Comptroller and Auditor General of India

Comptroller and Auditor General of India is the apex authority responsible for external and internal audits of the expenses of the National and state governments. It is popularly known as the CAG of India. In this article, we will discuss in brief about the office of the CAG and its functions. It is an important topic for General Studies Syllabus. It is included in the Constitutional Bodies: Statutory, regulatory, and various quasi-judicial bodies in General Studies Paper

Part V of the Indian Constitution describes the role and responsibilities of this office in Chapter V. The Comptroller and Auditor General is one of the few offices directly appointed by the President of India.

Powers of the Comptroller and Auditor General of India

Article 148 of the Constitution of India establishes the authority of this office. It states the following points in relation to the establishment and powers of CAG:

• The Comptroller and Auditor General is appointed by the President of India and can be removed from office only in the manner and on the grounds that a Judge of the Supreme Court is removed.
• The person appointed to this office should take an oath of office before the President or any other person appointed by the office of the President.
• The salary, service conditions, leaves of absence, pension, and age of retirement are determined by the Parliament of India and specified in the Second Schedule such that the service conditions and salary will not be modified to the disadvantage of the incumbent during their tenure.
• The CAG is not eligible for any further office after the end of their tenure either in the Government of India or any State Government.
• The powers and functions of the CAG are subject to the provisions of the Indian Constitution and any Acts of Parliament, along with the service conditions for the Indian Audits and Accounts Department. The rules governing these would be prescribed by the President in consultation with the incumbent.
• The expenses on the administration of this office including all allowances, salaries and pensions would be charged to the Consolidated Fund of India.
• The incumbent is appointed for a period of 6 years or until attaining the age of 65 years whichever is earlier.

CAG – Constitutional Provision Highlights

1. Article 148 broadly deals with the CAG appointment, oath and conditions of service.
2. Article 149 deals with Duties and Powers of the Comptroller and Auditor-General of India.
3. Article 150 states that the accounts of the Union and of the States shall be kept in such form as the President may, on the advice of the CAG, prescribe.
4. Article 151 says that the reports of the CAG of India relating to the accounts of the Union shall be submitted to the president, who shall cause them to be laid before each House of Parliament.
5. Article 279 deals with the Calculation of “net proceeds” is ascertained and certified by the Comptroller and Auditor-General of India, whose certificate is final.
6. Third Schedule – Section IV of the Third Schedule of the Constitution of India prescribes the form of oath or affirmation be made by the Judges of the Supreme Court and the Comptroller and Auditor-General of India at the time of assumption of office. Know more about the Judge of the Supreme Court of India.

According to the 6th Schedule the accounts of the District Council or Regional Council should be kept in such form as CAG, with the approval of the President, prescribes. In addition, these bodies’ accounts are audited in such a manner as CAG may think fit, and the reports relating to such accounts shall be submitted to the Governor who shall cause them to be laid before the Council.

In order to be able to discharge duties effectively, certain privileges and powers which facilitate the process of auditing have been given to this office. The following are the major powers of the CAG of India:

• The Comptroller and Auditor General or his staff can inspect any office of the organizations which are subject to his audit. He and his staff can scrutinize the transactions of the government and question the administration regarding the various aspects of these transactions. After scrutinizing the transactions, the CAG may withdraw his objections or, if he finds them serious, incorporate them in his report which is submitted to the Parliament.
• To enable the office to perform this function smoothly, he is endowed with full access to all the financial records including books, papers, and documents. Moreover, the CAG has the freedom to ask for relevant information from any person or organization. His right to call for information and accounts is statutory, as was affirmed by the order made by the Government of India in 1936 in order to enforce the Act of 1935.

The present provision of according him free access to files and information is a practice continuing from the past. A modification, however, was introduced in 1954 in the central government according to which, if secret documents are involved, they are sent to the CAG by name specifically and are returned as soon as the work is over.

Duties of CAG

Articles 148, 149, 150 and 151 of the Constitution of India describe the functions and powers of this office. The following is a brief description of various areas dealt with in these Article of the Constitution:

• Article 149: Duties and Powers of the Comptroller and Auditor General: To perform such duties and exercise such powers in relation to accounts of the Union of India and the states and of any other bodies or authority, as may be prescribed by any law made by the Parliament.
• Article 150: Form of Accounts of the Union of India and the States: To prescribe, with the approval of the President, the form in which the account of the Union and of the States are to be kept. Article 151: CAG Reports: To report to the President or to the Governors of the States on the accounts of the Union or State. The constitution has also provided in Article 279(i) that the CAG has to ascertain and certify the net proceeds of any tax or duty mentioned in Chapter I of Part XII of the Constitution. Besides these constitutional provisions and the Duties Powers and Conditions of Service Act of 1971, is necessary to mention that, before 1976, the CAG had a two-dimensional role, that accounting and auditing. Due to the separation of accounts and audit in 1976, the CAG’s duty is the auditing of accounts. Since 1976, accounting is being done by the various departments themselves with the help of the Indian Civil Accounts Service.

List of Comptroller & Auditor General of India

Role of CAG in India

The role of this office is to uphold the provisions of the Indian Constitution and laws enacted by the Parliament in the field of financial administration. The accountability of the executive (i.e., the council of ministers) to the Parliament in the sphere of financial administration is secured through CAG reports. The office is responsible to and is an agent of the Parliament and conducts audits of expenditure on its behalf.

• The CAG has ‘to ascertain whether money shown in the accounts as having been disbursed was legally available for and applicable to the service or the purpose to which they have been applied or charged and whether the expenditure conforms to the authority that governs it’.
• The office can perform a propriety audit, that is, it can look into the ‘wisdom, faithfulness and economy’ of government expenditure and comment on the wastefulness of such expenditure. However, unlike the legal and regulatory audit, which is obligatory on the part of the CAG, the propriety audit is discretionary.
• The secret service expenditure is a limitation on the auditing role of the CAG. In this regard, the CAG cannot call for particulars of expenditure incurred by the executive agencies but has to accept a certificate from the competent administrative authority that the expenditure has been so incurred under his authority.

The Constitution of India visualizes this office to be Comptroller as well as Auditor General. However, in practice, the incumbent officer is fulfilling the role of an Auditor-General only and not that of a Comptroller. In other words, ‘the office has no control over the issue of money from the consolidated fund and many departments are authorised to draw money by issuing cheques without specific authority from the CAG, who is concerned only at the audit stage when the expenditure has already taken place.

The powers of the CAG, regarding audits, are provided for in the Comptroller and Auditor General of India (Duties, Powers and Conditions of Service) Act, 1971. According to this act, the CAG can audit:

• 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, profit and loss accounts and balance sheets and other subsidiary accounts kept in any department.
• All stores and stock of all government offices or departments.
• Accounts of all government companies set up under the Indian Companies Act, 1956.
• Accounts of all central government corporations whose Acts provide for audit by the CAG.
• Accounts of all authorities and bodies substantially funded from the Consolidated Fund. Accounts of any authority, even though not substantially funded by the government, at either the request of the Governor/President or at the CAG’s own initiative.

Functions of the CAG of India

The Constitution in Article 149 provides the legal basis for the Parliament to prescribe the duties and powers of the CAG in relation to the accounts of the Union and of the States and of any other authority or body. The CAG Duties, Powers and Conditions of Service (DPC) Act, was passed in the parliament in 1971. The DPC Act was amended in 1976 to separate accounts from audit in the Government of India. The duties and functions of the CAG as laid down by the Constitution are:

• Auditing the accounts related to all expenditure drawn from the Consolidated Fund of India, consolidated fund of every state and consolidated fund of every union territory having a Legislative Assembly.
• Audit of all expenditure from the Contingency Fund of India and the Public Account of India as well as the contingency funds and the public accounts of states.
• Audit of all trading, manufacturing, profit and loss accounts, balance sheets and other subsidiary accounts of any department of the Central Government and state governments.
• Auditing the receipts and expenditure of the Government of India and each state to ensure that the rules and procedures in that regard are designed to secure an effective check on the assessment, collection and proper allocation of revenue.
• Auditing the receipts and expenditure of the following: All bodies and authorities substantially financed from the Central or state revenues; Government companies; and Other corporations and bodies when so required by related laws.
• Auditing all transactions of the Central and state governments related to debt, sinking funds, deposits, advances, suspense accounts and remittance business. He also audits receipts, stock accounts and others, with approval of the President, or when required by the President.
• Auditing the accounts of any other authority when requested by the President or Governor. For example, the audit of local bodies.
• Advising the President with regard to prescription of the form in which the accounts of the Centre and the states shall be kept (Article 150).
• Submitting audit reports relating to the accounts of the Central Government to the President, who shall, in turn, place them before both the Houses of Parliament (Article 151).
• Submitting audit reports relating to the accounts of a state government to the Governor, who shall, in turn, place them before the state legislature (Article 151).
• Ascertaining and certifying the net proceeds of any tax or duty (Article 279). The certificate is final. The ‘net proceeds’ means the proceeds of a tax or a duty minus the cost of collection.
• Acting as a guide of the Public Accounts Committee of the Parliament. He compiles and maintains the accounts of state governments. In 1976, he was relieved of the responsibilities regarding the compilation and maintenance of accounts of the Government of India due to the separation of accounts from audit, through departmentalization of accounts. The CAG submits three audit reports to the President:
• Audit Report on Appropriation Accounts
• Audit Report on Finance Accounts
• Audit Report on Public Undertakings

The President lays these reports before both the Houses of Parliament. After this, the Public Accounts Committee examines them and reports its findings to the Parliament.

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CAG Reports

The three CAG Reports as stated above deal with different facets of public audits. The following paragraphs give a brief overview of these audit reports:

• Audit Report on Appropriation Accounts: The appropriation accounts show the appropriation of the money granted by the legislature to the various grants and heads of expenditure and whether the money granted for a specific purpose has been spent for that purpose or not.
• Audit report on Finance Accounts: The Finance Accounts show the accounts of annual receipts and expenditure during the year.
• Audit report on Public Undertakings: This report deals with the finances and expenditures of various Public Sector Undertakings (PSU’s).

The audit report, in brief, contains a narration of cases involving financial irregularities, losses, frauds, wasteful expenditure and comments thereon, the accuracy of budgeting control of expenditure, savings etc. The CAG provides ‘audit paras” criticizing public expenditures of the departments and the ‘paras’ are developed during post-event scrutiny by the CAG staff and detailed discussions with the senior staff of the department concerned. The finalized ‘paras’ are then brought before the Parliament where the concerned parliamentary committee that deals with the affairs of a particular ministry or department disposes of each ‘para’.

The form of the audit reports is constantly under review and has undergone periodic changes. No matter what the format, the objective, that loss of money has to be prevented remains the same. They highlight transactions which have not proved financially viable. As the report focuses its gaze on the omissions, each department is on its toes because the report may bring adverse and undesirable publicity in its wake.

The following procedure is followed while making and submitting an audit report by the Comptroller and Auditor General’s office:

• To begin with, when the audit takes place, during the course of inspection of the various organizations, ‘Inspection Reports’ of each unit/organization are prepared and copies are sent to them. About 72,000 inspection reports are sent in a year. They are asked to take corrective action and their progress is also watched. The most important matters in these Inspection Reports are included in the Annual Audit Reports.
• Before they are presented to the President, the audit reports are put through rigorous quality assurance procedures and are countersigned by the CAG.
• After they are submitted to the legislature, the legislature, in turn, hands them over for examination to the concerned parliamentary committees.
• The reports of all the departments, including Railways, Post and Telegraph and other departmental undertakings, are handed over to the Public Accounts Committee (PAC).
• The reports relating to corporations and companies are given to the Committee on Public Undertakings (COPU).

Since 1989, an Annual Activity Report of each department is brought out by the CAG to assess the overall working of the department and to let all those interested in the functioning of the department know the details of its working. It serves a dual purpose: it gives a complete and true picture of the existing state of affairs and also helps in planning for the future.

The functions of the Comptroller and Auditor General of India can be studied under the following headings:

Audit of Expenditure

It is the prime task of the CAG to audit all expenditure incurred from the revenue of the union and the states. It may be mentioned at the outset that the audit by this office is not an administrative but a financial audit. Administrative audit entails an examination of technical, personnel and organizational processes of the administrative apparatus. This audit is not within its jurisdiction. The Comptroller and Auditor General’s office is concerned only with the financial aspects. However, when an administrative act has serious adverse financial repercussions or implications, the CAG can see whether that particular administrative act was in conformity with the prescribed laws and approved financial procedures and whether it has resulted in any extravagance or loss.

Audit of expenditure consists of ensuring whether the following essential conditions have been fulfilled or not:

• that the expenditure is covered by sanction, whether special or general, accorded by a competent authority;
• that the expenditure conforms to the relevant provisions of the statutory enactments and is in accordance with the financial rules and regulations framed by the competent authority;
• that there is a sanction, either general or special, accorded by the competent authority;
• that it is within the ambit of the purpose for which the grant was intended; that the demand is supported by a voucher in proper form and the person to whom the payment has been made has duly acknowledged the payment and the fact of payment has been so recorded as to make a second claim on the government impossible;
• that the various programmes, schemes and projects in which large funds have been invested are being run economically;
• that the various public sector undertakings are yielding the results expected of them; and
• that the expenditure has been incurred with due regard to the broad and general principles of financial propriety. All these constitute what is called the statutory audit. In other words, these are specifically provided for by statute or law.

Side by side, another area, which is known as discretionary audit, has emerged. The discretionary audit is based on a liberal interpretation of the functions given by the statute and the recommendations of the Public Accounts Committee. It had recommended that “the Public Accounts Committee should, even more than in the past, encourage the CAG to scrutinize and criticize improper and wasteful expenditure and to indicate whether censure is in his opinion required. In practice, the discretionary powers have become more important than the ones laid down by the statute. Much depends on the approach and style of the incumbent. A precise area of audit cannot be prescribed in the case of a discretionary audit because no rules regarding this have been laid down. Yet, it may be mentioned that discretionary audit lays emphasis on undertaking investigation and reporting on any wasteful and uneconomical expenditure regarding contracts and major deals. The statutory audit is also known as the ‘regularity audit’ in the sense that its chief purpose is to see whether rules and procedures have been followed in accordance with the basic statutes, rules, essential requirements of audit and accounts and the general or particular orders issued by higher authorities. It also involves “general conformity to the broad principles of orthodox finance by the sanctioning and the spending authorities.” Former CAG, T N Chaturvedi observes that in the process of seeing whether the expenditure conforms to the rules, regulations, statutes and enactments, the office is also interpreting the rules, orders and statutes. This makes it a constitutional, statutory and quasi-judicial body under the Constitution of India.

Audit of Government Undertakings

The CAG also undertakes an audit of the commercial undertakings of the governments of the union and the states. Commercial undertakings exist in three forms:

• Departmental undertakings, run on the pattern of departments.
• Statutory corporations created by specific laws of the Parliament and broadly controlled by the government.
• Government companies, set up under the Indian Companies Act, 1956, in the form of private or public limited companies.

Audit of Appropriation

The appropriation audit ensures that the grants are spent for the purpose for which they have been provided. This audit enables the CAG to satisfy himself that the expenditure which is being audited is within the ambit of the grants and that the expenditure incurred has been incurred for the specific purpose for which it was voted by the legislature.

• In this process, certain cases which depict a discrepancy between the estimates and the final turnout might come to light. A scrutiny of such cases has to be made.
• It also verifies whether there have been reappropriations from one head to another and whether such reappropriations conform to the authority delegated.

Thus, it is a document which reveals the various aspects of the transactions of the government. The appropriation audit is not done on a test basis, as in the case of an accounting audit. It must be detailed, thorough and complete. Every payment is checked in the books to its right head of service so as to ensure that the intentions of the legislature have been honoured.

The main idea behind this audit is to ensure that the accounts presented by the concerns give a complete and true picture of the various financial aspects of the concerns. The public has a large stake in the running of these undertakings as vast public funds are involved. Hence, together with the other ministerial and parliamentary checks over these undertakings, they are also subject to the audit control by this office. In the case of departmental undertakings, the CAG is the sole auditor.

• The Acts by which the government corporations are set up specify whether the CAG will audit their accounts, or whether the accounts will be audited by auditors appointed by the government.
• To avoid these pitfalls, a system was devised in 1956 to provide personal contacts between the representatives of audit and of administration. Under this, the secretary of each department could take up the objections which he considered unjustified with the concerned Accountant General directly. If these discussions failed, the secretary could take up the matter with the CAG himself.

Though the system had received excellent support in the initial stages, it is slowly falling into disuse. The preceding analysis underscores that audit is essential as an instrument of parliamentary and financial control. B R Ambedkar had pointed out in the Constituent Assembly debates that the CAG was probably the most important officer in India because it was he who saw that the expenses voted by Parliament were well utilized. He may be criticized on the ground that the audit is too critical, concerned with details, etc., but that exactly is the intention why this office was created. The CAG protects public funds from the reach of arbitrary power and, in that sense, is an important and most useful dignitary of the state.

Reforms suggested by Vinod Rai (former CAG)

Bring all private-public partnerships (PPPs), Panchayati Raj Institutions, and government-funded societies, within the ambit of the CAG.

CAG Act of 1971 should be amended to keep pace with the changes in governance.

A collegium type mechanism to choose a new CAG on the lines of selecting a Chief Vigilance Commissioner (CVC)

Structure of CAG’S Office

The Indian Audit and Accounts Department (IAAD) is headed by the Comptroller and Auditor General of India. He is assisted by five Deputy Comptroller and Auditors General of India. One of the Deputies is also the chairman of the Audit Board. Below the Deputy CAG are four Additional Deputy Comptroller and Auditors General of India. The hierarchy in this office comprises of:

• CAG
• Deputy CAG
• Additional Deputy CAG
• Directors General
• Principal Directors
• Directors/Deputy Directors

Note: Field office formations are headed by officers of the designation of DG/PAG/PD/AG and they report to the DAI/ADAI concerned.

One Director acts as Secretary to the incumbent CAG. At the regional level, in various states, there are a number of Accountants General who act as agents of the CAG in performing their functional and supervisory responsibilities at the state level.

How Indian CAG is Different from British CAG?

Three points of difference between Britain CAG and Indian CAG-

• CAG of India only performed the role of an Auditor General and not of a Comptroller but in Britain, it has the power of both Comptroller as well as Auditor General.
• In India, the CAG audits the accounts after the expenditure is committed i.e. ex post facto. In the United Kingdom, no money can be drawn from the public exchequer without the approval of the CAG.
• In India, CAG is not a member of the parliament while in Britain, CAG is a member of the house of the Commons.