When government gives a grant, auditors check four things: was the grant properly sanctioned, were its conditions met, was the money used for the sanctioned purpose, and does the utilisation certificate match the books. The CAG audits grants under the 1971 Act, and the grantee usually certifies use on a utilisation certificate (UC).
Last reviewed: 17 October 2026. Facts checked. We opened a Punjab Accountant General page on cag.gov.in on the audit provisions of the 1971 Act (Sections 13 to 21, 23 and 24), including grants and loans. We ran searches on Sections 14 and 15 of the Act and on Rule 238 of the General Financial Rules, 2017 and Form GFR 12-A. The Section 14 and 15 figures came from CAG reports and a training deck, and the GFR details from copies of the form and a ministry instruction note. We did not open the Act or the GFR text. Conditions differ by scheme and sanction, so read your own sanction order.
Where the CAG's reach comes from
A CAG page says that government spending from the Consolidated Fund often takes the form of grants and loans to other bodies, and that Section 13 of the 1971 Act makes the CAG responsible for auditing that expenditure. For grants and loans, the audit covers:
- admissibility,
- adequacy of sanction,
- fulfilment of conditions, and
- utilisation.
The same page says this audit is "restricted to the records available in Government offices". Sections 14 and 15 extend the audit to the accounts of bodies that receive government financial assistance, under conditions.
Substantially financed bodies
Search results from CAG reports describe the Section 14(1) test: a body is treated as substantially financed in a year if it receives grants and loans of at least Rs 25 lakh, and at least 75 per cent of its total expenditure. They also describe a Section 14(2) route where grants reach Rs 1 crore, which needs prior approval from the President or Governor. These figures are from secondary descriptions, and some older reports blur the two. Verify them against the Act before use.
A training deck describes Section 15 as covering grants or loans given for a specific purpose, with the CAG checking that the conditions are met. We did not find the statutory text.
The utilisation certificate
A UC is the grantee's statement that the grant was spent on the purpose it was sanctioned for. Search results on the General Financial Rules, 2017 say Rule 238(1) requires a grantee organisation receiving non-recurring grants to submit a UC in Form GFR 12-A within twelve months of the close of the financial year. The form records the scheme, whether the grant is recurring or non-recurring, opening and closing positions, component-wise utilisation, and a certification that sanction conditions were met.
One ministry's instruction note requires its UC to be issued by a chartered accountant on letterhead and countersigned by the grantee's authorised signatory. That is that ministry's requirement for one scheme, not a rule for all grants.
For format and signing, see utilization certificate format, who signs and a CA checklist. If you draft with an AI assistant, read how to use ChatGPT and Claude to draft a utilization certificate.
What auditors check
| Area | Typical tests |
|---|---|
| Sanction | Is there a valid sanction order, by the right authority, before release? |
| Admissibility | Is the grantee eligible under the scheme guidelines? |
| Conditions | Were conditions met: matching contribution, timelines, reporting, asset records? |
| Fund flow | Did amounts released match the sanction, and were instalments tied to prior UCs? |
| Use | Was spending on sanctioned heads, supported by vouchers? |
| Balances | Were unspent amounts reported, and refunded or carried forward as the sanction says? |
| UC | Do figures agree with the books and bank statements? |
| Assets | Are assets created from the grant recorded as the sanction requires? |
Common weak points
- A UC signed before accounts were closed.
- Grant spent on a head not in the sanction.
- Missing vouchers or bank evidence.
- Interest earned on grant money not reported.
- Conditions with deadlines that nobody tracked.
- One UC covering several sanctions without a split.
These are practical risks to test, not findings about any named entity.
Steps for a grantee
- Read the sanction order and list every condition with a due date.
- Keep a separate ledger or cost centre for each grant.
- Reconcile expenditure to bank and vouchers each quarter.
- Prepare the UC from the closed ledger, not from budget figures.
- Keep working papers in one file for the auditor.
If you are an NGO or trust, the wider compliance picture is in trust and NGO audit guide.
Frequently Asked Questions
What is a utilisation certificate?
A certificate by the grantee that the grant was used for the purpose it was sanctioned for. In central schemes, Form GFR 12-A is the common format.
Who audits government grants?
The CAG audits grants and loans under the 1971 Act, within the limits of the Act and the records available. A grantee's own statutory or internal auditor may also review the use.
When is a UC due?
Rule 238(1) of GFR 2017, as described in search results, requires a UC within twelve months of the close of the financial year for non-recurring grants. Your sanction order may set an earlier date.
Does a CA have to sign a UC?
Not under a general rule that we verified. One ministry's instructions require it for its scheme. Read the sanction order.
Can the CAG audit the receiving body?
Under Sections 14 and 15, in defined cases. Search results describe tests of Rs 25 lakh and 75 per cent of total expenditure, and a Rs 1 crore route needing approval. Check the Act.
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Statutory facts on this page are checked against their sources, and the page says where it relied on secondary reporting. How we verify · Report an error