(Online Course) Pub Ad for IAS Mains: Chapter: 9 (Financial Management) – Comptroller and Auditor General of India Introduction (Paper -2)

Paper – 2
Chapter: 9 (Financial Management)

Comptroller and Auditor General of India Introduction

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 L 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 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.

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, lie 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.

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Constitutional and Statutory Mandate

Regulate 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.

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.

Organisational Structure

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 responsibilities field formations exist for each specific areas of
auditing and accounting.

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 era bulk of which constitutes
expenditure on pay and allowances of the staff.

Appointment of Comptroller and Auditor General

The most important instrument of accountability, the Comptroller and Auditor
General of India has a dual role to perform – firstly as an agency to function
on behalf of the Legislature to ensure that the Executive complies with the
various laws, passed by the Legislature in letter and spirit, and secondly, on
behalf of the Executive to ensure compliance by subordinate authorities with the
rules and orders issued by it. The Comptroller & Auditor General, as the head of
the Indian Audit and Accounts Department, is thus neither a part of the
Legislature nor the Executive but is an officer created by the Constitution to
see that diverse authorities act in regard to all financial matters in
accordance with the Constitution. and the laws and rules framed there under.
‘]’here are several provisions enshrined in the Constitution to safeguard his
independent function:­

  • He is appointed by the President of India by warrant under his hand and seal
    and his oath of office requires him to uphold the Constitution of India and the
    laws made thereunder.

  • He can be removed from office only on grounds of proven misbehavior or
    incapacity after an address by both Houses of Parliament supported by a two­thirds majority.

  • His salary and conditions of service cannot be varied to his disadvantage
    after appointment.

  • His administrative powers and the conditions of service of persons serving in
    the Indian Audit and Accounts Department shall be prescribed by rules made by
    the President only after consulting him.

  • The administrative expenses of his office are charged upon the Consolidated
    Fund of India and are not subject to being voted by Parliament.

The legal basis for the auditorial functions of the Comptroller & Auditor
General of India is provided by the Comptroller and Auditor General’s (Duties,
Powers and Conditions of Service) Act, 1971.

Although India has a federal setup, the Constitution provides for a unitary
audit by the Comptroller & Auditor General, who conducts audit of the accounts
of both the Union and State Governments.

Extracts from the Constitution of India (Articles 148 to 151 )

148. Comptroller and Auditor-General of India

  1. There shall be a Comptroller and Auditor-General of India who shall be
    appointed by the President by warrant under his hand and seal and shall only be
    removed from office in like manner and on like grounds as a Judge of the Supreme

  2. Every person appointed to the Comptroller and Auditor-General of India
    shall, before he enters upon his office, make and subscribe before the President
    or some As person appointed in that behalf by him, an oath or affirmation
    according to the form set out for the purpose in the Third Schedule.

  3. The salary and other conditions of service of the Comptroller and
    Auditor-General, hall be such as may be determined by Parliament by law and,
    until they are so determined, shall be as specified in the Second Schedule:
    Provided that neither the salary of a Comptroller and Auditor-General nor his
    rights in respect of leave of absence, pension or age of retirement shall be
    varied to his disadvantage alter his appointment.

  4. The Comptroller and Auditor-General shall not be eligible for further office
    either under the Government of India or under the Government of any State after
    he has ceased to hold his office.

  5. Subject to the provisions of this Constitution and of any law made by
    parliament, the conditions of service of persons serving in the Indian Audit and
    Accounts Department and the administrative powers of the Comptroller and
    Auditor-General shall be such as may be prescribed by rules made by the
    President after consultation with the Comptroller and Auditor-General.

  6. The administrative expenses of the office of the Comptroller and
    Auditor-General including all salaries, allowances and pensions payable to or in
    respect of persons serving in that office, shall he charged upon the
    Consolidated Fund of India.

149. Duties and Powers of the Comptroller and Auditor-General

The Comptroller
and Auditor-General shall perform such duties and exercise such powers in
relation to the accounts of the Union and of the States and of any other
authority body as may be prescribed by or under any law made by Parliament and,
until provision in that behalf is so made, shall perform such duties and
exercise such powers in relation to the accounts of the Union and of the States
as were conferred on or exercisable by the Auditor-General of India immediately
before file commencement of this Constitution in relation to the accounts of the
Dominion of India and of the provinces respectively.

150. Form of accounts of the Union and of the States:

The accounts of the Union
and of the States shall be kept in such fern) as the President may, on the
advice of the Comptroller and Auditor-General of India, prescribe.

151. Audit Reports:

  1. The reports of the Comptroller and Auditor-General of India relating to the
    accounts of the Union shall be submitted to the president, s ho shall cause them
    to be laid before each I louse of Parliament. ‘

  2. The reports of the Comptroller and Auditor-General of India relating to the
    accounts of a State shall be submitted to the Governor of the State. who shall
    cause them to be laid before the Legislature of the State.

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.

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
framer’- 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.

Evolution of Audit since Independence

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. a 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 fell which the Chartered
Accountants do while auditing a public limited company.

Value for Money or De’s Audit: also known as Performance audit is an independent
assessment of the performance of an organization, 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 De’s audit.

  • Economy: minimising the cost of resources used or required -spending less;

  • Efficiency : the relationship between the’ output of goods and services and
    the resources to produce them- spending well;

  • Effectiveness: the relationship between the intended and actual results of
    public spending – spending wisely.

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 facet of government’s working.

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 p o sting out cases of under assessment of tax, and also assisted
in better functioning o tax administration machinery by pointing out lacunae or
loopholes in the Act/ Rules and deficiencies in the functioning of tax

Audit of Commercial Enterprises: I he 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.

Weakness of the Existing System:

No Powers to Enforce Audit Findings – Violation of Rules

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. 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.

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. 30”’ 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 there 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 era, the
concerned organisations refuse to rectify the errors . And yet they continue to
get government grants every year. Should not C&AG he 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?

Legal position

Section 13 of the Comptroller and Auditor General’s Act, lays clown 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 doss n rules and regulations. The Act is silent about it – all that the
last sentence of Section 13 says. “ in each case in 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 Departarments 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 ends itself in such a helpless situation.

Position in Advanced Countries

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 lie 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.

Need for Conferring Legal Powers

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
oilier 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 he 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 he 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.

Need For Collegiate Decision: Audit Commission

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.

The existing system needs an overhaul. Audit Reports should be finalised through
collegiate decision making of an Audit Commission in which all the Dy CAGs and
Addl Dy CAGs should be represented besides C&AG. The position of C&AG should be
that oh 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

Strengthening PAC

The two Parliamentary Committees PAC and COPU are able to examine only a paras
and reviews out of large number of audit reports submitted to than which do
‘eats 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 pares ; 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.

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 Andit 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.


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