A Government company, wholly owned by the State Government, incurs ₹18 crore on constructing an exec

A Government company, wholly owned by the State Government, incurs ₹18 crore on constructing an executive training centre at a location selected by its Managing Director.

The project was approved by the competent authority and the expenditure is within the sanctioned budget. The company explains that the centre will improve employee productivity and therefore the expenditure is commercially justified.

During propriety audit, the following facts emerge:

A substantially similar training facility is already available within 12 kilometres.
The new facility is primarily intended for senior management training.
The expenditure per trainee is expected to be nearly four times the cost of using the existing facility.
No specific law, Government order or internal rule prohibits construction of the new facility.
The Managing Director participated in selecting the location but has no direct financial interest in the land.

The management concludes:

“Since the expenditure is duly authorised, within the sanctioned budget and not prohibited by any law or Government regulation, there is no propriety issue.”

Which ONE of the following is most appropriate?

A. The management’s conclusion is correct because propriety audit cannot question an expenditure that has been duly authorised and is within the sanctioned budget.

B. The conclusion is inappropriate because propriety involves examining whether expenditure is more than what the occasion demands and whether public funds are being used with the required degree of vigilance.

C. The management’s conclusion is correct unless the auditor establishes that the Managing Director derived a direct monetary benefit from the expenditure.

D. The expenditure can be questioned only under performance audit because propriety audit is restricted to compliance with laws, rules and Government sanctions.