COMPTROLLER AND AUDITOR GENERAL OF INDIA (Art. 148)

COMPTROLLER AND AUDITOR GENERAL OF INDIA (Art. 148)

 

BACKGROUND
  • Article 148 – Provides for an independent office of CAG
  • CAG is head of the Indian Audit and Accounts Department
  • CAG is “guardian of Public Purse”
  • Duty of the CAG is to uphold the constitution of India and laws of Parliament in the field of Finance Administration.
  • CAG acts as a guide, friend and philosopher of the Public Accounts Committee of the Parliament.
  • B.R. Ambedkar said that the CAG shall be the most important Officer under the Constitution of India.
  • CAG is one of the bulwarks of the democratic system of government in India – the others being the Supreme Court, the Election Commission and the Union Public Service Commission – Dr. B. R. Ambedkar

Union Public Service Commission

Bulwarks of the democratic system of government

Election Commission of India

Comptroller And Auditor General of India

Supreme Court

 

APPOINTMENT AND TERMS
  • CAG appointed by the President under his warrant and seal.
  • Holds office for a period of 6 years or 65 years, whichever is earlier.
  • Resigns by giving the resignation letter to the President.
  • Removal on similar grounds as the Judge of Supreme Court — he can be removed by the President on the basis of a resolution passed to that effect by both the Houses of Parliament with special majority, either on the ground of proved misbehaviour or incapacity.
  • Subscribes before the president an oath or affirmation
    • to bear true faith and allegiance to the Constitution of India;
    • to uphold the sovereignty and integrity of India;
    • to duly and faithfully and to the best of his ability, knowledge and judgement perform the duties of his office without fear or favour, affection or ill-will; and
    • to uphold the Constitution and the laws.

 

INDEPENDENCE
  • Security of tenure – Do not hold office till the pleasure of the President though appointed by him.
  • Not eligible for further office
  • Salary and other conditions determined by the Parliament. Salary equal to judge of SC
  • Salary or rights cannot be altered to his disadvantage
  • Conditions of service of persons in Indian Audit and Account service prescribed by the President after consultation with CAG
  • Administrative expenses charged upon the Consolidated Fund of India.

 

DUTIES AND POWER
  • Article 149 discusses the duties and powers of CAG.
  • The duties are prescribed by the law made by Parliament.
  • CAG Act 1971 was amended in 1976 to separate accounts from audit in the Central Government.
  • Audits accounts of
  • Consolidated fund of India
  • Consolidated fund of each state
  • Consolidated fund of each Union Territory
  • Audits expenditure of –
    • Contingency fund of each state
    • Public Account of each state
  • Audits all the subsidiary accounts of state and central governments
  • Audits receipts and expenditure of state and central government
  • Audits receipts and expenditure of –
    • Bodies financed by Central and State revenues
    • Government companies
    • Other corporation and bodies required by laws
  • Advises the president to prescription of the form in which accounts of the center and state shall be kept
  • Submits audits and reports to the President who shall place them before both houses of parliament.
  • Submits audits and reports to state governor
  • Ascertains and certifies the net proceeds of any tax or duty.
  • He compiles and maintains the accounts of state government
  • Submits audit reports –
    • Audit report on appropriation
    • Audit report on finance
    • Audit report on public undertakings

 

ROLE OF CAG
  • Accountability of the executive in the sphere of financial administration.
  • CAG is an agent of Parliament, conducts audits on behalf of Parliament and is responsible only to the Parliament.
  • The CAG has more freedom with regard to audit of expenditure than with regard to audit of receipts, stores and stock.
  • The CAG has to ascertain the legality of disbursed money.
  • Does Proprietary audit (Proprietary audit is discretionary) – wisdom, faithfulness and economy of government expenditure
  • The secret service expenditure is a limitation on the auditing role of the CAG.
  • CAG has no control over the issue of money from consolidated funds of India.

 

INDIA – CAG is only an Auditor and General and CAG is not a member of Parliament.

BRITAIN – CAG in true sense. Mandatory approval of CAG required to appropriate money from Public exchequer. CAG is member of House of Commons

 

TYPES OF AUDI

1.Compliance Audit
2.Financial Audit
3.Performance Audit

 

Compliance Audit (obligatory)Focuses on assessing whether activities, financial transactions and information are, in compliance laws, rules and regulations etc.
Financial Attest Audit (obligatory)Focuses on whether an entity’s financial information is presented in accordance with the applicable financial reporting and regulatory framework
Performance Audit (discretionary)Focuses on whether institutions are performing in accordance with the principles of economy, efficiency and effectiveness and whether there is room for improvement.

 

CAG AND CORPORATION S
  • The role of CAG in the auditing of public corporations is limited.
  • CAG’s relationship with the public corporations falls into the following three categories –
    1. Some corporations are audited totally and directly by the CAG. E.g.- DVC, ONGC, etc.
    2. Some other corporations are audited by private professional auditors who are appointed by the Central Government in consultation with the CAG. E.g. – Central Warehousing Corporation, Industrial Finance Corporation, etc.
    3. Some other corporations are totally subjected to private audit. E.g. – LIC, RBI, etc.

Relation between CAG and Public Accounts Committee (PAC)

  • PAC is a Parliamentary Standing Committee created under GOI Act, 1919.
  • CAG audit reports are handed over to the PACs at the centre and at the state.
  • Three CAG reports i.e. audit report on appropriation accounts, audit report on finance accounts and audit report on public sector undertakings are examined by PAC.
  • At the central level, these reports are submitted by CAG to President, who makes them to be laid in Parliament.
  • CAG also assists the committee in its deliberations by preparing a list of the most urgent matters which deserve the attention of the PAC.
  • He also helps in making the actions of the committee clear to the witnesses and in making the action of the government clear to the committee.
  • CAG position is sometimes one of interpreter and translator, explaining the officials’ views to the politicians and vice-versa.
  • The responsibility of the CAG does not end here. He has to watch whether the corrective action suggested by him has been taken or not. In cases whether it has not been taken, he reports the matter to the PAC which will take up the matter.

 

ISSUE REGARDING AUDIT OF RAFAEL DEAL
  • ns about possible lapses and deviations in the Rafale
  • But the audit report is less likely to bring closure to the controversy over the deal as it does not clarify all the doubts about the deal.
  • The original issue of bringing down the total acquisition from 126 to 36 aircraft was not given much attention.
  • The CAG’s assessment of savings in India Specific Enhancements (ISE) to be around 17% is also not properly documented and needs deeper examinations.
  • The report, in all, stresses on the fact that the defence acquisition processes in India require reforms and streamlining.

 

CAG REPORT ON RAFAEL DEAL
  • The CAG report has examined the €7.87-bn deal for 36 Rafael aircraft signed between India and France in 2016.
  • The purpose is to assess if the objectives of Indo-French joint statement and the objectives set out for INT (Indian Negotiating Team) by DAC (Defence Acquisition Council) were achieved in the deal.
  • The CAG had to compare the latest deal for 36 Rafael with the price bid by Dassault for 126 Rafael jets in 2007.
  • It did this by converting the earlier deal into an equivalent cost for 36 aircraft in 2016.
  • The question of 50% offsets in the deal, which has been at the centre of a major controversy, has not been dealt by the CAG.
  • It will form part of a separate report by the CAG on offsets in all the deals.
  • The CAG report concludes that the 2016 agreement is slightly better in terms of both pricing and delivery than the 2007 deal.
  • Price comparison– The 2016 deal through IGA (Inter-Governmental Agreement) is 2.86% cheaper than the earlier UPA (United Progressive Alliance) regime deal.
  • On the Rafael’s India Specific Enhancements (ISE), which cost more than €1.3 billion of the €7.87 billion deal, the CAG stated that there was a saving of 17.08%.
  • Delivery schedule– There was an improvement of one month in the 2016 contract (71 instead of 72 months for the earlier bid).
  • Absence of bank guarantee – The 2007 offer from Dassault had costs of bank guarantee embedded in its offer.
  • But there is no such guarantee in the 2016 contract which is a “saving” for Dassault.
  • This sum should have been passed on to the Indian government, the audit observed.
  • 126 to 36– By reducing aircrafts to be bought from 126 to 36, there is a wide gap in the operational preparedness of the IAF.
  • But the CAG could not find any proposal with the Defence Ministry for filling this gap.
  • Ministry of Defence had reportedly informed CAG that it had issued a fresh Request For Information (RFI) for new fighter aircraft to fill this gap.
  • Government claims– One of the government’s claims was that each basic aircraft (without enhancements) was 9% cheaper in the 2016 deal.
  • But the audit concluded that there was no difference between the 2007 and the 2016 offer in this regard.

 

REPORTS BY CAG
Appropriation Account
Finance Account
PSU Report

 

REDACTIVE AUDIT

CONTEXT – In an audit report submitted by Comptroller & Auditor General of India (CAG) to the President (under Art. 151) of the Indian Constitution on pricing of Rafael jets, the CAG used the concept of “redactive pricing”.

  • In the preface of the audit report, the CAG stated that redactive pricingwas unprecedented but had to be accepted due to the Ministry’s insistence citing security concerns.

 

WHAT IS REDACTIVE AUDIT?
  • Redaction is the selection or adaptationby removing sensitive information from a document before publication
  • Under the redactive pricing method, CAG withheld full commercial details and blackened the figures on the procurement deal on security concerns cited by the Ministry of Defence.
  • Whether the Ministry’s insistence citing security concerns could have been accepted by the CAG can be examined only by the Supreme Court in the light of the constitutional provisions on the CAG’s duties and parliamentary privileges and prerogatives.

 

IMPLICATIONS OF REDACTIVE AUDIT
  • Defeats the rationale of audit – A performance audit is done to establish whether the procurement activity was executed keeping in mind economy, efficiency, effectiveness, ethics and equity.
  • Lack of further scrutiny to uphold accountability – for instance, in the Rafale deal, the Parliament, its committees, the media and other stakeholders of the CAG’s reports cannot obtain complete, accurate and reliable information due to redactive pricing.
  • A loophole in anti-corruption efforts – As CAG reports are often the source of further investigation by anti-corruption bodies like the Central Vigilance Commission, Central Bureau of Investigation.

 

Audit of PM – CARES and PMNRF

  1. Earlier, the Comptroller and Auditor General’s (CAG) office had clarified that it wouldn’t audit the PM-CARES Fund as it is ‘a charitable organisation’ and is also based on donations from individuals and organisations.
  2. The PMNRF too is not audited by CAG but it is audited by an independent auditor outside of the government.

 

CRITICISMS OF CAG
  • Its report is post-facto – e. after the expenditure is incurred and has only prospective value in improving systems and procedures.
  • Limitation of auditing role r.t secret services expenditure. Moreover cannot call for particulars.
  • The government has increased its participation with the private sector through the PPT (public-private-transfer) and BOT (build-own-transfer) model. CAG does not have the power to audit PPP (Public Private Partnership) investments.
  • 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.
  • High spread of auditing regime with limited human resources.
  • CAG is not always appointed from Revenue, financial stream.
  • Conflict of interest – many instances of appointing former Secretary (IAS) appointed as CAG
  • CAG in India is not a member of Parliament unlike in Britain.
  • No specified criteria and procedure for appointment of CAG – CAG is appointed by the President on recommendations of the PM.
  • Reports not submitted timely in legislature – reduces effectiveness of an institution
  • No power of contempt or summoning.

 

SOLUTION
  • Timely submission of reports in legislature
  • Power of appointment should be kept outside he exclusive power of executive – NCRWC recommended
  • CAG is part of the Public Account Committee (PAC) in the UK – exploring this possibility in Indian context.
  • Endowing summoning and contempt powers to the CAG
  • Amendment to the CAG Act to keep pace with changes in governance – Vinod Rai (Former CAG)
  • Coverage of Govt. funded societies, Panchayats and PPP projects
  • Incorporating British model in India – Previous approval system
  • Technological upgradation – data analytics, Big data, AI, Machine learning
  • Prior consultation with PAC chairperson and collegium type mechanism to choose CAG on line with CVC.

 

WAY FORWARD
  • In 2016, CAG opted for Big Data management policy to meet new challenges.
  • Auditors should be provided access to records on priority basis within limited time, failing which, heads of departments should give explanation for delay.
  • CAG plays a vital role to help deter, detect, and take remedial and preventive action to provide good governance. While performing the mandated duties, the CAG highlights deficiencies in internal controls, segregation of powers, defective planning, implementation and inadequate monitoring.

 

REFORMS SUGGESTED BY VINOD RAI
  • Bring all Private-Public Partnerships (PPPs), Panchayati Raj Institutions and government-funded societies, within the ambit of the CAG.
  • CAG Act of 1971 should be amended to keep pace with the changes in governance.
  • A collegium type mechanism to choose a new CAG on the lines of selecting a Chief Vigilance Commissioner (CVC).