Tuesday, July 31, 2012

CAG – Constitutional Auditor Gagged

CAG – Constitutional Auditor Gagged:

By Saumya Ramakrishnan

A day in the life of an Indian citizen is incomplete without the intake of the staple news about the innumerable scams that seem to have become the hallmark of modern democracy. Whether it is the morning newspaper or prime time news, the disclosure of yet another scam and the downfall of a person in power have dominated the news space.

On one hand, such revelations are making the citizens proactive, demanding more accountability and transparency from the Government; on the other, it is making those in power uneasy and defensive. It is not that such misuse of power, disproportionate assets and quid pro quo have been unknown hitherto; however, the frequency with which scam after scam has been coming out of the Pandora’s box suggest that a machinery has been working diligently to expose these undoings.
Close in the line of judicial activism that has held the country in good stead, the “Supreme Audit Institution of India”, the Comptroller and Auditor General of India (CAG) has been at the forefront of the latest fad – ‘audit activism’. It is the highest institution for enforcing the financial accountability of the Central and State governments, other public authorities, institutions receiving substantial funds from the government, and so on. Wherever public funds are involved, the CAG has a role to play.
A look at some of the biggest scams of the last three decades – Bofors, 2G spectrum, Krishna-Godavari basin, Commonwealth Games – reveals that the report of the CAG has added fuel to the fire or in many cases, been the cause of the fire itself. The politicians fear these reports, while citizen activists look forward to the reports to give them the impetus and documentary backing to bring the government to book. The present CAG of India, Vinod Rai, has taken the reports of the office to the living room of the citizens. One group of citizens has hailed the work of the CAG in exposing the corruption and weak governance in the country, while the affected parties (read: ministers in the spotlight) are going around town claiming that the CAG has overstepped its mandate. It is their argument that the role of the CAG is to merely assess if a policy has been executed in the most optimal manner, and not whether the policy itself is equitable and just in the first place. To understand the thin difference between the two, it is necessary to look at the duties allotted to the CAG by the Constitution and the various other legislations that regulate his functions and role.

Dr. B.R.Ambedkar, while explaining the role of CAG in the Constituent Assembly, said, “The CAG shall be the most important officer under the Constitution of India. For he is to be the guardian of the public purse and it is his duty to see that not a farthing is spent out of the Consolidated Fund of India or of a State without the authority of the appropriate Legislature.”


The duties and powers of the CAG, described in Article 149 of the Constitution, provides that the CAG 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. Article 150 provides that the accounts of the Union and States shall be kept in such form as the President may, on the advice of the CAG, prescribe. The reports of the CAG are taken into consideration by the Public Accounts Committee and the CAG is also the head of the Indian Audit and Accounts Department.
Pursuant to this, the CAG’s Duties, Powers and Conditions of Service Act (DPC Act) was passed in 1971. The DPC Act lays down the service conditions to secure the autonomous nature of the CAG. It confers wide powers on the CAG to audit 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, in the performance of his duties, has the power to put such questions or make such observations as he may consider necessary, to the person in charge of the office and to call for such information as he may require for the preparation of any account or report which it is his duty to prepare. It is this vigilance by the CAG of India in 1985, T.N. Chaturvedi, that led to the disclosure of the Bihar Fodder scam. Noticing the delayed monthly account submissions and incomplete accounts by the Bihar state treasury and departments, the then CAG wrote to the Chief Minister of Bihar warning him that such delays could be indicative of criminal misappropriation of the exchequer’s money, defalcations and frauds. Without such accounts, it was not possible for the CAG to find out how much money was being spent by the government for purchasing fodder. This enabled the government to spend money in excess of what was authorized, thus blinding the authorities. However, it was only seven years after the report was submitted that action was initiated against all those involved, leading right up to the office of the then Chief Minister of Bihar, Lalu Prasad Yadav.
Further, the DPC Act also confers on him the duty to audit all receipts payable into the Consolidated Fund of India and of each state and each union territory having a Legislative Assembly and to satisfy himself that the rules and procedures in that behalf are designed to secure an effective check on the assessment, collection and proper allocation of revenue and are being duly observed and to make for this purpose such examination of the accounts as he thinks fit and report thereon. This provision could be interpreted to conclude that it is well within the mandate of the CAG to satisfy himself that the rules and procedures are designed to attain proper receipts, that is to say, inquire into whether the policy decision is appropriate in order to ensure maximum receipt into the Consolidated Fund.

Additionally, he also ensures that the policy so made is being executed in the most effective manner. The CAG’s report on the allocation of coal blocks by the government (which has not yet been placed before the Parliament, but was leaked out to the media) concluded that the government did not follow a transparent policy in selecting the beneficiaries as they ignored the 2004 recommendation of the secretary in the coal ministry that the mines should be awarded through competitive bidding. The impact was that the companies to whom the blocks were allotted made a gain of Rs.186,000 crore, which is also the amount the exchequer would have gained had the policy been different. Here, the critics of the CAG may state that his mandate is only to check if the policy has been implemented effectively, and not to suggest to the government that bidding would have been a more effective policy. The other side of the coin suggests that as the guardian of the public purse, he has every right to point out that there would have been more receipt into the Consolidated Fund if the policy was different.
With respect to the expenditure out of the Consolidated Fund, the DPC Act provides that “it shall be the duty of CAG to audit all expenditure from the Consolidated Fund of India and of each state...and to ascertain whether the monies shown in the accounts as having been disbursed were legally available and applicable to the service or purpose to which they have been applied or charged and whether the expenditure conforms to the authority which governs it.” Thus, if the audit points out that wasteful expenditure or expenditure beyond the budgetary sanction is being made by the government, the CAG is entitled to bring it out, as was seen in the case of the Bihar Fodder scam, where thousands of crores were spent buying fodder, exceeding the budget allotted for the same.
While the DPC Act outlines the functions of the CAG, the Regulations on Audits and Accounts which were issued in 2007 define in detail the scope, manner, and extent of his auditing and accounting mandate. The broad objectives of audit are to ensure legality, regularity, economy, efficiency and effectiveness of financial management and public administration through financial audit (whether financial statements are filed appropriately), compliance audit (whether the provisions of the Constitution, applicable legislations and rules are being complied with) and performance audit (the extent to which an activity, programme or organization operates economically, efficiently and effectively). Again, it can be interpreted that performance audit would invariably raise questions as to whether the policy adopted by the government in allotting land or spectrum or any other scarce resource would result in maximum receipts into the Consolidated Fund.
However, there are many in the political circles who believe that commenting on policy decisions is not the job of the CAG and that a “performance” audit does not include a “propriety” audit. Prime Minister Manmohan Singh, in the wake of the CAG report on the 2G scam, commented during an interaction with editors in June 2011 that, “It has never been in the past that the CAG has held a press conference as the present one has done. Never in the past has the CAG decided to comment on a policy issue. It should limit the office to the role defined in the Constitution.” More recently, even private sector companies like Reliance Industries Ltd, which is under fire after a CAG report on Krishna-Godavari basin,, have claimed that a performance audit is beyond the scope of the CAG. The reasoning behind this is that policy is the prerogative of the executive, which can be challenged in a court of law or may be debated in the Parliament. It is argued that by law, this is not the role envisaged for the CAG. Every institution, be it the executive, judiciary or legislature, has set for itself, both by law and practice, certain defined roles, which no other party should transgress upon, as it is important that each institution is able to perform its duties independently.

Mr. Vinod Rai, on the other hand, has maintained that the supreme auditing body has the mandate to ensure that government policies are optimally implemented. As regards the debate of commenting on policy and checking its implementation, he has said, “there is a very thin dividing line, where we do at times assess the optimality or sub-optimality of a particular policy in the course of its devolution,” at a book launch event in New Delhi in April 2012.

Also, the CAG, before entering office, takes an oath similar to that of the Chief Justice of India, vowing to “uphold the Constitution and laws” whereas a minister only affirms that he will act in accordance with the Constitution. Thus, if it is the duty of the CAG to uphold the Constitution, does he not have the right to bring it to the notice of the public if any policy is prima facie unconstitutional or confers benefits of the policy or the public purse to a set influential group of people on no strong footing? Also, Ambedkar referred to the CAG as being more important that even the judiciary, as being the guardian of the public purse. Thus, if the receipts into the Consolidated Fund are substantially reduced by reason of a flawed policy as was pointed out in the 2G scam report – underselling scarce resources – it should be within the powers of the CAG as the instrument of accountability to point it out.

The other argument is that in a country which does not boast of an independent prosecuting agency, the CAG acts as the trigger for initiating action, the government being the only authority that can take action, which is itself the faulting party in a lot of these reports. Many believe that the CAG, acting as the accuser, is filling the vacuum of the social auditor which legislations have missed out on, as there is no other body having similar autonomy and powers that can investigate the accounts of the government with such depth.
There’s no denying that the ambiguity with respect to the constitutional role of the CAG has made the office of the CAG into what the person holding it makes out of it, which may not be the best solution in the long term. With a view to removing the ambiguity and giving more teeth to the office of the CAG, three major amendments were proposed to the current government to the DPC Act, 1971. The first amendment seeks to put a cap on the time within which the government must respond to audit queries. The second seeks to ensure that audit reports are tabled in the legislature immediately after their submission by the CAG. And third seeks to clarify its power to audit new forms of government economic activity that have emerged over the years.
Article 38(1) of the Constitution imposes a duty on the State to promote the welfare of the people, which is possible only when there is transparency and accountability in governance. For this, a thorough legal review of the specific role and powers of the CAG and if needed, confer more powers on them to meet the challenges of governance in the 21st century democracy.

The author Saumya Ramakrishnan obtained her Bachelors in Mass Media with a specialization in Journalism from Jai Hind College, Mumbai. In August 2009, she was selected for an exchange program in International Journalism from Carelton University in Canada. She is currently pursuing her LLB from Government Law College, Mumbai.

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