NATIONAL
COMMISSION TO REVIEW THE
WORKING
OF THE CONSTITUTION
A
Consultation Paper*
on
EFFICACY
OF PUBLIC AUDIT SYSTEM IN INDIA:
C
& AG – REFORMING THE INSTITUTION
January 8, 2001
VIGYAN BHAWAN ANNEXE, NEW DELHI – 110
011
Email:
<ncrwc@nic.in> Fax No. 011-3022082
Advisory Panel
on
Legal Control of Fiscal and Monetary Policies; Public Audit
Mechanism; Standards in Public Life
Member-In-Charge
Dr. Abid Hussain
Chairperson
Shri M. Narasimham
Members
q
Dr. Y.V. Reddy
q
Shri Harish Salve
q
Dr. Smt. Isher Ahluwalia
q
Dr. Ashok Lahiri
q
Dr. B.P. Mathur
q
Shri S.S. Tarapore
q
B.P.R. Vithal
Member
Secretary
Dr. Raghbir Singh
ACKNOWLEDGEMENT
This
Consultation Paper on ‘Efficacy of Public Audit System in India: C & AG –
Reforming the Institution’ is based on a paper prepared by Dr. B.P. Mathur,
Former Deputy Comptroller and Auditor General and Director, National Institute
of Financial Management, Faridabad.
The Commission
places on record its profound appreciation of and gratitude to Dr. Mathur for
his contribution.
CONTENTS
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Pages |
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1. |
Current Status |
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2. |
Weakness of the existing system |
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3. |
C & AG’s Audit
Jurisdiction |
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4. |
Quality of Audit – Problems due to C & AG’s highly centralised set
up |
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5. |
Need for collegiate decision : Audit Commission |
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6. |
Appointment of Comptroller and Auditor-General |
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7. |
C & AG and Parliament interface |
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8. |
Accountability of C & AG – External Audit |
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Questionnaire |
I am of the opinion that this
dignitary or officer (C&AG) is probably the most important officer of
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 what is called appropriation Act. If this functionary
is to carry out the duties- and his duties, I submit are far more important
than the duties than the duties of the Judiciary.
Dr B R Ambedkar
1. CURRENT
STATUS
Public audit is a vital instrument of ensuring
supremacy of Parliament over executive and enforcing public accountability.
Public audit institutions developed over time to help legislatures to implement
the power of the purse. This power had two essential elements: the granting of
the moneys and supervision of the expenditure. State audit in its present form
was introduced first time in Great Britain as an integral part of parliamentary
control over national finance with the enactment of Exchequer and Audit
Department Act in 1866.The Act required all departments for the first time, to
produce annual accounts known as appropriation accounts. The act also
established the position of Comptroller and Auditor General (C&AG) and an Exchequer
and Audit department to provide the supportive staff from within the civil
service. The results of C&AG's investigations were considered by a
dedicated parliamentary committee called the Committee on Public Accounts thus
establishing a circle of parliamentary financial control.
2. The system
of Government accounting and auditing and the organisational structure of the
Indian Audit and Accounts department (IAAD) as it exists today in our country
is the legacy of British Raj and is more or less patterned on British model.
The IAAD has a history dating back to 1858 when the East India Company
administration was taken over by the British Government and an Auditor General
of India, who looked after both audit and accounts functions, was appointed.
The introduction of constitutional reforms in 1919 brought about statutory
recognition to the Auditor General.. The Government of India Act 1935, gave
further recognition to the importance and status of the Auditor General.
1.1 Constitutional and Statutory Mandate
3. The Indian
Constitution gave special status to
Comptroller & Auditor General (C&AG) as laid down in Articles 148 to
152. The C&AG's Act, 1971 regulate the duties, powers and conditions of service of the Comptroller and Auditor
General.
4. Section 13,
16 and 17 of Act gives authority to C&AG to audit all expenditure from and
receipt into the Consolidated fund of India and the State. Section 14, 15, and
20 of the Act authorises C&AG to audit the receipts and expenditure of
bodies or authorities substantially financed by loans or grants from Union or
State or Union Territory. Article 151 of the Constitution prescribes that Audit
Reports on the accounts of Union and the States be submitted to Parliament
/State Legislature.
1.2
Organisational Structure
5. The C&AG is the head
of the Indian Audit and Accounts Department. The office of the C&AG
directs, controls and monitors the activities of the various offices of the
department and is responsible for development of organisational objectives and
policies, auditing standards and systems, laying down policies for management
of man power and final approval of the Audit report. For carrying on these
responsiblities field formations exist for each specific areas of auditing and
accounting.
6. The offices
of IAAD are spread throughout the country. There are 34 Union Government Audit
Offices headed by Director General/ Principal Director of Audit and 60 State
Accounts and Audit offices headed by Principal Accountant General and
Accountant General. There are 60000 personnel in the IAAD with about 500 Group
A officers belonging to the Indian Audit and Accounts Service (IA&AS).The
total budget of the IAAD is around Rs 846 crs bulk of which constitutes
expenditure on pay and allowances of the staff.
1.3 Evolution of
Audit since Independence
7. The
traditional audit conducted by the supreme audit institutions (SAI) is known as
Regularity
audit which implies checking upon the legality of an action taken by a
public official or a person using public funds and whether the decision or its
implementation is according to the law, rules or regulations governing that
activity Gradually its dimension was extended to Financial audit and now to Value
for Money audit. Financial Audit basically means
audit of financial statement and whether they provide reasonable assurance that
they present fairly the financial position, results of operations, and cash
flows of an audited entity in accordance with generally accepted accounting
principles. In Financial audit, State auditors do almost the same kind of job
which the Chartered Accountants do while auditing a public limited company .
Value for Money or 3E's Audit: also known as Performance audit is
an independent assessment of the performance of an organisation, programme,
project or an activity in terms of its goals and objectives- how far expected
results have been achieved from the use of available resources of money, men
and material. Put it differently an examination is made regarding economy,
efficiency and effectiveness of public spending, which has come to be known as
3E's audit.
q
Economy: minimising the cost of resources used or
required - spending less;
q
Efficiency : the relationship between the output of
goods and services and the resources to produce them- spending well;
q
Effectiveness: the relationship between the intended
and actual results of public spending - spending
wisely.
8. The concept
and technique of audit has undergone a major change during the last fifty
years. Before India became independent, the government audit was mostly
confined to check against provision of funds, rules and orders and competence
of authority concerned to sanction expenditure. With the launching of the Five
Year plans for economic and social development there has been change in the
pattern of government expenditure necessitating shift in the emphasis, concept
and practice of audit as scrutiny of individual transactions became inadequate
as it tended to mistake wood for the tree. The Parliament and the public are
more interested to know whether various development and welfare programmes are
being executed efficiently and whether they were producing the expected
results. This lead Audit department to enter in the area of Performance Evaluation and Value for Money
Audit. Audit department is now producing a large number of performance
reviews every year covering almost every facet of government's working.
9. Audit of Revenue: C&AG after some initial
resistance on the part of revenue department was able to extend its dimension
to audit of revenues which includes audit of tax assessment such as Income tax,
Central Excise and Customs, Sales tax etc. The audit of receipts has helped
bringing considerable revenue for the government by pointing out cases of under
assessment of tax, and also assisted in better functioning of tax
administration machinery by pointing out lacunae or loopholes in the Act/ Rules
and deficiencies in the functioning of tax administration.
10. Audit of Commercial Enterprises: The audit of government companies
was brought within the purview of C&AG’s audit at the insistence of then
CAG by introducing a suitable provision in the Companies Act 1956, although
there were initial attempts to exclude his jurisdiction. Thus, while Chartered
Accountants are required to certify Annual Accounts of government companies,
C&AG has been granted right to conduct supplementary audit.
2.
WEAKNESS OF THE EXISTING SYSTEM :
2.1 No
Powers to Enforce Audit Findings - Violation of Rules
11. One of the primary functions of audit is
to see that provisions of law, rules and regulation are properly applied while
incurring expenditure or collecting revenue. In order to regulate usage of
money elaborate rules and regulations have been drawn by government. While
audit notices systematic violation of law, rules and regulations by
departmental officers it is unable to take an effective action to prevent them.
12. The Bihar fodder scam will illustrate
the point. Serious financial irregularities and misappropriation of government
funds were being committed by senior government functionaries and the Treasury
officials all acting together in collusion. The Accountant General (AG) Bihar
could not detect the irregularity in time as Treasury officers suppressed the
vouchers through which money was drawn and did not transmit them to AG thus
preventing its audit. C&AG has been making mention of excess drawl over
voted provision in its Audit Report presented to Bihar Legislature but Public
Accounts Committee, it is said did not even met to discuss the report leave
apart take preventive action. After the scam became public knowledge, C&AG
has produced a well documented Audit Report but it is more a case of getting
wise after the event—after crores of public money has been looted and shutting the stable door after the steed has been
stolen.
13. The accounts keeping of State
governments companies is in chaotic state. Out of about 900 State government
companies the Annual Accounts of as about 700 companies is in arrears sometimes
for periods as long as ten to twelve years. The Companies Act stipulates that
the Annual Accounts of these companies should be got audited by Statutory
auditors (Chartered Accountants) and C&AG within six months of the close of
financial year viz. 30th September. Should a situation where
management of these companies violate with impunity the legal provision laid
down in the Companies Act be allowed? Similar is the situation with large
number of autonomous bodies, which receive substantial grant from government every
year. Many of them do not submit their Annual Accounts in time for audit. In
numerous cases, accounts when prepared do not follow the accounting standards,
contain serious mistakes and when pointed out, the concerned organisations
refuse to rectify the errors . And yet they continue to get government grants
every year. Should not C&AG be empowered to take legal action against
management of such defaulting organisations, so that tax payer is assured that
no misuse and misappropriation of public funds has taken place?
2.2 Legal
position
14. Section 13 of the Comptroller and
Auditor General’s Act, lays down that it is the duty of audit: to ascertain that the money, which has been
disursed was legally available for the service or purpose on which it has been applied and there is a proper authority to spend the
money. What happens when a public official spends money, which is not legally
available viz., it is in violation of laid down rules and regulations. The Act
is silent about it – all that the last sentence of Section 13 says, “ in each
case to report on the expenditure, transaction or accounts so audited by
him.” If the C&AG makes a report about the irregular usage of money to
the Departments whose officials have committed the default and they contest
C&AG’s decision or do not take any action, it virtually amounts to the
departments sitting over judgement on C&AG’s findings and obstructing the
duty he is required to perform under the law. In no other country of the world
State audit finds itself in such a helpless situation.
2.3 Position in
Advanced Countries
15. Most Supreme Audit Institutions (SAI)
have been vested with powers to fix responsibility on the officials who have
caused loss to the exchequer and have legal power for its recovery. In New
Zealand under the Public Finance Act of 1977, the Controller and
Auditor General(CAG) is empowered to hold an enquiry which may require any evidence to be given either orally or in
writing and to which the provisions of Crimes Act relating to perjury applies. The CAG has power for surcharge if
he finds that there is deficiency or loss of money or store caused through
fraud, mistake, default, negligence, error or improper or unauthorized use. In Japan
the Board of Audit has powers to adjudicate and can order an official
to indemnify the loss and direct the supervising officer to take disciplinary
action against the delinquent official when it finds that the official has
caused grave loss to the State either deliberately or by gross negligence. In France
Cour des Comptes which functions like a court may order accounting officers to
settle uncollected revenue or irregular expenses out of their own resources, if
during an investigation it finds that the accounting officer has failed to
provide satisfactory justification- on the ground that they have formal
personal responsibility. Hindering
Cour's investigation may give rise to a monetary fine. The judgements of
Cour are legally binding and can be appealed only on points of law.
16. In South Korea , the Board of Audit and Inspection (BAI) law ,
confers authority to the Board to examine and adjudicate whether an accounting
official or any other person is liable for reparation and the manner in which
recovery is to be made and execute collection by applying mutatis mutandis
provisions concerning disposition of taxes in arrears in the National Tax
Collection Act. In China under the State Audit Act, an audited unit violating
financial and economic laws and regulations, the audit organs may confiscate or
instruct them to return the illegal gain; take over the embezzled state assets;
take decisions to cut off such appropriations or loans; and impose fines. In Thailand under the State Audit Act of
1979, Auditor General can summon an official to deliver accounts and registers;
attach money, properties, accounts registers, documents etc. of the audited
agency and summon a person to testify as witness. If a person who has the duty
to keep in his custody money or property or documents etc., damages, destroys,
or causes loss he is liable for imprisonment upto five years or a fine or both.
The Auditor General and the competent officials while performing their duties
under the State Audit Act are treated as officials under the Penal Code.
2.4 Need for Conferring Legal Powers
17. The
situation in our country needs to be remedied by conferring legal power to
Audit Officers to enable them to implement their findings by making suitable
provisions in the C&AG’s Act on the
lines enjoyed by State audit institutions of other countries. The Act should entrust Audit Officers with following
powers: (a) powers to summon the concerned officers before it for evidence on
oath and (b) where default is established, after giving due opportunity, they
be required to make good the loss, (c) in case the official does not make good
the loss and the default or neglect is
established, a report be made to the superior authority of the department where
officer is working for taking disciplinary action under the Civil Services
Conduct Rule, (e) where action of public official involves criminal liability,
the public prosecutor be informed either by Audit official or by the Department
to which he belongs for initiating
criminal action under the Penal code. For discharging this quasi-judicial function
the powers similar to those available under Commission of Enquiry Act be vested
with the Accountant General / Principal Director of Audit who are heads of
department by making suitable legal
provision to that effect. To make the system transparent and fair there
should also be a provision of appeal with final appellate stage at the level
of Addl / Dy Comptroller and Auditor
General at the headquarters of C&AG’s office.
3. C&AG'S AUDIT
JURISDICTION
3.1 Accountability of Public Sector
Undertakings(PSU’s)
18. Where
autonomous bodies are created under a specific act, the statute setting them
provides for the audit arrangement. There are a number of corporations,
particularly in financial sector such as
nationalised banks , IDBI, IFCI,
LIC which have been kept outside the
ambit of C&AG's audit . This is possibly on the ground that government
audit is not suitable and hamstrungs their commercial operations. Audit of
public enterprises by C&AG has always remained a controversial issue. In
the 50's when PSU's were being set-up first time, there were attempts to bar
C&AG's jurisdiction but the then C&AG resisted and the matter was
resolved by amending the Companies Act and providing for supplementary audit of
government companies by C&AG. Subsequently in the 70's, as a result of
recommendation of Administrative Reforms Commission, an Audit Board system was
introduced to provide commercial type audit for PSU's. In the wake of current
privatisation programme, government is making policy pronouncements that
government portion of equity will be brought down to a level of 49 or 26
percent. This is ostensibly being done to free them from government control
including audit as they would no longer fall within the definition of
government company. Will this not tantamount to evasion of public
accountability as by retaining sizable share-holding government could still
exercise policy control over these companies but will not be answerable to
Parliament?
19. There
is an opposite view that government control and agencies such as CBI, CVC, and
CAG hampers decision making and risk taking necessary for a commercial
organisation and largely responsible for their poor performance. Public
enterprise managers and experts argue that in an era of globalisation and liberalisation
where competition is the new mantra
government companies have to be provided the same level field as their compeers
in private sector if they have to survive the market forces. They should therefore be given autonomy and
supplementary audit by CAG be done away with.
20. In U.K
nationalised industries were kept outside C&AG's audit from the beginning.
However, British practice was more of an exception. France and Italy which have
large public enterprises including banks fall within the jurisdiction of state
audit. In USA under the Corporation Control Act, financial transactions of
wholly owned corporations are audited by General Accounting Office.
21. Keeping above factors in view what should be the best audit mechanism for public enterprises?
3.2 Evasion of Audit
22. Of late
there has been tremendous change in the pattern of public expenditure due to
the policy of devolution of administrative functions and parceling out certain
activities to non-government organisations. A substantial part of public funds
are transferred through complex financing arrangements to these autonomous
bodies and NGO's which have mushroomed in thousands. How to verify that they
have properly utilised the money and fulfilled the objective is a major
challenge, as CAG has no access to their book of accounts. Presently Chartered
Accountants certify their accounts which forms the basis of utilisation
certificates furnished by them. Is this arrangement satisfactory?
23. Government
has set up District Rural Development Agency (DRDA),as a registered
society headed by an elected
representative, in every district of the country to which Central/ State
government grants are given directly. DRDA's pass on money to Zila Parishad's
for various poverty alleviation programmes. No satisfactory system of audit of
DRDA/ ZP has been developed although
money spent by them comes from
the Consolidated Fund of India /State and a staggering some of about Rs 10000
crs is spent annually. Chartered accountants certify their Annual Accounts on
the basis of perfunctory information available to them regarding usage of money
and they do not automatically fall within the audit jurisdiction of C&AG.
24. It is for consideration whether a
Constitutional provision be made, that
all bodies which are publicly funded,
fall within the audit mandate of Comptroller and Auditor General and any stipulation , which ousts his
jurisdiction would be held ultra -vires.
3.3 Local (Third Tier of) Government- Panchaytas and Municipalities
25. Consistent
with the philosophy of devolution of powers and strengthening of local self government institutions, the
constitution, composition, power and duties of Panchayats and Municipalities
were enshrined in the Constitution by making 73rd amendment in 1993.
Bulk of finance for panchayats / municipalities comes from government but there
is no satisfactory arrangement for their audit. Article 243 J and 243 Z
states." The Legislature of a state may, by law, make provisions with
respect to the maintenance of accounts by the Panchayats/ Municipalities and
the auditing of such accounts." Hardly any State has made law in this
regard. The old arrangement continues and the Examiner Local Fund Accounts,
which functions under the Finance department, audits the accounts of these
bodies. With the policy of progressive empowerment of the self- governing
institutions receiving greater emphasis with attendant prospect of sizable
percentage of state funds being handled by these institutions appropriate
public audit mechanism need to be considered.
26. It may be
noted that keeping in view the importance of Local bodies in England an Audit Commission has been
constituted in 1982 for auditing Local Authorities and National Health Service.
Similarly in France, Regional Courts
of Accounts have been created in 1982 as part of wider policy of
decentralisation which is empowered to audit all local authorities.
27. There is need for placing accounting and
audit arrangement of Panchayats and Municipalities on
sound footing and it is for consideration whether a Central legislation be
enacted, with Comptroller and Auditor General having authority to lay down
accounting and auditing standards and
general superintendence over such audit.
4. QUALITY OF AUDIT- PROBLEMS DUE TO
C&AG’S HIGHLY CENTRALISED
SET-UP
4.1 Lack of Quality
due to Unwieldy Structure
28. If Indian Audit and Accounts Department
(IAAD) is to be given more teeth to be effective it must ensure very high
standards of performance. Administrative departments often voice criticism of
the manner of functioning of Audit department. They point out that audit often
takes trivial objections, does petty fogging, and has a negative fault finding
approach rather than coming out with solutions to the problems being faced by
administration. Audit is also criticised for preparing reviews on the working
of scientific and technical departments and on issues relating to economic
policy making about which it has no expertise.
There is considerable merit in these observations.
29. Much of the problems arise due to the
existing structure of IAAD, which is highly centralised with all powers
concentrated with C&AG in person or
in his headquarter office with very little delegation to State Accountants
Generals or Principal Directors of Audit who perform all the accounting and
auditing functions.This tells upon the efficiency of the State Accountant’s
General and other field outfits and effects their morale. The problem can be seen from the fact the
C&AG personally approves about 20 Audit Reports for Union Government and 75
Reports for State Governments. In addition C&AG has to certify Finance and
Appropriation accounts of the Union government as well as each of the State
governments and UT’s having a separate legislature before they are placed in
their respective Houses. Each of about 100 odd Audit Reports of the Central and
State governments which the C&AG produces annually runs into 200 to 250
pages. It is humanly not possible to read through 20000 to 25000 pages of
highly technical literature dealing with subjects as complicated as taxation
laws, purchase of defence equipment etc., least of all to give any direction
regarding meaningful conduct of audit. It is time to do some serious thinking
on the issue and develop a more decentralised functioning of the institution of
C&AG.
4 .2 Public Audit in India –
Violation of Principles of Federal Structure
30. Most of the problems of the Indian Audit
& Accounts department arise from the fact that the organisational structure
of C&AG is not in consonance with the federal arrangement as envisaged in
the Constitution. While we have a separate Legislature, Governor and a High
Court in every State there is no separate Auditor General. It is important to
remember that the Constitution makers were conscious of this fact and draft
Constitution as originally prepared had recommended separate Auditor General
for every State. The original draft prepared by the drafting Committee, headed
by Dr B R Ambedkar and submitted to the President of the Constituent Assembly
on 21st May 1948, contained the following provision:
31. Auditors-in-Chief for the States- “Art
210(1) The Legislature of the State for the time being specified in the First
Schedule may by law provide for the appointment of an Auditor-in-Chief for the
State and when such a provision has been made an Auditor- in Chief for that
State may be appointed by the Governor in his discretion and the Auditor
–in-Chief so appointed shall only be removed from office in the manner and like
grounds as a judge of the High Court of the State.” The draft Constitution had
a provision for control of Auditor General of India over State Auditor General.
Art 210(6) read as follows :" Nothing in this article shall derogate from
the power of the Auditor General of India to give such directions in respect of
the accounts of the States for the time being specified in Part I of the first
schedule as are mentioned in article 126 of this Constitution.” The drafting
committee had made the aforesaid provision on the basis of Government of India
Act of 1935 which had envisaged separate Auditor General for the Provinces.
32. The provision of draft Constitution got
amended at the stage when draft articles came for approval of Constituent
Assembly on the basis of the recommendation of an Expert Committee which
suggested doing away with provision of Provincial Auditor General. Was this a
right step?
4.3 Position in other
Federal Countries
33. Every country with federal structure has
a provision of separate Auditor General for the provinces / states. Thus in Germany the Federal Court of Audit
(FCA) and the constituent states known as Laender are autonomous independent
unit of government audit. They not subordinate to one another, share audit
responsibilities and may perform joint audits. In USA the General Accounting Office performs audit of federal
government only. There is Auditor General in each State who enjoys separate
legal status and is free to devise his systems to make his audit effective.
Similar is the position in Canada and Australia where an act specifies
provincial Auditor General's responsibility to examine the accounts of the
province and its various agencies and requirement to report to the Assembly on
the governments stewardship of public funds. In UK, CAG audits central government expenditure only. Following
devolution in 1999, new Auditor Generals have been set up in Scotland and Wales
to audit the expenditure of new Parliament and Assembly. There has been a
separate Comptroller and Auditor General for Northern Ireland since the
foundation of the state in 1921
4.4 No legal status to
State AG in India
34. As stated above the provision for a
separate Auditor General for the States was deleted at the stage of final
passing of the draft Constitution. Nevertheless for audit of State finances the
C&AG has to be accountable to State legislature and this was secured by
inserting a provision in Article 148 and 149 of the Constitution stating that
the Auditor General of Union will perform duties ‘ in relation to accounts of
the States’, and ‘ his reports will be submitted to the Governor of the State,
who shall cause them to be laid before the Legislature of the States’. This
position is somewhat anomalous. If C&AG is to perform duties in relation to
Accounts of the State he should be available to State legislature and attend
meetings of the State Public Accounts Committee. But how can one single
individual discharge this function for 25 States? As matters stand today the
Accountant General of the State discharges all the duties prescribed in the
Constitution on behalf of the C&AG. Given this position it is imperative
that a legal provision is made to this effect.
35. It
is therefore for consideration that in order to make State audit effective
independent Auditor Generals for the States who have the same status as a High
Court Judges are created by amending the Constitution. The appointment of State
Auditor General be made with the approval of President of India on the basis of
recommendations of an independent Committee headed by C&AG and
qualification for holding the post be laid down. However the Auditor General of
India should have power of superintendence over State Auditor Generals, in
policy matters relating to accounts and audit, in the same manner that Supreme
Court has over the High Courts.
4.5 Indian Audit and Accounts
Service and Department
36. Even if separate Auditor
General's for State's are created, the existing status of IA&AS need not be
disturbed and its members continue to be posted in the Accountant General's /
Auditor General's offices as hitherto, on the basis of a policy evolved through
Audit Services Board (comprising of representatives of CAG and State Auditor
General's) which could be constituted for the purpose. Their current status of
staff serving in the IAAD need not be changed, and they may continue to be
Central government servants. However, the newly created State Auditor
General's, will have final say regarding their recruitment, promotion, transfer
etc within some kind of uniform policy which could be worked out by
consultation amongst CAG's office and the State Auditor General's.
5. NEED FOR COLLEGIATE DECISION: AUDIT
COMMISSION
37. In most
advanced democratic countries Audit Reports which are placed in Parliament are
finalised through an Audit Board or Audit Commission system in which all the
senior officers of the state audit department are represented. In Germany the Federal Court of Audit Act
sets out the constitutional status of Bundesrechnungshof. All its members enjoy
judicial independence and a constitutional status similar to that of judges.
The Large Senate which is the main decision making body consists of 16 members
and includes President, Vice President and the Directors of Audit. In France the Cour des Comptes is presided by Premier President and has seven chambers with 15 members. The Cour
always acts as a collegiate body, whether in a judicial or non-judicial
capacity. The draft annual reports on
the accounts of the state and the management of the state services, agencies
and companies are brought before the complete bench presided over by the
President of the Cour. In Japan
there is an Audit Commission consisting of three Commissioners. All major
decisions pertaining to audit are taken by the Audit Commission including
finalisation of the Audit report. In Korea
the Board of Audit is composed of seven Commissioners including the
chairman. Decisions on policy issues, such as audit and inspection, are taken
with the approval of the Council of Commissioners.
38. In our country there is no system of
finalisation of audit reports through a formal committee system in which the Dy
CAG/ Accountant General / Principal Directors of Audit participate. The audit
reports both of the Central and State governments are processed on files by the
Dy CAG and Addl Dy CAG and approval of C&AG taken.The expenditure and
revenue transactions of the government have increased hundred folds with
tremendous growth in government’s activities after independence. It is simply not possible for one individual
viz. C&AG to be responsible for all audit work of Central as well as State
government. There is need for wider sharing of responsibility. The
existing system results in neglect of
audit and poor quality of Audit Reports. There is also no system of discussion
with Secretaries to government / heads of department before the Audit report is
finalised. This leaves yawning gap in the Report, facts and conclusions are
often challenged with the result that the main purpose of audit viz. improvement
of the administrative set-up and the systems and procedure takes a back seat.
39. The existing system needs an overhaul. Audit Reports should be finalised through
collegiate decision making of an Audit Commission in which all the Dy CAG’s and
Addl Dy CAG’s should be represented besides C&AG. The position of C&AG
should be that of primes inter pares.
For proposed Audit Commission to be
effective its members should be given a status similar to that of a High Court
Judge with age of retirement as 62
6. APPOINTMENT OF COMPTROLLER AND
AUDITOR GENERAL
40. The office
of C&AG embodies an institution of great importance. However, an
institution, however exalted, is only as good as the incumbent holding it. Do
qualified individuals get appointed to the post? The Constitution grants
C&AG independence and an exalted
status ( Article 148 )- he is appointed by President by a warrant under his
hand and seal, has the same status as a Supreme Court judge, cannot be removed
from office, his conditions of service cannot be varied to his disadvantage,
his salary is charged on the Consolidated fund of India etc. During last three
decades the appointment of C&AG has always been mired with controversy.
From the time the Constitution came into being in 1950, the four C&AG's
appointed to the post, were senior members of the Indian Audit & Accounts
Service . However from 1978 onwards the last four incumbents, are from the
Indian Administrative Service(IAS). The appointment of C&AG who do not
possess the requisite background of auditing and accounting has been subject of
severe criticism by Chairman of the Public Accounts Committee, press, public
spirited men, Officers and Staff association of the Audit department.
41. The Indian
Constitution does not lay down qualification for the post of C&AG nor the
manner of his selection. However the matter was discussed during the Constituent Assembly debates held in May
1949. From the debates it seems that
framers of the Constitution's intention was that a person who had sufficient knowledge of finance and
accounting systems and had practical
experience of the work of Finance department and had worked as Accountant General would only be
appointed. However, in practice this assurance has not been honored by
successive governments.
42. Position in Other Countries : In India we have been following British traditions of parliamentary
democracy and the post of C&AG has been patterned on British model. In U.K an act to strengthen Parliamentary
control and supervision of expenditure of public money by making new provision
for appointment and status of C&AG and establishing a National Audit
Commission was enacted in 1983. The relevant provision regarding appointment of
C&AG requires that the Prime Minister and Chairman of the Committee on Public Accounts should jointly select the
incumbent and get it ratified by the House of Commons. In Australia Comptroller and Auditor General is appointed by the Governor General on the recommendation of the
Minister, after the Minister has referred his recommendation to the Joint
Committee of Public Accounts and Audit and the Committee has approved the
same.
43. In USA under the Budget and Accounting Act of 1921, the Comptroller
General of the United States and the Assistant Comptroller General of the
United States shall be appointed by the President with the advise and consent
of the Senate. The Congress participates in the selection of the Comptroller
General by providing a list of candidates from which the President may choose
and by confirming the appointment. The GAO Act of 1980 further amplifies the
selection process of Controller General, and stipulates establishing a
Commission to recommend the name for the post.
44. In Germany the Bundestag and Bundesrat (
Parliament ) shall elect the president and Vice President of Bundesrechnuhof without debate. In Japan the
Commissioners of the Board of Audit are appointed by the Cabinet, with the
consent of both Houses of the Diet. In Korea
the Chairman of the Board of audit is appointed by the President with the
consent of the National Assembly. Similarly in Thailand the appointment of Auditor General must receive prior
approval of national Assembly.
45. In India it is necessary that the
appointment of C&AG is kept outside the exclusive purview of the Executive.
Recommendations regarding his appointment should be made by an independent
committee. One could suggest that the committee should
consist of the Prime Minister, Finance Minister, the Leader of the Opposition
of the Lok Sabha and Chairman of the
Public Accounts Committee. There is
also need to prescribe qualification for appointment to the post and a person who has substantive experience of
public sector accounting and auditing systems should only be appointed.
46. The period
for which CAG is presently appointed is 6 years with 65 as age of retirement.
The President, Vice- President, members of Public Service Commission are all
appointed for a 5 year term. There is a strong case to prescribe 5 year term
with age of retirement at 65.
7. C&AG AND
PARLIAMENT INTERFACE
7.1 Relations with Public Accounts Committee
47. The
Comptroller & Auditor General audits the accounts and submits his Report to
Parliament / State Legislature which are automatically remitted to the Public
Accounts Committee(PAC) / Committee on Public Undertakings( COPU). Parliament
has constituted PAC and COPU under Rule 308(1) and Rule 312 A of the Rule of Procedure and Conduct of Business of
Lok Sabha.
7.2 Excess Expenditure
- Violation of Constitutional Provision
48. In many
States PAC's have not been able to discharge even the Constitutional obligation of regularising "excess
expenditure" over budgetary grants. Under Article 205(b) of the
Constitution, if any money has been spent on any service in excess of the amount
granted for that service in the Annual Financial Statement, it would need
regularisation by the Legislative Assembly. Under the Rules of Business framed
by the Legislatures, the PAC examines the explanatory notes furnished by the
Ministry/ department and the circumstances leading to such excesses and
presents a report to the Legislature recommending regularisation of excess expenditure. As on March 1999 Excess
expenditure" of the order of about Rs 94314 crs has not been regularised
in various States. The position of some of the States is as follows : J&K:
Rs 22767crs, UP :Rs 13618crs , Assam : Rs 12569crs , Bihar :RS 6059 crs. Thus
in almost all the States huge amount of public money has been spent in violation of budgetary control envisaged
in the Constitution and fraught with the risk of misappropriation of public
money.
49. There is no
time limit prescribed for placing Appropriation Accounts certified by
Comptroller and Auditor General in Parliament/ State Legislature and the regularisation of excess expenditure over
voted grants by the PAC. There is need for making statutory provision regarding
the dates by which Appropriation Accounts is submited to Parliament/
Legislature. The Controller General of
Accounts/ Accountant General should submit the same to CAG by 30th
September and CAG should certify and
arrange to place it in Parliament/ Legislature by 30th December of
the following year to which the
accounts relate. It is also for
consideration whether a provision needs
to be made that excess expenditure over voted grant be regularised by PAC/
Parliament/Legislature before the close of next financial year. In UK under
the Act, the Treasury is required to submit accounts to Comptroller and Auditor
General by 30th September and he is required to certify the same and
present to Parliament by January of the following year to which the accounts
relate. In New Zealand under the Public Finance Act of 1989, the Treasury is
required to forward the annual financial statement to the audit office by 30th
August following the end of the financial year and the Audit office is required
to give its opinion within 30 days of receipt and the same should be tabled in
the House within six days of receipt by the Treasury.
7.3 Strengthening PAC
50. The two
Parliamentary Committees PAC and COPU are able to examine only a few paras and
reviews out of large number of audit reports submitted to them which defeats
the very purpose of parliamentary financial control and the accountability of
Executive which the Parliament is required to enforce. For example during
1997-98 out of 16 Reports submitted to Parliament containing 1209 paras/
reviews the number of paras / reviews selected for examination was 76, out of
which only 16 could be discussed by the PAC. In States there is a huge backlog
of work before the PAC's.
51. In order to strengthen parliamentary
control over executive it is necessary to devise a system which envisages that
PAC examines all the reports submitted by CAG and submits its recommendations
to Legislature within a time limit of say 18 months. This is possible only if the volume of CAG's Audit reports is reduced and
their quality and content improved and only matters of critical importance are
included in the Audit Reports.( Other financial irregularities noticed during
audit need to be settled with the concerned Ministries/ departments through
forums such as Audit Committees which need to be devised in consultation with
Ministry of Finance). For PAC to function
effectively and its members to develop specialisation, the life of PAC be
made five years co-extensive with the
life of Parliament/ State legislature with one- third of members retiring every
year. It for consideration whether PAC be given a Constitutional status with
clearly defined mandate, duties and functions.
7.4 C&AG and
Parliament
52. In
parliamentary democratic form State audit tends to be classified as part of the
legislative branch as the institution has developed over time to implement the
power of the purse. State audit with its access to information and review of
governmental activities, fulfills an increasingly important role in providing
legislature with detailed reliable information necessary for control. A
realisation of this fact has lead to major restructuring of the audit department
in U.K with the passing of the
National Audit Act of 1983. Under the
act C&AG has been made an officer of the House of Commons. Another
Commonwealth country Australia has
fallen in line with British system and under a 1997 act Auditor General will be
an independent officer of Parliament. In U.S.A
the General Accounting Office from the time of its constitution in 1921, has
been recognised as an agency within the legislative branch of the government
and enjoys a special working relationship with the American Congress.
It is for consideration whether C&AG should be made an officer of
the Lok Sabha so that he could work in
greater cooperation with Parliament and its Finance committees with a view to
make parliamentary financial
control more effective.
8. ACCOUNTABILITY OF
C&AG - EXTERNAL AUDIT
53. The
importance of audit mission, and what it entails by way of resources deployed
by agencies subject to audit, underlines the importance of subjecting the State
audit to regular and perceptive scrutiny. It is necessary that State audit
demonstrates that its own operations stand the test of professional soundness,
efficiency and effectiveness.
54. In India
there is no external audit of C&AG's outfit. In practice C&AG nominates
one of the Accountant General under him as an auditor for C&AG's office.
This is not a very satisfactory arrangement. Commonwealth countries such as U.K
and Australia have made legal provision not only for audit of National Audit
Office by independent auditors but scrutiny of budget estimates by a
parliamentary committee which oversees its functioning. It is for consideration whether an external audit arrangement be made
C&AG's set-up in line with the practice in UK.
QUESTIONNAIRE
ON
EFFICACY OF PUBLIC AUDIT SYSTEM IN INDIA:
C & AG – REFORMING THE INSTITUTION
Public response is sought to be
elicited for making major reforms in the institution of C&AG to make its
functioning more effective:
1) Should
the appointment of C&AG be taken out of the exclusive purview of Executive
and a high level independent committee consisting of Prime Minister, Finance
Minister, Leader of Opposition in Lok Sabha and Chairman of Public Accounts
Committee be constituted to select him? Is there a case for reducing the
term of office of Comptroller and Auditor General from present 6 years to 5
years.
Should qualification for the post of
Comptroller and Auditor General be laid down and persons having extensive
experience of the functioning of public audit and accounts systems should only be eligible to hold the
office? (Refer Section VI)
2) Countries
having federal structure such as USA, Germany, Canada, Australia and now U.K
have separate Auditor General's for provinces. Should public audit systems
conform to the federal structure of our country and constitutional status and
autonomy be given to the State Accountant General and his status made equivalent to a High Court Judge so that he can effectively discharge his
responsibility to the State Legislature? In that case should he be
appointed by the President of India on the recommendations of an independent
committee headed by Comptroller and Auditor General? How should a relationship
that
exists between Supreme Court and High Court be built between
Comptroller and Auditor General and the State Accountant General with the later
functioning within the overall policy framework of C&AG of India (Refer:
Section IV)
3) Countries
such as Germany, France, Japan and South Korea work through a system of Audit
Court / Audit Board with members
enjoying high legal status with President of the Court / Board's position that
of primus inter pares. Should
the office of CA&G be restructured
and broad based by creating an Audit
Commission which should have existing Dy CAG's enjoying the status of High
Court Judge as members and function on the principle of
collegiate decision for all policy matters relating to audit and accounts?
(Refer Section V)
4) Audit
officers in most countries such as New Zealand, Japan, Germany, France, Korea,
China and Thailand have been entrusted with judicial powers so that they ensure
that State money and property is safeguarded. Should quasi- judicial powers as
available under Commission of Enquiry Act be given to senior officers of the
Audit department who should have authority to summon public officials to give
evidence on oath, surcharge them if they find that he has caused loss of State
money and property through fraud, negligence and improper use and if that is
not possible advise the Department where they are working to take disciplinary
action under the Conduct Rules? (Refer Section 2)
5) Presently
Public Corporations in the banking and financial sector do not fall within the
jurisdiction of Comptroller and Auditor General's audit. However, government
companies are subject to state audit under the Companies Act. Are public
enterprises at a disadvantage due to presence of C&AG's audit in the
context of globalisation and competition and a
level playing field is not available to them? What should be the audit
arrangement for Public Enterprises which should fulfill requirements of public
accountability without impairing their commercial autonomy? (Refer
Section 3.1)
6) A large
number of autonomous bodies, NGO's and
public funded institutions which receive substantial government grants escape
C&AG's audit jurisdiction due to complex financing arrangements. It is
for consideration that a Constitutional provision be made that all bodies which
are publicly funded fall within the ambit of Comptroller and Auditor General's
audit and any stipulation which ousts his jurisdiction would be
ultra-vires . (Refer Section 3.2)
7) With the
policy of progressive empowerment of the local self-governing institutions
receiving greater emphasis with attendant prospect of sizable percentage of
State funds being handled by these institutions, appropriate public audit
mechanism needs to be considered. What should be the accounting and audit arrangement of Panchayats and Municipalities
and whether a Central legislation
be enacted, with Comptroller
and Auditor General( or the proposed Auditor General for the States) having
authority to lay down accounting and auditing standards and general superintendence over such audit?
(Refer Section 3.3)
8) Public
Accounts Committee's have not been functioning effectively and most of the
reports of C&AG remitted to it remain unexamined defeating the principle of
parliamentary control over public funds prescribed under the Constitution. In the States a sum of over Rs 94000 crs of "excess
expenditure" over voted Grants is awaiting regularisation under Article
205(b) of the Constitution. To
make the functioning of PAC effective should a time-limit, of say 18 months be
prescribed, for it to examine the reports of C&AG and submit its recommendations? To develop
expertise should the life of PAC be made
five years, co-extensive with the term of legislature, with one-third of
its members retiring every year. Should Constitutional status be given to
Public Accounts Committee with clearly defined duties and responsibilities.
(Refer Section 7.2 & 7.3)
9) Public audit
institutions tend to be classified as part of legislative branch as they help
legislature to implement power of the purse. In U.K and Australia C&AG has
been made an officer of the House of Commons. What should be the relationship
between C&AG and Parliament. Should practice similar to UK be followed in
our country? (Refer Section 7.3)
10) In UK Public
Accounts Commission examines the budget and appoints the auditor of the
National Audit Office. What should be the arrangement for audit of
the office of the Comptroller and Auditor General? Should an external
agency be entrusted this task to make the system transparent? (Refer Section 8)