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Context

• In its latest audit reports tabled in Parliament, Comptroller and Auditor General (CAG), as mandated by the Constitution of India, has highlighted several issues with various ministries and departments related to operational and financial irregularities.
• In this context, this edition of the Burning Issue will tell the latest reports of CAG and explain the office of CAG in India.

Few noticeable latest reports of CAG

• About Assam’s NRC: The CAG has flagged serious irregularities, including “haphazard development” of software for the exercise, making it prone to data tampering, and flagged undue profits worth crores amassed by the system integrator (SI) by violating the Minimum Wages Act during the update exercise of the National Register of Citizens (NRC) in Assam.
• About CPSE: The Comptroller and Auditor General of India (CAG) has also raised concern over the high number of vacancies for the post of independent directors in 59 of the 72 (82 per cent) listed central public sector enterprises (CPSEs).
• About DRDO: According to another CAG report, the DRDO took 17 to 569 weeks for the submission of proposals in 29 projects, which had a cascading effect on sanctioning of the project. The delays resulted in changes in the technology to be used, import of the said items by users, and non-availability of the required item with the users.
• About Plastic waste management: In a compliance audit report, CAG has said that the Union Ministry of Environment, Forest & Climate Change (MoEF&CC) has mechanisms to assess the generation of plastic waste, but none for its collection and safe disposal. Plastic Waste Management (PWM) Rules, 2016, could not be implemented effectively and efficiently due to a lack of an action plan by the MoEF&CC and the ministry is also lacking in effective coordination with pollution control boards.

About CAG

“I am of the opinion that this dignitary or officer is probably the most important officer in the Constitution of India. He is the one man who is going to see that the expenses voted by Parliament are not exceeded, or varied from what has been laid down by Parliament in the Appropriation Act. If this functionary is to carry out the duties — and his duties, I submit, are far more important than the duties even of the Judiciary” – Dr. B.R. Ambedkar

• The Constitution of India provides for an independent office of the Comptroller and Auditor General of India (CAG).
• His duty is to uphold the Constitution of India and the laws of Parliament in the field of financial administration.
• 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 levels- the centre and state.

History of office of CAG

• 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, 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 the 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.

Constitutional provisions related to 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 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.

Types of Audit performed by CAG

• Regulatory Audit: It is an audit to ascertain whether the money spent was authorized 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 the detection of leakages.
• Propriety Audit: It focuses on whether the expenditure made is in the public interest or not i.e. it moves beyond mere scrutiny of expenditure to question its wisdom and economy to identify cases of improper expenditure and waste of public money.

• Efficiency Audit: Efficiency audit as the name suggests answers the question of 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 programs 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 but 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 the 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.

Independence of the Institution of CAG

• For the 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 thereunder.

• He is provided with 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.

Sources of the Audit Mandate of CAG

• Constitution– The existence and mandate of the Comptroller and Auditor General of India emanate 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 the 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 the audit to be conducted by him or on his behalf.

Duties and Fuctions of the CAG

Duties

• He audits the accounts related to all expenditures from the Consolidated Fund of India, the Consolidated Fund of each state and UT having a legislative assembly.
• He audits all expenditures 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 expenditures 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.

Functions

• 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 the 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 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 the separation of accounts from the audit.
• He submits 3 audit reports to the President: an audit report on appropriation accounts, an audit report on finance accounts and audit report on public undertakings.

However, there are the following Limitations on the Powers of CAG

• Report is post-facto: i.e. after the expenditure is incurred and has only prospective value in improving systems and procedures.
• Secret service expenditure: such 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.
• Rising PPP investments: Since the legislation, the government has increased its participation with the private sector through the PPT (public-private-transfer) and BOT (build-own-transfer) models. However, the rules have not undergone a significant change and CAG does not have the power to audit PPP (Public Private Partnership) investments.
• NGO’s, PRI and ULB’s out of audit ambit: There is no provision for auditing of funds that are given to an NGO and elected local bodies. Also, 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 also not auditable: (District Rural Development Authority) today are managing large sums of money for rural development yet they also are outside the purview of CAG audits.
• Denial of documents: the path to obtain the relevant documents to carry out their tasks and make a report on its basis has never been easy for audit department. It has also been involved in several cases where the necessary documents were denied to the CAG and the powers of the CAG had to be reinstated by the Judiciary. In the past, almost 30% of the documents demanded by CAG officials have been denied to them.
• 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. There is a lack of clarity on the criterion, the definition of the field of choice, and the procedures for the selection of this high constitutional functionary.
• Word audit not defined: 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 its own policy in the above reports and has only gone by policy prescriptions recommended internally at various levels within the government.

Way forward

• Bring PPP and PRIs under CAG: Former CAG Vinod Rai recommended that all private-public partnerships (PPPs), “Panchayti Raj Institutions” and societies benefiting from government funds should come within the ambit of the CAG.
• Enhance the CAGs powers to access information: He also requested to enhance the CAGs powers to access information under the audit act. As of 2013, it was estimated that 60% of government spending does not come under the scrutiny of CAG.
• Amend CAG Act: He also suggested amendments to the CAG Act, 1971 to bring it in line with the current times privatization and IT revolution.
• Application of the latest technologies: such as AI and Big Data in the audit process can help CAG better perform its duties. In this regard, CAG came out with a Big Data management policy in 2016 and also established a Centre for Data Management and Analytics in Delhi
• A collegium kind of body: should be formed the choosing the person for CAG’s office to end the monopoly of the Executive.

Conclusion

• No doubt that this organization has come a long way from that time to where it’s standing today but like every institution constantly requires amends, rectifications, and upgradation to catch up to the modern times.
• We can hope that by implying these reforms, this organization will enhance the transparency of the system through which the lucid imagery of our democracy would be clearly visible.

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