The Hindu Business Line : Wanted watchtowers, not ivory towers

THE Central and State governments together will be spending around Rs 9,00,000 crore this year. The responsibility for auditing this massive expenditure rests entirely with the Comptroller and Auditor General of India (CAG). In addition, the CAG has to keep the accounts of all the State governments, which spend about Rs 4,50,000 crore annually. In countries such as the US, Canada, Australia and South Africa, there are separate agencies for keeping accounts and for audit. In India, the CAG, in effect, does the work of 60 officers — 30 State auditors and 30 heads of State accounts — plus the audit work for the Central Government. The awesome burden of this arrangement seems to have gone unnoticed. It is impacting accountability in government.

The Constitution devotes one chapter to the CAG (the chapter relating to the Supreme Court is ten times longer). It says that the CAG "shall be appointed by the President by warrant under his hand and seal" and has to take an oath saying that he will discharge his duties to the best of his ability. In contrast, the US and the UK have imparted their legislature with an important role in the selection of the head of the audit organisation; and there is complete transparency in the selection process. But in India, neither Parliament nor the public is told about the candidates considered for the post of CAG and why a particular candidate has been selected.

In the UK, the Auditor-General is an officer of Parliament. In the US, too, the Comptroller General is answerable to the Congress. But in India, the CAG is totally independent. There is no external audit of his expenditure, which has been over Rs 1,000 crore this year. In the absence of any peer review to determine if the CAG is discharging the constitutional duties, the office is for all practical purposes above law.

Recently, the Reserve Bank of India and the Planning Commission expressed concern about the sharp increase in State government pensions, which jumped from Rs 22,700 crore in 1999-2000 to Rs 40,000 crore this year.

All is not well in payments from the General Provident Fund and the Employees' Provident Fund as well. The balance in the General Provident Fund of State governments is about Rs 100,000 crore. It is understood that 15 per cent of all GPF accounts have negative balances. One can only hope that the CAG prevents any tampering of PF.

Equally alarming are the serious mistakes in the annual accounts of State governments. The Public Account section of these accounts, giving details of deposits, loans, suspense and remittances, are error-ridden. Much money is being lost because of this. The CAG is independent in audit matters only. He is answerable to the Government for all the losses that occur through defective accounting.

It is not possible to clear all the chaos in government audit and accounts that have occurred over the years. But it will certainly be unwise and costly to overlook the existence of the problem.

The powers and duties of the CAG are prescribed by an Act of Parliament passed in 1971. Of late, in countries such as the UK, Canada, Australia and New Zealand, many new developments have taken place in audit legislation. Parliament has to set up an expert committee to examine the problem and draft a new law. This may take about a year to complete.

Meanwhile, several first-aid measures are necessary to prevent leaks in government revenues. A small cell of technical experts will have to be set up to monitor the main areas — such as pensions, Provident Fund, public account, and so on — vulnerable to large-scale fraud. This group should also be able to identify the major errors in the recent accounts of State governments.

If employees of the audit department are given attractive cash awards for the money they help save, by detecting fraud and waste, it will produce dramatic results. This is being done in many countries. Fraud hotlines can be opened to enable the public to report financial irregularities that come to their notice. Many of the financial rules of the government are dated and should be changed. The whole system of disbursement of salaries in State governments can be simplified in a short time. Parliament has to take a lead in initiating these changes.

(The author is a Thiruvananthapuram-based freelance writer.)