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By M.V.Ramakrishnan

Friday, August 18, 2017

Progressive Government Audit Practices, From Simple To Substantial And Sophisticated

In the preceding post, I had recalled an essay about the attitudes of Government auditors, which I had written in 1995 in my column India of C-A-G in THE HINDU.  It has stood the test of time well and seems to have considerable historic merit.  I had quickly followed up that article with a couple of others, on the environment and quality of audit and the evolution of refined Government audit practices in post-colonial, democratic India.  So here's the next text :-
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Glossary & Annotations


CAG  (pronounced C-A-G)  --  Comptroller & Auditor-General of India.

British regime  --  19th/20th centuries (upto 1947).

SANCTIONS  --  In the Govt. set-up in India, 'sanction' means Govt.'s approval of a specific item of expenditure (on staff. equipment, etc.), entitlements (leave, loans, etc.), or projects, specifying levels or limits of funds provided (buildings, roads, development/welfare schemes, etc.).

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THE HINDU
10 January 1996


India of C-A-G

The environment of audit

As briefly mentioned in the preceding article (December 27), there has been a metamorphosis in the whole environment of Government audit in the past 30 years or so.  This was not caused by any sudden change in the attitude of the auditors, but has been the result of a progressive widening of their functions and a gradual but fundamental shift in their perception and outlook.


And this trend has materialized along lines parallel to the remarkable expansion in the Government's activities at the national and State levels in independent India.  When the Government had concerned itself mostly with routine tasks (as in the British regime), there was not much scope for Audit to undertake any substantial reviews of performance or systems :  but with the profuse growth of the Government's concerns, the audit activities also grew significantly in terms of volume, scope and quality.  

The increase in volume was a routine development.  The area-wise expansion of scope was marked by the introduction of revenue audit and public-sector audit when Mr. A.K. Roy was the Comptroller & Auditor-General of India in the early Sixties.  These new functions were consolidated by his successor, Mr. S. Ranganathan.  And it was during the tenure of Mr. A. Baksi for six years in the Seventies that Audit made a quantum leap in qualitative terms. 

When I joined the Indian Audit & Accounts Service (IAAS) nearly 40 Years ago, there was an important chapter on 'Higher Audit' in the CAG's Audit Manual.  This concerned the scrutiny of all sanctions issued by the Government -- which was considered to be such a special aspect of he CAG's audit that the Higher Audit Department (HAD) in the Accountant-General's office in every State usuaally functioned under the direct supervision of the AG, without the intervention of any Deputy AG.

The Superintendent in charge of the HAD was usually one of the most experienced and competent officers in the cadre of the Subordinate Accounts Service (SAS).  Invariably he was thought to be so efficient and outstannding on the basis of his previous track record that he continued to be rated very high in this special slot also.

But the HAD would normally produce no worthwhile material whatsoever for the CAG's Audit Reports, because its efforts never went beyond an intelligent reading of the sanctions.  All Government sanctions naturally tended to look reasonable on paper, for the simple reason that no sanction was ever issued without recording a 'prima facie' justification for it in a Secretariat file. 

The HAD would often call for the relevant records and peruse the original notes leading to important sanctions, but that hardly led anywhere.  If there were any serious flaws in any particular sanction, naturally they could not be located simply by reading the notes written for the specific purpose of justifying it! 

Any distortions which might exist could never be identified unless the auditors took the trouble of studying the whole background thoroughly and understood every aspect and nuance of the situation in which the sanction had been issued.  But the audit tradition did not envisage such research being undertaken, so the AG and his officers were no wiser after going through a Government file than before doing so.   

In due course successive CAGs began to notice and recognize the futility of according such a high-sounding title to a superficial scanning of Government sanctions ;  and they gradually replaced the concept of 'Higher Audit' with that of 'Efficiency-Cum-Propriety Audit', or 'ECPA'.  Nothing much came out of this either, because the old tradition could not be given up easily, and it was difficult to pin down inefficiency and impropriety by going through Government records in an unsystematic manner.

Research and reviews


But somewhere along the way 'ECPA' began to be expanded as 'Efficiency-Cum-Performance-Audit'.  So subtle was this shift in nomenclature that I do not remember exactly when and how it was effected.  But I do recall that as soon as the expression 'Performance Audit' started figuring in  the CAG's directives, the whole process of audit acquired a new and formidable dimension.  

For it was no longer a question of scrutinizing some of the Government's records in isolation :  one had to examine them in an integrated manner, sometimes in the light of overall knowledge of the context acquired from other sources.  And the new methods called for entirely new methods of scrutiny and assessment, involving sustained research and investigation.


Of course, this did not mean that routine audit of vouchers and other relevant documents could -- or would ever -- be given up :  for it did constitute an effective element of the existing system of checks and balances, and had necessarily to be undertaken for enforcing elementary discipline in public finance.

What the transformation implied was that special efforts also had to be made  -- adopting innovative techniques of audit -- for discovering how effectively public funds were being spent and how effectively public revenues were being collected.  These efforts manifested themselves in different forms, on several fronts.

For instance, the true nature of the huge subsidies sanctioned by the Government of India for promoting exports was assessed in the light of exhaustive market information gathered from relevant trade journals and statistical compilations.  On one hand, serious logical flaws in the Government's perception and arguments leading to specific sanctions of 'cash compensatory support' were pointed out.  On the other hand, the basic criteria adopted by the Government to justify such subsidies were themselves subjected to severe tests, and found to be very flimsy.  

Such exercises were extremely intricate ones which could be undertaken only by a few officers of the audit organization.  But an important new direction of the CAG's audit along which many intelligent officers could proceed took the form of overall reviews of the implementation of various massive development and welfare schemes undertaken by the Union and State Governments in areas like agriculture, industry, education, health care, family planning and employment generation.

Audit also showed increasing concern for evaluating the efficacy of systems, particularly in the collection of taxes and oher revenues.  And in the case of public-sector enterprises and autonomous bodies belonging to the Central and State Governments, overall appraisals of performance and the audit of specific transactions tended to receive equal attention.

Response and remedies


The response of the Government departments and organizations to the initiatives and overtures of the CAG's officers, both at the Center and in the States, has always been an important element of the environment of audit.
When Audit began to get a firm grip on the fundamental aspects of financial mismanagement or mischief, the Executive's resistance tended to materialize at the highest levels, making the auditors' task more and more difficult.  The CAG's organization had to adopt very intricate tactics to overcome such obstacles and gain access to all relevant information.

Sometimes the best efforts of Audit actually proved to be counter-productive.  When inherent weaknesses in certain existing patterns of heavy expenditure were exposed by complex audit investigations, the Government tended to dilute the basic criteria governing them, making value judgements even more elusive than they had been earlier.

The most striking example of this was provided by Mr. Baksi's powerful crusade against highly arbitrary export incentives.  The Government's response was to go on making the criteria more and more vague and diffused till a stage was reached when the sanctions became still more arbitrary, and Audit had to struggle still harder to come to grips with them.


A significant facet of the environment of audit concerns the attention paid to the CAG's Audit Reports by the Legislature and the remedial action taken by the Executive.  While these have not been too bad at the Center, they have been extremely unsatisfactory in the States.  This is a topic which deserves to be analyzed in a separate set of essays.


                                    (to be continued)

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