Gist of Important Articles from IIPA Journal: Role of Comptroller & Auditor General in India V.K. Shunglu
Gist of Important Articles from IIPA Journal
Role of Comptroller & Auditor General in India V.K. Shunglu
ROLE OF CAG
Evolution of Audit
As the nascent Indian Republic emerged from a law and order state left by the colonial masters to a welfare state dedicated to development of the people, CAG’s role evolved to meet the needs of time. In the 60s there was a shift from the regularity and financial audit; efficiency-cum-performance audit was evolved to evaluate the returns earned on financial and social capital invested by the state. This branch of audit is being further developed with inputs from international auditing practices in recent years and with introduction of computerised techniques of auditing. In the 90s, the plethora of frauds and serious irregularities at the higher levels of Central and provincial governments have raised the public expectation that audit should critically examine and report on the frauds and subversions of the systems leading to huge loss of public funds. Thus, alongside the traditional financial and performance audit, CAG’s organisation is also taking up audit of investigative nature. Some recent audits have exposed high level corruption in the government and has helped the criminal investigation agencies.
CAG and Accounts of the States
‘The CAG’s (DPC) Act, 1971 made a provision empowering the President to relieve the CAG from the responsibility to maintain any class of accounts after consultation with the CAG. From 1978, the CAG was relieved of the duty of maintaining the accounts of the Union Government. The accounts of the state governments, continues to be compiled by the CAG.
It is now increasingly recognised that compilation of accounts by CAG provides the state governments an option to have their accounts prepared without any cost and in time ‘inspite of the geographical and logistical dispersion of the units of administration. This arrangement also provides a safeguard against manipulation of accounts, and lack of adequate disclosure by the accounts keeping organisations due to the uniform accounting policy and standards followed by CAG’s organisation throughout the country. Unfortunately, in some states, the drawing and disbursing offices and the treasuries, where the initial accounts are maintained, delay the accounts or send incomplete, accounts to the Accountant General’s office which delays the compilation of accounts. As a result sometimes it was not possible for CAG’s organisation to keep the state government adequately and timely apprised of the progress of expenditure against the budget provision. A case in point is the huge excess drawal over budget provision for successive years by the Animal Husbandry Department of Government of Bihar remaining undetected during the “fodder scam”. The treasury accounts in Bihar were delayed for years together and it needed constant persuasion by the CAG and his institution to update the accounts. Only when accounts in successive years were compiled in quick succession, the magnitude of the excess drawals by the Animal Husbandry Department could be clearly known.
Role of CAG as Auditor of the Nation
As an auditor of the transactions and accounts of the Central and provincial government, CAG acts as the watchdog and conscience keeper of the nation. The results of audit serve the twin purpose of enforcing accountability of the executive to the legislature and providing an independent and informed critique of the administrative practices and implementation of the developmental schemes and programmes.
The massive transfer of funds from the Central Government to the provincial governments and from both these governments to the autonomous bodies and also to the local bodies in the current years outside the Planning Commission’s dispensations has presented a new challenge to CAG’s auditing responsibility. The funding of the myriad government companies and statutory corporations by the Central and state governments also required an appropriate auditing strategy which was duly evolved by CAG’s organisation. CAG’s Reports on civil expenditure, both of the Union Government and the State governments contain, not only instances of isolated irregularities, but also comprehensive reviews of various socio-economic development programmes undertaken by the Union/state governments. Few such schemes recently reviewed are the Employment Assurance Scheme and the Scheme of Special Central Assistance to Special Component Plan for Scheduled Castes. Important findings on overlapping schemes, insufficient allocation of funds, unreliable database, misuse of schematic benefits, etc., have been systematically highlighted in the audit reviews.
The report on railways highlighted deficient project management and consequently, while a large number of projects needing substantial further investment were lying incomplete for many years, new projects were undertaken straining the meagre resources of the railway. The reports on the Central Public Sector Undertakings bring out cases of ineffective financial control, inadequate internal audit, deficient cost control, excessive inventory holdings, poor debt recovery, non-payment of government loans and interest and absence of energy audit in large number of PSUs.
The decade of the 90s has seen India’s entry into a new era of economic liberalisation. Unfortunately the new birth has not been without pangs. Instances of corporate and government malfeasance raised serious doubts about the efficiency of the new economic policy. The current report of CAG on telecommunication sector highlighted instances of such misdemeanours at the highest level of the government. The report on Defence services similarly brought out cases of huge wastage of public fund either due to defective planning or improper financial management. The report on the accounts of the Union Government highlighted the alarming public debt scenario. The report on direct and indirect taxes revealed the impropriety of the highest levels in the Revenue department in interfering with assessment proceedings and the failure to detect the massive evasion of taxes, both in respect of Income Tax and the Central Excise and Customs Duty.
In the states also, innumerable instances of mismanagement, wastage, inadequate financial control and other serious cases of bad governance have been brought to light by CAG. The report on “Fodder Scam” in Bihar contained detailed analysis of how the entire system of control at the government was subverted by the highest level of the government allowing the fraud to continue for years and resulting in bleeding of the state exchequer.
CONSTRAINT IN THE FUNCTIONING OF CAG
For effective functioning of CAG as the watchdog body timely availability of records and documents as required by him is essential. Though the 1971 Act made provision for unfettered access to records by CAG, this is honoured more in breaches than in observance. The deliberate delay and occasional refusal by the executive to furnish records effectively dilutes the powers of CAG to examine crucial transactions. The provision of 1971 Act does not provide adequate deterrence against this constraint.
Hedging of the provisions for grants in the regular budgets also imposes restrictions on effective auditing. Many state governments resort to the vote on account and delay the passing of regular budget. This delay and the supplementary budget provisions introduced at the fag end of the year prevent the total budget provisions to come to light early enough in the year. Further, the huge amounts of subsidies provided to various government and non-government activities and the direct transfer of funds from Central Government to the provincial governments and even to the district administration almost always remain hidden in the budget estimates and thus presents considerable difficulty in auditing them.
In recent years the frauds and irregularities of serious nature in government has reached an intolerable level in terms of their spread and magnitude. Delay in detection and analysis of the frauds and large-scale loot of public funds highlighted the limitations of auditing based on sample check. When widespread subversion of the system takes place across the Departments and over several years sample test the transactions can not satisfactorily reveal the true nature of the fraud or the modus operandi of the fraud. Audit, in such cases, calls for a full-scale investigation of the entire expenditure. The traditional audit checks are currently being strengthened with the help of computerised database to suit the needs of investigative audit.
CAG and the Public Accounts Committees
CAG’s reports are deliberated by the legislature through the Public Accounts Committee (PAC) and the Public Undertakings Committee (PUC). Inordinate delay in discussion of the reports of CAG by PAC and the PUC of various states renders the reports irrelevant and ineffective. The faults highlighted in these reports loose significance with passage of time and are ignored by the executives who were to deal with them and the chance of rectification of the deficiencies established by audit becomes remote.
CHALLENGES FOR THE FUTURE
As CAG takes on sensitive issues of high level political and bureaucratic corruption and lack of accountability, his organisation will be vulnerable to criticisms of overstepping his competence and even of partisan attitude. Debates on CAG’s reports on disinvestment and fodder scam are to be seen from this perspective. The standing of CAG and his influence on the administrative structure and functioning of the state in India will be dependent not only on his own initiatives, but also how the legislatures and the executive react on these initiatives.