RIL says not obliged to provide past year documents to CAG

As differences simmer over scope of CAG audit of its flagging KG-D6 fields, Reliance Industries has said it is not obliged to provide full access to documents relating to years that are not under audit.

Disagreements over scope of audit cropped up on the very first day the Comptroller and Auditor General of India (CAG) began to the second round of audit of spendings on eastern offshore KG-D6 fields with RIL alleging that the auditor was not confirming if the accounts scrutiny would be as per the provisions enshrined in the Production Sharing Contact (PSC).

In a January 22 letter, RIL reminded Oil Ministry of the written assurance the ministry gave that "CAG would follow the audit process set out in Section 1.9 of the Accounting Procedure of the SPC and that this would not be a performance audit of the contractor."

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However, at the January 9 audit kick-off meeting, "CAG made a number of assertions that are contradictory to the assurances given to us by the Ministry," it wrote claiming CAG audit team in the meeting verbally agreed to conducting the audit as per PSC provisions but "deleted" such references in the minutes of the meetings.

RIL said CAG in a January 18 letter to it stated that the audit would be conducted under the PSC provisions but also "goes on to refer to the scope, extent and manner of the audit being as laid down under the CAG (DPC) Act which, neither we are aware of nor bound to follow."

"We believe that these are two different audits, with different scopes and auditees," it added. RIL followed the letter with another letter on January 29 indicating that CAG was seeking voluminous documents of years not related to the period under audit (2008-09 to 2011-12).

CAG is demanding documents of previous years even though it had taken copies of documents in the first round of audit. "We have assured the audit team that we will, for the sake of continuity, provide copies of contracts irrespective on their date of award where they are required to verify expenditure incurred during the audit period," RIL wrote.

"However, no other document relating to previous years is required as the PSC clearly limits the audit only on financial year basis." RIL said it had agreed to CAG audit only on condition that the scrutiny would be governed by Section 1.9.1 of PSC "which clearly states that contractor's obligation is only to provide those records and information that are required to verify charges and credits."

"These provisions do not make any reference to a 'performance' or 'propriety' audit or challenging the reasonableness of any expenditure incurred following the provisions of PSC," it added.

RIL has been insisting that government can appoint any auditor including CAG to do a financial audit of its spending in KG-DWN-98/3 or KG-D6 block in Bay of Bengal but the Production Sharing Contract (PSC) does not allow a performance audit.

Sources said the Oil Ministry had given in writing to RIL that CAG audit will be strictly as per Section 1.9 of the Accounting Procedure to the PSC. Following this, RIL has agreed to cooperate and provide full access of its books of accounts to CAG. It has also dropped its contention that report of CAG be not made public.

The PSC provides for a financial audit - checking of the contractor's accounts in order to verify the charges and credits, but not a performance audit that scrutinises efficacies of processes or technology used in the complex deep sea operations.

CAG had in its first round of KG-D6 audit begun on the premise of doing a financial audit but the report tabled in Parliament last year stated that the auditor had conducted a performance audit.