Of, by, for auditors

CAG audit of telcos raises questions of blunt accountability instruments.

Written by Pratap Bhanu Mehta | Updated: April 22, 2014 10:59:46 pm
CAG could confine itself to precisely directed revenue-sharing arrangements, maybe there will not be much damage and some good. PTI CAG could confine itself to precisely directed revenue-sharing arrangements, maybe there will not be much damage and some good. PTI

CAG audit of telcos raises questions of blunt accountability instruments.

The Supreme Court order in Association of Unified Telecom Service Providers and others versus Union of India, enabling the Comptroller and Auditor General to audit telecom companies is going to raise far-reaching institutional questions in the future. One can, for the moment, bracket the technicalities of this case. There is no dispute over the fact that telecom companies in revenue-sharing agreements need to be audited; and these auditing requirements are part of the licencing arrangements. The question was over the clauses under which the audit was to be carried out and the mode of doing so.

But the Supreme Court seems to have, for all practical purposes, given carte blanche to the CAG to more or less audit at will any private entity that might have any remote connection with funds drawn from the Consolidated Fund of India or any entity that remotely deals with any public good. It has pretty much declared the CAG to be part of the basic structure of the Constitution, on par with democracy and fundamental rights. It was perhaps inevitable that a government of contractors, for contractors, and by contractors would beget the counter reaction that we would become a government of auditors, for auditors, and by auditors.

Why might this be an issue? There is a genuine institutional problem to which we have not given too much thought. Over the last few years, there has been a blurring of functional roles between the state and private sector. On some estimates, half of taxpayers’ money is now being channelled through private or civil society entities. Often, the CAG has had difficulty exercising jurisdiction over entities in public-private partnerships, leading to the charge that PPPs are at least as much about evading accountability as they are a method of promoting efficiency. In revenue-sharing contracts, it is inevitable that the government will be interested in determining whether the revenue is indeed being shared or being fudged. So in principle, there cannot be any objection to some form of accountability. Indeed, most of these contracts provide for such mechanisms. Unfortunately, in India, accountability mechanisms provided for in these various contracts often fail, and there is the temptation to reach for more blunt and high-powered accountability instruments. The Trai and Department of Telecommunications have, on some interpretations, not been performing their accountability functions; hence the demand for a different kind of scrutiny.

The question is whether, in reaching for the CAG, there are real dangers that need to be taken into account.

What makes this question difficult to answer straightforwardly is this. We now know that much depends on the norms and practices of an institution. If the CAG could confine itself to precisely directed revenue-sharing arrangements, maybe there will not be much damage and some good. But if it uses this wedge to open all kinds of issues about the spending criteria of companies and costs, it could seriously damage the functioning of private entities. But we do also know that a kind of jurisdictional inflation is inevitable whenever an institution is given powers or acquires powers.

The Supreme Court itself is exhibit number one of jurisdictional inflation. Normally, there are checks and balances that might mitigate these risks. But the trouble with independent agencies is that it is hard to design such checks — again the Supreme Court is a prime example. In principle, the CAG is limited by the fact that Parliament can choose not to accept or act upon its reports. But if it does overstep its jurisdiction, it will subject private entities to a messy political process and impose costs.

We may not worry about these issues in a cynical environment that has a pathological distrust of both politics and business. We are happy to repose trust in virtuous people who are themselves far removed from accountability, like courts. But in the process, we are undermining institutional creativity. Each institutional form does what it does best because it has an institutional identity. Government is based on force backed by legitimacy, the private sector is based on profit and civil society and NGOs are based on voluntary persuasion. None of these entities is exempt from accountability but it has to be a form of accountability that is fit for purpose.

Subjecting private entities to public standards of cost or tying their hands will sap exactly what makes them tick. On the other hand, a government running on the profit motive or treating itself as a private entity will undermine its own legitimacy. But the more their functions and roles are mixed up and confused, the more they will lose their identities as institutions. With the proliferation of PPPs and revenue-sharing contracts, these institutional issues have become central to economic governance. There is a space for the public and private to collaborate. But the form of that collaboration, and the accountability structures it produces, must not destroy the distinct institutional identity or freedom they have, or they will end up neither fish nor fowl.

Courts themselves have created such confused monsters. They first declared the BCCI a private entity exempt from all accountability. And then, they all but take over its functioning. Now there is a danger that any company that so much as transacts any business with taxpayer money will end up being subject to standards and protocols that should apply to the state. Compulsory CSR will lead inevitably to the state scrutinising a private entity for its supposed civil society functions. No more perfidious confusion of roles could have been imagined. Again, oversight fit for purpose is one thing; oversight that subjects entities to powerful but low-capacity bureaucracies is another. In institutional terms, this is reform in reverse gear, where the only two certainties are more bureaucrats and more lawyers. We are not judging whether the Supreme Court was right to interpret the existing licence agreement with the telecom companies in the way it did. But the consequences of this ruling could be far reaching.

Paul Appleby had decades ago warned that the culture of giving too much importance to audit reports increases the timidity of public servants, often making them unwilling to take responsibility, and subjects them to cumbersome processes. Appleby was probably right, but only too soon. For decades the CAG remained an entity to be ignored. But now that it has stirred, we are willing to give the whole shop to them: public, not-for-profit and even private. Maximum governance is just acquiring a whole new meaning.

The writer is president, Centre for Policy Research, Delhi, and a contributing editor for
‘The Indian Express’

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