Can CAG tell the government how to spend?

By Malvika Jain

Many of us believe that our auditor has no business to tell us how to spend our money. The primary objective of audit is to ensure that books of accounts reflect a true and fair view of the financial position and the auditor must stop at just about that.

Legal experts would argue that way back in 1896, it was settled that an auditor is a watchdog and not a bloodhound and so he must not turn into a suspicious scaremonger. This is sacrosanct as far as companies are concerned but does it apply to audit of the government’s accounts?

CAG’s recent performance audit report on allocation of coal blocks and augmentation of coal production pegs total loss to the exchequer at Rs 1.86 lakh crore. This report has once again forced the ruling Congress party to go on a defensive. Soon after the CAG’s report was tabled in Parliament, the government said the CAG has overstepped its constitutional mandate and that it cannot question or dictate policy to the executive.

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[caption id=“attachment_424334” align=“alignleft” width=“380”]  CAG of India, Vinod Rai. Reuters[/caption]

Interestingly, the CAG agrees with the government to a large extent. According to the institution’s website, “The executive government and not audit is responsible for enforcing economy and efficiency in the expenditure of public money. It is, however, the duty of audit to bring to light wastefulness, failures, system weaknesses, deficiencies and the circumstances leading to infructuous expenditure”.

Going further, auditing standards referred to by the CAG state that in case of performance or “value for money” audit, the CAG must report instances of non-compliance and abuse which include acts which fall far short of societal expectations for prudent behaviour.

The 3E’s on which performance audit is based are: efficiency, economy and effectiveness. Thus, if the auditor notes that the government is granting natural resources like spectrum and coal blocks arbitrarily and not in a business-like manner, he is duty bound to report. His word, of course, is not final. Similarly, policy recommendations made by the CAG as per the framework of reporting standards are not binding on the executive. However, they do provide a perspective.

During the Constituent Assembly debates, B.R. Ambedkar said the CAG is probably the most important officer in India as it is he who ensures that public money is spent as voted for by the Parliament. The Public Accounts Committee in its 4th report in Lok Sabha has observed that, “If in the course of his audit, the Comptroller and Auditor General becomes aware of facts which appear to him to indicate an improper expenditure or waste of public money, it is his duty to call the attention of Parliament to them, through his Audit Reports”.

Obviously the expectation was that our leaders would discuss and debate these reports and not stall the working of the House and the economy. At present, these reports seem to be only becoming a cause for delay in future policy making.

A large listed firm has criticised the CAG for using the benefit of hindsight. This might be true but this doesn’t mean that the CAG is not doing his job well or the CAG is doing something that is not his business. The government is a trustee of public money and national resources and it is only through functionaries like the CAG that it can be ensured that public trust is not misused. The findings of the CAG, who heads the Supreme Audit Institution of India, should be used for future policy making and not rubbished for being dictatorial.

Ideally the CAG’s finding that corporates derive undue gains from allocation of captive mines should prompt the government to look at coal sector reforms. In most developed democracies the auditor is looked upon as an ally and not a foe or a notorious scam buster.

The UK’s National Audit Office recently pointed out that contract with Atos Healthcare does not ensure value for money for taxpayers. In the US, the Government Accountability Office has taken up the cause of mobile phone radiation limits. In both these cases, policy makers are debating if a change is needed.

The real role and perception of CAG in India is undergoing change. During this process it is crucial that this office commands highest public confidence. The CAG should be cautious while preparing its report and not attempt to sensationalise them in order to seek attention. Instead of pegging losses based on simplistic economic logic, this office may choose to pitch the possible gains that the government could have made by adopting an alternative policy or methodology.

The audit should be conducted in a time-bound manner as no real purpose is achieved by digging out skeletons. Such a belated exercise only acts as a speed breaker for the economy. Nations must focus on building assets. An audit which questions decisions taken 5-10 years ago causes more harm than gain. How fair is to jeopardise investments long after they were made? What good is a report which comes years after the house has been built?

It may also be noted that while the CAG is free to highlight imprudent acts, it is not an investigator. The conclusions arrived at by the CAG need further examination and can at best become basis of a scientific legal investigation. A mechanism for this is already in place. The CAG’s reports go to Parliament through the Public Accounts Committee, which in turn reviews and recommends action.

What we need today is not for the auditor to step back and for crony capitalism to thrive but for the government to sit, reflect and set its house in order while the auditor acts more maturely.

Malvika Jain is a reporter with CNBC TV18.