Comptroller’s combat~II

As per the fraud triangle, where there is a lapse of control, there is a tendency to exploit the ineffective control environment by people who are within the organization and who collude with external agencies. Robust internal control systems and procedures with segregation of powers under effective supervision, monitoring, whistleblowing system can go a long way in reducing corruption.

Comptroller’s combat~II

Comptroller and Auditor General of India (CAG) office. (File Photo: IANS)

The role of the supreme audit institution (SAI) to curb corruption is well recognised in other nations too. OECD and World Bank studies have noted that SAIs play a predominant role in the fight against corruption though SAIs are not statutorily considered as anti-corruption entities or agencies to investigate scams. The Lima Declaration of Guidelines on Auditing Precepts adopted in 1977 at the IX INCOSAI in Lima (Peru) act as guideline for the government auditing done by INTOSAI. It is considered as the Magna Carta of government auditing. The declaration that was adopted in 1998 encompasses the purpose of government audit, pre-audit, post-audit, internal and external audit, types of audits, tax audits, audit of public contracts, works, commercial enterprises as well as professionalism and independence of SAI and the officials of SAI.

The four core objectives outlined in the Lima Declaration are:

  • Proper and effective use of public funds
  • Development of sound financial management
  • Proper execution of administrative activities
  • Communication of information to public authorities and the general public through the publication of objective reports.

A study by INTOSAI concludes that SAI provides ‘audit or assurance services by comparing economic information with a framework for financial reporting, and to produce knowledge derived from the conduct of audit investigations, which creates the basis for the implementation of corrective actions’. Of different audit models, the Westminster model or Anglo-Saxon or Parliamentary model used in the UK and most of the Commonwealth countries including India aims to ensure parliamentary accountability by submitting SAI reports for detailed examination by parliamentary committees, viz. Public Accounts Committee and Committee on Public Undertakings.


Independence of audit is guaranteed by the Constitution and the CAG’s (DPC) Act. The specific objectives of auditing are clear ~ effective management of public resources; to enforce prudential financial management systems and procedures; to ensure proper execution of executive and administrative activities; and report to the legislature and thereby to the media and the general public. The objective is clear ~ “Audit is not an end in itself but an indispensable part of a regulatory system whose aim is to reveal deviations from accepted standards and violations of the principles of legality, efficiency, effectiveness and economy of financial management early enough to make it possible to take corrective action in individual cases, to make those accountable accept responsibility, to obtain compensation, or to take steps to prevent ~ or at least render more difficult ~ such breaches’. It further reinforces that ‘effective pre-audit is indispensable for the sound management of public funds entrusted to the state to be carried out by the SAI or other audit institutions. Post-audit by an SAI is essential; it ensures the responsibility of those accountable for other audits as well. Internal audit and external audit services must be functionally and organisationally independent as far as possible within their respective constitutional framework.

As external auditor, the SAI has the responsibility to assess the effectiveness of internal audit. It conducts legality audit, regularity audit and performance audit to ensure sound financial management and accounting. Performance audit examines the full range of government activity including organisational and administrative systems to ensure the legality, regularity, economy, efficiency and effectiveness of financial management. The audit must be done professionally without being influenced by the audited organisations. The independence and autonomy of SAI are provided under the Constitution and by the law. The government is solely responsible for its acts and omissions. Audit of public contracts and public works tendering shall ‘cover not only the regularity of payments, but also the efficiency of construction management and the quality of construction work’. The expansion of the economic activities of government shall be subject to audit by SAI.

The independence, constitutional mandate and responsibilities of the CAG enable him to create an effective environment for deterrence against corruption. CAG can effectively contribute to the prevention of corruption by deterrence and promote sound public financial management systems and practices based on effective internal controls and checks and balances, segregation of powers, supervision, inspection, monitoring and review by the superiors within the organizations or system, reliable reporting and robust internal control mechanisms guaranteeing transparency and accountability in the public sector. CAG effectively contributes to a system of financial checks and balances, financial discipline and propriety standards with a robust framework to support financial integrity in government operations. CAG thus plays a significant role in raising credibility and awareness to the risks of corruption and thus promote good governance and standards of financial integrity. The deficiencies in the internal control systems and deviations from the rules and procedures are highlighted with suitable recommendations for effective checks and balances.

CAG reports on the Centre and the states invariably examine the working of the organizations as envisaged within the policy framework and as per the vision, mission, policy, plan, stated quantitative and qualitative targets, physical outputs and outcome. Fraud and corruption are done by collusion. As per the fraud triangle, where there is a lapse of control, there is a tendency to exploit the ineffective control environment by people who are within the organization and who collude with external agencies. Robust internal control systems and procedures with segregation of powers under effective supervision, monitoring, whistleblowing system can go a long way in reducing corruption.

India’s unprecedented economic growth since liberalization in the 1990s has led to an enormous expansion in government receipts and expenditure. NITI Aayog Strategy for New India @75, November, 2018 maps the ambitious trajectory of government policy, planning, milestones and goals. This policy document is supplemented and complemented by appropriate budgets from year to year. Unprecedented growth of receipts and expenditure estimates in the Budget, growing government accounts and multiplicity of activities provide formidable challenges, and new opportunities for the CAG to address the weaknesses within government organisations. Effective enforcement of the rule of law and rule of financial laws is imperative. Audit must be reoriented to ensure timely execution of projects without leakage and siphoning of funds, to detect and curb fraud, waste, misappropriation and misuse of resources, ensure prompt release and utilisation of resources in terms of socio-economic, educational and infrastructural schemes, projects, and programmes.

The prime responsibility for the detection of corruption lies with the organizations and institutions such as CVC, CBI, Enforcement Directorate, Serious Fraud Investigation Office, and other anti-corruption agencies. However, as a credible constitutional machinery, the CAG has a predominant role in exposing malpractices, deviations in rule conformity, detecting impropriety in expenditure, ineffective performance in project execution and fraudulent financial reporting. Many a time, these reports become the source material for investigative agencies and intense debate and investigation by private agencies through PIL, Right to Information Act, and proactive media led probes which can uncover many corrupt activities.

While SAIs have limited capacity and authority to investigate cases of corruption, they can pass cases onto the relevant authorities. Corruption may be detected during the three types of audit ~ financial, compliance and performance. The primary purpose of financial audits is not to detect corruption but to ensure that financial statements are not misleading and reflect an organisation’s genuine economic transactions. Corruption is more often revealed through compliance audits, which are designed to ensure the legality of financial transactions and verify that these comply with existing laws, rules and regulations.

The institution of CAG has its limitations. CAG’s (DPC) Act, 1971 needs to be amended to empower the institution to ensure that government departments reply to audit enquiries in a time-barred manner, within 30 days or so. The statute must stipulate a clear timeframe for the tabling of audit reports on the floor of the legislature.


(The writer is a former DG in the office of CAG. Views are personal)