benefits a business entity in which a close relative of the sanctioning authority has a financial interest would be inconsistent with this principle. (iii) Public money should not ordinarily be used for the benefit of a particular person or section: Public moneys should not be utilised for the benefit of a particular person or section of the community unless: (1) the amount of expenditure involved is insignificant; or (2) a claim for the amount could be enforced in a Court of law; or (3) the expenditure is in pursuance of a recognised policy or custom. Accordingly, the expenditure referred to in the case would not satisfy this principle since the amount is not insignificant, there is no enforceable legal claim and the expenditure is not pursuant to any recognised policy or custom. (iv) Allowances should not become a source of profit: The amount of allowances, such as travelling allowances, granted to meet expenditure of a particular type should be so regulated that the allowances are not, on the whole, sources of profit to the recipients. Accordingly, payment of travelling allowances substantially exceeding the expenditure ordinarily incurred, resulting in a profit to the officials, would not conform to this principle.

Topics: Special Features of Audit of Different type of Entities

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