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Manual of Internal Audit

 

INTERNAL AUDIT – HISTORY EVOLUTION & PRESENT ORGANIZATIONAL SET UP, MANDATE

1. An organization exercises internal control in order to accomplish specific goals and objectives. The Directorate General of Internal Audit (Inland Revenue) being Internal Control of Federal Board of Revenue safeguards revenue leakages, checks the accuracy and reliability of departmental working, promotes efficiency, and encourages adherence to prescribed law and procedures. Since its inception the Directorate General has proved to be custodian of state revenues.

2. The Directorate General has a significant history of detection of events of tax evasion, under-reporting, under-assessments and issuance of bogus/illegal refunds caused due to inefficiency, corrupt practices, lack of adequate skills, omissions and commissions. This inter-alia includes incorrect application of law, non-maintenance of proper records, wrong appreciation of facts, mal-practices and connivance, improper training and lack of knowledge of respective trades and procedural lapses. The core functions performed by the Directorate General are remedial, curative and preventive in nature. The Inspection and Audit authorities make recommendations for an efficient system with the objective to create a taxpayers’ friendly transparent culture envisioned in Tax Administration Reform Programme.

3. The “Directorate of Inspection & Audit” was initially created through CBR’s Notification, which remained valid up to 1991. It was upgraded as “Directorate General of Inspection, Audit & Enquiries (Direct Taxes)” in 1991, and was attached to the Ministry of Finance. It was re-organized/re-designated as a statutory body through Finance Act 1995, and was re-named as Directorate General of Inspection (Direct Taxes) in 1995.

4. The administrative control was reverted to the CBR/Revenue Division in 1996. Through Finance Act (2007), this organization was renamed as “Directorate General of Internal Audit (Direct Taxes)” and it works under the administrative control of the Chairman, FBR. With the inception of the Inland Revenue Service and consequential restructuring, the mandate of the organization of Internal Audit has been redefined as is discussed in detail, in subsequent paragraphs. Organizational set up of the Directorate General of Internal Audit (IR) is as under:
   

Mandate:-

  The Directorate General derives its mandate from Section 228 of the Income Tax Ordinance, 2001. Its functions, jurisdiction and powers have been specified vide SRO No.660 (1)/2005 dated 30-06-2005. Section 228 and the said SRO is reproduced for the sake of convenience as under:

Section 228. The Directorate-General of Internal Audit. (1) The Directorate General of Internal Audit shall consist of a Director-General and as many Directors, Additional Directors, Deputy Directors and Assistant Directors and such other officers as the Board, may by notification in the official Gazette, appoint.

SRO No.660 (1)/2005. The Federal Board of Revenue has specified functions, jurisdiction and powers of the Directorate-General of Internal Audit (Direct Taxes) as under:-

“In exercise of the powers conferred by sub-section (2) of section 228 of the Income Tax Ordinance, 2001 (XLIX of 2001), the Central Board of Revenue is pleased to specify functions, jurisdiction and powers of Directorate-General of Inspection (Direct Taxes) as under, namely,

Inspection authorities: - (1) The Directorate General of Inspection shall consist of the following namely: -

    (a) Director General of Inspection
    (b) Directors of Inspection
    (c) Additional Directors
    (d) Deputy Directors
    (e) Assistant Directors
    (f) Extra Assistant Directors

(2) The Directors, Additional Directors, Deputy Directors, Assistant Directors and Extra Assistant Directors of Inspection shall be subordinate to the Director General of Inspection.

(3) Additional Directors, Deputy Directors, Assistant Directors and Extra Assistant Directors of Inspection shall be subordinate to the Director of Inspection within whose jurisdiction they perform their functions.

(4) Deputy Directors, Assistant Directors and Extra Assistant Directors shall be subordinate to the Additional Director of Inspection within whose jurisdiction they perform their functions.

(5) Assistant Directors of Inspection shall be subordinate to the Deputy Director of Inspection within whose jurisdiction they perform their functions.

(6) Extra Assistant Directors of Inspection shall be subordinate to the Assistant Director of Inspection within whose jurisdiction they perform their functions.

Functions and powers: - (1) The functions of Directorate-General of Inspection shall be, as under, namely:

(a) to carry out inspections of income tax cases and offices;
(b) to investigate or cause investigation to be carried out in respect of cases involving leakage of revenue or evasion of taxes;
(c) to carry out internal audit of cases or offices involving income tax revenues and expenditure;
(d) to furnish an annual report about the working of income tax offices to the Central Board of Revenue (now Federal Board of Revenue) by the thirty-first day of December, following the end of the financial year to which it relates; and
(e) to carry out any other work or function that may be assigned to it by the Federal Government.
(2) In discharge of its functions under (1) above, the Directorate General of Inspection shall have the powers specified in section 176 of the Income Tax Ordinance, 2001.

Jurisdiction:- (1) The Directors of Inspection shall perform their functions in respect of such persons or classes of persons or such areas as may be assigned to them by the Director General of Inspection.

(2) The Director General or a Director of Inspection may assign any function in respect of any area, or office or offices located within an area, case, class of cases, persons or classes of persons to any inspection officer working under his control.

Explanation: - “Inspection Officer” means an Additional Director, a Deputy Director, an Assistant Director and an Extra Assistant Director.

The notification shall take effect from 1st July, 2005.”

2. Consequent upon the amendments made in the Income Tax Ordinance, 2001 through Finance (Amendment) Ordinance, 2009 and renaming of tax functionaries as the officers of Inland Revenue accordingly, the Board, vide order C.No.1(6) IR-Judicial/2009 dated 11th November, 2009 conferred powers under the Ordinance of 2001 to the re-designated officers. Similarly, vide notifications of even number and date, powers conferred to the authorities under the Sales Tax Act, 1990 and the Federal Excise Act, 2005 have also been conferred to the officers of Inland Revenue. Subsequently, vide notification No. 1046-02/SSM/2010 dated 28/04/2010; the Directorate General of Internal Audit (Direct Taxes) has been renamed as the Directorate General of Internal Audit (Inland Revenue). The Regional Directorates of Internal Audit (Direct Taxes) and the offices of Additional Directors of Internal Audit (Direct Taxes) have also been renamed accordingly. Vide S.R.O. 282(I)/2010 dated 29/04/2010, necessary powers under t