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Mainstream, Vol XLV, No 49

Instrumentality of the CAG and the Executive’s Accountability

Wednesday 28 November 2007, by M L Malhotra


Government Accountability and Public Audit—Re-Engineering the Comptroller and Auditor General of India by B.P. Mathur; Uppal Publishing House, New Delhi; 2007; Price: Rs 495; pages 328.

Dr B.P. Mathur, who is the author of the book, Government Accountability and Public Audit, is a former Deputy Comptroller and Auditor General and Chairman, Audit Board, and has been an eminent member of the Indian Audit and Accounts Service (IAAS) with vast, varied and rich experience in the Indian Audit and Accounts Department (IAAD), and in two main Ministries of Defence and Steel as their Financial Adviser. He has also held other important assignments in and outside the country.

The book is a comprehensive and concise treatise on various aspects and problem areas of public audit, financial management, accountability of the executive to Parliament/Legislature and the people through the instrumentality of the Comptroller and Auditor General of India (CAG). It presents an indepth and critical study of the functioning of the CAG, the working of the Parliamentary/State Legislature Financial Committees, namely, the Public Accounts Committee (PAC) and the Committee on Public Undertakings (COPU) at the Centre and in the States. The book contains various recommenda-tions made by the National Commission to Review the Working of the Constitution in relation to Public Audit and the CAG. It contains a number of apt quotations from Kautilya’s Arthashastra which show a tendency of those dealing with government funds to taste at least a bit of the King’s wealth and thus underline the need and importance of audit of these funds. The book is written in a simple and lucid style and is reader friendly. It centres on the theme, “Without audit no accountability, without accountability no control, and if there is no control, where is the seat of power?”

THE book traces the history of the IAAD from 1858 when the East India Company administration was taken over by the British Government. In 1860, the first Auditor General of India was appointed and he looked after both audit and accounts functions. A statutory independent status was given to the Auditor General with the passing of the Government of India Act, 1919. Under the subsequent Government of India Act, 1935, the position of the Auditor General was further enhanced. He was appointed by the Governor General and could be removed from office in the same manner as a Judge of the Federal Court. The duties and powers of the Auditor General were regulated by the Government of India Audit and Accounts Order, 1936 which continued till 1971 when the Comptroller and Auditor General’s (Duties, Powers, Conditions of Service) Act, 1971 was passed by Parliament under the Constitution of India which came into effect from January 26, 1950. Under the Constitution, the former Auditor General of India was designated as Comptroller and Auditor General of India (CAG). The duties of the CAG related to audit and accounts of the Union Government and the State governments. In 1976, the CAG was relieved of the responsibility of compiling and keeping accounts of the Union Government but not of the State governments. The accounts of the States are still compiled and kept by the State Accountants General under the CAG and have not been taken over by the States.

Public audit of Central and State governments was restricted to regularity audit to see whether laws, rules and regulations were complied with in handling funds and to financial audit to see whether the financial statements of accounts presented a fair and correct state of affairs of the government with reference to vouchers and other initial records of accounts.

In the 1960s, the area of audit was extended from expenditure audit to revenue audit which was included in the CAG’s (DPCS) Act, 1971 also later. From the 1970s the CAG undertook performance audit (value for money audit) of various development programmes/schemes/projects and of government organisations with due regard to economy, efficiency and effectiveness. The audit of the Public Sector Enterprises (PSEs) came under the purview of the CAG by a suitable provision in the Indian Companies Act or by a provision in the Act setting up a Corporation. A system of performance appraisals of the PSEs was introduced in 1970 through the Audit Board. Autonomous bodies substantially financed by the government are also within the ambit of audit by the CAG under the Act of 1971.

Under Articles 148 to 151 of the Constitution, the independence of the CAG is ensured, his salaries and allowance and the administrative expenses of his office, including salaries of officers and staff, are charged on the Consolidated Fund of India. He submits his reports as a result of audit to the President/Governor of the State who causes them to be laid before Parliament/the State Legislature as the case may be. These reports are remitted to the Central/State PACs which has to examine them. The members of the PAC, both at the Centre and States, have no time to examine all paras and reviews of the audit reports and therefore a selective approach is adopted to examine them.

The book brings out that a study by a former Deputy CAG revealed that from 1947-48 to 1987-88, out of 13,457 paras only 5409 were examined by the Central PAC which constituted 40 per cent. During 2003-04, out of 759 paras/reviews in Central Audit Reports, the PAC selected only 93 but could examine only nine paras in the 11 sittings held. In the States at the end of 2004, 12,000 paras were pending out of which State PACs could examine only around 500 paras (about four per cent). In some States, audit reports are pending discussion from 1983-84. Thus in most States, financial control by the Legislature is non-existent. In the States, the book points to a very serious problem relating to excess expenditure over voted grants/charged appropriations. As upto March 2002 over Rs 1,79,500 crore was spent in excess of the authorised amounts in the States which remained unregularised under Article 205 (b) of the Constitution. This is nothing short of a fraud on the Constitution. The shares of the J&K Government and the UP Government in this are Rs 41,321 crores and Rs 23,248 crores respectively. The above shows the kind of financial control exercised by Parliament/State Legislatures in the country through their PACs.

The existing duties of the CAG enjoin on him to audit the Central/State expenditure and revenue and to submit audit reports. The tremendous work done by the CAG and his officers in auditing and producing audit reports is rendered infructuous as the PACs have no time to examine them. Even in respect of the few paras and reviews examined by the PAC, adequate action is not taken by the government. No adequate action is taken on paras not selected by the PAC.

WHAT is unfortunate, as pointed out in the book, is that the CAG does not have any legal power to enforce action on his findings, to enforce recovery of loss of government money, stores or property due to negligence of delinquent officials. He has no power of compelling departments to take disciplinary or criminal action against defaulting officers. The CAG’s (DPCS) Act, 1971 provides that the departmental officers should produce records asked for by audit and give replies to queries raised by audit. If, however, the departmental officers do not comply with these provisions, the CAG has no power to enforce compliance except to make mention of it in his audit reports. The book brings out the position in these matters in other countries like Japan, New Zealand, France, South Korea, China, Thailand, Australia, etc. where the supreme audit institutions have been vested with wide powers of investigation, enforcing recovery of loss of government money or property, imposing surcharge and compelling departments to take disciplinary or criminal action, as the case may be, against delinquent public servants. The book advocates reform to vest the CAG of India with legal powers in these matters as in other countries.

The CAG of India is the CAG of the Union Government and also of the States. The State Accountant General (AG) under the CAG does not have any legal status. The book suggests that the State AG should be given the legal status equivalent to a Judge of the High Court, even though working within the general superinten-dence of the CAG of India as in other countries like the USA, Germany, Canada, Australia and the UK which have separate Auditor Generals in provinces. This suggestion is in line with the provision in the 1935 Act and in the original draft of Constitution and the recommendation of the National Commission to Review the Working of the Constitution (NCRWC).

The book brings out the enormous amount of work and responsibility which the CAG of India has to shoulder in respect of the Union/States, Public Sector Enterprises and autonomous bodies substantially financed by government funds. It, therefore, suggests the creation of a multimember Audit Commission on the lines of Election Commission, whose members may have the same constitutional status and terms of service as the CAG. The Audit Commission would be responsible for policy matters relating to audit and accounts and approval of audit reports. A similar position already exists in other countries like Japan, France, Germany, South Korea in the form of Audit Boards or Audit Courts. The National Commission to Review the Working of the Constitution had also recommended the setting up of an Audit Board for better discharge of the vital function of public audit.

The Constitution does not lay down any qualifications for the appointment of the CAG of India and also does not prescribe any procedure for making the appointment except that the CAG shall be appointed by the President of India by a warrant under his hand and seal. The book advocates the laying down of qualifications for such appointment and only persons with vast experience in audit and accounts and finance in government should be eligible to hold this high office as was intended in the debates in the Constituent Assembly in this matter in 1949. Further, the appointment should be made on the recommendation of an independent Committee which should include the Speaker of the Lok Sabha, the Chairman of the Central PAC and the Leader of the Opposition in the Lok Sabha as its members. In the UK the appointment of the CAG is ratified by the House of Commons on the recommendation of the PM made in agreement with the Chairman of the PAC and the CAG is made an officer of the House of Commons.

The book brings out that the total staff strength of the IAAD is about 58,000 consisting of 500 IAAS officers, 16,000 Group B officers, 36,500 Group C staff and 5000 Group D staff. Of these, about 300 IAAS officers, 11,600 Group B Officers, 19,000 Group C staff are employed in audit work. The book recommends that the organisation of the CAG should be restructured from a babu-oriented department to a small officer-oriented professional outfit with substantial increase in the cadre strength of the IAAS. To have a second tier of audit professionals, there should be direct recruitment of bright persons to the SAS (Subordinate Accounts Service) with prospects of promotion to the IAAS. Group A officers must include computer experts, economists, engineers, chartered accountants, etc. The book further lays emphasis on performance audit (value for money audit) with due regard to economy, efficiency and effectiveness and evaluation of development programmes.

The book points out that in the UK and other Commonwealth countries like Australia, Canada and New Zealand, the CAG has been made part of Parliament. It has been suggested that the office of the CAG should be a part of the legislative wing of the government and actively supported by Parliament.

The book also suggests external audit of the office of the CAG on the pattern of the UK on the principle that the agency which audits other outfits should itself demonstrate professional soundness and efficiency.

The PAC and the COPU are the instruments of Parliament/State Legislatures for enforcing accountability of the executive and ensuring financial discipline and probity in the working of the government.

THE book emphasises the need for strengthening PAC and COPU and suggests the following measures.

• The PAC/COPU should be made a constitutional institution with clearly defined duties, functions and responsibilities. The life of the Committee should not be one year as at present and it should be made co-terminus with the life of Parliament/State Legislatures and its membership should be patterned on the model of the Rajya Sabha with one-third retiring every two years, to give continuity of tenure to members and an opportunity to develop expertise.

• A convention of accepting all recommendations of the PAC/COPU by the government should be developed and where a recommendation cannot be accepted, the government should submit a statement to Parliament/State Legislatures.

• The PAC/COPU should find time to examine all reports of the CAG within one year of their submission to Parliament/State Legislatures. To this end, the CAG should drastically reduce the volume of his reports by including only matters of public importance having bearing on policies of the government. The Committee should interact with the CAG and give its priorities so that the CAG brings forth reports which interest the Committee. In the USA , 80 per cent of the audit reports emanate from the suggestions of the legislators.

• There should be a statutory provision prescribing dates of submission of Appropria-tion Accounts and Finance Accounts duly certified by the CAG to Parliament/State Legislatures and their examination by the PAC. The PAC should complete examination of accounts and make its recommendations for regularisation of excess expenditure over voted grants/charged appropriations before the end of February of the following financial year to which the accounts relate, well before the presentation of the subsequent year’s Budget.

The book makes mention of a number of cases reported in the audit reports of the CAG like the fodder scandal in Bihar, defence deals relating to Bofors guns, coffin purchases during the Kargil war, BALCO privatisation, etc. In regard to defence purchases, the book suggests pre-audit by the CAG of such deals beyond a specified value before the conclusion of the deal to avoid controversies at a later stage.

The book would be useful to audit professionals, public officials and students of public administra-tion. It will be of great interest to Members of Parliament and State Legislatures, social activists and NGOs pleading for transparency in the work-ing of the Government.

The book should draw the attention of the Government of India and Parliament to consider and implement the suggested reforms which are in line with the recommendations of the National Commission to Review the Working of the Constitution, set up by the government, enforce accountability and financial control by Parliament /State Legislatures.

M.L. Malhotra is a former member of the Indian Audit and Accounts Service and held important positions in the Office of the Comptroller and Auditor General of India; he also served as the Director of Accounts and Administrative Training Institute of the Sikkim Government.

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