AUDIT REPORT ON THE ACCOUNTS OF INSURANCE REGULATORY & DEVELOPMENT AUTHORITY FOR 2001-2002

INTRODUCTION

The Insurance Regulatory and Development Authority was established on 19th April, 2000 under Insurance Regulatory and Development Authority Act, 1999 with its headquarter at New Delhi. The Authority has changed its headquarters to Hyderabad in December 2001. The Audit of the accounts of the Authority has been entrusted under Section 19 (2) of the Comptroller & Auditor General" (Duties, Power & Conditions of Service) Act, 1971. The Authority was to consist of a Chairman, five full time Members and four Part-time Members. As on date the Authority has one chairman, two full time and four part time members. There is an Insurance Advisory Committee,
which helps the Authority in making its Rules and Regulations for proper discharge of its activities.

The main powers and functions of the Authority are as under:
a. Protect the interest of and secure fair treatment to policyholders;
b. Bring about speedy and orderly growth of the insurance industry (including annuity and superannuation payments), for the benefit of the common man, and to provide long term funds for accelerating growth of the economy;
c.Set, promote, monitor and enforce high standards of integrity, financial soundness, fair dealing and competence of those it regulates;
d.Ensure that insurance customers receive precise, clear and correct information about products and services and make them aware of their responsibilities and duties in this regard;
e.Ensure speedy settlement of genuine claims, to prevent insurance frauds and other malpractices and put in place effective grievance redressal machinery;
f.Promote fairness, transparency and orderly conduct in financial markets dealing with insurance and build a reliable management information system to enforce high standards of financial soundness amongst market players;
g.Take action where such 'standards are inadequate or ineffectively enforced;
h.Bring about optimum amount of self-regulations in day to day working of the industry consistent with the requirements of prudential regulation.

2. Sources of Receipts

During 2001-02, the Authority's receipts were Rs.42.17 crores as against its expenditure of Rs.5.89 crores. The receipts mainly consisted of fees received from various Insurance companies operating in India on account of their Registration and Renewal charges.

3. Funds

The funds of the authority are being retained by itself despite directions of the Ministry to house the funds in Public Account of India as non-interest bearing funds. As on 31st March 2002, the Authority continues to house its funds amounting to Rs. 57.42 crore in interest bearing deposits of banks and other financial institutions.

4. Comments on Accounts

4.1 Under statement of Current Assets, Loan and Advances

Current Assets, Loan and Advances: Rs. 20,031,959.
This does not include a sum of Rs. 20,00,000/- which was paid as advances to M/s Andhra Pradesh Industrial Development Corporation Ltd. (APIDC) vide cheque no. 308126 dt. 08/03/2002 (HDFC A/c -New 435). The amount was given for the renovation work at IRDA office at Hyderabad. Since this amount represented advance in the nature of amount recoverable in cash or kind, the same was required to be shown in the Balance Sheet. The Authority has charged this amount to Income and Expenditure Account by showing it as Establishment Expenses - Repair and Maintenance of Buildings and Premises. Thus both Income arid Current Assets of the Authority have been understated by Rs. 20,00,000/-. The Authority in its reply stated that the sum of Rs. 20 Lakhs was, released as running payments against the renovation work, which is construed as an advance payment. Authority's reply is not acceptable as all notes and correspondence of the authority clearly stipulate the payment as advance. (Reference to the completion certificate showed that is has been issued by APIDC without recording measurement of the works).

4.2 Under statement of Current Liabilities & Provisions

Current liabilities and provisions: Rs. 12,92,305.
(I) This does not include provisions for salary amounting to Rs. 23.6 lakhs which was demanded by the Life Insurance Corporation vide its letters dt. 12/02/2002, 13/09/2002, 23/09/2002 & 5/11/2002 for payment to LIC staff working for IRDA on working arrangement basis. Apparently the amount pertains to the period 2001-2002 for which no provision has been made in the accounts of the Authority. Hence, both
Expenditure as well as Liabilities remained understated to that extent.

The Authority in its reply stated that it would make provisions for payment of salary and other benefits from the date of joining if their previous employer make a demand for the period they were with the Authority on working arrangement. .
(2) No provision was made in the accounts for the value of 'PCs amounting to Rs. 2.93 lakhs purchased by LIC on behalf of IRDA, the payment for which was released to LIC on 25th July 2002. Hence Current Liabilities and provisions remained understated to that extent.

4.3 Incorrect depiction of investment to the tune of Rs. 37.40 lakhs and excess accounting of interest of Rs. 2.25 lakhs on investments.

As on 31st March, 2001, an investment of Rs. 5742.28 Lakhs has been made as fixed deposit with the Indian Overseas Bank and HDFC Bank by Insurance Regulatory and Development Authority. Scrutiny of Certificate of Fixed Deposit and consolidated statement of Investment revealed that the maturity amount of Investment has been taken as Rs. 6644.99 lakhs instead of Rs. 6607.59 lakhs resulting in a difference of Rs. 37.40 lakhs between the two. Similarly interest accrued has been taken into account as Rs. 191.00 1akhs instead of Rs. 188.75Iakhs. Thus, an excess interest of Rs. 2.25 1akhs was depicted in the Balance Sheet resulting in overstatement of income to the extent of Rs. 2.25 lakhs. The details of Investment and Interest is enclosed as' Annexure I'
The authority accepted the audit observation and stated that necessary rectification would be carried in the accounts of 2002-2003. Interest accrued/actual on investment may be reconciled arid necessary rectification/adjustment be made into account under intimation to audit.

4.4 Difference between Assets Register and Balance Sheet
Scrutiny of Assets Register and Balance Sheet as on 31st March, 2002 revealed that there was a difference of Rs. 1.48 lakhs between the two which was not reconciled.
The Authority in its reply stated that it was presumed that consumable and the perishable items had been taken into account in the dead stock register. The details of such items with regard to their cost will be extracted from the records of the previous years and these items will be removed from the dead stock register to correct the difference.

4.5 Non- verification of Assets.
The Authority had fixed assets valued at Rs. 28,33,511.06 as per Balance Sheet as on 31st March, 2002 details of which were shown in Annexure-I. In this connection, the following comments are offered:
1. The progressive totals of value of all assets entered in the Fixed Assets Register were not carried out in accordance with the rule 151 (4)(a) of General Financial Rule.
2. Consumables like buckets, boxes purchased for shifting records, wall clocks, crockery, gas stove etc. were also included in the assets register. The Authority did not maintain inventories of such articles in the prescribed form.
Assets register may be recast in the light of the above observation under intimation to audit.

Sd/-
Director General of Audit
Central Revenues

Place: New Delhi
Date: 18-07-03