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It is stated that at a party meet, a commoner went up to a politician and said “I've heard a lot about you” to which the politician replied “But you can't prove any of it”. The phenomenon of corruption that has embraced the very fabric of the nation cannot be eradicated in a jiffy, but a start can prove genuine intent. Between a top-down approach (the government to the common-man) and a bottom-up approach (the common man to the Government) in making accounts transparent, the top-down approach should be chosen as the amounts and possibilities are higher. Getting political parties audited and publishing the results could make for a bright start.
Running a political organisation can be as challenging as running a struggling corporate, if not more. It is known that the main source of funds for political parties is donations — from corporate and other worlds. Section 29B of the Representation of People Act, 1951 empowered political parties to accept any amount of contribution voluntarily offered to it by any person or company other than a government company with a taboo that such donations cannot be accepted from foreign sources. Some of the provisions of the Companies Act, 1956 capped these donations to 5 per cent of the average net profit of the corporates as computed in accordance with the formula provided in Sections 349 and 350 of the Companies Act. These restrictions have resulted in donations being made from the parallel economy.
The Election Commission of India is the regulator for parties and it appears even financial statements are sent to it. While political parties and candidates must submit accounts for contributions received and expenditures made, there is no requirement for these accounts to be audited and placed in the public domain. As the donations made are not deductible expenses under tax laws, entities donating would not like to see this as a line-item in their profit and loss account. Invariably, the donation is routed through a trust to the political party as the taxman may not look that closely at the expenses of a trust.
The Institute of Chartered Accountants of India (ICAI) has suggested that donations to political parties be expensed in the books of an entity. It is suggesting a format for the accounts of a political party to be drawn up.
The Election Commission of India has expressed interest in applying auditing and assurance standards to the accounts of political parties which should be welcomed though it appears that it would prefer the Government accounting standards than corporate standards.
Many countries have National Audit Offices which are replicas of the Comptroller and Auditor General of India (CAG). A proposal last year to get the accounts of political parties audited by independent accountants from a panel maintained by the CAG met with protests and was shelved.
Government Audit
A nation way below India in brand image, Tanzania, amended its Political Parties Act, 1992 empowering its CAG to audit the accounts of political parties prior to an election. The parties were forced to divulge all sources of funding irrespective of the source of the funds and the status of the funder.
The need for this move arose due to a proposal that 2 per cent of the Governments' recurring expenditure be allocated to political parties and it was noticed that 80 per cent of this went to the ruling party due to the structure of the supply-chain for the use of the funds. The audit was intended to revolutionise the manner in which political parties have been sourcing their funds, especially during elections and hopefully stop party officials from diverting funds to unaccounted personal gains.
The audit — though not a runaway success - did not find any controversial issues, but provided some good indicators to improve accounting and disclosure practices in political parties. Canada has a Democratic Audit Office that performs a non-financial audit of political parties.
Too much has occurred in India over the last year to prevent political parties from shirking the responsibility of making their accounts public. The Election Commission of India should make a beginning by implementing the suggestions of the ICAI.
(The author is a Bangalore-based chartered accountant.)
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