CAG Address at the Valedictory Function of 25th Conference of Accountants General

CAG’s Address at the Valedictory Function of 25th Conference of Accountants General

Following is the address of the Comptroller and Auditor General of India delivered at the valedictory function of the 25th Conference of Accountants General-2010, here today:

“It is an honour to have the Honourable Finance Minister, Shri Pranab Mukherjee in our midst today to share his thoughts at the valediction of an intensive and purposeful Conference of Accountants General. Sir, you have been a prominent leader on the national political firmament shaping the destiny of our country even when my colleagues in the senior management of the Indian Audit and Accounts Department and I had just about commenced our careers in the civil services. I have been particularly fortunate, to work under your leadership, as the Minister for Commerce in my first tenure in the Government of India. Your sagacity and vision have always been widely acknowledged. Advice coming from your wide experience in public life, depth of understanding of the various facets of governance and your vision will give us the right contextual perspective to meet the complex challenges which confront us today. On behalf of all of us and on my own behalf, Sir, I once again extend to you a hearty welcome.

In keeping with the nature of our responsibilities, we have constantly striven to make our Institution dynamic and evolve with the changes in the priorities and patterns of governance. From commenting on issues relating to compliance by the Executive with the laws, rules and regulations just after independence, we have now evolved into providing policymakers with foresight about the future by analysing key emerging trends, risks and challenges for good governance. We have reoriented our focus to ultimate outcomes of programmes and not just programme outputs. To understand contemporary concerns about the developmental activities undertaken by the Government, we have increased, and institutionalized, our interaction with public and civil society for providing inputs for audit prioritisation and benchmarks for evaluation. We have built synergies with social audit groups and other stakeholders. We have made our audit reports more concurrent and reader friendly. A reader now has the option to go through our full Report or get a bird’s eye view of our findings through the slim booklets and brochures prepared by us. While reporting audit findings we highlight the good practices and innovations of the Executive and make constructive recommendations for mid-course corrective action in respect of deficiencies pointed out. The Reports are made accessible on our website after they are presented in Parliament. Apart from the Audit Reports, we are also bringing out studies and appraisals for the Executive on important contemporary activities. An example of that is our Study Report on the preparedness for the Commonwealth Games. We have given our suggestions regarding changes in the provisions of the proposed Direct Taxes Code – an important step by the government in simplifying and rationalising the structure of Direct Taxes. We will shortly be giving our inputs on the aspects to be factored in while moving to the GST regime. We are also responding positively to requests from the Executive for advice at policy formulation stage.

Nevertheless we are beginning to encounter some serious constraints in our functioning. These need to be addressed by the government with a sense of urgency if the vision of the framers of our Constitution of promoting accountability of the Executive to the Parliament through the independent institution of the CAG is to be honoured in letter as well as spirit. While highlighting a few important concerns, I seek your proactive support in addressing them.

Supreme audit institutions, worldwide, have had to redefine their mandate to be in tune with the changes in the pattern and complexity in governance. Stakeholders everywhere are not only seeking greater assurance about the funds being spent in accordance with the objectives for which these were allocated but also, more importantly, about the quality of governance. For being able to provide such assurance, the public auditor is being legally equipped in different countries with an enforceable mandate. This is the need of the hour in our country as well. In this context, you may recall the discussion that I had with you on the need to repeal and replace the existing CAG’s (Duties, Powers and Conditions of Service) Act, 1971 with a new Act which directly addresses the constraints faced by us. Encouraged by your response, and on your being convinced of the need for revision in the mandate, we have sent a comprehensive draft of a new Act to the Government in November 2009. We await Government’s response on this proposal.

The demand for greater transparency and accountability in democratic societies is increasingly becoming a global phenomenon. Since the time that the architects of the Constitution had designed the spread of audit by CAG, the pattern of governance has undergone a substantial change with increasing budgetary devolutions being made through parallel channels such as PPP, NGO and PRI bodies. Although about 50% of the plan expenditure is now being purveyed through these channels, audit of such expenditure is presently not under the automatic legal mandate of the CAG. I am raising this flag of concern as I am sure the Honourable Finance Minister would like to have an assurance that the funds routed in such manner were spent as per the prescribed norms and for the objective for which the funds were approved by Parliament. Audit of such expenditure by other auditors like chartered accountants appointed by these bodies are at best in the nature of internal audit which falls far short of the independent assurance that Constitution makers had mandated the CAG to provide to Parliament.

It will be recalled that the XII Finance Commission had recommended migration to accrual based accounting. While accepting the recommendation of the Finance Commission in February 2005, the then Finance Minister declared in Parliament that the office of the Comptroller & Auditor General of India will be asked to prepare a detailed roadmap for its implementation. Accordingly the General Accounting Standards Advisory Board with membership from the Office of CAG, CGA, CGDA, Ministry of Finance, Railways, Department of Posts, Telecommunication, RBI, ICAI and some State Governments developed the roadmap with an operational framework. Seminars and workshops to create awareness about accrual based accounting were held. Consequent to their participation in such seminars, 21 State Governments agreed for the need to migrate to accrual based accounting. Independently, the Department of Posts has taken steps to migrate to accrual based accounting. The Ministry of Railways is also contemplating steps for migration. In a seminar held in 2007 specifically to sensitise the Members of Parliament to the advantages of accrual accounting, the then Finance Minister had reiterated the Government’s resolve to move to accrual accounting, if necessary, in a modified form. The roadmap for migration would involve a great deal of preparation and it could take 5 to 6 years. As for this department, we have conducted pilot studies in different departments of States. These have proven very successful and have demonstrated remarkable benefits of Accrual based accounting. We now propose to take this initiative to its next level by running a pilot project covering an entire department in a state. We have offered advice, and reminded the Government of its commitment, which was made after in-depth evaluation of the inherent strengths of accrual accounting vis-à-vis cash basis accounting. I only wish to reiterate that the steps for migration will take atleast five years of preparation. If we have to take the path of reform and be global leaders, we have to do so now.

Internal audit is classically defined as control of all internal controls and provides assurance to an organisation that its activities are being conducted in terms of its objectives, rules and regulations and in a cost-effective manner. In our audit, we have been noticing innumerable deficiencies in the functioning of the current internal audit system of the government. Since internal audit is a sine qua non for good governance, absence of internal audit or its inadequacies have serious deleterious impact not only on the functioning of an organisation but also on the external audit by CAG’s institution. Alarmed by this, the then CAG had mentioned the urgent need to address this issue to the Prime Minister and the then Finance Minister. Subsequently, the CAG on the advice of the Ministry of Finance, had set up a Task Force including representative of the Ministry of Finance, to suggest a road map for removing the deficiencies in the present system of internal audit. The report of the Task Force for improving internal audit was sent to the Finance Ministry almost three years back. We have proposed to prepare yet another Roadmap for strengthening the Internal Audit process.

Accountability of the Executive to the Parliament and through the Parliament to the citizens of India, is the lynchpin of our Constitutional system. Audit by the institution of the CAG is the arrangement envisaged by the framers of our Constitution for promoting accountability. In this context, it is quite disconcerting to come across increased instances of Central Ministries seeking exclusion from the audit by CAG of new Institutions created or being created. Regulators like the TRAI, Petroleum and Natural Gas Regulatory Board (PNGRB), etc. have been kept fully or partially out of the audit mandate of CAG through their respective Acts. There is now a similar proposal in the ‘Brain Gain Policy’ of the Ministry of HRD. With increased deregulation of the different sectors of the economy and the government modifying its role from an active player to that of a catalyst, allowing for increased participation of private and non-Governmental organisations with their activities being regulated through appropriate regulators, the accountability of the regulatory bodies themselves becomes a major issue. While the expenditure of these bodies may not be large but the impact of the decisions taken by them have extremely large fiduciary or other impact. Excluding these organisations from CAG’s audit weakens Parliamentary oversight on them.

Another area of serious concern is the denial of timely and complete access to records to our audit. While the RTI Act provides for specific penalties for non-production of records/reply in the stipulated period, there is no mechanism for timely production, or in the failure to do so, awarding deterrent penalties for non-furnishing or incomplete production of records to CAG’s audit. Even where the Government has entrusted certain audits to us such as ascertaining the capital expenditure being incurred by contractors in the development projects awarded under New Exploration Licensing Policy, it has taken over 18 months for us to get access to the records of the private operators. In the telecom sector, we have still not got access to records of Private Service Provider despite the request for such audit coming from the Government itself.

Sir, I am indeed grateful to you for having impressed upon the Financial Advisors of different ministries the need for early response to observations in Audit Reports. The Will of Parliament has to prevail and the acceptance by Government to assess the performance of Departmental Secretaries as Chief Accounting Authorities by also including the response to ATNs, as one of the parameters in the Result Framework Document, is a welcome development.

Honourable Finance Minister Sir, these are certain serious concerns that we thought we could share with you. These are also being echoed in Parliament and in meetings of the PAC. Media has also been reflecting similar opinions of informed specialists and institutions. The process for implementation of appropriate reforms is long drawn. Unless we take the decisions at an appropriate time, we may find ourselves in a situation where the lack of early preventive steps leads to serious deficiencies in management of funds and a totally inadequate structure for providing assurance to the Public on moneys spent by Government. I have thus taken liberty to place these disconcerting issues before you today.

In conclusion, I would like to thank you for giving me a patient hearing, to flag issues which have serious deleterious impact in promoting accountability and tracking every rupee that is spent for public good. I am confident that these issues will get urgent consideration now and immediate action will be taken for promoting accountability and, in its wake, good governance. We are indeed grateful to have you amongst us today.”