The Constitution of India provides for an independent office of the Comptroller and Auditor General of India (CAG). He is the head of the Indian Audit and Accounts Department. He is the guardian of the public purse and controls the entire financial system of the country at both the levels- the centre and state. His duty is to uphold the Constitution of India and the laws of Parliament in the field of financial administration.
CAG helps the parliament/state legislatures hold their respective governments accountable. He is one of the bulwarks of the democratic system of government in India; the others being the SC, the ECI and the UPSC. It is for these reasons Dr. B R Ambedkar said that the CAG shall be the most important Officer under the Constitution of India and his duties are far more important than the duties of even the judiciary.
The role of the CAG evolved in British India with Lord Canning initiating a major administrative drive before the Mutiny of 1857. In May 1858, for the first time, a separate department was set up with an Accountant General, who was responsible for accounting and auditing the financial transactions under the East India Company. After Mutiny, the British Crown took over and passed the Government of India Act 1858.
This laid the foundation stone of Imperial Audit. Sir Edward Drummond took charge in 1860 as the first Auditor General and the term ‘Comptroller and Auditor General of India’ was first used in 1884. Under the Montford Reforms of 1919, the Auditor General became independent of the government. The Government of India Act 1935 strengthened the position of the Auditor General by providing for Provincial Auditors General in a federal set-up.
Comparison with UK
In India the institution of CAG only audits the accounts after the expenditure is committed. It does not have control over the withdrawal of money as in UK where the name Comptroller is justified since no money can be drawn from the public exchequer without the approval of the CAG.
- Art. 148: broadly speaks of the CAG, his appointment, oath and conditions of service
- Art. 149: broadly speaks of the Duties and Powers of the CAG
- Art. 150: The accounts of the Union and of the States shall be kept in such form as the President may, on the advice of the CAG, prescribe.
- Art. 151: Audit Reports: The reports of the Comptroller and Auditor-General of India relating to the accounts of the Union shall be submitted to the president, who shall cause them to be laid before each House of Parliament.
The reports of the Comptroller and Auditor-General of India relating to the accounts of a State shall be submitted to the Governor of the State, who shall cause them to be laid before the Legislature of the State.
Independence of the Institution of CAG
For effective functioning of this important institution of the CAG it is paramount to ensure independence. There are several provisions enshrined in the Constitution to safeguard CAG’s independence.
- He is appointed by the President by a warrant under his hand and seal and his oath of office requires him to uphold the Constitution of India and the laws made there-under.
- He is provided with a security of tenure and can be removed by the President only in accordance with the procedure mentioned in the Constitution (same as a judge of SC).
- He is not eligible for further office, either under the Government of India or of any state, after he ceases to hold his office.
- His salary and other service conditions though determined by the Parliament cannot be varied to his disadvantage after appointment.
- His administrative powers and the conditions of service of persons serving in the Indian Audit and Accounts Department shall be prescribed by the President only after consulting him.
- The administrative expenses of the office of CAG, including all salaries, allowances and pensions of persons serving in that office are charged upon the Consolidated Fund of India and are not subject to the vote of Parliament.
Duties and Powers of the CAG
Sources of the Audit Mandate of CAG
- Constitution– The existence and mandate of the Comptroller and Auditor General of India emanates from Articles 148 to 151 of the Constitution. Article 149 stipulates the Duties and Powers of the Comptroller and Auditor General
- Statute– DPC Act, 1971 (Duties, Powers and Conditions of Service Act) lays down the general principles of Government accounting and the broad principles in regard to audit of receipts and expenditure
- Regulations– Regulations on Audit and accounts as framed and notified in the official Gazette.
- Scope of audit– Within the audit mandate, the Comptroller and Auditor General is the sole authority to decide the scope and extent of audit to be conducted by him or on his behalf.
- He audits the accounts related to all expenditure from the Consolidated Fund of India, Consolidated Fund of each state and UT having a legislative assembly.
- He audits all expenditure from the Contingency Fund of India and the Public Account of India as well as the Contingency Fund and Public Account of each state.
- He audits all trading, manufacturing, profit and loss accounts, balance sheets and other subsidiary accounts kept by any department of the Central Government and the state governments.
- He audits the receipts and expenditure of all bodies and authorities substantially financed from the Central or State revenues; government companies; other corporations and bodies, when so required by related laws.
- He audits all transactions of the Central and state governments related to debt, sinking funds, deposits, advances, suspense accounts and remittance business.
- He audits the accounts of any other authority when requested by the President or Governor e.g. Local bodies.
- He advises the President with regard to prescription of the form in which the accounts of the Centre and states shall be kept.
- He submits his audit reports relating to the accounts of the Centre to the President, who shall, in turn, place them before both the houses of Parliament.
- He submits his audit reports relating to the accounts of a State to the Governor, who shall, in turn, place them before the state legislature.
- He ascertains and certifies the net proceeds of any tax or duty and his certificate is final on the matter.
- He acts as a guide, friend and philosopher of the Public Accounts Committee of the Parliament.
- He compiles and maintains the accounts of state governments. In 1976, he was relieved of his responsibilities with regard to the compilation and maintenance of accounts of the Central government due to separation of accounts from audit.
- He submits 3 audit reports to the President: audit report on appropriation accounts, audit report on finance accounts and audit report on public undertakings.
There are the following limitations on the powers of CAG
- Its report is post-facto i.e. after the expenditure is incurred and has only prospective value in improving systems and procedures.
- Secret service expenditure is outside the purview of the CAG and he cannot call for particulars of expenditure incurred by the executive agencies, but has to accept a certificate from the competent administrative authority that the expenditure has been so incurred.
- Since the legislation, the government has increased its participation with the private sector through the PPT (public-private-transfer) and BOT (build-own-transfer) model. However the rules have not undergone a significant change and CAG does not have the power to audit PPP (Public Private Partnership) investments.
- There is no provision for auditing of funds that are given to an NGO and elected local bodies. Today NGOs have become a conduit for a multitude of government schemes.
- CAG presently does not have the full authority to audit the PRIs and ULBs. In most states, the Examiners functioning under the Finance Department audit the accounts of local bodies.
- DRDAs (District Rural Development Authority) today are managing large sums of money for rural development yet they also are outside the purview of CAG audits.
In light of the above limitations and changes in the Indian polity such as increasing role of civil society and NGOs, liberalisation of the economy, PPP mode of investments the DPC Act, 1971 must be reviewed to bring in greater accountability and transparency in every sphere that touches public life. CAG’s work should go beyond the question of whether government funds are being spent appropriately to ask whether programs and policies are meeting their objectives and the needs of society
Types of Audit performed by CAG
- Regulatory Audit: It is an audit to ascertain whether the moneys spent were authorised for the purpose for which they were spent and also that the expenditure incurred was in conformity with the laws, rules and regulations.
- Supplementary Audit: CAG takes up supplementary audits in PSUs, even after the commercial audits are done by the auditors appointed by the CAG, for detection of leakages.
- Propriety Audit: It focuses on whether the expenditure made is in public interest or not i.e. it moves beyond mere scrutiny of expenditure to question its wisdom and economy in order to identify cases of improper expenditure and waste of public money.
- Efficiency Audit: Efficiency audit as the name suggests answers the question whether the money invested yields optimum results. The main purpose of the efficiency audit is to ensure that the investment is prioritized and channeled into its most profitable utilization.
- Performance Audit: Performance audit answers whether the government programmes such as NREGA have achieved the desired objectives at the lowest cost and given the intended benefits. It generally does not get into the merits-demerits of a particular policy/scheme rather looks into the effectiveness with which the scheme is implemented and any deficiencies thereof.
- Environmental Audit: This is a relatively new area of concern for the CAG keeping in mind the challenges facing India with respect to conservation and management of the environment. More than 100 audits on environmental issues like bio-diversity, pollution of rivers, waste management have been conducted by the CAG to identify critical issues and suggest possible solutions by involving all stakeholders.
Mode of Appointment
The present selection process for the CAG is entirely internal to the Government machinery; no one outside has any knowledge of what criteria are applied, how names are shortlisted and how a final selection is made.
Thus presently there is a lack of clarity on the criterion, the definition of field of choice, the procedures for the selection of this high constitutional functionary.
In most of the other countries there is no scope for the head of the Supreme Audit Institution to be chosen at the discretion of the Government. It is desirable that India adopts the international practice of appointing head of Supreme Audit Institution to be independent of the discriminatory power of the Executive.
Another related issue is that of the appointment of IAS officers as the CAG. In the last 48 years since 1966 only one IAS officer has been chosen while all other postings went to senior civil servants.
From the viewpoint of IAS this looks like the systematic exclusion of that service and the virtual absorption of the post of CAG in the IAS cadre. This perception has had a demoralising effect on the IAS cadre. Whether that feeling is right or wrong, it exists; and it is bound to have some effect on the commitment, zeal and courage with which the audit function is performed.
The answer to it is not to exclude the IAS, nor to reserve the post exclusively for the IAS, but to ensure that the appointment processes are such as to leave no room at all for a sense of unfairness or suspicions of impropriety; and that the selected person, from wherever he or she be drawn, is of such unquestionable suitability as to command respect both within and outside the audit department.
The field of choice should certainly be wide, and should include the IAS, other central accounts services (civil accounts, railway accounts and defence accounts), the IAS, and a limited number of accounts, finance and management experts from outside the government.
ICAI (Institute of Chartered Accountants in India) Code of Ethics states that an auditor’s independence has two aspects- independence in fact and independence in appearance. The appointment of former secretaries as CAG may compromise the independence of this institution because of apparent/perceived conflict of interest.
There are 2 PILs have been filed in the SC against the appointment of former defence secretary Shashi Kant Sharma as the new CAG. Before being appointed the CAG, Mr. Sharma had served in key positions in the defence ministry that involved decision making powers over purchases including the Augusta Westland Chopper deal and the Tatra trucks deal. His appointment is thus being questioned in the context of conflict of interest and also that it goes against the code of ethics of auditors.
Recommended Mode of Appointment
There is a need to frame a transparent selection procedure based on definite criteria and constitute a broad-based non- partisan selection committee, which after calling for applications and nominations would recommend the most suitable person for appointment as CAG.
There needs to be an institutionalised process of selection for the post of CAG, a selection committee as seen in the appointment of CVC (involving PM, Leader of Opposition and Home Minister) and the Chairman of the NHRC may be considered. The above steps could go a long way in ensuring that an outstandingly able person of great independence and integrity is selected to this high constitutional office.
Should the CAG go into policy decision?
- In the recent past CAG’s reports on 2G, Coal blocks allocation, Delhi Airport PPP have made the Government very uncomfortable with the audit findings. In order to defend its position, some members of the ruling party have raised questions about CAG’s jurisdiction and observed that he has exceeded his mandate. What is the veracity of such criticism? The CAG’s role should be viewed in the context of our constitutional scheme under which the executive is accountable to Parliament. CAG is an essential instrument for enforcing the accountability mechanism as the CAG’s reports on government’s stewardship of public finance are required to be placed in Parliament and state legislatures under Article 151 of the Constitution. To enable him to discharge this responsibility, without fear or favour, he has been given an independent status under Article 148 analogous to that of a Supreme Court judge.
- The word ‘audit’ has not been defined in either the Constitution or in the CAG Act, 1971. We have so far been going by 150 years of history, tradition, existing provisions and international practice. The CAG has not formulated his own policy in the above reports and has only gone by policy prescriptions recommended internally at various levels within the government. It is within the mandate of CAG to comment on a policy in cases wherein-
- The financial implications of a policy were not gone into at all before the decision was made
- The assessment of financial implications was quite clearly wrong
- The numbers were correct but the reasoning behind the decision was questionable
Further, the CAG is bound by the oath of office to uphold the Constitution of India and thus is bound to comment on policy matters that seem unconstitutional. If the government were to formulate a scheme or policy that selectively confers benefits from public funds on an individual or a group to the exclusion of others, it is the CAG’s duty to point this out. Thus the CAG was well within his mandate to comment on the above policy decisions.
Another criticism has been of the Notional and Presumptive loss figures as claimed in the reports. There is a genuine dilemma here. If the reports were to make a bland statement that an alternative procedure would have yielded more revenue to the government or would have meant less discretionary patronage, it would give no indication of the financial dimensions of the decision or the importance of the matter.
Putting a number on it brings this home. On the other hand, when a number is mentioned, the discussion tends to focus on it and not on the issues involved. There is no easy way out of this dilemma. All that one can say is that the ‘notional’ number should e carefully estimated, making the assumptions and methodology clear. This is what the CAG has done. He has not claimed that his figures are definitive.
The assumptions can be questioned, the methodology can be questioned, the resulting number can be debated; what cannot be questioned is the procedural or substantive lapse to which the figure points.