The Government’s tentative hush-hush move, smacking of kite-flying, to possibly make the extant institution of Comptroller and Auditor General of India (CAG) a multi-member body a la the Election Commission has predictably drawn fire as much from the opposition parties as from the opinion-making class.
In 1979, the late Prime Minister Rajiv Gandhi converted the single member Election Commission into a three-member body to clip the wings of the then Election Commissioner. This time round, the incipient move is to pare the wings of the existing CAG, whose assertiveness and doggedness has embarrassed the Government no end.
The difficulty with a multi-member CAG is not about semantics alone, which can be overcome by amending the Constitution. On the contrary, the difficulty is at the conceptual level.
DUAL AUDIT BENEFITS
Auditors are not infallible, as much as they are not always exacting in the discharge of their duties. It is to overcome this human failing that the idea of dual audit and peer review was born. Dual audit stands for two sets of auditors simultaneously poring over the accounts without working in tandem — and, therefore, without having a clue as to what is weighing in each other’s mind.
The insularity, though an expensive duplication, serves an admirable purpose — both would be on their toes for fear of having to face criticism on grounds of dereliction if one of them has been more meticulous in his examination of accounts.
In a way, it is a competitive audit and hence has all the advantages of competition sans cost-cutting. In the marketplace for goods and services, competition results in cost-cutting and lowering of prices, especially where there is no scope for product differentiation, or where the products and services are homogenous. Dual audit by its nature is doubly expensive and doubly intrusive in that the staff of an organisation has to answer not one but two sets of auditors.
Yet, the system has a lot to commend itself — from competitive genuflection in a single audit regime to stay in the good books of the promoters, the competition shifts to the healthy race for one-upmanship.
JOINT AUDIT ISSUES
Joint audit in vogue in France and in India insofar as large public sector companies and banks are concerned is a different kettle of fish. The joint auditors pool their resources and divide the audit areas between themselves. The division might be in terms of functions or geography or product/service lines, but in any case, the audit is carried out in consultation with each other and not in a spirit of one-upmanship.
While in France, the joint auditors are jointly and severally liable for their actions or inactions, the ICAI has chosen to divide the auditing suzerainty of joint auditors into watertight compartments — a joint auditor is responsible only for the areas he has audited. The difficulty is there are common resources that defy watertight compartmentalisation such as capital, top-management salary, head office expenses, and so on.
Despite this serious limitation, the ICAI toyed with the idea of institutionalising joint audit for listed companies in India in the immediate aftermath of the Satyam scam, that rocked the nation like never before, with its auditor displaying pusillanimity bordering on connivance for all to see. The ICAI’s thinking, perhaps, was that it was easier to bribe and/or browbeat a single auditor than two auditors.
Now, coming to the move to make CAG a multi-member body, the issue is, can it be done, given the raison d’être of audit? An auditor’s work cannot be put to vote nor is there any scope for a dissenting opinion being appended by a partner of the same firm.
An audit report thus riven by dissent is bound to prove counter-productive with readers being at a loss as to who to believe, and what to believe. Extending the analogy to the three-member CAG, it could be that the first CAG quantifies the 2G losses at Rs 1.76 lakh crore, the second at Rs 0.50 crore and the third says there is no loss at all. A multi-member CAG is a sure recipe for politicking and politicising the accounts of the nation. Besides, even under the present regime, it is not as if the single member CAG imposes his personal views on the nation. He has an elaborate auditing bureaucracy reporting to him. His views are the culmination of the process of consultation he has with deputy CAG, assistant CAG, and so on.
An institution must speak with one voice lest it loses credibility and ends up confusing people. One might turn around and criticise the concept of dual audit for the same reason but a moment’s reflection would show that the two are not on all fours.
While the CAG team works as a team, the dual auditors do not. It is wrong to divide a team on loyalty lines. It would be dangerous to have a set of auditing staff in the same organisation which bears allegiance to the first CAG, and another set of auditing staff bearing allegiance to the second CAG, and so on.
For the same reason, it will not be advisable to create two sets of CAGs so that dual audit can be conducted of the same accounts — politicisation is guaranteed, especially with CAG and his team not coming under the regulatory oversight of a body like the ICAI.
The American version of peer review is extremely aggressive, with doctors questioning a surgeon with the help of hindsight. It is hindsight that again helps the peer review of an auditor’s work in the US. Dual audit being concurrent or contemporaneous does not suffer from this vice but is not suited for auditing of the government behemoth for the reasons stated above.
(The author is a New Delhi-based chartered accountant.)