Laxmikanth Summary: Comptroller and Auditor General of India | Indian Polity for UPSC CSE PDF Download

Comptroller and Auditor General of India

CAG probably the most important officer in the Constitution of India: B.R. Ambedkar

Introduction

•  The Constitution of India (Article 148) establishes an independent position for the Comptroller and Auditor General of India (CAG). 
•  The CAG is the leader of the Indian Audit and Accounts Department. 
•  This role is crucial as the CAG acts as the protector of public funds and oversees the entire financial system of the country at both the central and state levels. 
•  One of the main responsibilities of the CAG is to ensure that the Constitution of India and the laws made by Parliament are followed in financial matters. 
•  Dr. B.R. Ambedkar emphasized that the CAG is the most significant officer under the Constitution of India. 
•  The CAG plays a vital role in maintaining the integrity of the democratic system in India, alongside other key institutions such as the Supreme Court, the Election Commission, and the Union Public Service Commission. 

   Comptroller and Auditor General of India

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Appointment and Term 

•  The Comptroller and Auditor General (CAG) is appointed by the President of India through a document that includes the President's signature and seal. 
• Before starting the job, the CAG must take an oath or make an affirmation in front of the President. This oath includes the commitment to: 
  • Be loyal to the Constitution of India.
  • Support the sovereignty and integrity of India.
  • Perform the duties of the office honestly and to the best of their ability, without any bias or favoritism.
  • Respect and uphold the Constitution and the laws of the country.
• The CAG serves a term of six years or until they turn 65 years old, whichever comes first. 
• The CAG has the right to resign at any time by writing a resignation letter to the President. 
• The CAG can also be removed from office by the President. This can happen under the same rules used to remove a Supreme Court judge. 
• To remove the CAG, a resolution must be passed by both Houses of Parliament with a special majority, based on proven misconduct or incapacity. 

Independence

 The Constitution has established several measures to protect and guarantee the independence of the Comptroller and Auditor General (CAG): 

• The CAG is given tenure security. They can only be removed by the President following the process outlined in the Constitution. Therefore, the CAG does not serve at the President's pleasure, even though they are appointed by the President. 
• After leaving office, the CAG is not eligible for any other position in the Government of India or in any state government. 
• The salary and other service conditions of the CAG are set by Parliament. According to the Act passed by Parliament, the CAG's salary matches that of a Supreme Court judge. 
• After the CAG's appointment, their salary, leave rights, pension, or retirement age cannot be changed to their disadvantage. 
• The service conditions for those working in the Indian Audit and Accounts Department and the administrative authority of the CAG are determined by the President after discussing with the CAG. 
• The operational costs for the CAG's office, including all salaries, allowances, and pensions for its staff, are paid from the Consolidated Fund of India. This means these expenses do not require a vote from Parliament. 

Duties and Powers

• Article 149 of the Constitution allows the Parliament to define the responsibilities and powers of the Comptroller and Auditor General (CAG) regarding the financial accounts of the Union, states, and other bodies.
• To implement this, the Parliament created the CAG's (Duties, Powers and Conditions of Service) Act in 1971.
• The main duties and functions of the CAG as established by the Parliament and the Constitution include:
  • Auditing the accounts of all expenditures from the Consolidated Fund of India, as well as the consolidated funds of each state and union territory with a Legislative Assembly.
  • Auditing all transactions related to the Contingency Fund of India and the Public Account of India, along with the contingency funds and public accounts of each state.
  • Auditing all financial statements, including profit and loss accounts and balance sheets, maintained by any Central or state government department.
  • Auditing the receipts and expenditures of all organizations and authorities that receive significant funding from central or state revenues.
  • Auditing the accounts of all entities that receive grants or loans from the central or state governments for specific purposes.
  • Checking all receipts for the Centre and states to ensure that rules are in place for effective assessment, collection, and allocation of revenue.
  • Auditing the accounts of all inventory and stock held in Central and state government offices and departments.
  • Auditing the accounts of all Government Companies according to the Companies Act.
  • Auditing the accounts of all Corporations that have statutes allowing for such audits.
  • Auditing the accounts of any other body or authority when requested by the President or Governor, such as local bodies.
  • Advising the President on how the accounts of the Centre and states should be organized (as per Article 150).
  • Submitting audit reports on the Centre's accounts to the President, who will then present them to both Houses of Parliament (as per Article 151).
  • Submitting audit reports on state accounts to the Governor, who will present them to the state legislature (as per Article 151).
  • Determining and certifying the net proceeds from any tax or duty (as per Article 279). The CAG's certificate is considered final. "Net proceeds" means the total tax or duty collected minus the collection costs.
  • Serving as a consultant and supporter to the Public Accounts Committee of Parliament.
  • Compiling and maintaining the accounts of state governments. In 1976, the CAG was relieved of the responsibility to compile and maintain the accounts of the Central Government due to the separation of accounts from audit, known as the departmentalization of accounts.

Role

• The main job of the CAG (Comptroller and Auditor General) is to protect the Constitution of India and the laws made by Parliament regarding financial management.
• The executive branch, specifically the council of ministers, is held accountable to Parliament for financial matters through the audit reports provided by the CAG.
• The CAG produces three key audit reports for the President: 
  • Audit report on appropriation accounts
  • Audit report on finance accounts
  • Audit report on public undertakings
• After the President presents these reports to both houses of Parliament, the Public Accounts Committee reviews them and shares its findings with Parliament.
• According to the 1971 Act, the CAG must check if the money recorded in the accounts was legally available and used correctly for its intended purpose.
• The CAG also conducts a propriety audit, which examines the wisdom, faithfulness, and economy of government spending, noting any waste or extravagance.
• Unlike the legal and regulatory audits, which the CAG must perform, the propriety audit is optional.
• In 2006, the Ministry of Finance issued a memorandum about performance audits by the CAG. This memorandum stated that performance audits are part of the CAG's responsibilities.
• Performance audits focus on the economy, efficiency, and effectiveness of how public funds are received and used. They provide a detailed assessment of the progress and efficiency of development programs.
• During a performance audit, the CAGattempts to: 
  • Evaluate how well social and economic goals have been met and at what cost.
  • Examine if the department is fulfilling its financial duties.
  • Determine if programs are being carried out effectively and efficiently.
• The CAG has more freedom regarding the audit of spending compared to the audit of income, inventory, and supplies.
• For spending audits, the CAG decides the audit scope and creates their own audit guidelines and manuals.
• However, the CAG needs the approval of the executive government for rules related to other types of audits.
• There are limits to the CAG's auditing role concerning secret service expenditures because the CAG cannot request details of spending by executive agencies. Instead, they must rely on a certificate from the relevant administrative authority confirming that the spending was authorized.

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CAG and Corporations

• The role of the CAG in auditing public corporations is somewhat limited.
• Generally, the relationship between the CAGand public corporations can be divided into three main categories:
  • Some corporations are audited completely and directly by the CAG.
  • Other corporations are audited by private professional auditors. These auditors are chosen by the Central Government in consultation with the CAG. If needed, the CAG can perform an additional audit.
  • Some corporations are entirely audited by private auditors, meaning the CAG does not get involved at all. These corporations send their annual reports and financial statements directly to Parliament.
• The role of the CAG in auditing government companies is also limited.
• Government companies are audited by private auditors who are appointed by the Government based on the recommendations of the CAG.
• The CAG can also carry out supplementary audits or test audits of these companies if necessary.

Appleby's Criticism

• Paul H. Appleby, an American expert in Public Administration, criticized the role of the CAG (Comptroller and Auditor General) in his two reports about Indian Administration.
• He questioned the importance of the CAG's work and suggested that the office should be abolished, meaning the CAG should not have the responsibility of conducting audits.
• His main criticisms of the Indian auditing system include:
  • The role of the CAG in India is largely a leftover from colonial times.
  • Today, the CAG is a key reason for a widespread reluctance to make decisions and take action, suggesting that auditing creates a negative and restrictive environment.
  • Parliament has an inflated view of the importance of auditing in relation to its own responsibilities, failing to clearly define the CAG's functions as intended by the Constitution.
  • The CAG's role is not very significant. Auditors generally lack deep knowledge about effective administration; their respect comes from people who are not well-versed in administrative matters.
  • Auditors understand auditing, but this is not the same as understanding administration. Auditing is necessary but often seen as a simple task with limited usefulness.
  • A deputy secretary in a department typically has a better understanding of departmental issues than the CAG and their entire team.

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Challenges

• The Second Administrative Reforms Commission of India (2005-2009) pointed out various challenges faced by the external audit conducted by the Comptroller and Auditor General (CAG).
• The external audit has significantly helped improve financial management in India, as shown by the numerous Inspection Reports and Audit Reports submitted to the Parliament and State Legislatures, along with the recoveries made because of audits.
• Audit reports highlight several critical issues such as:
  • Weak budgetary controls
  • Problems in revenue collection
  • Wastage of public resources
  • Poor accounting practices
  • Low returns on investments
  • Misallocation of funds
  • System deficiencies
  • Poor management of public resources
• However, many believe that the impact and effectiveness of external audits can be improved further. Some reasons for this include:
  • The Public Accounts Committee (PAC) only reviews about 15-20 of the 1000 to 1500 audit points in CAG reports each year.
  • Ministries and departments usually respond to only the audit points discussed in the PAC.
  • Action Taken Notes submitted for the undiscussed points are often formal and lack substance.
  • In State Legislatures, there are many pending audit points, some over 10 to 20 years old, making them less relevant over time.
  • A large number of inspection reports remain unaddressed in both State and Union government departments, which have revenue implications.
  • There is minimal accountability for not acting on audit findings promptly.
  • Sometimes, CAG reports are not timely, as there is often a significant delay between when a problem occurs and when it is reported.
  • Audit findings are primarily based on documents, and there is little physical verification to confirm these findings.
  • External audit reports are seen as overly negative, often focusing on irregularities without considering the practical challenges faced by government agencies.
  • Auditors may not differentiate between errors made with good intentions and those made with bad intentions.
  • Government agencies may face unexpected challenges and delays that are beyond their control, while auditors benefit from hindsight.
  • Audit reports often fail to present issues constructively, neglecting the underlying causes and solutions.
  • Each year, audits report many known problems that remain unaddressed, which does not add value.
  • Audit findings can be scattered and lack a comprehensive view of departmental functioning.
  • Good performance is often not recognized in audit reports.
  • The relationship between auditors and the auditees can be strained, with limited interaction occurring mainly at lower levels.
  • Audits are viewed more as a means to control government organizations rather than as a helpful management tool.
  • There is often poor or indifferent response from government officials towards external audits, which reduces their effectiveness.
  • Although Audit Committees exist to review actions taken on inspection reports, they do not function effectively.
  • There is a lack of informed media coverage of CAG reports, and public access to inspection reports is limited.
  • Coordination between external and internal audits is inadequate.
  • External audits do not guarantee that government financial statements are presented fairly according to accounting standards.
  • There is also rarely any audit of funds and loans provided to non-governmental organizations (NGOs).