ROLE OF CAG IN MEETING CHALLENGES OF GOOD GOVERNANCE

1. Name of participant (Mr. /Ms.):  Aditya Dassaur

2.  Father’s name: C.L.Verma

3.  Date of birth: 25/08/1992

4.  College/university:  Panjab University Regional Centre, Ludhiana

5.  School/college identity  card no: Not known

6. Graduate/post graduate program in which enrolled: BA.LLB(hons) 7.  Contact information: 

Mailing address: H.L-52/a, phase-1, Mohali (160055)

Telephone number: 9878348306 

Email id: adityadassaur@ymail.com

“Power corrupts; do not let yourselves be entrapped with its pomp and pageantry. Remember you are in the office to serve the poor”. This is what Mahatma Gandhi said to the politicians at the time of independence. Not many politicians and bureaucrats remember this valuable suggestion today. Despite of all the considerable developments and achievements which India has made in the recent past, the world still considers India to be in a sad state. The reason being the wide gap between the poor and the rich in the nation. On one hand where some people move around in flashy cars, some others don’t even have slippers to move around with. Where some people dine in 5 star lounges everyday, some others don’t have enough money to be able to feed themselves a single meal. These disparities existing in the country are an obstacle to India’s development and progress. One major cause which has led the country to this present scenario is corruption. Corruption is a social evil which has victimized the common man the most.

Democracy, good governance and modernity cannot be imported or imposed from outside a country.  A well balanced and inclusive approach based on certain standards and ideals, is essential for the proper governance of any country.   To understand the role of CAG in good governance, we will first have to understand what CAG is and what type of work carried out by the CAG.

Finance, Accounts and Audit are as old as history itself. History is evident that good accounts and audit organization existed in ancient India.  Kautilya in his famous Arthashastra gave an elaborate account of the accounting system that existed in the Mauryan period. In the Mauryan policy, the final authority, in the matter of Finance, was the King; one of whose daily duties was to attend to the accounts of receipts and expenditure. Each Minister was responsible for the finance of his department and each department had its own accountant, treasurer and others.  Similarly, Gupta rulers introduced more elaborate and orderly system of accounts and audit during their rule.  

Although the ancient and medieval administrations established coherent accounts and audit organizations, it failed, during the period of later Mughals. Subsequently, it was the British who introduced a proper system of accounting and auditing. In 1858, when the East India Company's administration was taken over by the Crown, a complementary post of Accountant-General at the Indian office was created to prepare the accounts of the expenditures incurred in England. In 1860, both accounting and auditing functions were amalgamated and were handed over to the Accountant-General of the Government of India who was also known as 'Auditor

General'. However, the statutory recognition of the Auditor General came in 1919,  with the introduction of Constitutional Reforms. He was made independent of the Government of India and was appointed by the Secretary of State and held office as the administrative head of the Indian Audit Department. The Government of India Act 1935 gave further recognition to the importance and status of this office. Thereafter, his appointment was made by the crown and the conditions of his service were also determined by His Majesty-in-Council. His duties and powers were prescribed by rules made under the order of His Majesty-in-Council. He could be removed from office only in the same manner and on the same grounds, as a Judge of the Federal Court.

The Comptroller and Auditor General of India :

The Comptroller and Auditor General (CAG) of India is an authority, established by the Constitution of India, who audits all receipts and expenditure of the Government of India and the state governments, including those of bodies and authorities substantially financed by the government. The CAG is also the external auditor of government-owned companies. The reports of the CAG are taken into consideration by the Public Accounts Committees, which are special committees in the Parliament of India and the state legislatures.  

CAG is also the head of Indian Audit and Accountant Service. He is appointed by President. He can hold his office for 6 years or up to age of 65 years. He can give resignation at any time or can be impeached by President through Parliament resolution with special majority.

The importance of CAG can be understood by the following words of Baba Saheb Ambedkar:

“ I am of the opinion that this dignitary or officer (CAG) 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. “

The organizations subject to the audit of the Comptroller and Auditor General of India are :- • All the Union and State Government departments and offices including the Indian Railways and Posts and

Telecommunications.•   About 1500 public commercial enterprises controlled by the Union and State governments, i.e. government companies and corporations.•   Around 400 non-commercial autonomous bodies and authorities owned or controlled by the Union or the States.•   Over 4400 authorities and bodies substantially financed from Union or State revenues.

There is a special arrangement for the audit of companies where the equity participation by Government is 51 percent or more. The primary auditors of these companies are Chartered Accountants, appointed by the Comptroller and Auditor General of India, who gives the directions to the auditors on the manner in which the audit should be conducted by them. The Comptroller and Auditor General of India is also empowered to comment upon the audit reports of the primary auditors. In addition, the Comptroller and Auditor General of India conducts a test audit of the accounts of such companies and reports the results of his audit to Parliament and State Legislatures.

Nature of Audit

While fulfilling his Constitutional obligations, the Comptroller & Auditor General examines various aspects of Government expenditure. The audit done by CAG is broadly classified into Regularity Audit and Performance Audit.

Regularity Audit (Compliance)

•   Audit against provision of funds to ascertain whether the moneys shown as expenditure in the Accounts were authorized for the purpose for which they were spent.  •   Audit against rules and regulation to see that the expenditure incurred was in conformity with the laws, rules and regulations framed to regulate the procedure for expending public money.•   Audit of sanctions to expenditure to see that every item of expenditure was done with the approval of the competent authority in the Government for expending the public money.•   Propriety Audit which extends beyond scrutinizing the mere formality of expenditure to it wisdom and economy and to bring to light cases of improper expenditure or waste of public money.•   While conducting the audit of receipts of the Central and State Governments, the Comptroller & Auditor General satisfies himself that the rules and procedures ensure that assessment, collection and allocation of revenue are done in accordance with the law and there is no leakage of revenue which legally should come to Government.

Performance Audit

Performance audit is done to see that Government programmes have achieved the desired objectives at lowest cost and given the intended benefits. For a complete list of Performance Appraisals since 1983  

Regularity Audit (Financial)

In regularity (financial) audit and in other types of audit when applicable, auditors should analyse the financial statements to establish whether acceptable accounting standards for financial reporting and disclosure are complied with. Analysis of financial statements should be performed to such a degree that a rational basis is obtained to express an opinion on financial statements.

Action on Audit Reports

The scrutiny of the Annual Accounts and the Audit Reports thereon by the Parliament as a whole would be an arduous task, considering their diverse and specialised nature, besides imposing excessive demands on the limited time available to the Parliament for discussion of issues of national importance. Therefore the Parliament and the State Legislatures have, for this purpose, constituted specialized Committees like the Public Accounts Committee (PAC) and the Committee on Public Undertakings (COPU), to which these audit Reports and Annual Accounts automatically stand referred. 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).

Public Accounts Committee

The Public Accounts Committee satisfies itself:-

That the money (shown in the accounts) was disbursed legally on the service or     purpose to which they were applied.

That the expenditure was authorized.

It is also the duty of the PAC to examine the statement of accounts of autonomous and semi-autonomous bodies, the audit of which is conducted by the Comptroller & Auditor General either under the directions of the President or by a Statute of Parliament.

Committee on Public Undertakings

The Committee on Public Undertakings exercises the same financial control on the public sector undertakings as the Public Accounts Committee exercises over the functioning of the Government Departments. The functions of the Committee are:-

To examine the reports and accounts of public undertakings.

To examine the reports of the Comptroller & Auditor General on public undertakings.

To examine the efficiency of public undertakings and to see whether they are being     managed in accordance with sound business principles and prudent commercial practices. 

The examination of public enterprises by the Committee takes the form of comprehensive appraisal or evaluation of performance of the undertaking. It involves a thorough examination, including evaluation of the policies, programmes and financial working of the undertaking.The objective of the Financial Committees, in doing so, is not to focus only on the individual irregularity, but on the defects in the system which led to such irregularity, and the need for correction of such systems and procedures.

CAG'sRole

The Comptroller & Auditor General of India plays a key role in the functioning of the financial committees of Parliament and the State Legislatures. He has come to be recognized as a 'friend, philosopher and guide' of the Committee. His Reports generally form the basis of the Committees' working, although they are not precluded from examining issues not brought out in his Reports. He scrutinizes the notes which the Ministries submit to the Committees and helps the Committees to check the correctness submit to the Committees and helps the Committees to check the correctness of facts and figures in their draft reports. The Financial Committees present their Report to the Parliament/ State Legislature with their observations and recommendations. The various Ministries / Department of the Government are required to inform the Committees of the action taken by them on the recommendations of the Committees (which are generally accepted) and the Committees present Action Taken Reports to Parliament / Legislature.In respect of those cases in Audit Reports, which could not be discussed in detail by the Committees, written answers are obtained from the Department / Ministry concerned and are sometimes incorporated in the Reports presented to the Parliament / State Legislature. This ensures that the audit

Reports are not taken lightly by the Government, even if the entire report is not deliberated upon by the Committee.

Some major functions of the CAG are:-

To prescribe, with the approval of president, the form in which the accounts of union and states are to be kept.

To perform such duties and exercise such powers in relations to accounts of union or states or another body , as many prescribed by any law made by the parliament.

To report the president or governor of the state on the account of country or state.

The CAG as Auditor General:-

The primary purpose of audit is to ensure that the money has been utilized for the purpose for which the grants were made by the parliament and thus this audit is an important instrument in the control of public expenditure.It keeps a check on the application of rules and regulations by the government servants, issued on behalf of the administration and secondly it ensures, on behalf of the legislature, that the actions of these public servants have been in accordance with the views and the requirements of the legislature.

Audit of Revenue :-

CAG 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.

Audit of Commercial Enterprises:-

The audit of government companies was brought within the purview of CAG’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, CAG has been granted right to conduct supplementary audit.

Audit of Public Sector Undertakings :- 

Under Section 619 of the Companies Act, 1956, the auditor (statutory auditor) of a government company including deemed government company, appointed by the CAGconducts the audit of accounts of the companies. On the basis of supplementary audit conducted thereafter, the CAG issues comments upon or supplements the Audit Report of the statutory auditor.

Audit of Autonomous Bodies :-

A large number of bodies setup, especially in the field of education and development like IIMs, these bodies are audited by the CAG.

During the last five years, CAG has conducted performance audits of many key socioeconomic programmes of the Government of India, for instance- National Rural Employment Guarantee Scheme (NREGS), National Rural Health Mission(NRHM), Sarva Shiksha Abhiyan (SSA), Mid day Meals Scheme, Accelerated Rural Water Supply Programme (ARWSP), and Pradhan Mantri Gram Sadak Yojana (PMGSY). CAG’s audits have also covered several niche areas of public interest like Consumer Protection Act, Waste Management and Police Modernization Scheme etc. CAG’s audit of Government departments, offices, and agencies in the States, dealing with implementation of Government schemes, also touches upon the performance of schemes or their components at various levels of the audit process. CAG’s audit is an external audit on behalf of the tax payers. The Union and State Legislatures, through their respective legislative committees on public accounts and public undertakings, discuss the matters brought out in CAG’s audit reports and make recommendations to the executive for appropriate management action. In a broad theoretical sense, therefore, CAG’s audit itself is a social audit. Yet, in its commonly perceived sense, CAG audit remains a Government process largely confined to Government officials and Government auditors.

Limitations

In spite of the various safeguards provided by the Constitution to maintain the independence of Comptroller and Auditor General from the Executive and Parliament, his/ her independence appears to be limited by four factors viz.,

restraint of the Executive on his/ her budgetary autonomy

block of control overstaff

indirect accountability to the Finance Ministry of the Union and the Finance Department of the State Government for handling accounting duties, and absence of direct access to Parliament (unlike the Attorney General) in defence of his/ her official conduct, if and when questioned on the floors of Parliament.

To conclude, notwithstanding these limitations, the Comptroller and Auditor General plays a unique role in the Indian democracy, by upholding the Constitution and the laws in the field of financial administration. He/She is neither an officer of Parliament nor a functionary of Government. He/ She is one of the most important officers of the constitution.