UNIVERSITY OF PETROLEUM & ENERGY STUDIES

COLLEGE OF LEGAL STUDIES

B.Com., LL.B.(Hons.) TAXATION LAWS

(BATCH – 2)
SEMESTER - 4
ACADEMIC YEAR: 2017-18 SESSIONS: JANUARY-MAY
PROJECT
FOR
CONSTITUTIONAL LAW-II
(LLBL 221)
ON
“ACCOUNTABILITY OF COMPTROLLER AND AUDITOR
GENERAL: A CONTEMPORAY ANALYSIS”

Under the Supervision of: Dr. Azim B. Pathan

NAME - NITISH KUMAR NAVEEN

SAP ID - 500054889
ROLL NO - 063
INTRODUCTION

The comptroller and auditor general of India is an authority established by the constitution of
India who audits all receipts and expenditure of the government of India including those
bodies and authorities substantially financed by the government. These audits are reviewed
by the public accounts committees of the parliament of India and state legislative bodies. The
CAG is the head of the Indian audits and accounts department and is appointed by the
president and can hold his office for 6 years or up to the age of 65 years whichever is earlier.

The office of the Comptroller and Auditor General (henceforth CAG) of India is the Supreme
Audit Institution of the country, which has been assigned the Constitutional responsibility of
auditing government receipts and expenditures and advising on the format in which
government accounts have to be maintained. The primary responsibility of the CAG is to
provide the legislators and through them, to the citizens of the country, independent
assurance on the way the government has used and accounted for funds approved by
Parliament / State Legislature as well as the functioning of the tax system in the country. The
process of ‘reporting’ (of its findings and opinions) by the CAG of India, therefore, is meant
to fulfil an important Constitutional requirement in our country.

Article 149 to 151 of the constitution prescribes a unique role for the CAG for assisting the
parliament to enforce the accountability of the government departments. The CAG shall
perform such duties and exercise such powers in relation to the accounts of the union, states
and of any other authority or body as may be prescribed by the law. The CAG is the
administrative head of IA&A Department. His administrative powers will be governed by
rules made by the President in consultation with the former. The CAG inter alia plays an
essential role in federal financial matters.

Historical background of office of CAG

The concept of accounting and auditing can be traced back to ancient times in India under the
Mauryan rule final authority in the matter of finance was the king; Kautilya in his Arthasastra
gives an elaborate account in system that existed during the Mauryan Period. Under the
Gupta rule they introduced a more elaborate and orderly system of accounts and audit, the
accounts were submitted periodically for audit and approval. The Mughals also vested greater
authority in their financial chief by naming him as the Dewan.
Subsequently it was the British who introduced a proper system of accounting and auditing.
In 1858 when the East India Companies administration was taken over by the crown a
compulsory post of Accountant General of India was created to prepare the accounts of
expenditure incurred in England, simultaneously an Independent Auditor was appointed for
audit of these accounts.

The Indian Audit & Accounts Departments was formed in 1860 which was one of the earliest
institutions in the evolution of democratic process in India when government accounting and
auditing functions were combined and placed under the Auditor General of India. It was
setup to bring about transparency, accountability and probity in public life and this institution
was given statutory recognition in 1919. After independence the power of Auditor General
was enhanced in 1950, when the constitution of India came into force, the designation was
rechristened as the Comptroller and Auditor General of India.

The office of CAG has been established by the Constitution of India (Article 148 – 151). All
the Union and State Government Departments are subject to the Audit of the CAG including
Commercial and Non-commercial Government Institutions, Autonomous bodies financed
from Union or State Governments and Government Companies. These audits are reviewed by
the Public Accounts Committee of the Parliament of India and State Legislatures.

Since the institution’s establishment post-independence, it has undergone rapid expansion.

CAG has undergone rapid computerization and modernization since the 1990s, and has
changed accounting systems from cash based to accrual accounts. CAG has worked closely
with the Government Accounting Standards Advisory Board (GASAB), established in 2002
to improve accounting standards. The pervasive nature of Indian corruption has kept CAG
busy, and it has audited and investigated some of the worst and most controversial corruption
scandals in Indian history.

Types of Audit performed by CAG

Regulatory Audit: It is an audit to ascertain whether the moneys spent were authorised for
the purpose for which they were spent and also that the expenditure incurred was in
conformity with the laws, rules and regulations.

Supplementary Audit: CAG takes up supplementary audits in PSUs, even after the
commercial audits are done by the auditors appointed by the CAG, for detection of leakages.

Propriety Audit: It focuses on whether the expenditure made is in public interest or not i.e. it
moves beyond mere scrutiny of expenditure to question its wisdom and economy in order to
identify cases of improper expenditure and waste of public money.

Efficiency Audit: Efficiency audit as the name suggests answers the question whether the
money invested yields optimum results. The main purpose of the efficiency audit is to ensure
that the investment is prioritized and channelled into its most profitable utilization.
Performance Audit: Performance audit answers whether the government programmes such
as NREGA have achieved the desired objectives at the lowest cost and given the intended
benefits. It generally does not get into the merits-demerits of a particular policy/scheme rather
looks into the effectiveness with which the scheme is implemented and any deficiencies
thereof.

Environmental Audit: This is a relatively new area of concern for the CAG keeping in mind
the challenges facing India with respect to conservation and management of the environment.
More than 100 audits on environmental issues like bio-diversity, pollution of rivers, waste
management have been conducted by the CAG to identify critical issues and suggest possible
solutions by involving all stakeholders.

Appointment, Tenure and Removal of CAG

The Constitution guarantees the independence of the Comptroller and Auditor 4 General by
prescribing that he/she shall be appointed by the President of India by warrant, under his hand
and seal and shall not be removed from office except on the ground of proved misbehaviour
or incapacity. In a democratic set-up, independence in adequate measure is an indispensable
necessity for this constitutional functionary to perform his/her duties undeterred. As in the
case of a Judge of the Supreme Court, the Comptroller and Auditor General can be removed
from office only on two grounds-proved misbehaviour or incapacity. The address must be
presented by both houses in the same session, and special majority is obligatory in each house
for the passing of the resolution. The procedure for presentation of the address, investigation,
and proof of the misbehaviour and incapacity is to be decided by Parliamentary legislation.
Thus, the removal procedure appears to be a very difficult procedure and service as an
effective safeguard against executive interference.

Terms of Appointment

The Constitution guarantees his salary and other conditions of service, which cannot be
varied to his disadvantage after his appointment. Also, the salary, and allowances of the
Comptroller and Auditor General, shall be charged on the Consolidated Fund of India.
Interference with the Comptroller and Auditor General's function is likely, if the salary and
terms of conditions of service are left to the discretion of the Executive. Again, even in the
event of Parliamentary displeasure with a Comptroller and Auditor General, his/ her salary,
pension or age of retirement will not remain within the competence of Parliament to change,
if it so wishes to penalise him. On his retirement, resignation or removal, the Comptroller and
Auditor General is prohibited from holding any office under the Government of India or
under the Government of the State. The purpose is to keep the incumbents immune from
allurement of receiving favours from executive, which in turn might influence his actions or
decisions in office, prior to retirement. Indirectly, this provision strengthens the hands of the
incumbents in making fearless assessment of executive actions. In actual practice, the spirit
of this provision does not appear to have been strictly followed. The Constitution has
provided that salaries, allowances and administrative expenses of the Comptroller and
Auditor General are charged upon the Consolidated Fund of India. Unlike the other expenses
of the Government, his expenses will not be votable in the budget. Hence, his action and
official conduct is intended to be excluded from the scope of Parliamentary discussion and
vote. The Constitution has thus accorded a very strong protection against Parliamentary
interference with the working of the Comptroller and Auditor General's organisation.
Duties and Powers of the CAG

Duties
 To audit all expenditure from Consolidated Fund of India and each state and of each
UT having a Legislative assembly;

 To audit all transactions of Unions and States relating to Contingency Funds and
Public Accounts.

 To audit all trading, manufacturing, profit and loss accounts and balance-sheets and
other subsidiary accounts kept in any department of the Union or of a State.
 To audit all receipt of Union and state and to satisfy himself that that the rules and
procedures in that behalf are designed to secure an effective check on the assessment,
collection and proper allocation of revenue.

 To audit accounts of Govt Companies (in pursuance of Companies Act) and all bodies
or authorities substantially financed by Central or State govt.

 To audit accounts of corporations as prescribed by law of Parliament or State

Legislature.

 To audit account of any other authority or body when requested by President or

Governor of State.

Functions

 He audits all transactions of the Central and state governments related to debt, sinking
funds, deposits, advances, suspense accounts and remittance business.

 He audits the accounts of any other authority when requested by the President or
Governor e.g. Local bodies.

 He advises the President with regard to prescription of the form in which the accounts of
the Centre and states shall be kept.

 He submits his audit reports relating to the accounts of the Centre to the President, who
shall, in turn, place them before both the houses of Parliament.
  He submits his audit reports relating to the accounts of a State to the Governor, who
shall, in turn, place them before the state legislature.

 He ascertains and certifies the net proceeds of any tax or duty and his certificate is final
on the matter.

 He acts as a guide, friend and philosopher of the Public Accounts Committee of the
Parliament.

 He compiles and maintains the accounts of state governments. In 1976, he was relieved
of his responsibilities with regard to the compilation and maintenance of accounts of the
Central government due to separation of accounts from audit.

Accounting Duties

The duties and powers of Comptroller and Auditor General have been prescribed by the
Comptroller and Auditor General's (Duties, Powers and Conditions Service) Act 1971 as
required by Article 149 of the Constitution of India. Under the Act, it is the responsibility of
the Comptroller and Auditor General to audit all expenditure and receipts of the Government
of India, the State governments and of the Union Territories. He is also empowered to audit
the expenditure and receipts of bodies or authorities substantially financed from Union or
State revenues the form of grants or loans. As per Section 10 of the CAG (DPC) Act 1971, it
is the responsibility of the Role of the Comptroller and Auditor General to compile the
accounts of the Union and of each and Auditor General (CAG) State, and prepare the Finance
Accounts. Again, it is the duty of the Comptroller and Auditor General to prepare, from the
accounts, Appropriate Accounts, showing under the respective heads, the annual receipts and
disbursements for the purpose of the Union, of each State and of each Union Territory having
a Legislative Assembly. These accounts (i.e. Finance Accounts and Appropriation Accounts)
are to be submitted to the President or Governor of a State or Administrator of the Union
Territory, as the case may be.

He also provides the necessary information to the Union and States in the preparation of their
Budgets (i.e. knnual Financial Statement).

The functions of the Comptroller and Auditor General, in brief, in so far as accounts are
concerned, are mainly:

1) The prescription of forms in which accounts are to be kept in the Union and of the States.

2) Preparation and submission of Finance Accounts and Appropriation Accounts to the

President/Governor/Administrator of Union Territory as the case may be.

3) Providing information to Union/State Governments for preparation of their annual budgets.

Auditing Duties

The real duty of the Comptroller and Auditor General is that of an auditor. The primary audit
function is to verify the accuracy and completeness of accounts; to secure that all financial
transactions viz., receipts and payments are properly recorded in the accounts, correctly
classified and that all expenditure and disbursements are authorised and vouched and that all
sums due, are recorded regularly in accordance with the demands and brought into account.
He acts as a watchdog to see that the various authorities under the Constitution function in
regard to financial matters, in accordance with the Constitution and the laws of Parliament
and appropriate Legislatures and Rules and Orders issued there under.

As per the CAG (DPC's) Act, 1971 the auditorial functions of the Comptroller and Auditor
General are as follows:

a) to audit all receipts into and expenditure from the Consolidated Fund of India and of each
State and of each Union territory, having a Legislative Assembly and to ascertain whether the
money 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.

b) To audit all transactions of the Union and of the States relating to Contingency Funds, and
Public Accounts.

c) To audit all trading, manufacturing, profit and loss accounts and balance sheets and other
subsidiary accounts kept in any department of the Union or of a State; and in each case to
report on the expenditure, transactions or accou?ts so audited by him.

d) To audit receipts and expenditure of bodies or authorities substantially financed from

Union or State revenues.

e) To audit the accounts of Government, Companies and Corporaions established by or under

the Law of Parliament, or in accordance with the provisions of respective Legislations.

f) To audit account of bodies or authorities by request.

In connection with the discharge of the auditorial duties,, the Comptroller and Auditor
General can inspect any office of accounts under the control of the Union or a State,
including treasuries and offices responsible for keeping initial or subsidiary accounts. In
short, the Comptroller and Auditor General is responsible for the audit of the accounts of the
Union and of the States and of bodies substantially financed from union or state revenues.
Further he/she audits the accounts of companies and corporations and of autonomous
authorities, whose audit has been entrusted by law to him/her public interest. In the
performance of the duties, he/she is assisted by the Indian Audit and Accounts Department.

Audit Reports

The Constitution has prescribed the procedure to be followed by the Comptroller and Auditor
General for presentation of his reports. His reports, in regard to the Union Government
accounts, shall be submitted to the President. And the accounts of the State Government shall
be submitted to the Governor of the State. His responsibility thereafter ceases. But it becomes
obligatory for the President/ Governor to cause them to be laid before the House of
Parliament/ State Legislature respectively. He submits three Reports viz., Audit Report on
Finance Accounts, Audit Report on the Appropriation Accounts, and audit Report on the
Commercial and Public Sector Enterprises and Revenue Receipts on union and State
Governments respectively. The Constitution does not prescribe any form or guidelines for the
contents of the Audit Report of the Comptroller and Audit General. It has thus been left with
the Comptroller and Auditor General, the complete freedom and discretion to decide the
form, the materials and the contents of the reports.

Limitations

 Its report is post-facto i.e. after the expenditure is incurred and has only prospective
value in improving systems and procedures.

 Secret service expenditure is outside the purview of the CAG and he 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.

 Since the legislation, the government has increased its participation with the private
sector through the PPT (public-private-transfer) and BOT (build-own-transfer) model.
However the rules have not undergone a significant change and CAG does not have
the power to audit PPP (Public Private Partnership) investments.

 There is no provision for auditing of funds that are given to an NGO and elected local
bodies. Today NGOs have become a conduit for a multitude of government schemes.

 CAG presently does not have the full authority to audit the PRIs and ULBs. In most
states, the Examiners functioning under the Finance Department audit the accounts of
local bodies.

 DRDAs (District Rural Development Authority) today are managing large sums of
money for rural development yet they also are outside the purview of CAG audits.

In light of the above limitations and changes in the Indian polity such as increasing role of
civil society and NGOs, liberalisation of the economy, PPP mode of investments the DPC
Act, 1971 must be reviewed to bring in greater accountability and transparency in every
sphere that touches public life. CAG’s work should go beyond the question of whether
government funds are being spent appropriately to ask whether programs and policies are
meeting their objectives and the needs of societyTo conclude, notwithstanding these
limitations, the Comptroller and Auditor General play a unique role in Indian democracy, by
upholding the Constitution and the laws in the field of financial administration. He is neither
an officer of Parliament nor a functionary of Government. He/ She is one of the most
important officers of the Constitution and his/ her functions are as important as that of
Judiciary.
 CONCLUSION

As already mentioned, the Comptroller and Auditor General of India ensures the supremacy
of the Parliament over the Executive in financial matters. He/She is an officer of the
Constitution and not an officer of the Parliament. The independence of the CAG is
guaranteed by the Constitution in many ways to enable him/ her to perform his/ her functions
without any interference from the Executive. His/ Her primary duty is to uphold’ the
Constitution and the laws in the field of financial administration.

The word ‘audit’ has not been defined in either the Constitution or in the CAG Act, 1971. We
have so far been going by 150 years of history, tradition, existing provisions and international
practice. The CAG has not formulated his own policy in the above reports and has only gone
by policy prescriptions recommended internally at various levels within the government.

Further, the CAG is bound by the oath of office to uphold the Constitution of India and thus
is bound to comment on policy matters that seem unconstitutional. If the government were to
formulate a scheme or policy that selectively confers benefits from public funds on an
individual or a group to the exclusion of others, it is the CAG’s duty to point this out. Thus
the CAG was well within his mandate to comment on the above policy decisions.

The assumptions can be questioned, the methodology can be questioned, the resulting number
can be debated; what cannot be questioned is the procedural or substantive lapse to which the
figure points.
 Bibliography
BOOKS

Chanda, Asok; 1968. Indian Administration, G. Allen and Unwin: London.

Chanda, Asok; 1960. Aspects of Audit Control, Asia Publishing House: New Delhi.

Chandrasekhar R.K., 1990. The Comptroller and Auditor General of India, Ashish Publishing
House: New Delhi.

Ramayyar A.S., 1967. Indian Audit and Accounts Department, the Indian Institute of Public
Administration: New Delhi.

Sameer C. Mookejee, 1989. role of the. Comptroller and Auditor General in Indian
Democracy. Ashish Publishing House: New Delhi.

WESITES
1) www.Wikipedia.com
2) www.fhwa.dot.gov
3) www.law.utorronto.ca
4) www.lawteacher.net