Expenditures from all public funds have to be properly accounted for and have to pass through the audit of the Comptroller and Auditor General (CAG). Major irregularities which emerge are also examined by parliamentary committees. This is in a way the penultimate stage of the process which begins with making of budget provisions. The Ministries take further action on the reports of the parliamentary committees.
We will briefly examine the structure and functions of audit system in relation to expenditure or fund utilization. The Comptroller and Auditor General of India (CAG) is the head of the Supreme Audit Institution of India (SAI). He/she derives his/her duties and powers mainly from Articles 149 to 151 of the Constitution of India and the Comptroller and Auditor General’s (Duties, Powers and Conditions of Service) Act. The CAG is the sole auditor of the accounts of the Central Government and the State Governments. CAG is also responsible for the audit of local bodies (i.e. Panchayati Raj institutions and urban local bodies) under the provisions of some of the State Acts and provides technical and administrative guidance for accounting and audit functions in all States. The reports of the CAG relating to the accounts of the Union and the States are submitted to the President/Governor of the State for being laid before the Parliament/State Legislature. The CAG is also responsible for ensuring a uniform policy of accounting and audit in the Government sector as a whole. The CAG lays down the general principles of Government accounting and the broad principles for audit of receipts and expenditure for the guidance of the Government departments.
The mandate of CAG includes audit of:
¤ Receipts and expenditure of the Centre, the States and Union Territories.
¤ Transactions relating to the Contingency Funds and Public Accounts.
¤ Trading,manufacturing,profit andloss accounts andbalance sheets, andothersubsidiary accounts kept in any Government department.
¤ Accounts of stores and stock kept in Government offices or departments.
¤ Government companies in accordance with the provisions of the Companies Act, 1956.
¤ Corporations established by or under laws made by Parliament in accordance with the provisions of therespective legislation.
¤ Authorities andbodies substantiallyfinanced from publicfunds.
¤ Anybody or authority even though not substantially financed from the Consolidated Fund, the audit of which may be entrusted to SAI.
¤ Grants and loans given by Government to Bodies and Authorities for specific purposes.
¤ Panchayati Raj Institutions and Urban Local Bodies.
The organisations subject to the audit of the Comptroller and Auditor General of India are:
¤ All the Union and State Government departments and officesincludingtheIndian Railways and Posts and Telecommunications.
¤ About 1500publiccommercial enterprises controlled by the Union and State governments,
i.e. government companies and corporations.
¤ Around 400 non-commercial autonomous bodies and authorities owned or controlled by the Union or the States.
¤ Over 4400 authorities and bodies substantially financed from Union or State revenues.
Audit means examination of accounts, transactions and records which CAG does in pursuance of duties and exercise of powers under the Constitution and the CAG Act. It also includes performance audit or any other type of audit determined by CAG. The CAG examines various aspects of Government expenditure. Conduct of audit is done based on such accounts, vouchers and records as may be received in the audit office and/or in the accounts office and may include online data, information and documents of the auditable entity. It may also be done in the office of the auditable entity or at the site where the relevant records for audit are available. The CAG audit is broadly classified into Regularity Audit and Performance Audit.
Regularity audit consists of the following:
¤ Audit against provision of funds to ascertain whether the moneys shown as expenditure in the Accounts were authorized for the purpose for which they were spent.
¤ Audit against rules and regulations to see that the expenditure incurred was in conformity with the laws, rules and regulations framed to regulate the procedure for expending public money.
¤ Audit of sanctions to expenditure to see that every item of expenditure was done with the approval of the competent authority in the Government for expending the public money.
¤ Propriety Audit extends beyond scrutinizing the mere formality of expenditure to its wisdom and economy and to bring to light cases of improper expenditure or waste of public money.
¤ While conducting the audit of receipts of the Central and State Governments, the CAG satisfies himself that the rules and procedures ensure that assessment, collection and allocation of revenue are done in accordance with the law and that there is no leakage of revenue which legally should come to Government.
Performance audit examines the extent to which Government programmes have achieved the desired objectives at lowest cost and given the intended benefits.
Three E’s of Performance Audit
Performance audit assesses:
(a) Economy: Economy is minimizing the cost of resources used for an activity, having regard to appropriate quality. Economy issues focus on the cost of the inputs and processes. Economy occurs where equal-quality resources are acquired at least cost.
(b) Efficiency: Efficiency is the relationship between the output, in terms of goods, services or other results and the resources used to produce them.
Efficiency exists wherethe use of financial, human, physical andinformation resources is such that output is maximised for any given set of resource inputs, or input is minimized for any given quantity and quality of output.
(c) Effectiveness: Effectiveness is the extent to which objectives are achieved and the relationship between the intended impact and the actual impact of an activity. Effectiveness addresses the issue of whether the scheme, programme or organization has achieved its objectives.
The responsibility for the development of measurable objectives and performance indicators as also the system of measurement rests with the Government departments or heads of entities. They are also required to defineintermediate and final outputs andoutcomes in measurable and monitorable terms, standardize the unit cost of delivery and benchmark quality of outputs and outcomes.
In reviewing performance against the outputs and outcomes, audit may critically review the measurable objectives and performance indicators for their reasonableness and soundness. Audit may also set criteria for reviewing programme performance based on best practices.
Certification of Finance and Appropriation Accounts
The CAG examines and certifies the Finance Accounts and the Appropriation Accounts of the Centre and the States. The Finance Accounts show the receipts and disbursements of the Government for the financial year, together with the financial results disclosed by the revenue and capital accounts, the accounts relating to public debt and assets and other liabilities. The primary purpose of financial audit is to verify whether the accounts of Government are properly prepared, are complete in all respects and are presented with adequate disclosures. The Appropriation Accounts of the Government show the expenditure of the Government compared with the amounts authorized by the legislature with explanations for significant variations between the two by way of saving or excess beyond the prescribed limits of such variations.