Role of Comptroller and Auditor
General of India (CAG) in Meeting Challenges of Good Governance and Upholding
the Constitution of India –A Critique
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A SYNOPSIS
By K P C Rao.,
LL.B., FCS., FCMA.
Practicing Company Secretary,
kpcrao.india@gmail.com
kpcrao.india@gmail.com
I. INTRODUCTION
“Fearless
investigation is a ‘sine qua non’ of exposure of delinquent ‘greats’ and if the
investigative agencies tremble to probe or make public the felonies of high
office, white-collar offenders in the peaks may be unruffled by the law. An
independent investigative agency to be set in motion by any responsible citizen
is a desideratum.”
- V. R.KRISHNA IYER
Government audit
in India has a long and illustrious history dating back to the middle of the 19th
Century. However, the nature and significance of government/public audit are
not well known to the people and even too many in Governments. In any society,
and especially in democracy, it is necessary that the people have the knowledge
and understanding of the machinery that helps significantly in ensuring
accountability and, therefore, to the good governance of the country. After the
constitution came into force in 1950, government audit in India acquired a new
dimension within the constitutionally stipulated framework.
Our country has
witnessed rapid changes in the financial administration and, accounting and
audit arrangements, notably after Independence. The Constitution has provided
for a uniform pattern of accounts for both the Union and State to be prescribed
by the President on the advice of the Comptroller and Audit General (CAG). The
Comptroller and Audit General’s (Duties, Powers and Conditions of Service) Act,
1971 passed in pursuance of the relevant constitutional provisions, has
assigned him a variety of accounting and auditing responsibilities and
authorized him to lay down for the guidance of the government departments the
general principles of government accounting and the board principles in regard
to audit of receipts and expenditure.
The history of
the institution of the Comptroller and Auditor General is inevitably
interviewed with the political, administrative and socio-economic developments
in the country. Since Independence the country has witnessed transformation in
practically every aspect of life. The integration and recognition of States,
the adoption of the Constitution and the development of the country through
centralized socio-economic planning along with many administrative innovations
are but the main elements of this transformation. Whereas the integration of
State and the Constitutional mandate for unified audit in a federal setup
covering the accounts of the Union and of the States as also of other bodies
and authorities, had vastly expanded the jurisdiction of the Comptroller
&Auditor General, the massive investments in socio-economic development
programmes and the growth of public enterprises – have increased the quantum of
his work and given an altogether new dimension and depth to his scope of work.
Constitutional
Provisions
Chapter V (Art.148-151) of the
Constitution of India provides for the appointment and the Duties and functions
etc., of Comptroller and Auditor - General of India as follows:
“CHAPTER V
Comptroller and Auditor-General of India
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 the like grounds as a Judge of the Supreme Court.
(2)
Every
person appointed to be the Comptroller and Auditor-General of India shall,
before he enters upon his office, make and subscribe before the President, or
some 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
shall 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 after 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 be charged upon the Consolidated Fund of
India.
Article.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 or 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 the commencement of this Constitution in relation to the accounts
of the Dominion of India and of the Provinces respectively.
The
accounts of the Union and of the States shall be kept in such form as the
President may, on the advice of the Comptroller and
Auditor-General of India, prescribe.
Article.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, who shall cause them to be laid before each House 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 the debates in the Constituent Assembly, Dr. B.R. Ambedkar,
described the CAG as the most important functionary in the Constitution. The
Constitution prescribes for this functionary an oath identical with that
prescribed for the Chief Justice and Judges of the Supreme Court, including the
words “I will uphold the Constitution and
the laws” while a Minister of the Union swears or solemnly affirms only
that he will act “in accordance with the
Constitution”.
The form set out in the Third Schedule for this purpose is
reproduced below:
THE THIRD SCHEDULE
Article s 75(4), 99, 124(6), 148(2), 164(3), 188 and 219
Forms of Oaths or Affirmations
IV
Form of oath or affirmation to be made by the Judges of the
Supreme Court and the Comptroller and Auditor-General of India:-
"I,
A.B., having been appointed Chief Justice (or a Judge) of the Supreme Court of
India (or Comptroller and Auditor-General of India) do swear in the name of
God/solemnly affirm that I will bear true faith and allegiance to the
Constitution of India as by law established, that I will uphold the sovereignty
and integrity of India, that I will duly and faithfully and to the best of my
ability, knowledge and judgment perform the duties of my office without fear or
favour, affection or ill-will and that I will uphold the Constitution and the
laws."
In the recent
past, certain doubts have been expressed about the duties, powers and role of
the Comptroller & Auditor General of India. Strangely, same issues are
raised again when audit by the Comptroller & Auditor General is already
well established by the Constitution, Laws, conventions and practices. Critics
do not seem to have fully appreciated the significance of article 151 of the
Constitution with enjoins the Comptroller & Auditor General to submit his
Reports to the President who causes them to be laid before the Parliament. The
audit approach is completely non-political, and Audit Reports are based on
records and facts. And these reports got verified with utmost care and caution.
The control by the Legislature over the expenditure of public money is one of
the important features of our democratic polity. Parliamentary control is
exercised through the reports of an independent authority viz., the Comptroller
& Auditor General and his reports are based on scrutiny of relevant and
complete material. Article 149 does not in any way circumscribe the Comptroller
& Auditor General’s duties and powers of presenting reports under Article
151. In the past, whenever controversies arose about the scope and extent of
audit, the Comptroller & Auditor General did get the support of the Public
Accounts Committee and added to this is the recent support by the enlightened
public interested in promoting the independence of the constitutional organs of
democracy as envisaged by the Founding Fathers of the Constitution.
In modern times,
the orientation of Government activities is more and more towards
socio-economic programmes. There is a growing involvement of the State in
providing social service and welfare support to the people. Public ownership in
industrial, manufacturing and trading sectors has increased. In this changing
scenario, auditing methods, practices and standards have had to change
considerably. Governments have also embarked upon massive development efforts
in the realm of science and technology. Audit of governmental efforts calls for
not only conventional knowledge of finance and accounts but also insight into
various disciplines such as economics, sociology, science and technology,
besides general management. The Comptroller & Auditor General needs,
therefore, to have free access to the required expertise whenever warranted.
The Comptroller
& Auditor General, according to provisions of the Constitution, is neither
an officer of Parliament nor a functionary of Government. He is an autonomous
constitutional authority. His oath of office requires him to uphold the
constitution and the laws and to discharge his duties without fear or favour,
affection or ill will. It is the same as that of a Judge of Supreme Court and
distinct from the oath prescribed for the Ministers of the Union. The oath
binds the Comptroller & Auditor General to bear true faith to the
Constitution and to uphold the integrity of India. The position assigned to him
as a Supreme Audit Authority common to both the Union and the States could be
regarded as part of the basic structure of the Constitution of India. In order
to allow him to function effectively he should not only have appropriate status
and powers but also certain immunity in legal terms. Though in a democracy
conventions do regulate the conduct of others vis-à-vis a Constitutional
functionary, there are aberrations visible at times. It is desirable to have a
clear Constitutional or legal provision to avoid any action or other
proceedings against the Comptroller & Auditor General or any person
authorized by him for or in respect of the findings of any audit carried out in
exercise or purported exercise of his functions. Such immunity is available to
the Members of the Parliament and Legislatures under the Constitution.
Since the early
90’s India has witnessed a spate of major economic scams in different sectors
of the economy. While millions of small investors have lost thousands of crores
of rupees, the economic crimes have also caused havoc in the government managed
institutions like Banks, Public Sector Undertakings, Telecom Department,
Insurance Companies, etc., the magnitude and the new methods of committing
economic crimes have been a cause of serious concern to the Government as well
as to the people.
Economic
offenders have exploited weakness in almost all areas of economic activity and
siphoned off thousands of crores. Their
depredations will continue till the law makers plug loopholes in the
effected system. But the economic offenders, as they have the knack of exploiting weaknesses
in any system either traverse a territory or subvert the system which is
their specialised field.
Economic crimes in India, like
elsewhere, are linked to several other offences, or even organised crimes,
having bearing on national security. Every day a greater degree of
sophistication is being noticed in the activities of the criminals indulging in
these activities. There is a growing recognition in the world that the economic
offences are, many times, part of other serious crimes posing serious threat to
the security of the nation. Problems such as international terrorism,
narco-terrorism, money laundering, Intellectual Property Rights (IPR) violations, cyber crimes, import of hazardous
substances etc. continue to occupy centre stage as the global threats. A
multi-pronged approach by various arms of the Government could help in
effectively dealing with this menace.
Besides the investigating agencies,
Auditors could play a significant role in their prevention and detection.
Through a thorough understanding of the key areas of risk and modus operandi
adopted in committing the crimes, Auditors could effectively plan their audit
engagements focusing on the identified areas of risk.
Therefore, as the head of Indian Audit
and Accounts Department, it is the duty
of CAG to uphold the constitution of
India and laws of the Parliament in the field of financial administration. CAG
is appointed by the President of India by a warrant under his hand and seal.
Duties & Functions of CAG
Audit of government accounts (including the accounts of the state
governments) in India is entrusted to the CAG of India who is empowered to
audit all expenditure from the revenues of the union or state governments,
whether incurred within India or outside. Specifically, audits include:
a)
Transactions relating to debt,
deposits, remittances, Trading, and manufacturing,
b)
Profit and loss accounts and
balance sheets kept under the order of the President or Governors,
c)
Receipts and stock accounts.
In other words,
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.
It is known fact that public
accountability and probity are essential for rooting out corruption, and audit
can emerge as a key instrument of good governance.
Organization of the Indian Audit and
Accounts Department
The
Comptroller and Auditor General of India discharge his multifarious duties
through the Indian Audit and Accounts Department. The Department consists of
about fifty thousand employees and is functionally organised into 104
specialised formations throughout the country.
At
the apex of the Indian Audit and Accounts Department is the office of the
Comptroller and Auditor General which directs, monitors and controls all
activities connected with audit, accounts and entitlement functions of the
Department. It is responsible for development of organisational objectives and
policies, audit standards and systems, management of the manpower and material
resources of the Department and final processing and approval of the Audit
Reports. For carrying out these responsibilities, it has been organised on a
functional basis and there are separate divisions dealing with Accounts and
Entitlements, Civil Audit, Railway Audit, Commercial Audit, Revenue Audit,
Administration of Cadres, Training, Organisation and Methods, Inspection of
field offices, EDP etc. These divisions are headed by the Deputy / Additional
Deputy Comptroller and Auditor General and Principal Directors.
Offices
of the Accountants General (Audit) are responsible for audit of all receipts
and expenditure of the Provincial Governments, and audit of Provincial
Government companies, corporations and autonomous bodies.
Offices
of the Principal Directors of Audit are responsible for audit of the activities
of the Federal Government, including Civil Ministries and Departments, Overseas
Establishments, Defense, Indian Railways and Posts and Telecommunications.
There
is a separate organisational set up for the audit of Federal Public
undertakings. At the apex of this organisation is the Deputy Comptroller and
Auditor General (Commercial). The organisation is responsible for:-
(1) Test Audit/Supplementary Audit of
transactions of Government Companies/ corporations, which finds final
expression in an annual Audit Report bringing out selected topics of interest
relating to them.
(2) In-depth performance appraisals of
selected companies/ corporations, each such appraisal taking the form of a
separate Audit Report.
(3) Certification of the annual accounts of
companies and corporations including comments on the reports of Chartered Accountants,
who conduct the primary audit of these companies.
(4) Preparation of a report on systems
deficiencies reported by Chartered Accountants on the basis of directions by
the Comptroller and auditor General.
(5) Besides, there are also twenty six
Offices of the Accountants Generals (Accounts and Entitlements) which handle
the Accounting and Entitlement functions of the Provincial Governments.
(6) The audit activities are divided into
convenient groups headed by Deputy Accountants General/Senior Deputy
Accountants General who report to the Accountant General. These officers are
designated as Deputy Directors / Directors under the control of Principal
Directors of Audit, in respect of Audit of Federal Government activities. The
initial work of auditing (as well as accounting and entitlement functions still
remaining with the Comptroller & Auditor General) is done in the various
field formations of the organisation by auditors, clerks and accountants under
the guidance and supervision of Assistant Audit Officers and Assistant Accounts
Officers, who are in turn supervised by Accounts Officers or Audit Officers,
Audit parties supervised by Audit Officers inspect the departmental offices and
other organisations periodically and present inspection reports on their
findings. Some of these parties conduct efficiency-cum-performance appraisals
of elected projects/ programmes of the Provincial Governments / Federal
Government.
II.
AIMS / OBJECTS
OF THE STUDY
The
following are the objectives of the study:-
1)
To examine the scope and ambit of
the purview of CAG audit based on the relevant provisions of the Constitution
of India.
2)
To study the experiences and
findings of the International Professional Organisations / Audit Commissions like INTOSAI (International Organization of
Supreme Audit Institutions), ASOSAI (Asian Organisation of Supreme Audit Institutions), IASB (
International Accounting Standard Board)
etc, with a view to convergent with the international best
practices in audit reporting.
3)
To study the pronouncements issued
by the professional bodies in various countries on generally accepted auditing
standards/ principles (GAAS/GAAP) regulate the auditing practice and also international financial reporting standards
(IFRS) and to what extent it is desirable that India to converge with these
pronouncements.
4)
To study the role of the CAG in
detection and prevention of Fraud and Corruption
5)
To study the nexus between Fraud
and Corruption.
6)
To find out the reasons for the controversy
over the scope and purview of the CAG’s audit.
7)
To study the impact of Corruption
on the public life.
8)
To suggest ways and means to
improve the institutional mechanism in detection and prevention of fraud and
Corruption.
9)
To improve the transparency and accountability
by adopting good governance practices in keeping the accounts of the Union and
the States.
10)To give reasons
for the suggestions based on empirical research.
III.
SIGNIFICANCE
OF THE TOPIC OF RESEARCH
The role of the CAG is very significant in Detection and
Prevention of Fraud and Corruption. Examining the root causes of corruption in
India and understanding its several manifestations is necessary to place the
problem in its context and is an essential prerequisite for policy formulation.
India’s stellar performance in rankings on growth indicators and its innovative
approaches to poverty alleviation are often compromised by absence of
noticeable efforts in governance reforms for ensuring high levels of integrity,
enhanced transparency and probity in public and corporate life. It is a
commonly held view that political and bureaucratic corruption, public funds
embezzlement, fraudulent procurement practices and corruption in the
enforcement and regulatory institutions and consumer exploitation by private
companies/ contractors plague Indian public life. Studies and public surveys
have reinforced this public perception and have consistently shown that
corruption persists in India despite many steps by the government.
Corruption and fraud are generally interlinked. In fact
corruption is a special type of fraud and treated as such in many
jurisdictions. Fraud and Corruption both pose serious challenges to audit, as
they seek to mislead and distort the true state of financial and non-financial
affairs of the entity. Fraud awareness or recognition amongst public auditors
is necessary to play a vigilant role in containing frauds by ensuing correction
of system deficiencies and building up effective system controls and checks in
the audited entities.
Fraud should be distinguished from error. The distinguishing
factor between fraud and error is whether the underlying action is intentional
or unintentional. Fraud may involve:
i)
manipulation,
falsification or alteration of records or documents;
ii)
misappropriation/
misapplication of assets;
iii) suppression or omission of the
effects of transactions from records or documents;
iv)
recording
of transaction without substances; and
v)
misapplication
of accounting policies.
Forms of Corruption
Corruption in India has multiple channels of expression. One
of the ways of advancing our understanding of the problem is to distinguish
between the many forms it takes. A widely accepted distinction, one that can be
applied to the Indian context, is that between petty and grand corruption.
Petty corruption is either the collusive or coercive action of a public
official vis-a-vis a member of the public to subvert the system over relatively
small transactions. It therefore mostly involves down the line public
officials. Grand corruption is the subversion of the system by senior
government officials and formations of the political executive, usually in
collusion with private sector players. In India both forms of corruption are
prevalent as result of which corruption has become endemic to Indian society.
It is also noteworthy that even a matter as important as national security
could be at risk due to various forms of corruption.
Impact of Corruption
Globally, there is a general consensus amongst most
academics and policy makers that the debilitating effects of corruption
permeate through all aspects of public life. Several studies have shown that
corruption not only stifles growth, it also perpetuates inequalities, deepens
poverty, causes human suffering, dilutes the fight against terrorism and
organised crime, and tarnishes India’s image globally. The impact of corruption
is multi fold, encompassing: political costs, economic costs, social costs,
environmental costs and issues of national security.
(a)
Political Costs
The political costs of corruption
are manifested in weakened public trust in political institutions, reduced
political participation, perversion of the electoral process, restricted
political choices available to citizens and loss of legitimacy of the democratic
system.
(b)
Economic Costs
Corruption reduces economic
efficiency by misallocation of resources in favour of rent seeking activities,
increasing the cost of public transactions, acting as an additional tax on
business thereby reducing investment, reducing genuine business competition.
(c)
Social Costs
The effect of corruption on the
social fabric of society is perhaps the most alarming damage of all. It
undermines people's trust in the political system, in its institutions and its
leadership. Corruption distorts the value systems and wrongly attaches elevated
status to occupations that have rent seeking opportunities. This results in a
disillusioned public, a weak civil society, which attracts unscrupulous leaders
to political life. Eventually, there is a risk that demanding and paying bribes
could become the norm.
(d)
Environmental Costs
Environmental degradation is an
indirect but serious consequence of corrupt systems. Environmentally
devastating projects are given preference in funding, because they are easy targets
for siphoning off public money into private pockets.
(e)
Issues of national security
Corruption within security agencies
can lead to a threat to national security, including through distortion of
procurement, recruitment of ineligible persons, providing an easy route for
smuggling of weapons and terrorist elements into the country and money
laundering.
Nexus between Fraud and Corruption
1) Corruption and fraud are not
mutually exclusive. There is in most cases nexus between the two.
2) Fraud is most likely to involve
deliberate misrepresentation of information that is recorded and summarized by
an entity; its impact can be compared to an accounting error and would involve
issues such as measurement, occurrence, and disclosure. Fraud poses a serious
problem from an audit perspective because it is normally accompanied by efforts
to cover/ falsify/ misdirect the entity records and reporting. Thus, fraud can
directly affect the financial statements and records of the audited entity.
3) Quite often, the efforts to misrepresent
may involve the management itself. When management gets involved in the
preparation of fraud, the activity assumes the proportion or the additional
bearing of corruption. Fraud and corruption are therefore interlinked, although
certain types of fraud do not necessarily qualify for being viewed as
corruption and can be perpetrated by an individual or a small group to cover
lapses.
4) One problem which corruption poses
for audit is that it is linked with the acts of bribery. It is possible to
conceive of situations where bribery may have a direct impact on financial
statements. For example, where a tax officer collects a bribe from an entity to
provide a tax relief or where an entity pays an influential decision maker a
bribe to secure a contract. In such situations the issue of proper disclosure
is involved because the corrupt practice of the illegal payment / expense is
normally covered up through an accounting, compliance or reporting fraud.
5) In some cases, corruption may have
only a consequential, and not a visible and direct effect on the accounting
records, for example, when the quality specifications are compromised in a
supply order to benefit a supplier.
6) In many instances corruption does
not necessarily reflect in the transactions that are recorded and reported by
the entity. This especially applies to situations where a position of authority
or discretion available under rules is misused by an official. Such corruption
does not normally get reflected in information that comes in the purview of audit,
for example, when a tax officer collects bribery to give a refund which is
lawfully due to a taxpayer. Thus, whereas the loss to the auditee is usually
fairly apparent in cases of fraud, in the case of corruption, the corrupt
employee may benefit from the act, but there may not be any loss to the auditee
or effect on financial information.
7) Both fraud and corruption are
without proper authority and involve breach of trust and therefore are illegal
or irregular. They also involve an element of non-transparent conduct or
behaviour. In fact corruption is a special type of fraud and treated as such in
many jurisdictions. In any case audit teams/officers should be well aware of
the complex distinction as well as correlation between the two.
IV. RATIONALE OF STUDY
In recent years, there has been a paradigm shift in the
manner in which public funds are generated, expended and managed and there is a
Controversy over the Scope & Purview of CAG’s Audit. About 67 per cent of
Central Plan and non-Plan grants have been disbursed directly to implementation
agencies like NGOs; developmental funds are directly transferred to urban local
bodies; Panchayati Raj Institutions (PRIs) and infrastructure projects are
substantially financed through public private partnerships. Therefore, the
Eleventh Plan document calls for strengthening the watchdog role of CAG to
ensure probity, transparency and accountability, in view of the new ways of
allocating more than 50 per cent of public funds.
In the recent past there is a debate in the media, more so
after the Report on spectrum 2G by the CAG, whether questioning the (economic)
policy decisions of the government is within the ambit of CAG?
Before attempting this question let us understand what is an
Economic Policy? In general parlance, Economic Policy is an attempt to devise
government actions and to design institutions that might improve economic
performance. The creation of specific
policies for achieving economic goals of the society is not simple and easy
matter.
Steps for making an Economic Policy
include setting clear economic goals to be achieved, examining and considering
the possible effects of alternative policies designed to achieve the economic
goal and evaluation of the effectiveness of the policies. The process of
evaluation should be continuous. If any drawback is found in it at any stage,
it should he improved.
To answer this question one has to consider the following
hypothetical situations:
(i) the financial implications of a
policy were not gone into at all before the decision was made;
(ii) the assessment of financial implications was
quite clearly wrong;
(iii) the numbers were correct but the reasoning
behind the decision was specious or fallacious; or
(iv) the financial implications in fact
turn out to be far higher than the assessment on which the decision was made.
Certainly, in the aforesaid
situations, it is the duty of the CAG's a matter of accountability to comment
on these policy decisions of the government and if the CAG is bound by his (or
her) oath of office to uphold the Constitution it is well within the CAG's
mandate.
In other words, it is the duty of the CAG to comment on a
scheme or policy that selectively confers benefits from public funds on an
individual or group to the exclusion of others on no stated grounds, or on
grounds which seem questionable and it amounts to unconstitutional if CAG
refrain from commenting on the prima
facie findings which comes to his knowledge while carrying out the audit.
Further, other activities that the CAG has been undertaking,
such as propriety audit, performance evaluations, and so on, are clearly well
within his ambit, as different modalities of ensuring accountability. This
understanding is based on century-old traditions, and international consensus.
In the CAG's report on the 2G case, the notional loss figure
of ` 176,000 crores has been much
criticised. The report in fact makes it clear that it is difficult to arrive at
a firm figure of loss, calculates it in three different ways through different
methods, and makes no claim that any of the figures is definitive. However, the
media delight in reporting that the CAG's figures have been questioned by
various people, and a Cabinet Minister immortalised himself by claiming that
there was zero loss. Whereas, the former auditor, Mr. R. P. Singh [1] says he stands by ` 176,000 crores reported by CAG[2],
who is vested with the powers under Article 149 of the constitution and rules
and regulations governing the CAG.
That leads us to the relationship between the CAG and the
Public Accounts Committee (PAC) and the Committee on Public Undertakings
(COPU). The CAG finalises his reports after taking the government's and PEs'
responses to his initial queries and observations and his draft reports, signs
them, and submits them to the President of India, who causes them to be laid
before Parliament. They are then taken up by the PAC and COPU. It is not the
Reports that are under examination but the Ministries and other government
offices and PEs, on the basis of those Reports. The CAG assists and advises the
parliamentary committees in that examination.
Unlike the CAG of the U.K. (an officer of Parliament) or the
CG of the U.S. (a part of the Legislative Branch), the Indian CAG is not an
officer of Parliament, but an independent constitutional functionary. The
reason for this is that the CAG is CAG for the Union as well as the States,
which is a unique feature of the Indian quasi-federal system.
Regarding the controversy as to publicity, it may be said
that the CAG's reports have suffered from too little and not too much
publicity. One of the major weaknesses of the Indian system is that very few of
the CAG's reports are widely known, and that not all of them get discussed in
Parliament. Some years ago, press conferences began to be held after the Audit
Reports were placed before Parliament, and that practice continues. This is not
a new departure. If the CAG is to become more effective as an institution for
the enforcement of accountability, it is necessary that Audit Reports be more
widely known and discussed. The people have a right to know their contents. If,
as a result of the CWG and the 2G controversies, the CAG and his reports are
now better known than before, that is a very good development.
Even during British rule there was an Auditor General, and
traditions of the independence and objectivity of that office were fairly
strong. Gradations of audit were recognised proceeding from simple vouching and
expenditure audit through regularity audit, audit of authorisation, audit of
the sanctions themselves, and propriety audit, to what used to be called
‘Higher Audit'. After the constitution, the CAGs have been following that
tradition and adding some technical and methodological innovations.
Internationally, there are Auditors General, Comptrollers
General, Audit Commissions, and other forms of what are known as Supreme Audit
Institutions (SAIs) not only in democratic countries, but even in authoritarian
systems. In India, the CAG is the SAI. There are professional organisations
such as the International Association of Supreme Audit Institutions (INTOSAI)[3]
and the Asian counterpart (ASOSAI[4])
in which the Indian SAI plays an important part, and is held in high esteem. The
International Organisation of Supreme Audit Institutions (INTOSAI) operates as
an umbrella organisation for the external government audit community. For more
than 50 years it has provided an institutionalised framework for supreme audit
institutions to promote development and transfer of knowledge, improve
government auditing worldwide and enhance professional capacities, standing and
influence of member SAIs in their respective countries. The relevant point in
the present context is that the Indian CAG has not stretched the audit function
beyond the functions performed by other SAIs.
For instance, the National Audit Office of the U.K. has
published, among others, reports on: Information and Communications Technology
in Government: Landscape Review; Delivering Regulatory Reform; Assessing the
Impact of Proposed New Policies; and so on. Some of the reports of the U.S.
Government Accountability Office include those on; The U.S. Postal service
(“Mail Trends Highlight Need to Fundamentally Change Business Model”); Aviation
Safety (“Status of FAA's Actions to Oversee the Safety of Composite
Airplanes”); Electronic Waste: Strengthening the Role of the Federal Government
in Encouraging Recycling and Reuse; and so on. Having regard to those examples,
it can hardly be said that the CAG of India has been guilty of over-reach.
Overall, India has a strong potential
for being a reasonably corruption-free society, if politicians accept
corruption as a serious problem and consciously take measures to deal with it.
If this does not happen, then there is hope in the institution of the judiciary
and the civil society to bring about structural changes by forcing reform. The
bureaucracy can also construct its own framework of rules, procedures,
actionable code of conduct so as to enforce norms of probity, transparency, and
openness.
In an ideal
world, the judiciary would stick to interpreting the law and refrain from
treading on the domain of the legislature or the executive. But in an
environment where justice is constantly being subverted, it is arguable that
the courts are left with no choice but to step beyond their traditional domain
and prod the executive into discharging its constitutional responsibilities.
In recent times, the Supreme Court has
assumed a supervisory role in the CBI's investigation of the 2G scam, asking
the agency to act against “persons who
think themselves to be the law” and demanding to see the charge sheet
before it is filed.
Assuming that the supreme court coming
to a feeling that it need not waste sufficient time for monitoring the cases on
hand such as 2G Scam, Hawala, Black Money etc., etc., including the day-to-day
public interest and private interest litigations the judicial activism will
have its natural death and the supreme court will proceed according to the rule
book without venturing out of it whereby giving the political setup the much
need escape route. This is crucial considering that in all these scams all the
political parties have some considerable part or benefit. Any logical end to the scam will have a
terrible damaging impact on all the parties.
The politicians will have the ultimate say in the matter.
V.
HYPOTHESIS
The frame work
of hypothesis is based on the following jural postulates:
1)
The Constitution of India has
provided for creation of Supreme Audit Institution (SAI) known as CAG of India.
2)
This Supreme Audit Institution is
mandated by the Constitution of India to uphold the Sovereignty and Integrity of India and also to
uphold the Constitution and the laws.
3)
This Supreme Audit Institution
expected to contribute for enhancement of the quality of the democracy through
credible, balanced and timely reporting on Public Finance and Governance.
4)
This Supreme Audit Institution (SAI)
expected to provide independent assurance to all the stake holders, the
legislature, the executive and the public, that the public funds are being used
efficiently and for the intended purposes.
5)
This Supreme Audit Institution is
expected to discharge its functions with Independence, Objectivity,
Reliability, Professional Excellence, Transparency and Positive Approach
6)
It is expected that this Supreme
Audit Institution make full use of the powers delegated to it in discharging
its functions.
7)
It
is assumed that the examination of system for Detection and Prevention of Fraud
and Corruption is an integral part of all Regularity Audits and also of
Performance Audits.
8)
This Supreme Audit Institution is expected to make
use of the experiences and findings of the International Professional Organisations
/ Audit Commissions etc.
9)
Right to information of a citizen is
an integral part for the success of democracy.
VI. METHODOLOGY
As is well-known at the present day, a research scholar cannot depend
upon any one particular method for the preparation of a thesis. A combination
of different methods is required to achieve the best possible results. Thus a
Historical-cum Analytical method has been applied mainly in the preparation of
the present work. Where ever necessary, comparative and critical methods also
are employed to have a detailed study of the subject under consideration.
VII.
SOURCES OF INFORMATION
The required materials for the thesis have been collected
mainly by applying the doctrinal approach. This approach deals with formal
sources of law like legislation, case law, text books, articles etc. It is
basically textual in approach as contrasted to non-doctrinal approach which is
primarily contextual in nature. In the preparation of this thesis, by adopting
the above-mentioned technique, data have been collected from various
enactments, professional pronouncements, Research publications/Guidance notes/
opinions of the professional bodies, and General Standards, Field Work Standards,
& Reporting Standards followed by theses professional bodies, Reports of
the Law Commission of India, Literature Reports of the CAG / land mark
judgments of Supreme Court, High Courts, also cases decided by the Courts,
Authoritative Text Books, etc.
VIII.
CHAPTERISATION
The
thesis is divided into 6 chapters as under:
Chapter
– I
Introduction: In this chapter an outline of the scheme of research intended for the
thesis is brought out. The objectives of
the study, methodology, sources of information are also discussed in this
chapter.
Chapter
– II
Different facets
of Fraud and Corruption: In this chapter different types of Frauds and different forms of
Corruption are discussed. The impact of Corruption on the public life, has also been elaborately brought out.
Chapter
– III
Appointments,
Duties and Functions of CAG: In this chapter the relevant constitutional and legal provisions as to
the Appointment of Comptroller Auditor General of India, together with the
terms and conditions of appointment and also the Duties and Functions of the
CAG have elaborately discussed. The mandate given to CAG to uphold the
Constitution & Other Legal obligations and the controversy thereon together
with Scope and Ambit of CAG’s audit is brought out elaborately in this chapter.
Chapter
– IV
The
Role of CAG in Detection and Prevention of Fraud and Corruption: In this chapter, different techniques and other
methods being adopted by the CAG in Detection of Fraud and Corruption cases are
elaborately discussed together with the nexus between the fraud and corruption.
Also the importance of highlighting the short comings / reportable incidents in
CAG report to ensure Prevention of Fraud and Corruption cases is discussed in
this chapter.
Chapter
– V
Reforms
needed in the Institution of CAG: In this chapter reforms needed in strengthening the Institution of CAG in
tune with the International Accounting practices and auditing standards. While
doing so, our past experiences especially after the Independence and the
experiences of the International professional bodies like INTOSAI, ASOSAI etc.,
are taken into consideration.
Chapter – VI
Conclusion
& Recommendations: In the
last chapter, a brief summary of the thesis to ensure the effective functioning of CAG and to transform the ‘audit
institution’ as a catalyst for good governance. A set of findings and
observations, together with recommendations of the Researcher are furnished below:
1)
The
constitutional provisions and the provisions of the CAG's Act do hold the
potential to make the CAG a forceful authority. Therefore, it is imminent that the
CAG should make full use of that potential.
2)
The
findings of Audit should not only be reported to the President and Parliament
as close to the events as possible, but also made known simultaneously to the
media and the public, with some explanations to aid understanding.
3)
As
all the matters reported upon by CAG have not been discussed in Parliament or
in the State Legislatures or in the media, it is important to rescue at least
some of the important cases from falling into oblivion. But many past errors,
deficiencies, irregularities and so on may still deserve attention despite the
passage of time.
4)
The
mandate of Government Audit is broader than solely that of financial statement
auditor and includes responsibility for verification of regularity and performance.
Hence, the auditor should be aware of the possibility of fraud not only in the
preparation and presentation of financial statements but in other areas covered
by regularity (compliance) and performance audits as well.
5)
While
acknowledging the importance of a larger vision and a broader perspective, the
audit should also focus on light irregularities, improprieties and fraud. That
is the Department's core function, and the pursuit of higher aims should not be
at the expense of the core function.
6)
To
be more meaningful, the audit must widens its horizons and attempts to examine
efficiency or ‘cost-effectiveness' or propriety, as the supreme audit
institutions of many countries do so as a matter of course.
7)
Examination
of system for detection and prevention of fraud and corruption will be an
integral part of all regularity audits and also of performance audits. At the
commencement of each audit, information about the fraud and corruption
awareness, detection and prevention policy and related environment should be
collected from the audited entity management. During the course of audit work,
the audit terms/officers should be vigilant and seek explanations.
8)
In
most of the cases, the qualifications / adverse remarks of the audit that have
figured in public debates have come to light in other ways. The CAG's reports
have come later and have in some cases confirmed and substantiated or modified
the general impression of wrongdoing already created by the media. There is a
need for the CAG to rediscover the role of auditors as financial and accounting
detectives.
9) The supreme audit institutions in
some countries not only act as examining agency but also investigation agency.
Therefore it is desirable that the CAG is entrusted with the power of
investigation also wherever he thinks fit to take up the investigation in the
public interest.
10)Though corruption is clandestine and
takes place outside the books, it is likely to leave tell-tale marks here and
there. Even from well-maintained books, a whiff of corruption may rise. Audit
can remain alert to such indirect indications and develop a nose for the smell
of corruption. Therefore, it is desirable to introduce such an orientation to
the Audit.
11) In keeping with INTOSAI's motto, 'Experientia mutua omnibus prodest', the
exchange of experience among INTOSAI members and the findings and insights
which result, are a guarantee that government auditing continuously progresses
with new developments.
In the light of
this study, the researcher views that it is imperative for us to have a sound
institutional mechanism for containing corruption, strengthening
accountability, promoting good governance and thereby for enhancing the quality
of democracy.
Every effort has
been made to make the thesis as exhaustive and as comprehensive as possible.
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[A Research proposal submitted to A P University of Law]
[This material is put online to further the educational goals of ‘Study in Law’. This material may be used freely for educational and academic purposes. It may not be used in any way for profit]
Further
Readings
Books
1)
H.M.Seervai: Constitutional Law of
India (in 2 volumes) 4th Edition., Universal Book Traders, New
Delhi.
2)
Constituent Assembly Debates
(Official report), in (5 books and 12 volumes) Lok Sabha Secretariat, New
Delhi.
3)
The Constitution of India
–Selective comments by P M Bakshi, Universal Law Publishing Co.
4)
Administrative Law-Text and
Materials by Beatson, Marthews and Elliotts- Oxford University Press, 2007
Legislation, Orders and Ordinances
1) The Constitution of India
2) The
Comptroller and Audit General’s (Duties, Powers and Conditions of Service) Act,
1971
3) The
Companies Act, 1956
Newspapers
and Magazines
1) Chartered
Accountant, Monthly Journal of ICAI.
2) Chartered
Secretary; Monthly Journal of ICSI.
3) Management
Accountant; Monthly Journal of ICWAI.
4) Chartered
Secretary, Monthly Magazine of ICSA, London.
Web-sites
1) www.cag.gov.in
2) www.mca.gov.in
3) www.intosai.org/en/portal/
4) www.icai.org.in
5) www.icwai.org
6) www.icsi.in
7) www.icsa.org.uk
8)
www.aicpa.org
[1] Mr R. P. Singh was then director
general audit (Post &Telecommunications) heading the field team that
conducted the 2G audit.
[2] Times of India, dated 28/10/2011
[3]
INTOSAI is an autonomous,
independent and non-political organisation. It is a non-governmental
organisation with special consultative status with the Economic and Social
Council (ECOSOC) of the United Nations.
[4] Asian Organization of Supreme
Audit Institutions (ASOSAI), established in 1978. ASOSAI's major objective is
providing SAIs with opportunities for training and continuing education for
government auditors in pursuit of the goal of improving audit quality and
performance.
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