20

Control over Public Expenditure

In a parliamentary democracy, the political executive is responsible to the
Parliament. The control exercised by the Parliament over the executive is its
control on financial expenditure. This is exercised in two ways.

Control Through Budget

The executive cannot spend money without Parliament’s approval. The second is post
expenditure control by audit. The office of the Comptroller and Auditor-General of
India (CAG) conducts a detailed audit of all the Government departments. He sends
his report to the president, who lays it before the houses of the Parliament. He
also submits report about the commercial and industrial undertakings of the
Government of India. The Parliament is an unwieldy body for a serious technical
discussion on the CAG’s reports. It sends them to the parliamentary committees on
public accounts committee (pac), estimates committee and committee on public
undertakings for detailed examination. The committee on public undertaking has
already been discussed in the chapter on public undertakings.

Public Accounts Committee

The Webly commission of 1896 felt the need for the establishment of an accounts
committee to find out irregularities in financial administration. It was followed
by the Montford Reforms of 1921, suggesting the creation of such a committee. ‘The
question of arming the legislature with a semblance of expenditure control came to
be considered. Dealing with “Control by Legislature”, the Government of India, in a
despatch to the secretary of state, suggested that it should be the constitutional
duty of the legislature to appoint a committee on public accounts, to receive
reports from it and to deal with them, insofar as might be necessary, by
resolutions. An important reservation was that these resolutions should not be
mandatory. Thus, the function of this committee was defined as that of mere
scrutiny and recommendations. The evolution of a definite authority to sanction or
disallow expenditure was a much later development.’1

The public accounts committee was first constituted at the centre in 1923, its
members were partly elected and partly nominated. The committee had twelve members:
eight non-officials elected by assembly members and the remaining four officials
nominated by the governor-general. The finance member was its chairman. The
auditor-general having statutory recognition under the Government of India Act of
1919, used to assist the committee. The auditor-general performed two major
functions, namely, that of keeping the accounts of the government and of auditing
them. Since the accounts were too complex, he had to simplify them with a view to
make them intelligible to the legislature and its committees. Accuracy,
completeness and consistency of classification were some of his important concerns.
He had to be vigilant about illegalities, irregularities, extravagance and waste.
His reports were the principal source of information for the investigations of the
public accounts committee.2 Since its inception, the central public accounts
committee became a major force in the legislative control of public expenditure.
Despite the limitations on its constitution and restrictions on its authority it
exercised enormous influence in bringing pressure to bear upon the government to
enforce economy in the expenditure of public moneys.3

Before independence, the Indian public accounts committee was, only in a very
qualified sense, a committee of the legislature.4 However, during the pre-
Independence days, the committee had performed useful service.

Since the inception of the Constitution, the public accounts committee has become a
real parliamentary committee. Initially, it consisted of 15 members, all belonging
to the house of the people but the strength was raised to 22 in 1953, to give
representation to the council of states. Presently, 15 and seven members are
elected by the Lok Sabha and the Rajya Sabha, respectively. The committee is an
annually elected body and the election is held in accordance with the principle of
the proportional representation followed by single transferable vote system. There
is a convention that there should be a two-year tenure of membership to ensure
continuity of the committee. The committee has a good number of its members duly
re-elected with a view to providing it a core of well-experienced members. The
committee is headed by a chairman, who is nominated by the speaker from amongst its
members. Although in the majority of cases, the chairman of the committees have
been from the ruling party, on two occasions, members belonging to the opposition
parties have headed the committee.

The functions of the committee, as embodied in the rules of procedure and conduct
of business, is to satisfy itself that:

The moneys shown in the accounts as having been disbursed were legally available
for, and applicable to, the service or purpose for which they have been applied or
charged.
The expenditure conforms to the authority which governs.
Every re-appropriation has been made in accordance with provisions made in this
behalf under rules framed by the competent authority.
It should also be the duty of the public accounts committee:

To examine, in the light of the report of the CAG, the statement of accounts
showing the income and expenditure of state corporations, trading and
manufacturing, schemes and projects, together with the balance-sheets and
statements of profit and loss accounts, which the president may have required to be
prepared or are prepared, under the provisions of the statutory rules regulating
the financing of a particular corporation, trading concern, or project.
To examine also the statement of accounts showing the income and expenditure of
autonomous and semi-autonomous bodies, the audit of which may be conducted by the
CAG of India either under the directions of the president or by a statute of
Parliament.
To consider the report of the CAG in cases where the president may have required
him to conduct an audit of any receipt or to examine the accounts of stores and
stocks.
The report of the CAG is made the base of the functioning of the committee, and to
perform its functions it makes use of sub-committees and study groups. The report
is considered ministry-wise and the committee is empowered to send for persons,
papers and records. The secretaries of the ministries concerned have to appear
before the committee to clarify the points raised in the audit report. The CAG
attends the meetings of the committee and he acts as its ‘guide, philosopher and
friend’. He also explains and acquaints the members with the technicalities of the
matters being dealt with. Generally, questions are suggested by him, which the
members of the committee may ask the concerned officials. To quote Ashok Chanda,
‘the effectiveness of the committee is largely determined by the thoroughness with
which the audit-examination has been conducted: Likewise, the value of audit
criticism depends on the support it receives from the committee. Not only are the
functions of these two authorities interrelated, but there is a measure even of
inter-dependence in their relations.’5

The committee examines the report of the CAG with a view to find out whether the
money voted by Parliament has been utilized by the authority concerned ‘within the
scope of the demand.’ This means that:

Public expenditure must not exceed the appropriations granted by Parliament without
its prior approval
Grant is utilized for the purpose for which it was sanctioned by Parliament
The nature of items of expenditure compiled against a demand should justify their
being so compiled
The committee also undertakes a review of the form and details in which the
estimates are composed, in order to arrest any tendency to reduce the number of
votes or to include large lump sum provisions, since these are regarded as
diminishing the control of Parliament over the estimates.6

The committee finalizes its recommendations after examining witnesses and the
report of the CAG. A convention has evolved that the recommendations of the
committee are invariably accepted by the government after being discussed in
Parliament. In case of any difference, the government has to place such reasons for
non-acceptance and ask the committee to modify or reconsider. The committee may
either reconsider the matter in the light of the government’s views or adhere to
its own. The differences are, usually, resolved by reaching an agreement.

Although it is open to the house of the people to discuss the reports of the
committee, this is seldom done in practice. While addressing the conference of the
chairman of the public accounts committee in 1959, the speaker said:

Although it is open to the legislature to discuss the reports of the committee, a

rambling discussion of the whole report leads us nowhere and tends to destroy the
effectiveness of the recommendations of the committee. I am, therefore, of the
opinion that special points should be raised for discussion, more particularly
those points where there is an unresolved difference of opinion between the
committee and the government.

The 55th report of the committee dealt with a specific issue (which arose out of
the 50th report of the committee) on which there was disagreement between the
committee and the government, and the speaker permitted discussion thereon with the
direction that the discussion should be confined to the remarks, observation and
comments of the committee.

With regard to substitute motions which some members had tabled to the motion for
consideration of the report, the speaker observed that if he allowed substitute
motions to be moved, there would be voting and the members would be in an
embarrassing position because of a possible conflict between loyalty to the
committee and to the respective parties. Such a situation was not desirable, he
felt, as it would hamper the efficient and effective working of the committee. The
consensus in the house was against any substitute motion on the report of a
financial committee being moved or voted upon.7

The committee is quite often referred to as a post-mortem committee. It is,

generally, argued that once money has been wrongly spent, it cannot be recalled and
nothing can be done. However, it would not be absolutely correct to say that a
post-mortem examination has no significance. The committee’s job of scrutinizing
accounts is a continuous process and it enjoys the prerogative of looking at the
present as well as the future.

The very fact that there is someone who will scrutinize what has been done, is a
great check on the slackness, or negligence of the executive. The examination, if
it is properly carried out, thus leads to general efficiency of the administration.
The examination by the committee may also be useful as guide for both future
estimates and future policies.8

The role of the public accounts committee is quite significant in the context of
the country’s financial administration because it has kept the executive
accountable to Parliament, and, thereby, considerably improved and lent a new
dimension to the nation’s fiscal policies and programmes. The committee has earned
the reputation of being non-party in character, and it has pointed out many
irregularities of expenditure with regard to various departments of the Government
of India.9 The chances of waste and misuse of the funds had increased with the
increase in expenditure, and it was necessary to check the rise in such waste and
misuse. The committee was able to bring to light certain cases where parliamentary
authority on the administration of tax laws had been diluted by the executive fiat,
and other cases of the government not carrying out the intentions of Parliament as
expressed in laws. It had also drawn attention to differing interpretations given
by officers to tax provisions which had led to citizens being taxed differently
under the same statute. The government has been very cooperative with the committee
and its reports have carried great weight with the government. It may be claimed
that the traditions established and the conventions developed by the public
accounts committee conform to the highest traditions of a parliamentary
democracy.10

The control exercised by the public accounts committee is quite significant. The
control relates to financial matters. The nature of control is quasi-judicial by an
expert body. As a watchdog activity performed by an all-party committee, it acts as
a deterrent on excesses committed by the executive.11 However, the regular
recurrence that is brought to light, year after year, does suggest that the value
of the committee is limited.

If the public accounts committee has been reduced to a toothless watchdog, the
fault lies at the door of the government. The politician in power and the
acquiescent bureaucrat have together developed a vested interest for secrecy,
shying away from accountability to Parliament and the people. Governments have
perfected the art of treating parliamentary committees as sinecures and their
reports as documents to be consigned to the dust-gathering morgue of secretarial
shelves. Ministers and bureaucrats are not inhibited by the thought that the public
accounts committee would be calling them in question for any profligacy on their
part. Late Prime Minister Rajiv Gandhi, in his address to the chairman of public
accounts committees in Delhi on 10 September 1986, rightly observed that the public
accounts committees have been able to take the result of their labour to its
logical conclusion. Unless Parliament asserts itself and tells the government to
mend its ways in the light of suggestions and proposals from expert panels, the
estimates committees and public accounts committees will be reduced to the status
of powerless bodies composed of back-benchers in quest of minor perks of office. He
wants ‘the system’ to be changed.12

Estimates Committee
During the British rule there used to be a standing finance committee, which was
constituted in 1921. The committee comprised 14 elected members of the legislative
assembly and the finance minister. The finance minister was to be the nominated
chairman and an officer of the finance department was to be appointed by him to act
as the secretary of the committee. The committee was to scrutinize the voting
expenditure of the Government of India. This committee was attached to the finance
department of the Government of India and depended on the will of the executive;
without having a statutory status, it had to function under severe limitations. The
selected representatives of the legislative assembly were not satisfied with its
functions, deliberations and constitution because it was not in any sense a
committee of the legislature.

The desirability of setting up an estimates committee began to be mooted with fresh

vigour after independence. The estimates committee, first constituted in April
1950, had 25 members and the membership was raised to 30 in 1956. The members are
annually elected by the Lok Sabha from its members according to the principle of
proportional representation based on the single transferable vote system. According
to the established convention, since 1956, two-thirds of the members have been re-
elected for another year. So the term of office of members is one year. The
ministers are barred from the membership of the committee. The chairman of the
committee is nominated by the speaker from amongst the members of the committee and
if the deputy speaker is a member of the committee, he will act as the chairman.
The main function of the committee is to suggest ‘economies in expenditure’, hence,
it has been described as a ‘continuous economy committee’. It is not concerned with
‘policy matters’. Its business is to ensure that within the framework of the policy
of the government laid down by the house, only the minimum expenditure needed for
the purpose of fulfilling the objectives of the government are incurred. The real
business of the committee is to suggest, while accepting the policy and objectives
of the government with which it is supposedly not concerned, how this policy and
its objectives could be carried out with the least expenditure of public
resources.13

The exact scope of the committee was clarified by the speaker in the following
words, at the time of the committee’s inaugural sitting: ‘Your function is not to
lay down policy; whatever policy is laid down by Parliament, your business is to
see that the policy is carried out not divorced from its financial implications.
You must bear in mind constantly that you are a financial committee and you are
concerned with all matters in which the finances are involved. It is only where a
policy involves expenditure and you find that policy has not worked properly, you
are entitled and competent to go into it; where the policy is leading to waste, you
are entitled to comment on it in a suitable way.’14

The committee examines the estimates referred to it by the Lok Sabha or the speaker
and the estimates which it may deem fit with a view to:

report what economies, improvements in organizations, efficiency and administrative

reforms, consistent with the policy underlying the estimates may be effected;
suggest alternative policies in order to bring about efficiency and economy in
administration;
examine whether the money is well laid out within the limits of the policy implied
in the estimates; and
suggest the form in which estimates can be presented to Parliament.15
The committee does not confine itself to the examination of estimates but also
makes use of estimates as sources of information in order to prevent waste and
extravagance in spending public moneys. The expenditure reflects the use of men and
material. It is, therefore, essential that, besides estimates, the committee pays
close attention to those aspects of governmental activity where men and material
are often wasted or not fully utilized. In actual practice, the committee examines
current governmental activity in the light of what it costs the public.

Initially, the objective of the committee was to suggest economies consistent with
the policy underlying the estimates which was further enlarged to include in its
scope ‘alternative policies’. There are a few possible explanations as to why the
power to suggest alternative policies has been specifically conferred on the
committee. First, before 1947, the government was not responsible and most of the
policies were settled by the executive, and some of those policies continue to be
followed. Second, some ministers are new to the task and have to be guided by the
services in policy matters. Third, Parliament is still somewhat suspicious of the
services as a result of historical reasons.16

The speaker, while inaugurating the estimates committee in May 1959, described its
function as follows; ‘The fundamental objectives of the estimates committees are
economy, efficiency in administration and ensuring that money is well laid out;
but, if on close examination it is revealed that large sums are going to waste
because a certain policy is followed, the committee may point out the defects and
give reasons for the change in policy for the consideration of the House.’

When the committee is constituted, it prepares its programme duly based on the
decided estimates which are to be examined. It collects and collates the requisite
materials for necessary examination. The committee issues questionnaires and
interviews the officials of the concerned ministries/departments. It may also
summon any official to produce relevant papers, records and files for evidence and
witness purposes. If disclosure of any document is not in the public interest, such
a matter is referred to the speaker for seeking guidance. The committee appoints
study groups to conduct on-the-spot study of the selected projects. On the basis of
its findings, the committee finally formulates its recommendations. Nothing finds a
place in the report unless it is discussed with the ministry concerned. A copy of
the report is sent to it in advance for verification of facts contained therein.
The report, which is in the form of recommendations, is then submitted to the Lok
Sabha. There is no regular debate on the report. The members refer to the report at
the time of discussion on the budget and the demand for grants.

The recommendations of the committee usually relate to improving the organization

and working of the department or ministry; securing economy; and providing guidance
to general aspects of estimates presentation. Its recommendations are far-reaching
in respect of functional and economic classification on budgets and introduction of
performance budgeting, etc. The committee has also evolved the practice of
presenting action taken reports to the Lok Sabha, showing how far the government
has actually implemented the recommendations contained in its earlier reports. In
the opinion of Ashok Chanda, ‘as the committee usually concerns itself with policy
matters, the government may have perforce to reject some of these recommendations.
This creates a most undesirable situation, detracting as it does from the prestige
and authority both of the government and of a parliamentary committee.’17 However,
this view is regarded by some as ‘erroneous.’18 In a seminar held at New Delhi, one
of the participants while expressing his views said, ‘In fact, sometimes one gets
the feeling that the estimates committee merely gives a big list of advices.’ The
use of the word ‘merely’ is not right as, undoubtedly, some of the recommendations
of the committee are really wise and useful. It was indicated by the speaker of the
third Lok Sabha that 97 per cent of the committee’s recommendations had been
accepted by the government.

The Role of The Finance Ministry

Apart from the parliamentary control over public expenditure, the government
exercises some internal control also. The internal control is usually exercised by
the finance ministry operating through its budget division and expenditure
department. In each ministry/department its representative is there by the name of
integrated financial advisor. The control of finance ministry is exercised in two
ways: (i) pre-budget scrutiny (ii) post-budget scrutiny.

The expenditure proposals of all the ministries/departments are scrutinized by the

finance ministry before inclusion in the budget. The scrutiny includes economy and
efficiency, availability of funds, allocation of funds. Post-budget scrutiny is
conducted because the budget proposals are sometimes not fully scrutinized before
inclusion in the annual budget. Therefore, a second scrutiny is needed.

The finance ministry control is criticized on the ground that too light a control
of finance ministry causes delay and encourages departments to inflate their
demands and breeds irresponsibility in the departments.

On the other hand, the control of finance ministry is justified by saying that it
is an offshoot of the parliamentary control. The finance ministry, not being a
spending ministry, is best suited to exercise this control. This ministry, to raise
resources, proposes taxes, therefore, control of expenditure is also passed on to
this ministry. The organization and working of finance ministry has already been
discussed earlier in the book, therefore, for further details see Chapter 11.

Comptroller and Auditor-General of India

The Constitution of India has created the office of the Comptroller and Auditor-
General of India19, which is a very important constitutional appointment. He is the
head of the Indian audit and accounts department and is the guardian of public
funds. We shall discuss evolution of this office, appointment and conditions of
service, functions and duties, role and evaluation.

History
In 1857, independent accounting offices of three presidencies were merged together
to form an imperial establishment under one accountant general under the Government
of India. In 1858, an independent auditor was appointed by the Queen Empress. In
1860, the audit and accounting functions were amalgamated and placed in charge of
auditor-general in India. However, independent audit emerged after the
constitutional reforms of 1919. The Act of 1919 made him independent of the
Government of India, was appointed by the secretary of state for India and held
office during His Majesty’s pleasure. The Act of1935 further enhanced his status
and importance and his appointment began to be made by the King Emperor. He could
be removed from office only in the same manner and on the same grounds as a judge
of a federal court. The Constitution of India in 1950 re-designated the auditor-
general as CAG of India. In 1976, accounts were separated from the functions of the
CAG; and a new unit was set up in the ministry of finance, department of
expenditure, to administer matters relating to departmentalization of accounts of
the Union. The state governments were advised to pass similar laws with the
permission of the president.

Appointment and Conditions of Service

He is appointed by the president of India. The Parliament enacted in 1953 the
Comptroller and Auditor-General’s (Conditions of Service) Act which was amended in
1971. This Act governs the conditions of his service. He holds office for six years
up to the age of 65 years, whichever is earlier. In status, he has been equated
with a judge of the Supreme Court and draws an equivalent salary of Rs 90,000 a
month. To maintain his independence, after appointment he cannot be removed easily.
He can be removed only on an address from both houses of Parliament on grounds of:
(a) proven misbehaviour, and (b) incapacity. His salary and conditions of service
cannot be altered to his disadvantage during his term of office. He cannot hold any
further government appointment after his retirement so that he can perform his
duties without any expectation from the executive, independently. There was a lot
of criticism when retired CAG Ashok Chanda was appointed chairman of the third
finance commission in 1960, although this office could not be called as an office
of profit or an appointment under the government. His salary, allowances and
pension are not subject to the vote of Parliament; these are charged from the
consolidated fund of India and cannot be varied to his disadvantage during his term
of office. He does hold office till the pleasure of the president.

Powers and Duties of CAG

The Constitution envisages duties, powers and conditions of service of the CAG to
be prescribed by law made by Parliament. Such a law, called the Comptroller and
Auditor-General’s (Duties, Power and Conditions of Service) Act, was passed in
1971. The provisions of this Act provide for audit by the CAG:

All receipts and expenditure from the consolidated fund of India and of the states
and Union territories
All transactions relating to the contingency funds and public accounts
All trading, manufacturing, P&L accounts and balance sheets and other subsidiary
accounts kept in any department
All stores and stock of all government offices or departments
All government companies set up under the Indian Companies Act, 1956
All central government corporations whose Acts provide for audit by the CAG
All authorities and bodies substantially funded from the consolidated funds
Any body or authority even though not substantially funded from the consolidated
fund at either the request of the governor/president or at his (the CAG’s) own
initiative
To enable him to discharge his duties effectively, the Act arms him with:
The right to inspect any office of the entities which are subject to his audit
The authority to call for any books of accounts or papers that he regards as
necessary during audit
The freedom to ask any question and order the collection of any information from
any office of any government, company, corporation, etc
The jurisdiction of CAG covers all India missions abroad and any offices of the
government, companies and corporations, autonomous bodies, etc., shall decide the
manner in which their accounts shall be maintained in consultation with the CAG, so
that he is satisfied that accounts are maintained in such a manner as to be easily
and scientifically auditable.20

The Act also provides that the CAG shall keep and compile the accounts of the Union
and the states, prepare and submit accounts periodically and, on the basis of
these, provide information to the central and state governments which will help
them in planning and carrying out their plans for development and growth of the
country and improvement in the living standards of the people. However, through an
enabling provision in the Act, the accounts of the Union have already become the
responsibility of the ministry of finance.

The CAG also plays a judicial role in Union-state financial relations. He certifies
the share assignable to the states out of due taxes collected by the Union. He also
certifies the expenditure incurred by the states on programmes initiated and funded
by the Union.

The salient features of Indian audit are:

The audit of the Government of India as well as of the state governments is a Union
subject. Audit work of these governments is entrusted to the CAG of India.
The Indian audit is primarily concerned with expenditure. Like Britain all the
receipts are not given for examination to our CAG, only limited items of receipts
are covered by the audit system. Gradually, the scope is widening and items of
railways, post offices and customs and part of income tax are now covered.
It is an arm of the legislature, though technically the CAG submits his report to
the executive, i.e., the president or the governor at the state level, and they in
turn get the report placed before the legislature. The CAG acts as an aid to the
legislature in exercising control over the public finance.
It is primarily a legality audit. The audit is mainly concerned with the legal and
technical aspect of the expenditure.
Audit Report
Audit means the certification of accounts by the CAG as correct subject to such
comments and remarks as he may choose to make. The CAG report contains his comments
and remarks which he submits to each of the governments whose accounts he audits.
The audit report for Government of India is submitted to the president while for
the states to their governors. The president makes arrangement to lay down the
report in both houses of Parliament for discussion and the governor to the state
legislature. The legislatures refer the reports to their respective public accounts
committees (PACs). The report contains: (i) financial irregularities; (ii) excess
of expenditure over the grants sanctioned by the Parliament; (iii) over and under
budgeting; (iv) failure to obtain proper sanctions; (v) cases of noncompliance with
the rules and regulations; (vi) cases of misappropriation and embezzlement; (vii)
cases of improper expenditure.

Audit Against Rules and Orders

The CAG has to see that expenditure conforms to the constitutional provisions, laws
and rules made under it as well as the rules, regulations framed and orders given
by the competent authority.

Audit Against Propriety

A propriety audit is conducted to detect cases involving extravagance and waste
although the expenditure has formally been conformed to regularity and legality.
Such audits are discretionary and require to be conducted tactfully.

The CAG was earlier performing both the auditing and accounting duties in respect
of all financial transactions of the central and all state governments in 1976,
with the separation of accounts from audit, the CAG was relieved of the functions
related to the compilation and maintenance of accounts. Since then, he has been
entrusted with audit responsibility only.

So far as the audit of public enterprises is concerned, this is in more or less the
same manner as applicable to the government departments and the results of the
audit related to the public enterprises are also included in the CAG’s report. The
auditor-general’s office conducts audit of the Employees State Insurance
Corporation and National Cooperative Development Corporation as well as test audit
of government companies. In this regard, the former CAG of India, V. Narhari Rao,
opined ‘that formation of companies under the Companies Act for the management of
government industrial enterprises tended to whittle away parliamentary control.
While the funds were provided from the consolidated fund of India for these
companies, the Company Law did not give the CAG any automatic right to audit the
enterprises. The CAG might be requested to undertake the audit of those enterprises
by including the suitable provision in the articles of association. But this was
neither proper nor binding, as the CAG’s duties and functions were to be prescribed
by Parliament and could not be regulated solely by the articles of association of a
company. Furthermore, as the CAG was appointed as an auditor by the company, he
would have to submit his report to the company and not to Parliament through the
president. Parliament, therefore, could not watch the regularity of operational
financial results through the public accounts committee.’

Section 619(2) of the Companies Act, 1956, lays down: ‘The auditor of the
government company shall be appointed or reappointed by the central government on
the advice of the CAG of India’. The CAG has power to direct and prescribe the
procedure through which the company’s accounts would be audited by the auditors
appointed by the government. He can comment upon or supplement the audit reports of
the professional auditors. The audit conducted by the CAG is confined to the field
which has not already been covered either by the internal auditor or by the
professional auditors. He also conducts efficiency-cum-performance audit to see
whether the public enterprises are fulfilling the objectives for which they were
set up, whether adequate results have been achieved or obtained with the money
spent, whether there has been any extravagance in the expenditure incurred and to
locate weaknesses in management of affairs pertaining to unavoidable delays which
hampered the progress.

On the recommendations of the ARC, an audit board has been established. It consists
of a chairman and two members appointed by the CAG. The report of the board is
included in the audit report (commercial) which is presented to Parliament.

Criticism
There are several critics of the role played by the CAG of India. In this regard,
Paul H. Appleby has said, ‘The function of the C & A G in India is, in large
measure, an inheritance from colonial rule. The function did not impede British
rule; it upheld that rule and was an integral part of it. It greatly restricted the
Indians who served the Government. These restrictions were sought by the
Governments in a situation of administration largely concerned with police and
taxation functions and not engaged in rapid pursuit of Welfare State objectives.

‘In the first flush of Independence, Indian ministries were disposed to disregard
the Comptroller and Auditor-General, and abuses became vivid. This situation has
been fully corrected, but in the process the old restrictive effects have been
restored and strengthened at the very time that new policies were calling for more
flexibility and more use of responsible direction. The net result of this un-
corrected situation is that the Comptroller and Auditor-General is today a primary
cause of widespread and paralysing unwillingness to decide and act.

‘This repressive and negative influence is in considerable part indirectly

impinging on the bureaucracy by way of Parliament because of the exaggerated and
unselective attention given by Parliament to the petty exceptions and the inflated
pretensions built around the pedestrian function of auditing.

‘Parliament is surely at fault in this. It has a greatly exaggerated notion of the

importance of auditing to ‘Parliamentary responsibility’ and so has failed to
define the functions of the Comptroller and Auditor General as the Constitution
contemplated it would do. Into the vacuum, thus left, the Auditor has moved.

‘The Comptroller and Auditor-General’s function is not really a very important one.
Auditors do not know, and cannot be expected to know, very much about good
administration; their prestige is higher with others who do not know auditing—which
is not administration; it is a necessary but highly pedestrian function with a
narrow perspective and very limited usefulness.’21

To a larger extent these observations made by Appleby are misleading, unsound and
incorrect. According to Ashok Chanda, in all recognized democracies, audit is not
just tolerated as a necessary evil, but is looked upon as a valued task which
brings to notice procedural and technical irregularities and lapses on the part of
individuals, whether they be errors of judgement, negligence, or acts and intents
of dishonesty. The contemporary roles of audit and administration are accepted as
axiomatic, being essential for toning up the machinery of government.
Unfortunately, in India, this conception of complementary relationship has yet to
be evolved. Audit continues to be considered as something alien, something
extraneous, and something of the nature of an impediment. A natural resistance has
thus developed in the administrative system to the absorption of the suggestion of
audit. This trend has become more and more pronounced in recent years. With the
advent of Independence and the acceptance of the concept of a welfare state, there
should be the development of a commonness of purpose, of endeavour and achievement.
The need between audit and administration has, thus, assumed paramount
importance.22

The audit board works as another ‘audit agency’ of the accountant general and its
way of working is like the ‘routine government audit’. A joint financial advisor
has expressed his views in this regard as follows: ‘If we go through the reports of
the audit board on various organizations, it will be seen that in most of the
cases, the scanty examination conducted by the small team is made on the basis of
the examination and counter-examination of the views executive, and the audit board
and the parliamentary committee of the public sector undertakings are busy on the
examination of small objections thrown by the audit party during routine audits.’
Further, he writes, ‘Similarly, the audit has become duplication, sometimes
creating irritation and unnecessary and avoidable work. The balance-sheet audit
once conducted by qualified chartered accountants under the provisions of the
Companies Act is further examined by an unqualified audit team from the audit
board.’23

Position of the CAG

The position of CAG is a constitutional one. In the words of D. D. Basu, ‘Though
the designation of his office indicates that he is to function both as comptroller
and auditor, our comptroller and auditor-general is so far exercising the functions
only of an auditor … He has no such control over the issue of money from the
consolidated fund and many departments are authorized to draw money by issuing
cheques without specific authority from the comptroller and auditor-general, who is
concerned only at the audit stage when the expenditure has taken place.’24

In the words of former CAG and now Rajya Sabha MP T. N. Chaturvedi, ‘Surprisingly,
still one gets the impression quite often in administrative functioning, the
significance of this constitutional office and the support it ought to have in the
discharge of its function, is not either known or adequately appreciated in the
context of public accountability of the executive in democracy’. Thus, the role of
CAG is limited but his position is eminent being constitutional authority.

The separation of audit from accounts in March 1976, had improved the financial
management to some extent which needs more attention as the present financial scams
like fodder, urea and fertilizers, etc. had revived. Therefore, to safeguard
country’s economy it should be kept under the control of the minister, the
parliamentary committees and the CAG.

The committees have been assigned more important functions for effective vigil and
supervision. In April 1993, 17 committees of Parliament were formed, each
consisting of 30 members from Lok Sabha and 15 from Rajya Sabha (ministers are kept
out). Thus, it is clear that ‘from now on the house will not only have the
opportunity to discuss the details of every grant of every ministry or department
but also have the committee’s report to guide them.’25 These committees were formed
to scrutinize the proposals and send the report to the house. On the basis of their
reports many demands for grants are likely to be quashed without further discussion
to save the time of the house. Such committee system will provide opportunity to
each party for discussion in the meetings for better results.

Separation of Accounts from Audit

In India both audit and accounts functions were performed by the CAG till 1976,
except in the case of railways and defence. The system of both types of functions
being performed by one officer was criticized by various committees. Muddinan
committee in 1924 and Simon Commission in 1929 recommended the separation of audit
and accounts. As a result, steps were taken to separate these functions in North-
West Frontier Province, UP, and some central departments in 1931 but later these
attempts were given up in the name of economy. After Independence, again the
pressure was built up to separate both. Mr Narhari Rao, the first CAG of India in
his report to the public accounts committee favoured separation of both these
functions and agreed to give some staff for accounting system from his organization
in the beginning. The public accounts committee in its third report (1952–1953)
suggested to the Government of India for the separation of these functions. The
Government of India was seriously considering for the separation of these functions
for quite some time and ultimately separated them in 1976.

Arguments for the Separation of Audit and Accounts

First, the accounting function is an executive function while audit is quasi-
parliamentary function. Accounting is meant to help the executive in performing its
own functions while audit helps the legislature in exercising control over
finances. Thus, both functions are separate. Second, the CAG office sends the
accounts very late to the departments and by that time their expenditure exceeds
the departmental grants given to them by the legislature. Thus, they are not in a
position to control their expenditure. Third, due to the combination of both
functions in one office, they both are not properly handled. The audit which
requires detailed scrutiny and attention is the biggest casualty. Fourth, the CAG
audits the accounts which he also compiles. Thus it is an embarrassing situation
for him and theory of separation of powers should also be applied in this case.
Fifth, the accounting functions should be with the departments so that they can get
the financial information in time to prepare their budgets and revised estimates.
Sixth, for better maintenance of the accounts, it is essential that the pay and
accounts officers should remain in the departments to acquire the specialized
knowledge of the accounts of the particular department, seventh, as a matter of
principle the executive authority which is responsible for expenditure should also
be responsible for maintenance of accounts. Eighth, the heads of departments get
better control over the expenditure by knowing how much expenditure is being
incurred under which head. In case of excess expenditure they can take proper steps
for correction in time. In case of slow progress of any scheme they can take
appropriate measures to speed up the work. Lastly, some implied advantages such as
maintenance of personal accounts like GPF, leave, etc. of employees to avoid their
hardships.

Arguments Against the Separation of Audit and Accounts

First, the argument against the separation of audit and accounts is economic, and
the critics say it involves extra cost because of performance of both functions by
the CAG. But if both these functions are separated then extra staff will be
required in each ministry. Thus, a lot of extra cost is involved and because of
this reason the separation was delayed for a long period. Second, it is suggested
that by increasing the staff and their efficiency in CAG’s office the work of
accounts can be expedited. Third, in the ministries of defence and railways, where
the accounts were separated long ago, the position is not much better. On the
contrary, excess expenditures are incurred and there are delays in preparation of
accounts. Fourth, the system of accounts presently in operation is good because two
accounts are maintained one by the head of the department and the other by the
accountant general. Thus mistakes can be cross-checked. Fifth, the separation of
accounts will involve payments to be made by different ministries through their own
agency. Thus centralized payment like this will cause a lot of difficulty to the
clients. Lastly, even in Britain where separation is operating since long time, the
excess expenditure over the grants sanctioned by the legislature has become a
common phenomenon; therefore, separation of both is no guarantee against excess
expenditure.

Thus, after weighing the arguments of both sides the case for separation was found
to be weighty and the Government of India separated them in 1976. Now the secretary
of the ministry has been made the chief accounting authority. There is a financial
advisor to assist him, who in turn is assisted by controller of accounts and by
circle and pay officer. They have been also made responsible for keeping the
accounts. In each circle there are one or more pay officers who pre-check all
claims and make payments through cheques or demand drafts. After compilation of
monthly accounts they send them to the internal financial advisor of the ministry.

The system has improved the position of accounts system and now it is felt that the
accounts are available much earlier than the earlier combined system. Now the
ministries know the position of the expenditure well in advance to take the
corrective steps.