The Oil Ministry seems to have suggested to CAG that its audit of Reliance Industries’ (RIL) spending on the flagging KG-D6 gas block should be a financial scrutiny and not a performance audit.

With CAG suspending KG-D6 audit following differences with RIL over the audit scope and extent, the Oil Ministry is believed to have this week written to the official auditor explaining the scope, extent and manner of audit it wants.

Sources said the Ministry wrote that the Comptroller and Auditor General of India (CAG) was being requested to undertake the audit of block KG—DWN—98/3 or KG—D6 of RIL for 2008—09 to 2011—12 under Section 20 of the C&AG (DPC) Act, 1971.

According to the Ministry, the scope, extent and manner of the audit will be as spelt out in Article 25.5 and 25.6, read with Appendix C of the Production Sharing Contract (PSC) RIL had signed with the government for exploring and producing oil and gas from KG-D6 block.

These provisions of PSC provide for a government appointed auditor inspecting and auditing all records and documents supporting costs, expenditures, expenses, receipts and income.

It calls for verifying reasonableness of all charges and credits, which constitutes a pure financial audit.

CAG on the other hand is seeking to do a Performance Audit that allows the examination of the economy, efficiency and effectiveness achieved in the use of government resources.

RIL has been insisting that CAG can only do a financial audit and not a Performance Audit and had refused to share some documents sought by the auditor to begin the scrutiny in January.

Following this, CAG suspended the audit, sources said.

The Ministry, which had given written commitment to RIL that the audit will strictly be in accordance with the contractual provisions, is now sorting out the matter, they said.

Sources said the Ministry did not explain the significance of it quoting Section 20 of the C&AG (DPC) Act of 1971 as well as Article 25.5 and Article 25.6 and the Appendix C of the PSC.

Section 20 deals with audit of accounts of entities that have not been entrusted to CAG by the law. The terms and conditions of audit of such entities are to be settled between government and CAG, the Section states.

RIL too had been in its submissions stating that a private company can be audited by CAG only under Section 20 and the Ministry can make CAG its nominee to carry out audit the contractor’s accounts in order to verify the charges and credits.

Sources said the Ministry asked CAG to revert back if its proposition was acceptable to it so as to enable the audit process to move forward.

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