‘We’ve to change audit practices’

The Statesman, 8 September

The government is unable to ignore its findings and PSUs view its reports with some trepidation. If there is one institution that is even today able to fearlessly and objectively criticise the functioning of the government and its subsidiary organisations, it is the office of the Comptroller and Auditor General (CAG). Its mission is to enhance accountability of the executive to Parliament and state legislatures by carrying out audits in the public sector and providing accounting services in the states in accordance with the Constitution and laws as well as the best international practices. Where entrusted, it would provide technical guidance and support to local bodies, including Panchayati Raj institutions to enhance their responsibility.
By its own admission, the CAG comes up every year with some 3,000 objections. But it appears to be business as usual. How effective then is the CAG as a watchdog? More important, how many of the recommendations are taken note of by the government?
Heading the institution that came into being during British rule, the CAG, Mr Vijayendra N Kaul, spoke to ASHA RAMACHANDRAN on a range of governance issues, from the response evoked by his reports to the call by some quarters for more teeth for the institution.
An IAS officer from the 1965 cadre, Mr Kaul has held senior positions at the Centre and in the Madhya Pradesh government. As an international civil servant, Mr Kaul was seconded to the UN in 1991 as a trade policy adviser for the Asia-Pacific region in UN-ESCAP.
In his present capacity as CAG, Mr Kaul’s international responsibilities include membership of the UN panel of external auditors and the governing body of the International Organisation of Supreme Audit Institutions (INTOSAI).

Excerpts:

There was talk of overhaul and reorganisation of the CAG office. Can you share the plans?

There are no plans to overhaul but every year we review the functioning of the CAG office. Because we cater to change and dynamic environment, we have to change to be able to fulfil the objectives for which the CAG was created. For that we keep looking at the practices and procedures of auditing. The basic structure of the organisation remains the same. But we keep introducing incremental changes, practices and methods of work to respond to change in audit methods.

In the light of the changing scenario like audit technology utilisation, what would you say are the changes that are envisaged?

That is what I meant by incremental changes. For instance, disinvestment had never been audited. Now we have made provisions for guidelines and procedures and practices for auditing disinvestment of government entities. Unless there are clear standards, the audit becomes highly subjective and therefore highly contentious. So, we have recently issued guidelines on audit of disinvestment.

Secondly, there are new regulators coming into the picture - central regulatory commissions and state regulatory commissions. Regulators are different from government and have a different purpose. To audit these regulatory organisations, we have brought out specific guidelines.

Auditors are supposed to follow guidelines which have been approved by the CAG. They are applied there. So, there is an incremental change to respond to change in audit environment. New issues come up in public-private-partnership (PPP). These have led to their own challenges for the auditors. We have to change the audit practices, its methodology. In 1947, there was no PPP, nor in 1955. It was only after economic liberalisation in 1990s that PPP became important. That is the kind of change in audit practices and reorganisation taking place, not an overall change.

Where is the graph of prudence in financial spending going?

I would hate to comment where the graph is going. Because that is a matter for the executive. Besides, what is the desirable spending objective and what is deficit is a matter of policy and we don’t comment on the policy of the government as part of audit exercise. But once that objective is set, either through fiscal responsibility legislation or by an avowed declaration of parliamentary intent, then we try to see whether the performance during the course of the year is in line with parliamentary intent or a declared objective of the executive. For that, Chapter I of the report of the Auditor General and my report placed before Parliament or state legislatures cover the issue of fiscal prudence and the comment on that.

That again is a change as the fiscal responsibility legislation was brought into force and then our jurisdiction to comment on that came into being. Basically the CAG tries to ensure that Parliament’s intentions are understood and complied by the executive. And the executive’s own orders are complied with by the subordinate organisations. So I comment on fiscal prudence only in the context of the declared intentions of the government.

What does this indicate about our governance?

Well, there are many elements of governance. We have not evolved a methodology of auditing oversights. We are still considering how to conduct audits on oversights. Once we have taken a view on how to structure our report on oversight then perhaps I can give you a clarification on that. It would be a bit premature now.

By pointing out the flaws, how much credit can the CAG take for savings in preventing financial misdemeanour?

It’s something you have to decide. I cannot take credit for it. Some reports are good and are able to make discoveries, very substantial in nature. Some of the most talked about reports on financial impropriety have their origin in audit report, as you know.

Some reports are not so good, there is frequent criticism that many of the points we raise in the audit report are in the nature of nit-picking or they tend to have a negative effect on the initiative of the officers. We take this criticism as positive criticism and not negative and try to see if such flaws exist in our audit reports. I mean, if the audit reports are becoming overly aggressive and tending to curb an officer’s initiatives, then we try to see that such issues don’t clutter up an audit report.

Our approach is to criticise substantive and material issues and not take up small issues by and large. But if we’ve heard specific cases somewhere, it’s ok. We are open to correction.

How much do the big spenders - railways, telecom and defence for instance - account for out of the total financial misgovernance?

It is very difficult to broadly evaluate and I cannot give a generalised statement unless I have an index of evaluation. I cannot just give an impression, whether say telecom has more misgovernance than the other sectors you mention. We don’t evaluate comprehensively the governance of a particular department. But the audit gives a fairly clear idea. It is a matter of detail rather than the number and a short judgement of it.

If you have repetitive errors or non-compliance in certain departments obviously arrangement for good governance does not exist.

How would you rank them?

It is difficult for me to rank departments and I do not think it would serve any purpose because departments also keep changing. It is not in the nature of a department to miss the work. It is more attributable to individuals, who are at that point of time or period of time looking after this department. It is a question of how much internal control is exercised by individuals. It has nothing to do with the nature of spending. Whether defence is better governed or railways is better governed is not a judgement I can make. And I don’t think it would be a fair judgement. All departments are equally well-organised to provide services they are supposed to provide. Still if they fail on specifics, we point it out.

The CAG comes up every year with some 3,000 objections. But it appears to be business as usual. How effective then is the CAG in acting as a watchdog? How many of your recommendations are being taken note of by government?

Let me clarify, I often find these observations that we produced a report but nothing happened to them. That is a general discontent with the system.

To be fair to the government, I must say, it takes very specific note of the observations made by the CAG. These observations are not limited to 3,000 paras that go to Parliament or state Assemblies and members of Parliament but also a very large number of inspection reports, which are sent to departments, which they comply with and return with a note or frequently they don’t comply. The situation on that front is not very satisfactory. Compliance levels are low and much needs to be done to improve. But to say government does not take note of the findings of the CAG would be wrong.

The system is that the report is put up to Parliament. The Public Accounts Committee (PAC), on behalf of the entire Parliament, takes a view and frequently agrees with the government and disagrees with the CAG. It is not always what the CAG said. Sometimes the facts are all right. I don’t think the PAC has ever pointed out anything wrong on the facts put in the audit report. But whether it is serious enough to take action or whether the action taken or partial action taken by the government is sufficient is the issue.

It is up to the PAC to take the final view and its recommendation forms the final output. The CAG report is basically an interim report. The final output is the view of the PAC based on the CAG report after examination by the departmental secretary. In most cases, the PAC agrees with the CAG but there are also occasions when they do not. But to say there is nothing in place... there are adequate systems in place to take care of compliance with the recommendations of the CAG. Yes, it needs to be improved, it needs to be modernised, made more comprehensive. And no, not enough attention is being paid. But to say there is no compliance would be wrong.

The interviewer is a Special Representative of The Statesman, New Delhi