PAPER-II UNIT 9 150 YEARS OF CAG150 years of CAG

In the Indian polity, we, the Indian Audit and Accounts Department (also known as the Supreme Audit Institution in the international context) are an instrument for ensuring accountability. The Constitution of India has mandated us as the auditors to the nation.

In a democracy, those holding power and positions of responsibility must be answerable for their action. The democratic state has a “Social Contract” with the citizens and functions on behalf of the people. To ensure that this contract is respected, a democracy provides for several institutional mechanisms like the Judiciary, Vigilance bodies and an independent Supreme Audit Institution (SAI). The Comptroller and Auditor General of India (CAG) and the Indian Audit and Accounts Department (IAAD) functioning under him, constitute the Supreme Audit Institution of India. Senior functionaries of the SAI representing the CAG in the states are called Accountants General.

In the Indian system of governance, the policies set by the Parliament and State Legislatures give the goals to be achieved through public spending.

These policies are translated into programmes and implemented by various departments of the government. For this, the Parliament sanctions the budget which prescribes how Government will collect money through taxes and how much and for which purposes it shall spend. There are also financial rules which the Government departments and other public bodies must follow when they receive and spend public money. The spending departments are accountable to the Parliament for both the quantity and quality of their expenditure. Articles 148 to 151 of the Constitution prescribe a unique role for the Comptroller and Auditor General of India in assisting the Parliament to enforce the said accountability of the Government departments.

The SAI of India audits both Central and State Governments and also maintains the accounts of the State Governments.

Government audit in British IndiaThe role of the CAG evolved through practice and tradition in British India. Just prior to the mutiny of 1857, Lord Canning had initiated a major administrative reorganisation. This led to the setting up of, for the first time, in May 1858, a separate department with an Accountant General at the helm. He was responsible for accounting and auditing of the financial transactions under the East India Company. After the mutiny, the British Crown took over the administration of India and passed the Government of India Act 1858.This Act introduced a system of an annual budget of Imperial Income and Expenditure in 1860 . The budgeting system laid the foundation stone of Imperial Audit. Sir Edward Drummond took charge in November 1860 as the first Auditor General. 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. Till 1947, when the last British Auditor General Sir Bertie Monro Staig handed over the reins, the department remained an integral part of British administration. Under various nomenclatures like the Accountant General, the Auditor General and the Comptroller and Auditor General, it provided unified accounting and auditing arrangements for the whole of British India.

Duties and powers of CAGThe duties of the CAG as defined by the DPC Act, 1971, are to audit and report upon:All receipts into and spending from the coffers (called the Consolidated Fund) of the Union and State Governments. All transactions relating to the Emergency expenses (called Contingency Funds) and relating to the monies of the public held by the Government e.g. Postal savings, Vikas Patras (called Public Accounts) at Central as well as State levels.

All trading, manufacturing, profit and loss accounts, balance sheets and other subsidiary accounts kept in any Government department.

All stores and stock accounts of all Government offices and departments. Accounts of all Government companies and Corporations e.g. ONGC, SAIL etc.

PATH IAS ACADEMY(Progressive Academicians Team of Hamid)

PAPER-II UNIT 9 150 YEARS OF CAG Accounts of all autonomous bodies and authorities receiving Government money e.g. municipal bodies,

IIM's, IIT's, State Health societies. Accounts of any body or authority on request of the President/Governor or on his own initiative. Power to inspect any office or organisation subject to his audit. Power to examine all transactions and question the executive. Power to call for any records, papers, documents from any audited entity. Power to decide the extent and manner of audit.

The DPC Act also provides for compilation of accounts by the CAG. We compile the accounts of State Governments from the subsidiary accounts submitted by treasuries and other officers of the State Governments. While compiling accounts, we do not just mechanically total up incomes and expenditures but act as financial advisors. We raise an alarm if monies are being drawn in excess of authorisation or if there are no supporting bills to an item of expenditure. We actively monitor expenditure patterns and issue advice on excesses/surrenders/ lapses of funds. This ensures that systemic corrections are made in time and acts as an important circuit breaker that prevents frauds.

In 2007, the CAG has issued, under section 23 of the DPC Act, 'Regulations on Audit and Accounts' which define in detail the scope, manner, and extent of his auditing and accounting mandate.

CASEThe infamous Bihar Fodder Scam was a result of chronic financial indiscipline in the State Government treasuries which were notorious in not submitting accounts or delaying them badly. Without the Treasury account or with incomplete accounts, there was no way to know what was the total amount spent under each grant. This helped a government department to draw huge sums of money in excess of the authorisation from the Treasury for fodder, medicines and other supplies to non-existent animal stock. The Doranda treasury in Ranchi had withdrawn Rs.104 crore against a budget provision of Rs. 74 crore! Each of the six government farms in Ranchi spent Rs. 20 crore every year to feed pigs and cattle.Since 1998, CAG has computerised compilation of accounts and has actively assisted and guided the state treasuries in computerising their work so that such overdrawals can be immediately detected and alert messages generated.

The Comptroller and Auditors General Indian Audit and Accounts ServiceShri V. Narhari Rao was the first CAG from 1948 to 1954. The CAGs after him were Shri A K Chanda, Shri A K Roy, Shri S Ranganathan, Shri A Baksi, Shri Gian Prakash, Shri T N Chaturvedi, Shri C G Somiah, Shri V K Shunglu and Shri V N Kaul. Shri Vinod Rai is the present incumbent.

What are the types of audit we do?Depending upon the objective of audit, we can classify audits by the SAIIndia into:

Compliance Audit Financial Attest Audit Performance Audit

Apart from these traditional audits, we have successfully done a number of audits of Information Technology (IT) Systems and on Environmental issues.

Compliance auditCompliance audit is often called a transaction audit in which some selected transactions (for e.g. a purchase by a Medical Officer, a contract executed by a Public Works Division for building a road or a tax assessment order by an Assessment Officer) of an entity for a particular financial year are chosen for examination.A compliance auditor would ask what has been/ not been done in a transaction against rule, sanction, provision and propriety. He checks whether a transaction:

conforms to sanction/provision of funds; adheres to all rules and regulations; adheres to the principles of financial propriety, which go beyond mere observation of rules.

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PAPER-II UNIT 9 150 YEARS OF CAG

CASEGovernment rules require that a supplier of equipment will be paid only when the office where it is to be installed, submits an “installation report”. We found that expensive equipment purchased by Chhattisgarh Government Health department had been paid for on the basis of installation reports furnished by the supplier, instead of the receiving Chief Medical Officer.While this may seem just a rule that was not followed, further investigation showed that the installation reports were fake. We found that a local supplier had appropriated the purchase orders addressed to a well known firm and faked the invoices and letter heads of the firm to supply substandard equipment.

Financial Attest AuditFinancial statements are prepared by departmentally run undertakings, statutory corporations, Government Companies and other autonomous bodies and authorities. We certify how far the accounts are “true and fair” i.e. whether the financial statements (accounts) are properly prepared, complete in all respects and are presented with adequate disclosures. In some cases, our financial Audit is a “supplementary audit” with the primary auditor usually being a Chartered Accountant.

We also audit and certify the annual accounts of the Central and State Governments.

Performance auditPe r f o rma n c e a u d i t d o e s n o t correspond to the traditional image of auditing as a process centered on 'checking the books' to attest their correctness. It seeks to establish at what cost and to what degree the policies, programmes and projects are working. Performance Audit, apart from asking whether things are being done in the right way, goes a step further and analyses whether the right things are being done. In addition to all the financial audit checks, the Performance Audit seeks to assess whether a programme, scheme or activity deploys sound means to achieve its intended socio-economic objectives.A performance auditor would ask what should have been done to achieve the objectives; how can we do things better and how to do better things.

Information Technology AuditTo take up audit of computerized systems and e-Governance initiatives, the officers and staff of I A A D a r e e x t e n s i v e l y a n d rigorously trained in auditing information technology systems.We also collect and analyse data for our traditional (non IT sector) audits. We have carried out around 250 IT Audits till now, pointing out not just deficiencies in the software but overall service delivery issues in IT enabled systems.The IT Audit initiative of SAI India has been awarded with Prime Minister's Award for excellence in public administration in the year 2008.

Social AuditWe are conscious that the general public has become much more discerning and seek reports evaluating the performance of Government Schemes. Since Civil Society Organisations have been conducting closescrutiny of the implementation and outcomes of the schemes, we have taken various initiatives to synergise our Audit Reports with these organizations. The objective has been to muster the local knowledge and competence of these civil society organizations for a better reach of the formal audit process. Such social audits are being carried out for social sector schemes such as in health, education, rural employment and water.

Environment AuditOur department has done a number of performance audits on various environmental issues in the past. This has been identified as an area of specialised auditing and we are in the process of establishing aninternational centre which shall provide training on environment audit and conduct research on environmental issues and sustainable development.

The final product of the audit process – The Audit ReportsWhat do our Reports focus on?

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PAPER-II UNIT 9 150 YEARS OF CAGAn Audit Report contains the final, fully corroborated audit findings. These may have been accepted by the department and/ or are proved factually and are material enough to be placed before the Legislature. The objective of our audit is to bring about improvement in the management and conduct of government's activities and programmes. We seek to determine the nature of the inadequacies identified, whether they are isolated or recurring. We want not only to stimulate corrective action but to ensure that the lapse does not occur again. We make appropriate, informed and implementable recommendations to improve systems, procedures and processes.

Types of ReportsThe Audit Reports of the CAG submitted to the Parliament and State Legislatures consist of compliance and performance audit reports covering revenue collection and expenditure of Government, separate audit reports on the functioning of certain autonomous bodies as provided by legislation, reports on the Financial position of Central and State Governments and reports on the adherence to the AppropriationActs passed by Parliament and Legislatures. The CAG also submits the certified annual accounts of the States, known as the Finance and Appropriation Accounts, to the State Legislatures.

The advisory roleSAI India is also engaged as an impartial advisor and standards setting organisation so as to bring about improved financial management in the Government. We regularly organise seminars and workshops for training the State Government departments in accrual accounting, accounting formats for PRI's etc. We also interact with Union and State legislators through conferences so that they are equipped to understand the role of audit and can utilise our Reports to ensure better governance for the citizens.

The SAI beyond Indian boundariesSAI India is the member of the UN panel of external auditors and of the Governing Board of the International Organisation of Supreme Audit Institutions (INTOSAI). The CAG chairs the INTOSAI Working Group on IT Audit and the knowledge sharing committee. Currently, we are the external auditors for UN bodies like World Health Organisation, IMO, WTO and the WFP.We also impart training to audit professionals from over 120 countries at our State of art International Centre for Information Systems and Audit at Noida. This institution also caters to the training needs of our own personnel especially in the area of IT. We have also acted in an advisory capacity to SAIs of other countries by imparting training in their offices, doing training needs analysis for capacity building and providing audit experts to guide and assist their personnel.

CAG – a few misconceptionsIf there are delays in taking action on its reports, does it mean that the SAI is ineffective? Is SAI an institution with limited utility or merely a fault finding exercise that cramps quick decision–making?Let us recall the “Answerability” tenet that is central to our democracy. How well has the State honoured the Social Contract? How can People assess that? Is there any way of measuring Performance and monitoring the implementation from a citizen's point of view? Today, despite a high rate of economic growth and rising social-sector expenditure, India ranks low on key developmental parameters. In this context, the SAI provides regular, reliable and relevant information on the efficacy of the Public Finance system.Through the audit process and by ensuring accountability and transparency we partner the Government in providing “leakage free” delivery systems by pointing out areas vulnerable to leakage. We have brought out a special study report on the state of preparedness for the Commonwealth Games in July, 2009. The objective was to provide t h e G o v e r n m e n t a c r e d i b l e assessment of the stages of completion of different projects by various agencies. This was the first of a series designed to assist the Government for a midterm appraisal of their schemes and was not a conventional Audit Report. Where independent inquiry and cross-verification of Government sector spending down to the lowest levels is concerned, only the SAI has the expertise, the reach and the wherewithal to render professional, unbiased reports.

The SAI functions as the eyes and ears of the Parliament. We track expenditure of each of the hundreds of Government schemes and programmes, pinpoint leakages, report inefficiencies and corrupt practices and ensure that the accountability chain of the executive to the legislature does not suffer complete breakdown. At the same time we have appreciated and pointed out good practices followed by the Government departments.

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PAPER-II UNIT 9 150 YEARS OF CAGMoreover as befits a developing economy, the SAI India has attempted to link performance of Government programmes with 'outcomes'. We have used clear, concise and measurable performance indicators and recommended performance benchmarks and Good Practices Guides to Government departments.

Pointing out procedural lapses and violation of rules is a part of ensuring financial fair play. Today when transparency and accountability are key concerns and demand for thorough scrutiny of Government spending is growing, the key issue is how audit findings can be acted upon by the concerned agencies in a time-bound and effective manner. Any talk that audit by SAI cramps decision making is nothing but a red-herring to take attention away from the fact that accountability needs to be enforced for every rupee of public money that is spent.

Citizens have every right to know how the tax-payers money is being spent by the government to implement various programmes. If any funds spent by the government do not come under the scrutiny of Comptroller and Auditor General of India then it is nothing but a "lacuna".Vice President Shri Hamid Ansari (June 2010)

HISTORICAL FACTSThe origin of auditing is as ancient as the origin of organised governance. The Arthashastra provides detailed guidance on the manner of accounting and the verification of accounts. During the medieval period, the mushrif and the mustaufi performed the accounting and auditing functions respectively.

PATH IAS ACADEMY(Progressive Academicians Team of Hamid)