Comptroller and Auditor General of India (CAG)

Why in News?

Recently, the Comptroller and Auditor General (CAG) report revealed that the Delhi government suffered a loss of over ₹2,000 crore due to the 2021-22 excise policy. The report raises concerns over loopholes in the policy, the neglect of the expert committee’s recommendations, and potential irregularities.

Introduction of Comptroller and Auditor General (CAG) of India

The Comptroller and Auditor General (CAG) of India is a crucial pillar of the country’s financial system, responsible for overseeing government expenditures and ensuring the proper utilization of public funds. It is an independent constitutional authority that audits the financial transactions of both central and state governments.

• CAG was established under Article 148 of the Indian Constitution. It is appointed by the President of India and is granted special powers to ensure its independence. 
• The primary objective of CAG is to conduct an impartial examination of government expenditures and ensure that public funds are being used for the intended purposes.
• CAG is not just an auditor; it serves as a guide, friend, and philosopher to the Public Accounts Committee (PAC) of Parliament. The reports prepared by CAG are presented in Parliament and state legislatures, ensuring transparency and accountability in government operations.
• Dr. B.R. Ambedkar described CAG as the “most important officer” in the Indian Constitution, as it plays a key role in ensuring the financial accountability of the government. CAG audits not only government accounts but also the financial activities of public sector enterprises and other government agencies.
• Historical Background: The CAG’s existence dates back to British rule, though its powers were limited at the time. Over the years, its role evolved significantly:
  • 1858: The post of Accountant General was established when power was transferred from the East India Company to the British Crown.
  • 1860: Sir Edward Drummond was appointed as India’s first Auditor General.
  • 1919: Under the Government of India Act, 1919, the CAG’s position was freed from direct government control and granted statutory status.
  • 1935: The Government of India Act, 1935, further strengthened the CAG’s powers, granting it the authority to oversee financial operations at both the federal and provincial levels.
  • 1947: After independence, the role of CAG was formally defined in the Indian Constitution.
  • 1971: The Comptroller and Auditor General (Duties, Powers, and Conditions of Service) Act, 1971 was enacted, outlining the CAG’s responsibilities and authority.
  • 1976: The accounting functions were removed from CAG’s duties, limiting its role to auditing only.

Today, CAG plays a vital role in ensuring transparency in government financial transactions, and its reports help hold the government accountable.

Role of CAG in the Indian Constitution

The Comptroller and Auditor General (CAG) of India is an independent constitutional authority, and its appointment, powers, duties, and functioning are defined under Articles 148 to 151 of the Indian Constitution. Additionally, several other constitutional provisions outline its role.

• Article 148: Defines the appointment, oath, and service conditions of the CAG. This article ensures the independence of the CAG by including special provisions to prevent interference from any branch of the government.
• Article 149: The role of CAG is not limited to financial auditing; it also oversees the legitimacy and propriety of government expenditures. This article empowers CAG to audit the accounts of central and state governments, government-owned corporations, autonomous bodies, and other public institutions.
• Article 150: Determines the format in which the accounts of the Union and state governments shall be maintained. It explicitly states that the President shall prescribe this format based on the advice of the CAG.
• Article 151: Specifies the submission and publication of audit reports. At the central level, the audit reports are presented to the President, who then lays them before Parliament. At the state level, the reports are submitted to the Governor, who presents them before the respective state legislatures.
• Article 279: CAG’s role extends beyond expenditure audits; it also certifies the accuracy of government revenues. Under this article, CAG is responsible for verifying the “net proceeds” of government revenue.
• Third Schedule: To ensure CAG’s impartiality and commitment to the Constitution, Section IV of the Third Schedule contains provisions regarding the CAG’s oath.
• Sixth Schedule: Grants CAG the authority to audit the accounts of district and regional councils. The reports are submitted to the Governor, who presents them before the relevant councils.

CAG’s Appointment and Related Provisions

• Appointment: CAG is appointed through a special process to ensure its independence and impartiality. The President of India appoints the CAG by issuing a Warrant with the national seal and signature. This process ensures that CAG remains free from government influence and performs its duties without any external pressure.
• Tenure: The CAG’s tenure is six years or until the age of 65, whichever comes first. This provision ensures that CAG remains free from long-term political influence and has sufficient time to conduct in-depth financial audits of the government.
• Oath: To maintain CAG’s neutrality and independence, it takes an oath similar to that of Supreme Court judges. This oath binds the CAG to uphold the Constitution, act without fear or favor, and serve in the national interest.

Provisions Ensuring CAG’s Independence

• Fixed Salary and Service Conditions: The CAG’s salary and other service conditions cannot be altered after appointment, ensuring that the government cannot influence the CAG in its favor.
• Administrative Expenses: The administrative expenses of CAG’s office, including salaries, allowances, and pensions, are directly charged from the Consolidated Fund of India. These expenses are not subject to parliamentary voting, further protecting CAG’s independence.
• Post-Retirement Restrictions: A retired CAG cannot accept any position under the Government of India or any state government, ensuring that there is no conflict of interest.
• Administrative Powers: The President determines the administrative powers of CAG and the service conditions of its employees, but only after consulting the CAG.
• Removal Process: The process of removing the CAG is similar to the removal of a Supreme Court judge. CAG can only be removed by the President after both Houses of Parliament pass a resolution with a special majority.

Powers and Responsibilities of CAG

• The Comptroller and Auditor General (CAG) of India plays a crucial role in auditing various funds established by the Constitution. These include the Consolidated Fund of India, the Public Account, and the Contingency Fund of each state. CAG ensures that all expenditures from these funds comply with constitutional and financial provisions.
• One of CAG’s key responsibilities is to audit and certify the net revenue collected from taxes and duties by the government. This certification is essential for the distribution of financial resources between the central and state governments. CAG ensures that government revenues are accurately recorded and free from irregularities.
• CAG ensures that public finances are used legally, efficiently, and effectively. It reviews whether the allocated funds have been spent for their intended purpose and whether expenditures comply with government directives.
• CAG audits not only the accounts of central and state governments but also those of government corporations, public sector undertakings (PSUs), and other government-funded bodies. This ensures that public money is not misused and is spent in the right direction.
• CAG has the authority to inspect records, documents, and financial transactions of any government office, corporation, or organization under its audit jurisdiction. Additionally, it has the right to question officials and seek clarifications, helping to uncover financial irregularities.
• CAG’s audit reports are submitted to the President, who then presents them before Parliament. These reports undergo detailed scrutiny by the Public Accounts Committee (PAC).
• CAG’s role is not limited to regulatory and compliance audits; it also conducts performance audits to assess the efficiency and effectiveness of government spending. If any wasteful expenditure or misuse of funds is found, CAG provides clear observations and corrective recommendations.
• CAG also has the power to review financial matters of specific government schemes, projects, or organizations, even if it is not legally mandated. This is called Proprietary Audit. While optional, this audit becomes necessary when a government entity is suspected of financial irregularities or mismanagement.

Criticism and Challenges Faced by CAG

• Post-Facto Auditing: CAG’s auditing function is primarily post-facto (Ex-Post), meaning it audits expenditures after they have been made rather than participating in the decision-making process. This limits its ability to prevent financial mismanagement in advance.
• Lack of Financial Expertise: CAG faces criticism for its lack of specialized expertise in areas such as natural resources, financial contracts, and corporate structures. With increasing complexity in government financial systems, detecting corruption and administrative lapses has become more challenging.
• Delayed Availability of Records: Although CAG has the authority to inspect any government office and request financial records, important documents are sometimes deliberately delayed to hinder the audit process. This affects timely investigations and analysis.
• Challenges in Auditing Public-Private Partnerships (PPP): CAG’s audit scope now extends beyond government spending to Public-Private Partnership (PPP) projects. The complex financial structures and transparency issues of these projects pose a significant challenge for effective auditing.
• Decline in Audit Reports: The number of audit reports presented by CAG in Parliament has significantly declined. In 2015, CAG submitted 53 reports, but by 2023, this number had dropped to just 18.
• International Comparisons: Globally, the tenure of the UK’s CAG is 10 years, while the Comptroller General of the US serves for 15 years. In India, CAG’s tenure is only 6 years, leading to continuous demands for extending its tenure and strengthening its independence.
• Role of IA&AD: CAG’s audits are primarily conducted by the Indian Audit and Accounts Department (IA&AD). To ensure impartial and effective auditing, IA&AD must be provided with adequate training, technical resources, and necessary legal authority.

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