Comptroller and Auditor General of India

Article 148 of the Constitution of India establishes the independent office of the Comptroller and Auditor General (CAG) of India, who heads the Indian Audit and Accounts Department. As the guardian of the public purse, the CAG oversees the financial system of the country at both the central and state levels. His role is to uphold the Constitution of India and the laws of Parliament in matters of financial administration. This is why Dr. B.R. Ambedkar referred to the CAG as one of the most important officers under the Constitution. The CAG, alongside the Supreme Court, the Election Commission, and the Union Public Service Commission, serves as a cornerstone of India’s democratic governance.

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Appointment and Terms of Comptroller and Auditor General of India

The Comptroller and Auditor General (CAG) of India is appointed by the President of India through a warrant under his hand and seal. Before assuming office, the CAG takes an oath or affirmation before the President, pledging to:

1. Bear true faith and allegiance to the Constitution of India.
2. Uphold the sovereignty and integrity of India.
3. Perform the duties of the office faithfully, to the best of his ability, knowledge, and judgment, without fear or favor, affection or ill-will.
4. Uphold the Constitution and the laws.

The CAG serves for a term of six years or until the age of 65, whichever comes first. He may resign at any time by submitting a resignation letter to the President. The CAG can be removed by the President on the same grounds and in the same manner as a judge of the Supreme Court, meaning that the President may remove him following a resolution passed by both Houses of Parliament with a special majority, on grounds of proven misbehavior or incapacity.

Independence of Comptroller and Auditor General of India

The Constitution provides several provisions to protect and ensure the independence of the Comptroller and Auditor General (CAG) of India:

1. Security of Tenure: The CAG holds office with security of tenure. He can only be removed by the President in accordance with the procedure outlined in the Constitution, ensuring that his position is not at the pleasure of the President, despite the President’s appointment.
2. Ineligibility for Further Office: After completing his term, the CAG is not eligible for any further office, either under the Government of India or any state government.
3. Salary and Service Conditions: The salary and service conditions of the CAG are determined by Parliament. His salary is equivalent to that of a Supreme Court judge.
4. Protection Against Disadvantageous Changes: Neither the CAG’s salary nor his rights regarding leave, pension, or retirement age can be altered to his disadvantage after his appointment.
5. Service Conditions for Staff: The service conditions for personnel in the Indian Audit and Accounts Department, as well as the CAG’s administrative powers, are defined by the President after consulting the CAG.
6. Financial Independence: The administrative expenses of the CAG’s office, including salaries, allowances, and pensions of its staff, are charged upon the Consolidated Fund of India, making them exempt from the vote of Parliament.

Additionally, no minister can represent the CAG in Parliament, nor can any minister be held accountable for the actions taken by the CAG.

Duties and Powers of Comptroller and Auditor General of India

Article 149 of the Constitution grants Parliament the authority to define the duties and powers of the Comptroller and Auditor General (CAG) concerning the accounts of the Union, states, and any other authority or body. In line with this, Parliament enacted the CAG’s (Duties, Powers, and Conditions of Service) Act in 1971, which was amended in 1976 to separate accounts from audit within the Central government.

The duties and functions of the CAG, as outlined by the Constitution and Parliament, are as follows:

1. Audit of Expenditure: The CAG audits all expenditures from the Consolidated Fund of India, the Consolidated Fund of each state, and the Consolidated Fund of Union Territories with Legislative Assemblies.
2. Audit of Funds: The CAG audits expenditure from the Contingency Fund of India and each state’s Contingency Fund, as well as the Public Account of India and those of the states.
3. Audit of Accounts: The CAG audits trading, manufacturing, profit and loss accounts, balance sheets, and other subsidiary accounts maintained by departments of the Central and state governments.
4. Audit of Receipts and Expenditure: The CAG ensures that the rules and procedures governing receipts and expenditures of the Centre and states effectively check the assessment, collection, and allocation of revenue.
5. Audit of Government Bodies and Corporations:
   • The CAG audits bodies and authorities substantially financed by Central or state revenues.
   • He audits government companies and other corporations as required by relevant laws.
6. Audit of Transactions: The CAG audits transactions related to debt, sinking funds, deposits, advances, suspense accounts, and remittance business of the Central and state governments, including receipts, stock accounts, and others, with Presidential approval.
7. Audit of Other Authorities: The CAG can audit the accounts of any other authority when requested by the President or Governor, such as local bodies.
8. Advisory Role: The CAG advises the President on the prescribed form for maintaining accounts at the Centre and state levels (Article 150).
9. Submission of Reports:
   • The CAG submits audit reports on the accounts of the Centre to the President, who presents them before both Houses of Parliament (Article 151).
   • Similarly, the CAG submits audit reports on the accounts of states to the Governor, who places them before the state legislature (Article 151).
10. Certification of Tax Proceeds: The CAG certifies and ascertains the net proceeds of any tax or duty (Article 279). The CAG’s certificate on this matter is final. “Net proceeds” refers to tax or duty receipts after deducting collection costs.
11. Public Accounts Committee: The CAG acts as a guide and advisor to the Public Accounts Committee of Parliament.
12. Maintenance of State Accounts: The CAG is responsible for compiling and maintaining the accounts of state governments. However, after the departmentalization of accounts in 1976, the CAG was relieved of this responsibility for the Central Government’s accounts.

The CAG submits three types of audit reports to the President: the audit report on appropriation accounts, the audit report on finance accounts, and the audit report on public undertakings. The President then presents these reports to both Houses of Parliament. Afterward, the Public Accounts Committee examines these reports and submits its findings to Parliament.

• Appropriation Accounts: These accounts compare actual expenditures with those sanctioned by Parliament through the Appropriation Act.
• Finance Accounts: These accounts detail the annual receipts and disbursements of the Union government.

Role of Comptroller and Auditor General of India

The primary role of the Comptroller and Auditor General (CAG) is to uphold the Constitution of India and the laws of Parliament in the realm of financial administration. The CAG ensures the accountability of the executive (the council of ministers) to Parliament through audit reports, thus acting as an agent of Parliament in auditing expenditures. As a result, the CAG is accountable solely to Parliament.

The CAG enjoys greater autonomy in auditing expenditures compared to auditing receipts, stores, and stock. In terms of expenditure audits, the CAG determines the scope of the audit and develops his own audit codes and manuals. However, for audits of receipts, stores, and stock, the CAG must proceed with the executive government’s approval regarding the rules governing these audits.

The CAG’s responsibilities include ensuring that money shown as spent in the accounts was legally available and used for the purpose it was intended, and that the expenditure adheres to the appropriate authority. Beyond legal and regulatory audits, the CAG can also conduct a propriety audit, assessing the wisdom, faithfulness, and economy of government expenditure, and commenting on any wastefulness or extravagance. While the legal and regulatory audit is mandatory, the propriety audit is discretionary.

A limitation on the CAG’s auditing powers arises in relation to secret service expenditures. In such cases, the CAG cannot directly request details of the expenditures but must instead rely on a certificate from the competent administrative authority that confirms the expenditure was incurred under their authority.

While the Constitution of India envisions the CAG as both Comptroller and Auditor General, in practice, the CAG functions solely as an Auditor General. The CAG does not control the release of funds from the Consolidated Fund of India, and many departments have the authority to withdraw money without specific approval from the CAG. The CAG’s role is limited to auditing after the expenditure has already occurred. This contrasts with the situation in the United Kingdom, where the CAG holds both the Comptroller and Auditor General roles, meaning the executive can only draw money from the public exchequer with the CAG’s approval.

Comptroller and Auditor General of India and Corporations

The Comptroller and Auditor General’s (CAG) role in auditing public corporations is somewhat limited and generally falls into three categories:

1. Direct Audits by the CAG: Some corporations are entirely audited by the CAG. These include entities like the Damodar Valley Corporation, Oil and Natural Gas Commission, Air India, and Indian Airlines Corporation.
2. Audits by Private Auditors with Supplementary Audits by the CAG: In certain cases, public corporations are audited by private professional auditors, who are appointed by the Central Government in consultation with the CAG. If needed, the CAG can perform a supplementary audit. Examples of such corporations include the Central Warehousing Corporation and Industrial Finance Corporation.
3. Exclusive Private Audits: Some corporations are entirely audited by private auditors, with no involvement from the CAG. These corporations submit their annual reports and accounts directly to Parliament. Examples include the Life Insurance Corporation of India, Reserve Bank of India, State Bank of India, and Food Corporation of India.

The CAG’s role in auditing government companies is similarly limited. These companies are audited by private auditors appointed by the government, based on the advice of the CAG. The CAG may also perform supplementary audits or test audits of such companies.

In 1968, an Audit Board was created within the CAG’s office to enlist external specialists and experts for auditing technical areas related to specialized industries such as engineering, iron and steel, and chemicals. This board was established based on recommendations from the Administrative Reforms Commission of India and consists of a Chairman and two members appointed by the CAG.

Appleby’s Criticism of Comptroller and Auditor General of India

Paul H. Appleby, in his two reports on Indian Administration, was highly critical of the role of the Comptroller and Auditor General (CAG) and questioned the significance of its work. He even suggested that the CAG be relieved of its auditing responsibilities, effectively recommending the abolition of the office. His main criticisms of Indian auditing were as follows:

1. The CAG’s role in India is largely a legacy of colonial rule.
2. The CAG has become a significant cause of widespread reluctance to make decisions and take action, with auditing exerting a repressive and negative influence.
3. Parliament has an inflated view of the importance of auditing in relation to its responsibility, failing to properly define the CAG’s functions as envisioned in the Constitution.
4. The CAG’s function is not particularly important. Auditors lack the expertise to understand good administration, and their prestige is highest among those who are similarly uninformed about administrative matters.
5. Auditing, while necessary, is a basic and pedestrian function that offers a limited perspective and utility, and is not synonymous with effective administration.
6. A deputy secretary within a department is likely to have a better understanding of the issues in their department than the CAG and its entire staff.

Emerging Importance of the Office of the Comptroller and Auditor General of India

1. Ensures Transparency and Accountability: The CAG plays a crucial role in the democratic framework by ensuring transparency, accountability, and professional integrity in the functioning of the government.
2. Separation of Powers: It helps maintain the separation of powers between the legislature and the executive by ensuring that the government’s financial activities align with legislative intentions.
3. Promotes Good Governance: Through audit findings and recommendations, the CAG fosters good governance practices and streamlines government operations.
4. Reduces Inefficiency: The CAG ensures that the executive adheres to financial discipline, helping reduce inefficiency in public spending.
5. Sustainable Future: The CAG collaborates with international agencies, such as the UN, to audit and assess the performance of Sustainable Development Goals.
6. Handholding and Capacity Building: The CAG supports state-level auditors and local fund auditors by providing technical guidance and training in audit planning and methodologies.
7. Annual Reports: It publishes Annual Technical Inspection Reports on the functioning of Panchayati Raj Institutions (PRIs) and Urban Local Bodies (ULBs).
8. Audit of Local Governments: The CAG assesses how effectively services related to devolved functions are delivered to the last mile.
9. Creating a Pool of Competent Accountants: In collaboration with the Institute of Chartered Accountants of India, the CAG is conducting online courses to build a pool of skilled accountants for urban and local government accounts.

Issues Arising from the Functioning of the Comptroller and Auditor General of India

1. Selection and Appointment:
   • Lack of Clear Criteria: While the Constitution ensures the CAG’s independence, there are no clear criteria for appointment.
   • Executive Monopoly: The Cabinet Secretary prepares the shortlist, which is then submitted to the Finance Minister and Prime Minister, creating a situation where the executive has a monopoly over appointments.
   • Conflict of Interest: Since the CAG audits the government led by the Prime Minister, this monopoly over the appointment process creates a conflict of interest, undermining the accountability process.
   • Inter-Service Conflicts: The CAG office is often dominated by IAS officers rather than the Indian Audit and Accounts Service (IAAS), leading to internal conflicts.
2. Performance Audit: There are concerns about whether the CAG is adequately equipped to conduct performance audits. Additionally, in Arun Kumar Agrawal v. Union of India, the Supreme Court ruled that the CAG cannot question the merits of policy objectives set by state governments.
3. Secret Service Expenditure: The CAG cannot audit secret service expenditures, as these are kept outside its purview, and it must accept a certificate from the competent administrative authority that the expenditure has been made under proper authority.
4. Procedural Issues:
   • Post-Facto Analysis: The CAG’s reports are post-facto, offering only prospective value for future improvements, but not providing immediate corrective measures.
   • Lack of Focused Findings: The findings are often scattered as ‘observations’ without a focused analysis, which generates media hype but does not address micro-level departmental issues.
   • Systemic Issues Unaddressed: Many identified problems are already well-known, but the CAG’s audits often fail to address larger systemic issues in public organizations.
   • Audit as a Policing Mechanism: Audit reports are sometimes seen more as a policing tool rather than a valuable input for management improvement.
   • Indifference from Government: A poor response from the government to external audits weakens the CAG’s effectiveness.
5. Delayed Presentation of Reports: Article 151 mandates that CAG reports be laid before Parliament or state legislatures, but no time limit is set. This delay deprives the legislature of crucial information before the budget session.
6. Reduced Output: The number of audit reports prepared by the CAG has significantly decreased. For instance, in 2010-11, the CAG prepared 221 reports, but by 2018-19, this number had dropped to just 73.

Recommendations and Way Forward

1. Appointment:
   • There is a need to introduce transparency and qualifications in the appointment process. Best practices from other countries can be considered:
     • UK: The CAG is jointly selected by the Prime Minister and Chairman of the Public Accounts Committee, with the appointment ratified by the House of Commons.
     • USA: A commission advises the President, and the Comptroller General is appointed by the President with Senate consent.
     • Canada: The Auditor General is appointed after consultation with the leaders of recognized parties and approval by both the Senate and House of Commons.
   • In India, it is suggested that a search committee comprising the Prime Minister, Home Minister, and Leader of Opposition should make the recommendation for appointment.
2. Enlarging the Scope:
   • The CAG should bring Panchayati Raj Institutions (PRIs) and state-funded societies under its audit purview to increase its oversight.
3. Powers and Performance:
   • Empowered CAG: The CAG should be empowered like its counterpart in New Zealand, where it has the authority to seek liabilities for losses from the government and other parties.
   • Amend CAG Act 1971: The Act should be amended to include pre-audits of defense expenditures exceeding ₹3000 crores. Additionally, the State Auditor General should be granted the status of a High Court judge.
   • RTI-like Time Limits: Auditors should be provided access to records within a stipulated timeframe (e.g., 7 days, as in the RTI Act). Failure to meet this deadline should require department heads to explain the delay.

Conclusion

The Comptroller and Auditor General (CAG) of India plays a pivotal role in ensuring transparency, accountability, and fiscal discipline in the governance of the country. As the guardian of public funds, the CAG strengthens the democratic fabric by scrutinizing the financial operations of the government and its agencies. Its impartial audits and reports not only highlight inefficiencies but also provide recommendations for improvement, fostering better governance.

However, to maintain its effectiveness and independence, the institution must remain free from external influences and be equipped with adequate resources. In an era of increasing complexity in public finance, the CAG’s role has become more critical than ever. By upholding its constitutional mandate, the CAG continues to serve as a cornerstone of India’s democratic accountability framework, ensuring the judicious use of taxpayers’ money and contributing to the nation’s progress.