It’s time for the CAG to undergo a performance audit

The general allegation is the government auditor neither has the skill nor does it allow a peer group to review its work.

Everyone knows that the Comptroller and Auditor General (CAG), India’s supreme audit office, should undergo structural reforms. In its prevailing status and role, the institution is a weak link to modern India. Many expert committees recommended changes. Nothing worked. Because inefficiency has its takers.

While in the opposition, the Bharatiya Janata Party attacked the Congress-led United Progressive Alliance government over the mind-blowing potential loss estimated by the CAG in the coal and 2G scams. Now, the Congress is attacking the ruling BJP over audit reports on the Dwarka Expressway and Bharatmala.

Both sides know that the auditor hits the headlines for the wrong reasons. Faulty yardsticks make their assessments politically sensitive. Yet, there is no political consensus to reform the institution and make it useful to democracy.

That there were irregularities in the distribution of captive coal assets or 2G spectrum goes beyond doubt. Former coal secretary PC Parakh detailed how the allocation was messed up.

But the CAG report grabbed headlines by pegging the estimated loss to the national exchequer at Rs 1,86,000 crore. This was arrived at by using the average price of fuel produced by Coal India Ltd (CIL) as the benchmark.

Poetry Versus Audit

There were many loopholes in this calculation. At Rs 1,400 a tonne ex-mine, CIL coal is exorbitantly costly and is a factor of the largesse it offers to lakhs of employees who contribute a fraction of the output. The contract miners produce almost 70 percent of the fuel for CIL at a distinctly low cost.

Also, the cost price of coal should be a factor of geology. At a 1:1 overburden ratio, fuel produced in Odisha and Chhattisgarh is dirt cheap when compared to that in Maharashtra. The CIL average includes the cost of its low-earning mines, employing a vast workforce, in West Bengal.

Last but not least, monetising assets brings economic gains through taxes and royalties, and railway earnings. A seasoned auditor should know that. But then, here is an organisation that is run by generalists and is entrusted to give highly technical views.

Auditing is highly technical and is not equivalent to accounting or finance. The technical requirements have only increased with the rising complexity of the economy. In matured democracies – from the US to Japan – government auditors are chosen from the brightest in the field.

In India, the auditor general’s position is a preserve of the Indian Administrative Service (IAS) officers. They run the show through Indian Audit and Account Service (IA & AS) officers. Both are selected through the common Union Public Service Commission (UPSC) examination.

As a thumb rule, those who do not get an opportunity in the coveted administrative or foreign service end up in auditing. The general profile is a graduate in history or political science.

Many may draw inspiration from the highly successful tenure of Reserve Bank of India governor Shaktikanta Das to promote the case of generalists. But then, Das is an aberration of the rule and he is aided by the RBI’s phenomenal and proven technical strength.

That is not the case with the CAG, which is a ‘mai-baap’ of Indian auditing without any accountability. Following the 2006 amendment of the Chartered Accountant Act, 1949, the CAG has its nominee on the Quality Review Board.

The CAG enlists auditors, eligible to do primary auditing in state-owned companies. And then, the CAG changes the profit and loss figures of such companies with a huge time gap. Why does the government auditor need such overlapping power?

A top bureaucrat with experience in running listed public sector undertakings equated the CAG audit with poetry writing. The general allegation is the government auditor neither has the skill nor does it allow a peer group to review its work.

In short, the CAG itself should undergo a performance audit.

While reviewing the scope of reforms in the Companies Act, both the JJ Irani committee and the Arjun Sengupta committee recommended the withdrawal of overarching powers of the government auditor over state-owned companies. They found it infringing on the autonomy of the professional auditor.

Incidentally, the finance ministry under the Jawaharlal Nehru government was not in favour of making state-owned companies a preserve of the CAG. But the first Comptroller and Auditor General, Narahari Rao, convinced the public accounts committee to ensure its inclusion in the Indian Companies Act, 1956.

Power Struggle

However, India's early lawmakers did not grant it comptrolling power, thereby denying the right for concurrent auditing of expenditure, as was originally envisaged. The organisation can only recommend. Its officers beg for information. Even the common man has greater access to information through the right to information (RTI).

The auditor general enjoys impunity as his (including his immediate office) expenditure cannot be debated in Parliament. But the expenditure on 65 branch offices and 40,000 staff are in the hands of the same finance secretary who is constitutionally less powerful than the auditor general.

Net-net, here is a peculiar establishment with huge power and no power. And on top of all, it has very little technical expertise. The technical staff comes through the less glorious staff selection commission and are dominated by generalists from the UPSC.

In these days of softcopy accounting, the CAG does not have an IT cadre. It outsources people with knowledge of computers but generally in the lower order. The deputy director-IT is a borrowed resource and lives in the company of over 600 IA&AS officers.

How efficient such an organisation can become is anybody’s guess. Every year, the government auditor publishes over 100 reports. Only two or three reports in a decade get attention.

The Dwarka Expressway is a huge project combining roads, tunnels, and bridges. Each is separate in terms of techno-economics and project planning. Moreover, with new engineering practices coming in, they are not comparable with the past projects.

The CAG equated apples with pineapples and became an instant hit.

Pratim Ranjan Bose is an independent columnist, researcher, and consultant. His X handle is @pratimbose. Views are personal and do not represent the stand of this publication.