Types of Audit performed by CAG
i. Regulatory Audit It is an audit to ascertain whether the moneys spent were authorised for the purpose for which they were spent and also that the expenditure incurred was in conformity with the laws, rules and regulations
ii. Supplementary Audit CAG takes up supplementary audits in PSUs, even after the commercial audits are done by the auditors appointed by the CAG, for detection of leakages.
iii. Propriety Audit It focuses on whether the expenditure made is in public interest or not i.e. it moves beyond mere scrutiny of expenditure to question its wisdom and economy in order to identify cases of improper expenditure and waste of public money
iv. Efficiency Audit Efficiency audit as the name suggests answers the question whether the money invested yields optimum results. The main purpose of the efficiency audit is to ensure that the investment is prioritized and channelled into its most profitable utilization
v. Performance Audit Performance audit answers whether the government programmes such as NREGA have achieved the desired objectives at the lowest cost and given the intended benefits. It generally does not get into the merits-demerits of a particular policy/scheme rather looks into the effectiveness with which the scheme is implemented and any deficiencies thereof
vi. Environmental Audit This is a relatively new area of concern for the CAG keeping in mind the challenges facing India with respect to conservation and management of the environment. More than 100 audits on environmental issues like bio-diversity, pollution of rivers, waste management have been conducted by the CAG to identify critical issues and suggest possible solutions by involving all stakeholders
Recent Issues
i. Mode of Appointment
The present selection process for the CAG is entirely internal to the Government machinery; no one outside has any knowledge of what criteria are applied, how names are shortlisted and how a final selection is made. Thus presently there is a lack of clarity on the criterion, the definition of field of choice, the procedures for the selection of this high constitutional functionary. In most of the other countries there is no scope for the head of the Supreme Audit Institution to be chosen at the discretion of the Government. It is desirable that India adopts the international practice of appointing head of Supreme Audit Institution to be independent of the discriminatory power of the Executive.
Another related issue is that of the appointment of IAS officers as the CAG. In the last 48 years since 1966 only one IAAS officer has been chosen while all other postings went to senior civil servants. From the viewpoint of IAAS this looks like the systematic exclusion of that service and the virtual absorption of the post of CAG in the IAS cadre. This perception has had a demoralising effect on the IAAS cadre. Whether that feeling is right or wrong, it exists; and it is bound to have some effect on the commitment, zeal and courage with which the audit function is performed. The answer to it is not to exclude the IAS, nor to reserve the post exclusively for the IAAS, but to ensure that the appointment processes are such as to leave no room at all for a sense of unfairness or suspicions of impropriety; and that the selected person, from wherever he or she be drawn, is of such unquestionable suitability as to command respect both within and outside the audit department. The field of choice should certainly be wide, and should include the IAAS, other central accounts services (civil accounts, railway accounts and defence accounts), the IAS, and a limited number of accounts, finance and management experts from outside the government.
ICAI (Institute of Chartered Accountants in India) Code of Ethics states that an auditor’s independence has two aspects- independence in fact and independence in appearance. The appointment of former secretaries as CAG may compromise the independence of this institution because of apparent/perceived conflict of interest.
Recent Example
There are 2 PILs have been filed in the SC against the appointment of former defence secretary Shashi Kant Sharma as the new CAG. Before being appointed the CAG, Mr. Sharma had served in key positions in the defence ministry that involved decision making powers over purchases including the Augusta Westland Chopper deal and the
Tatra trucks deal. His appointment is thus being questioned in the context of conflict of interest and also that it goes against the code of ethics of auditors.
Recommended Mode of Appointment
There is a need to frame a transparent selection procedure based on definite criteria and constitute a broad-based non- partisan selection committee, which after calling for applications and nominations would recommend the most suitable person for appointment as CAG. There needs to be an institutionalised process of selection for the post of CAG, a selection committee as seen in the appointment of CVC (involving PM, Leader of Opposition and Home Minister) and the Chairman of the NHRC may be considered. The above steps could go a long way in ensuring that an outstandingly able person of great independence and integrity is selected to this high constitutional office.
Should the CAG go into policy decision?
In the recent past CAG’s reports on 2G, Coal blocks allocation, Delhi Airport PPP have made the Government very uncomfortable with the audit findings. In order to defend its position, some members of the ruling party have raised questions about CAG’s jurisdiction and observed that he has exceeded his mandate. What is the veracity of such criticism? The CAG’s role should be viewed in the context of our constitutional scheme u- nder which the executive is accountable to Parliament. CAG is an essential instrument for enforcing the accountability mechanism as the CAG’s reports on government’s stewardship of public finance are required to be placed in Parliament and state legislatures under Article 151 of the Constitution. To enable him to discharge this responsibility, without fear or favour, he has been given an independent status under Article 148 analogous to that of a Supreme Court judge.
The word ‘audit’ has not been defined in either the Constitution or in the CAG Act, 1971. We have so far been going by 150 years of history, tradition, existing provisions and international practice. The CAG has not formulated his own policy in the above reports and has only gone by policy prescriptions recommended internally at various levels within the government. It is within the mandate of CAG to comment on a policy in cases wherein-
The financial implications of a policy were not gone into at all before the decision was made
The assessment of financial implications was quite clearly wrong
The numbers were correct but the reasoning behind the decision was questionable
Further, the CAG is bound by the oath of office to uphold the Constitution of India and thus is bound to comment on policy matters that seem unconstitutional. If the government were to formulate a scheme or policy that selectively confers benefits from public funds on an individual or a group to the exclusion of others, it is the CAG’s duty to point this out. Thus the CAG was well within his mandate to comment on the above policy decisions.
Another criticism has been of the Notional and Presumptive loss figures as claimed in the reports. There is a genuine dilemma here. If the reports were to make a bland statement that an alternative procedure would have yielded more revenue to the government or would have meant less discretionary patronage, it would give no indication of the financial dimensions of the decision or the importance of the matter. Putting a number on it brings this home. On the other hand, when a number is mentioned, the discussion tends to focus on it and not on the issues involved. There is no
i. Regulatory Audit It is an audit to ascertain whether the moneys spent were authorised for the purpose for which they were spent and also that the expenditure incurred was in conformity with the laws, rules and regulations
ii. Supplementary Audit CAG takes up supplementary audits in PSUs, even after the commercial audits are done by the auditors appointed by the CAG, for detection of leakages.
iii. Propriety Audit It focuses on whether the expenditure made is in public interest or not i.e. it moves beyond mere scrutiny of expenditure to question its wisdom and economy in order to identify cases of improper expenditure and waste of public money
iv. Efficiency Audit Efficiency audit as the name suggests answers the question whether the money invested yields optimum results. The main purpose of the efficiency audit is to ensure that the investment is prioritized and channelled into its most profitable utilization
v. Performance Audit Performance audit answers whether the government programmes such as NREGA have achieved the desired objectives at the lowest cost and given the intended benefits. It generally does not get into the merits-demerits of a particular policy/scheme rather looks into the effectiveness with which the scheme is implemented and any deficiencies thereof
vi. Environmental Audit This is a relatively new area of concern for the CAG keeping in mind the challenges facing India with respect to conservation and management of the environment. More than 100 audits on environmental issues like bio-diversity, pollution of rivers, waste management have been conducted by the CAG to identify critical issues and suggest possible solutions by involving all stakeholders
Recent Issues
i. Mode of Appointment
The present selection process for the CAG is entirely internal to the Government machinery; no one outside has any knowledge of what criteria are applied, how names are shortlisted and how a final selection is made. Thus presently there is a lack of clarity on the criterion, the definition of field of choice, the procedures for the selection of this high constitutional functionary. In most of the other countries there is no scope for the head of the Supreme Audit Institution to be chosen at the discretion of the Government. It is desirable that India adopts the international practice of appointing head of Supreme Audit Institution to be independent of the discriminatory power of the Executive.
Another related issue is that of the appointment of IAS officers as the CAG. In the last 48 years since 1966 only one IAAS officer has been chosen while all other postings went to senior civil servants. From the viewpoint of IAAS this looks like the systematic exclusion of that service and the virtual absorption of the post of CAG in the IAS cadre. This perception has had a demoralising effect on the IAAS cadre. Whether that feeling is right or wrong, it exists; and it is bound to have some effect on the commitment, zeal and courage with which the audit function is performed. The answer to it is not to exclude the IAS, nor to reserve the post exclusively for the IAAS, but to ensure that the appointment processes are such as to leave no room at all for a sense of unfairness or suspicions of impropriety; and that the selected person, from wherever he or she be drawn, is of such unquestionable suitability as to command respect both within and outside the audit department. The field of choice should certainly be wide, and should include the IAAS, other central accounts services (civil accounts, railway accounts and defence accounts), the IAS, and a limited number of accounts, finance and management experts from outside the government.
ICAI (Institute of Chartered Accountants in India) Code of Ethics states that an auditor’s independence has two aspects- independence in fact and independence in appearance. The appointment of former secretaries as CAG may compromise the independence of this institution because of apparent/perceived conflict of interest.
Recent Example
There are 2 PILs have been filed in the SC against the appointment of former defence secretary Shashi Kant Sharma as the new CAG. Before being appointed the CAG, Mr. Sharma had served in key positions in the defence ministry that involved decision making powers over purchases including the Augusta Westland Chopper deal and the
Tatra trucks deal. His appointment is thus being questioned in the context of conflict of interest and also that it goes against the code of ethics of auditors.
Recommended Mode of Appointment
There is a need to frame a transparent selection procedure based on definite criteria and constitute a broad-based non- partisan selection committee, which after calling for applications and nominations would recommend the most suitable person for appointment as CAG. There needs to be an institutionalised process of selection for the post of CAG, a selection committee as seen in the appointment of CVC (involving PM, Leader of Opposition and Home Minister) and the Chairman of the NHRC may be considered. The above steps could go a long way in ensuring that an outstandingly able person of great independence and integrity is selected to this high constitutional office.
Should the CAG go into policy decision?
In the recent past CAG’s reports on 2G, Coal blocks allocation, Delhi Airport PPP have made the Government very uncomfortable with the audit findings. In order to defend its position, some members of the ruling party have raised questions about CAG’s jurisdiction and observed that he has exceeded his mandate. What is the veracity of such criticism? The CAG’s role should be viewed in the context of our constitutional scheme u- nder which the executive is accountable to Parliament. CAG is an essential instrument for enforcing the accountability mechanism as the CAG’s reports on government’s stewardship of public finance are required to be placed in Parliament and state legislatures under Article 151 of the Constitution. To enable him to discharge this responsibility, without fear or favour, he has been given an independent status under Article 148 analogous to that of a Supreme Court judge.
The word ‘audit’ has not been defined in either the Constitution or in the CAG Act, 1971. We have so far been going by 150 years of history, tradition, existing provisions and international practice. The CAG has not formulated his own policy in the above reports and has only gone by policy prescriptions recommended internally at various levels within the government. It is within the mandate of CAG to comment on a policy in cases wherein-
The financial implications of a policy were not gone into at all before the decision was made
The assessment of financial implications was quite clearly wrong
The numbers were correct but the reasoning behind the decision was questionable
Further, the CAG is bound by the oath of office to uphold the Constitution of India and thus is bound to comment on policy matters that seem unconstitutional. If the government were to formulate a scheme or policy that selectively confers benefits from public funds on an individual or a group to the exclusion of others, it is the CAG’s duty to point this out. Thus the CAG was well within his mandate to comment on the above policy decisions.
Another criticism has been of the Notional and Presumptive loss figures as claimed in the reports. There is a genuine dilemma here. If the reports were to make a bland statement that an alternative procedure would have yielded more revenue to the government or would have meant less discretionary patronage, it would give no indication of the financial dimensions of the decision or the importance of the matter. Putting a number on it brings this home. On the other hand, when a number is mentioned, the discussion tends to focus on it and not on the issues involved. There is no
easy way out of this dilemma. All that one can say is that the ‘notional’ number should e carefully estimated, making the assumptions and methodology clear. This is what the CAG has done. He has not claimed that his figures are definitive. The assumptions can be questioned, the methodology can be questioned, the resulting number can be debated; what cannot be questioned is the procedural or substantive lapse to which the figure points.
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