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Auditor under scrutiny

CAG’s powers and duties draw from a constitutional mandate.

CAG must audit all receipts of the consolidated fund as per Article 266. Therefore, it audits all tax, non-tax revenues. CAG must audit all receipts of the consolidated fund as per Article 266. Therefore, it audits all tax, non-tax revenues.

CAG’s powers and duties draw from a constitutional mandate.

The powers of the comptroller and auditor general to audit government revenues are currently under the highest scrutiny. At the start of the year, the Delhi government requested the CAG to audit private power distribution companies. Later, while deciding in favour of a CAG audit of private telecom companies, the Delhi High Court invoked the Supreme Court’s ruling in the 2G case, quoting the doctrine of res communes — that natural resources are vested in trust with the state and that they should be “distributed as best to subserve the common good”.

It is important to note the caveat that limits the CAG’s audit powers. Because the telecom companies in question only have to pay the government a licence fee, the CAG audit will pertain to their “receipts and no more”.

The CAG’s powers to audit tax and non-tax revenues of the government originate from Article 149 of the Constitution, read alongside Section 14 and 16 of the Comptroller and Auditor-General’s (Duties, Powers and Conditions of Service) Act, 1971, and from the regulations on audit and accounts framed in pursuance of Section 23 of the act.

According to Article 149, the CAG “shall perform such duties and exercise such powers in relation to the accounts of the Union and of the states and of any other authority or body as may be prescribed by or under any law made by Parliament”. Audits in the public interest are provided for by Section 20 of the act. Further, the CAG can audit an account that has not been entrusted to it under law if the president, governor of a state or administrator of a Union Territory (UT) requests it to. The CAG may also propose to these functionaries that it should be allowed to audit any body or authority, if it is of the opinion that such an audit is necessary. Such a request may be allowed if it is in the public interest, and after giving the concerned body an opportunity to respond.

More specifically, Section 14 of the act empowers the CAG to audit any body or authority substantially financed by grants or loans from the Consolidated Fund of India (CFI) or of any state or UT having a legislative assembly. The audit shall be subject to the laws applicable to the body or authority, and shall extend to all its receipts and expenditures. Section 16 of the act mandates the CAG to conduct audits of the receipts of governments, giving it no discretion in the matter: “it shall be the duty of the CAG to audit all receipts which are payable into the Consolidated Fund of India and of each state and of each UT having a legislative assembly and to satisfy himself that the rules and procedures in that behalf are designed to secure an effective check on the assessment, collection and proper allocation of revenue and are being duly observed and to make for this purpose such examination of the accounts as he thinks fit and report thereon.”

As per Article 266 of the Constitution, the CFI includes “all revenues received by the government of India” and it shall be the constitutional obligation of the CAG to audit all receipts of the fund. The CAG, therefore, audits all direct and indirect tax revenues and non-tax receipts of the Central and state governments and UTs. The high court judgment has also made it clear that “revenues” means “income of the nation derived from taxes, duties or other sources for the payment of [the] nation’s expenses” and “all the public money which the state collects and receives from whatever source and whatever manner”.

The audit of production sharing contracts has been undertaken by the CAG under Section 16 of the act. Because profit petroleum is a non-tax revenue payable into the CFI, it is the CAG’s constitutional duty to audit it. A separate audit may be done under the accounting procedure of the production sharing contract, if entrusted to the CAG as per Section 20 of the act. Such an audit is intended to enable the government to effectively monitor a contractor’s costs, expenditures, production and income, in order to determine profit petroleum.

Given that a production sharing contract is signed between the government and contractor, all wings of government — Parliament, executive and judiciary — will have access to an audit report produced by the CAG or any other auditor appointed by the government. Confidentiality clauses in the contract are only applicable against third parties, not against Parliament or the other wings of government, including the CAG. The CAG’s auditing powers are derived from its constitutional mandate and, in a parliamentary democracy, are an instrument by which people’s representatives can exercise control over the nation’s receipts and expenditures. Such an audit cannot be equated with or substituted by an audit conducted by chartered accountants or any other agency.

The writer is director-general in the office of the CAG. 

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