The Defence Ministry had ordered the Controller of Defence Accounts (CDA) to audit expenses made by the army commanders under their special financial powers of up to Rs 125 crore to procure urgently-required items for troops.
Taking a strong view of the financial mismanagement under its departments, Defence Minister AK Antony has decided to impose strict checks and balances on expenditure made under special financial powers by all officials under the Ministry having such authority.
The audit report has assessed 55 transactions made by the commands between the period 2009-11 when present Army chief gen Bikram Singh was heading the Kolkata-based Eastern Command.
The report suggests that certain equipment, including Chinese communication equipment, has been purchased from grey market. Mismanagement in milk procurement in Northern Command has also been suggested by the report.
It also mentions the procurement of binoculars by the Eastern Command from a foreign vendor when the same were available at lower prices in the Indian market.
Ministry officials said efforts are being made by the Defence Minister to streamline the entire financial management system of all the departments under the Ministry.
The Ministry is putting in place checks and balances especially in organisations where no such measures existed. The steps are likely to include appointment of auditors for ensuring that all rules and regulations in financial management are observed and followed.
A budget of around Rs. 125 crore and Rs. 50 crore for army commanders of Northern and Eastern Commands respectively and Rs. 10 crore each to other four commands, has been provided for meeting the requirements of these unforeseen situations, the report suggested.
The internal audit report said there was a loss of around Rs. 30 crore in procurement of special packaged milk in the Northern Command.
"Procurement of extra quantities of both tetra packed milk and fresh milk, over and above the authorised quantities as per scales has resulted in excess expenditure of Rs 94 crore during a period of two years and these losses are required to be regularised," it said.
The report has also suggested the review of the special financial powers of the army commanders and other officials.
In its response to the contents of the report, the Army Headquarters said, "On the issue of communication sets with Chinese components, they were procured on DG S&D rates which have been included in the list after thorough inspection by them."
However, it is under arbitration as the vendor was not able to reveal the original equipment manufacturer, the army headquarters added.
The Army said it has already responded to observations raised in the audit report of the Ministry and "no observations have been found to be true".