The Comptroller and Auditor General of India (CAG) refers to both the Supreme Audit Institution of India (SAI) as well as the individual who heads the institution. Established in 1858 under the British Raj, it functions as the auditor of the executive branches of the central and state governments. This audit mandate includes government coffers, ministries, departments, autonomous bodies, and government corporations, among others. The office of CAG makes policy decisions and oversees and directs the Indian Audit and Accounts Department (IAAD). With more than 40,000 employees, CAG is a prolific institution that carries out comprehensive audits of the extensive Indian bureaucracy. Its mostly scathing performance and audit reports are considered unbiased and some also receive fair media coverage. Although perceived as generally effective, it lacks prosecutorial and enforcement powers. CAG is dependent on parliamentary review for further action on its reports. Moreover, its prolificacy coupled with the apathy of Indian politicians means that only the more controversial reports submitted to the legislature are acted upon, leaving routine financial and performance lapses unchecked. Political and personal calculations also play a role in who and what gets investigated. This greatly limits the impact of the CAG in the fight against corruption. While not afraid to cause controversies through it reports, the 2G spectrum scandal reveals the institution’s susceptibility to political interference. These intrinsic difficulties coupled with the potential of the CAG to be a truly effective organization has resulted in calls for specific reforms.
In many ways, the history of CAG parallels the history of the Indian Republic. It was established in 1858 (the year the British took over administrative control of India from the East India Company) as the Accountant General to the Government of India. The East India Company used separate entities to “prepare accounts of the three presidencies of Bengal, Madras, and Bombay.” In 1857, a decision was made to establish a separate General Department of Account responsible for all accounts. This was achieved in 1860, and an Auditor General of India was appointed to head the department. Restructuring placed the departments of Account and Audit under the control of the Financial Department headed by a Financial Secretary. The two departments were merged and consequently the Auditor General of India came to be called the Auditor and Accountant General to the Government of India. In 1866, the position was renamed Comptroller General of Accounts, and in 1884, it was re-designated as Comptroller and Auditor General of India.
The name was changed again in 1919. Section 39 of the Government of India Act provided for an auditor general in India to be appointed by the Secretary of State in Council. The act was the first instance of statutory backing for this position. The Government of India Act of 1935 renamed the position Auditor General of India and stipulated that he be appointed by the King of England. The act described the appointment and service procedures and gave a brief overview of the duties of the Auditor General of India. The Accounts and Audits Order of 1936 buttressed the 1935 act by providing detailed accounting and auditing functions of the auditor general. For the most part this arrangement remained unchanged until India’s independence in 1947.
Writers of independent India’s constitution recognized the importance of an auditing body and decided to confer it with a constitutional status. Article 148 of the 1949 Indian Constitution provided for the establishment of a Comptroller and Auditor General of India position to be appointed by the President of India. Article 149 granted a broad mandate to CAG. Dr. B.R. Ambedkar, chairman of the Drafting Committee of the 1949 Indian Constitution, was a strong supporter for making CAG a powerful position. He stated: “The CAG shall be the most important officer under the Constitution of India. For he is to be the guardian of the public purse and it is his duty to see that not a farthing is spent out of the Consolidated Fund of India or of a State without the authority of the appropriate Legislature.” This sentiment was generally espoused by Constitution framers for adequate safeguards were devised to ensure CAG’s independence. The position came into effect in April 1950, and the CAG, formerly the auditor general, came to oversee the activities of almost 16,000 members of the Indian Audit and Accounts Department (IAAD). In 1958, Jammu and Kashmir was added to CAG jurisdiction. Based on Articles 148 and 149, in 1971 the central government enacted the Comptroller and Auditor General (Duties, Powers, and Conditions of Service) Act, 1971. The act made CAG responsible for both accounting and auditing duties for central and state governments. A 1976 amendment separated accounts from audits for the central government.
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. These include the 2G Spectrum licenses, the Commonwealth Games, Bofors howitzers contract, Karnataka coal mining licenses, Adarsh Housing Society scam, Bihar fodder scam, Kargil Coffin scam, and the Telgi stamp paper scam.
The Comptroller and Auditor General of India’s office sits at top the IAAD and “directs, monitors, and controls” almost 44,000 employees across 150 offices. In this role it primarily formulates policies and audit standards and systems; provides strategic guidance; and oversees the processing and final approval of all audits. IAAD is divided into more than 100 functional specialties, with each responsible for a particular sector or other administrative duties. More broadly, however, IAAD’s functions can be classified under federal sector audit, state sector audit, account of the provinces (states), and training.
As its name suggests, CAG is the supreme auditing body in India. Its mandate is simple: to hold the executive accountable to the legislature. The 1971 act provides CAG with the power to undertake accounting and auditing duties. With the exception of Goa, CAG maintains detailed accounts of all state governments. It also publishes an annual Combined Finance and Revenue Accounts report comparing the Union and state governments. Although its accounting mandate is exhaustive, CAG has always been primarily viewed through the prism of its expansive audit duties. The 1971 act grants CAG audit powers over: receipts and expenditure from the Consolidated Funds of central, state, and Union Territory government; Contingency Fund (emergency) transactions; all government companies; all statutory corporations that provide for a CAG audit; accounts of all autonomous bodies and authorities financed by the government such as Panchayati Raj institutions, central educational institutions (IIT’s, IIM’s, etc.); and any and all accounts of all government entities, including trading, manufacturing, loss, stores, stocks, etc. To put it simply, in addition to all central government ministries, departments, and offices of central and state governments, CAG is responsible for about 1,500 government enterprises and corporations, around 400 non-commercial autonomous bodies owned or controlled by the governments, and over 4,400 entities “substantially financed” by the governments. Further, CAG can also undertake audits where substantial amounts of public funds are located. CAG audits are categorized as Compliance Audits, Financial Audits, or Performance Audits. CAG does not audit public sector banks, government corporations with a CAG audit mandate, or companies where the government holds less than 50% of the shares.
In 2009-2010, CAG audited 75,677 units, issued 135 audit reports, had 310 performance audit reports approved, and certified 5,420 accounts.
By nature CAG’s reports highlight instances of mismanagement, incompetence, and dereliction of duty and sometimes allege corruption. While most of its reports fly under the radar, it occasionally takes shots at personalities and institutions guaranteed to cause controversies. With the recent scandals involving the Commonwealth Games and the 2G Spectrum Scam, CAG has been in the spotlight and has become better known to the average citizen.
CAG maintains a workforce of 43,700 spread across 150 offices throughout India. At least 87% of its 2012-2013 budget (Rs. 2214.86 crore - $400 million USD) is devoted to salaries. The 13% non-salary component (Rs. 343.63 crore - $62 million USD) is allocated for various operational expenses. The major chunk of the non-salary component goes toward travel expenses of the audit teams and miscellaneous office expenses.
What is the real damage from the 2G-spectrum scandal?
A 2010-2011 report propelled CAG into the national limelight. It alleged that the arbitrary and auction-less sale of 122 telecom licenses cost the Indian government Rs. 1.76 lakh crore (~$31.3 billion USD). This figure has become an issue of contention and has politicized what is supposed to be an independent institution. Members of a Joint Parliamentary Committee investigating the scandal have openly questioned the figure, and some have even accused CAG of having other interests in mind.
The scam has become shorthand for India’s corruption crisis. If the damage to India’s exchequer has been exaggerated for political gain, it’s an ugly reminder how Indian politicians and bureaucrats can politicize anything. It also speaks to the divide between the ruling National Progressive Alliance and the opposition led by the Bharatiya Janata Party (BJP).
A Raja Wants to Grill CAG Chief in Court (Economic Times)
How Suresh Kalmadi Spiked India’s Coming Out Party
Hosting an international sporting event is a matter of pride for a country. It is supposed to signal a country’s economic, political, and social maturation. The 2010 Commonwealth Games in Delhi, however, were marred by corruption, incompetence and apathy. Suresh Kalmadi, chairman of the Organizing Committee, was arrested amid allegations of corruption. Media and public outcry followed the conclusion of the games. In its 700-page report, CAG faulted the governance, planning, and financial management of the biggest sporting event India ever hosted. While acknowledging the successes, it cited corrupt deals, incompetent senior officers, disregard of procedures (and at times, the law), intentionally bloated budgets, security lapses, and other related issues. Moreover the report blamed the Prime Minister’s Office for installing Kalmadi as chairman. It also slammed the Administration of Delhi Chief Minister Sheila Dikshit over infrastructure projects and “questionable policy decisions.” The report caused a huge media uproar, and opposition party members called for Dikshit’s resignation. Except for Kalmadi’s arrest, little substantive action has been taken against the many individuals named.
No Glory for India in Commonwealth Games Scandals (by Soumik Mukherjee, The National)
CAG Holds PMO Responsible for Making Kalmadi Commonwealth Games Chief (Economic Times)
The Coast is Clear
The 26/11 2008 Mumbai terrorist attacks emanated from the sea. Consequently a series of programs were implemented to strengthen Indian Coast Guard (ICG), which is responsible for securing Indian shores. In August 2011, almost three years after the attacks, a CAG performance report criticized the ICG for its persistent inability to protect Indian coasts. The scathing report listed several structural as well as management flaws. In a serious blow to ICG’s credibility, the report revealed that prior to the 26/11 attacks, ICG did board and inspect any suspicious watercraft. Further, it accused ICG of misleading CAG officials by providing inaccurate data to cover up its lack of activity. The report concluded that, “ICG remains ill equipped to discharge its enhanced role and meet the challenges of today.” It seriously questioned the credibility of Indian government efforts to protect its citizens and further highlighted the bungling and apathetic nature of Indian governance and bureaucracy, even in matters of national security.
CAG Report Exposes Gaping Holes in Coast Guard’s Operations and Maritime Preparedness (Defence Now)
India’s Dangerous Skies
In a series of reports, CAG took aim at India’s incompetent civil aviation sector. A performance audit noted that the “dismal state” of Air India (AI) is a result of chronic operational deficiencies, risky acquisitions, dependence of debt funding, and incompetent officials. CAG noted that acquisition processes for the new aircraft was flawed, opaque, and took way too long. Further, the dependence on debt financing raised the AI’s debt liability over a thousand fold, from Rs. 29 crore ($5.2 million USD) to over Rs. 38,000 crore ($6.9 billion USD). The report termed it a “recipe for disaster.” It also cited that AI was flying many uneconomical routes, and that bilateral rights for foreign carriers were eating into AI’s profitability.
In another report, CAG attacked the Ministry of Civil Aviation for leasing land to Delhi International Airport Limited at a discounted rate. CAG believes this will cause the Indian government to lose out Rs. 1.63 lakh crore (~$29.4 billion) in revenue over 60 years. The ministry hit back at CAG for not investigating the issue thoroughly, and further stated that the reported figure is “grossly misleading.” Yet another report highlighted the “apathetic attitude” of the Bureau of Civil Aviation Security (BCAS) officials, and questioned the Directorate General of Civil Aviation for flawed purchases. Apart from denunciations and calls for management reforms from the media and civil society, no real action has been taken to address the specific issues highlighted by CAG.
CAG's Report on Aviation Strongly Indicts the State Ownership of Airlines (Economic Times)
CAG Report on Leasing Land to DIAL Grossly Misleading: Ministry (Economic Times)
Overspending, Apathetic Attitude Ails Civil Aviation Industry: CAG (by Bipin Kumar Singh and Sanjay Pandey, Mid-Day)
Give CAG Some Teeth
Although CAG has the authority to undertake extensive audits of central and state government bodies, it lacks any power to enforce its findings. Its reports get submitted to the legislature where they are left to the whims and calculations of politicians. While CAG is a politically independent body, its reports are used as political footballs. Opposing parties block action against their members and interests while using CAG’s reports to attempt to bring prosecutions against the other side. In light of this, CAG needs legislative backing to strengthen it. A Consultation Paper on CAG for the National Commission to Review the Working of the Constitution suggested that that CAG ought to be given powers to summon and question individuals. CAG should recommend individuals found guilty are subject to disciplinary action or, in cases of criminal liability, a prosecutor takes up their cases. To enable these actions, heads of the various audit departments should be granted with powers akin to ones under the Commission of Enquiry Act.
Ramaswamy Iyer, a former member of the Indian Audit and Accounts Service, authored a opinion piece in The Hindu¸ a leading daily, delineating steps to improve CAG’s effectiveness and strengthen it. Recommended reforms include creating a growing awareness of all CAG reports in the media and the public; attending to more CAG reports that are now collecting dust in the PAC; recharging the role of the auditor as a proactive financial and accounting detective in order to uncover scams and corruption rather than simply reporting on it after a scam has occurred at; and making full use of the constitutional and statutory provisions of CAG to convert into a truly powerful body.
A Consultation Paper on Efficacy of Public Audit System in India: CAG - Reforming the Institution (National Commission to Review the Working of the Constitution, Union Ministry of Law and Justice)
2G Spectrum Scandal Report
The 2G spectrum scandal involved the illegal sale of telecom licenses in January 2008. Then telecommunications minister A Raja, in conjunction with close associates in the telecommunications ministry and corporate executives, awarded 122 telecom licenses in one day based on 2001 prices (as opposed to the more expensive 2008 prices). It is further alleged that Raja arbitrarily added, changed, and ignored procedures in order to benefit telecommunications companies he favored, even those that were ineligible for the frequency allotment. An actual auction of the licenses was therefore not possible. The Central Bureau of Investigation (CBI) and the Income Tax Department believe that Raja probably received around Rs. 3,000 crore (~$533 million USD) in bribes for his actions.
CAG investigated the license issuance process and submitted a strongly critical report in November 2010. The report concluded that, “the entire process of allocation of licenses lacked transparency and was undertaken in an arbitrary, unfair and inequitable manner.” CAG alleged that, among other things, Raja deliberately ignored the advice of the Ministry of Law and Justice; refused to adhere to Prime Minister Manmohan Singh’s recommendations; made arbitrary changes to the application process; and issued licenses to ineligible applicants (85 out 122 were deemed ineligible). Perhaps most importantly the report alleged that Raja’s actions cost the government a staggering Rs. 1.76 lakh crore (~$31.3 billion USD) in lost revenues. This created a major political backlash. Because of the potential loss, the 2G scam is considered to be one of the worst corruption cases in Indian history. The figure, now disputed, has ignited a political debate.
In February 2011, the government established the Joint Parliamentary Committee to Examine Matters Relating to Allocation and Pricing of Telecom Licenses and Spectrum (JPC) to investigate the scandal in detail. The committee invited Vinod Rai, CAG, to testify. In particular the committee wanted to know how CAG quantified the loss to reach the Rs. 1.76 crore figure. Rai has held on to the Rs 1.76 lakh crore figure, whereas JPC members as well as outsiders disputed its accuracy.
The CAG Figure is Inaccurate
A number of different figures have been floated to quantify the true loss. Kabil Sibal, a member of the Congress Party (Raja, a DMK member, was part of the current Congress-led coalition), stated outright that “zero loss” occurred. The CBI believes that the loss was Rs. 30,984 crore ($5.5 billion USD). R.P. Singh, then Director General of Audit for the posts and telecommunications sector and lead auditor for the 2G scandal, stated that the loss was much lower, around Rs. 2,645 crore (~$477.2 million USD). The Telecom Regulatory Authority of India (TRAI) on the other hand maintained that Raja’s transactions, in fact, earned a profit between Rs. 3,000 crore ($533 million USD) and Rs. 7,000 crore ($1.2 billion USD). The debate over the number arose because CAG calculated the presumptive loss based on disputed factors, particularly the actual 2008 2G prices which remain unknown. Manish Tewari, a Congress MP and member of the JPC, hinted that by subjectively using certain numbers, CAG botched the real loss figure. To make matters worse, he further alleged that in computing the Rs. 1.76 lakh crore number “certain sections within CAG” might be in acting in corporate interests. Headlines Today, a prominent news outlet, alleged political interference in the report. It ran a story that said opposition party (BJP) strongman and Public Account Committee (PAC) chairman Murli Manohar Joshi “took an active interest” in the report, thereby implying that the huge figure is a result of political pressure. JPC also deliberated whether CAG had overstepped its constitutional mandate in calculating this presumptive loss.
The CAG Figure is Accurate
Since his first testimony to JPC in mid-2011, Vinod Rai has ardently held on the initial Rs. 1.76 lakh crore figure. CAG used three main factors to calculate a range for the lost amount: offers made by other private companies to companies who had been issued the license by Raja; using the 3G value; and the value of shares sold by license beneficiaries. The Rs. 1.76 lakh crore loss is based on the 3G value. In its report, CAG mentioned that, according to TRAI, 2G services today are actually offering 2.75G services. TRAI concluded that, “It is fair to compare existing 2G systems to 3G systems.” Further, scarcity of airwaves and supply and demand also would have played an important role in an actual auction. These factors, CAG states, make its figure an accurate estimate of the potential loss. Rai has strongly maintained that calculating the presumptive loss was within CAG’s constitutional mandate and also explicitly denied that PAC chairman Joshi had any influence on the initial report. In June 2012, CAG conducted an extensive internal audit on its 2G report and substantiated its claims. It provided evidence for its case by noting that TRAI’s new 2G prices (for 2012) are well above the 3G prices that CAG used (for 2010) in its calculations. It also highlighted the Supreme Court’s decision to rescind the 122 licenses. CAG has received support from opposition and other party members who allege politicization of the scandal.
Background
What is 2G Spectrum Scam? (NDTV)
Performance Audit Report on the Issue of Licenses and Allocation of 2G Spectrum (Comptroller and Auditor General of India)
'A Raja Made Rs 3,000 cr in Bribes' (by Dhananjay Mahapatra, Times of India)
2G loss? Govt Gained over Rs 3,000cr: TRAI (by Dhananjay Mahapatra, Times of India)
House Panel Members Quiz CAG Vinod Rai over 2G Loss Estimates (NDTV)
Vinod Rai Deposes before JPC, Stands by 2G Loss Figures of Rs. 1.76 lakh crores (India Today)
2G Scam: Auditor did not overstep Mandate, Vinod Rai Tells JPC (Economic Times)
Did PAC Chief Help CAG Peg 2G Loss Figure? (India Today)
'No PAC Influence on Our 2G Report' (NDTV: Video)
Is the Government's Auditor becoming a Victim of Politics? (by Tanima Biswas, NDTV)
Vinod Rai
Vinod Rai began serving as CAG in January 2008. Rai has extensive experience in business and finance, as well at state and national level governments. A 1972 batch Indian Administrative Service (IAS) officer from the Kerala cadre, he holds a Master’s in Economics from the Delhi School of Economics and another Master’s in Public Administration from Harvard University. His more prominent positions include Principal Secretary (Finance) for Kerala, Managing Director of the Kerala State Co-operative Marketing Federation, senior positions in the Union Ministries of Commerce and Defense, Secretary and Additional Secretary in the Union Ministry of Finance, and Director of board for several financial institutions including the State Bank of India, ICICI Bank, IDBI Bank, and Infrastructure Development and Finance Company of India. He is also involved in the international auditor community and serves as the chairman of the U.N. Panel of External Auditors and the Governing Board of the Asian Organization of Supreme Audit Institutions.
Vinod Rai (Wikipedia)
- Table of Contents
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The Comptroller and Auditor General of India (CAG) refers to both the Supreme Audit Institution of India (SAI) as well as the individual who heads the institution. Established in 1858 under the British Raj, it functions as the auditor of the executive branches of the central and state governments. This audit mandate includes government coffers, ministries, departments, autonomous bodies, and government corporations, among others. The office of CAG makes policy decisions and oversees and directs the Indian Audit and Accounts Department (IAAD). With more than 40,000 employees, CAG is a prolific institution that carries out comprehensive audits of the extensive Indian bureaucracy. Its mostly scathing performance and audit reports are considered unbiased and some also receive fair media coverage. Although perceived as generally effective, it lacks prosecutorial and enforcement powers. CAG is dependent on parliamentary review for further action on its reports. Moreover, its prolificacy coupled with the apathy of Indian politicians means that only the more controversial reports submitted to the legislature are acted upon, leaving routine financial and performance lapses unchecked. Political and personal calculations also play a role in who and what gets investigated. This greatly limits the impact of the CAG in the fight against corruption. While not afraid to cause controversies through it reports, the 2G spectrum scandal reveals the institution’s susceptibility to political interference. These intrinsic difficulties coupled with the potential of the CAG to be a truly effective organization has resulted in calls for specific reforms.
In many ways, the history of CAG parallels the history of the Indian Republic. It was established in 1858 (the year the British took over administrative control of India from the East India Company) as the Accountant General to the Government of India. The East India Company used separate entities to “prepare accounts of the three presidencies of Bengal, Madras, and Bombay.” In 1857, a decision was made to establish a separate General Department of Account responsible for all accounts. This was achieved in 1860, and an Auditor General of India was appointed to head the department. Restructuring placed the departments of Account and Audit under the control of the Financial Department headed by a Financial Secretary. The two departments were merged and consequently the Auditor General of India came to be called the Auditor and Accountant General to the Government of India. In 1866, the position was renamed Comptroller General of Accounts, and in 1884, it was re-designated as Comptroller and Auditor General of India.
The name was changed again in 1919. Section 39 of the Government of India Act provided for an auditor general in India to be appointed by the Secretary of State in Council. The act was the first instance of statutory backing for this position. The Government of India Act of 1935 renamed the position Auditor General of India and stipulated that he be appointed by the King of England. The act described the appointment and service procedures and gave a brief overview of the duties of the Auditor General of India. The Accounts and Audits Order of 1936 buttressed the 1935 act by providing detailed accounting and auditing functions of the auditor general. For the most part this arrangement remained unchanged until India’s independence in 1947.
Writers of independent India’s constitution recognized the importance of an auditing body and decided to confer it with a constitutional status. Article 148 of the 1949 Indian Constitution provided for the establishment of a Comptroller and Auditor General of India position to be appointed by the President of India. Article 149 granted a broad mandate to CAG. Dr. B.R. Ambedkar, chairman of the Drafting Committee of the 1949 Indian Constitution, was a strong supporter for making CAG a powerful position. He stated: “The CAG shall be the most important officer under the Constitution of India. For he is to be the guardian of the public purse and it is his duty to see that not a farthing is spent out of the Consolidated Fund of India or of a State without the authority of the appropriate Legislature.” This sentiment was generally espoused by Constitution framers for adequate safeguards were devised to ensure CAG’s independence. The position came into effect in April 1950, and the CAG, formerly the auditor general, came to oversee the activities of almost 16,000 members of the Indian Audit and Accounts Department (IAAD). In 1958, Jammu and Kashmir was added to CAG jurisdiction. Based on Articles 148 and 149, in 1971 the central government enacted the Comptroller and Auditor General (Duties, Powers, and Conditions of Service) Act, 1971. The act made CAG responsible for both accounting and auditing duties for central and state governments. A 1976 amendment separated accounts from audits for the central government.
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. These include the 2G Spectrum licenses, the Commonwealth Games, Bofors howitzers contract, Karnataka coal mining licenses, Adarsh Housing Society scam, Bihar fodder scam, Kargil Coffin scam, and the Telgi stamp paper scam.
The Comptroller and Auditor General of India’s office sits at top the IAAD and “directs, monitors, and controls” almost 44,000 employees across 150 offices. In this role it primarily formulates policies and audit standards and systems; provides strategic guidance; and oversees the processing and final approval of all audits. IAAD is divided into more than 100 functional specialties, with each responsible for a particular sector or other administrative duties. More broadly, however, IAAD’s functions can be classified under federal sector audit, state sector audit, account of the provinces (states), and training.
As its name suggests, CAG is the supreme auditing body in India. Its mandate is simple: to hold the executive accountable to the legislature. The 1971 act provides CAG with the power to undertake accounting and auditing duties. With the exception of Goa, CAG maintains detailed accounts of all state governments. It also publishes an annual Combined Finance and Revenue Accounts report comparing the Union and state governments. Although its accounting mandate is exhaustive, CAG has always been primarily viewed through the prism of its expansive audit duties. The 1971 act grants CAG audit powers over: receipts and expenditure from the Consolidated Funds of central, state, and Union Territory government; Contingency Fund (emergency) transactions; all government companies; all statutory corporations that provide for a CAG audit; accounts of all autonomous bodies and authorities financed by the government such as Panchayati Raj institutions, central educational institutions (IIT’s, IIM’s, etc.); and any and all accounts of all government entities, including trading, manufacturing, loss, stores, stocks, etc. To put it simply, in addition to all central government ministries, departments, and offices of central and state governments, CAG is responsible for about 1,500 government enterprises and corporations, around 400 non-commercial autonomous bodies owned or controlled by the governments, and over 4,400 entities “substantially financed” by the governments. Further, CAG can also undertake audits where substantial amounts of public funds are located. CAG audits are categorized as Compliance Audits, Financial Audits, or Performance Audits. CAG does not audit public sector banks, government corporations with a CAG audit mandate, or companies where the government holds less than 50% of the shares.
In 2009-2010, CAG audited 75,677 units, issued 135 audit reports, had 310 performance audit reports approved, and certified 5,420 accounts.
By nature CAG’s reports highlight instances of mismanagement, incompetence, and dereliction of duty and sometimes allege corruption. While most of its reports fly under the radar, it occasionally takes shots at personalities and institutions guaranteed to cause controversies. With the recent scandals involving the Commonwealth Games and the 2G Spectrum Scam, CAG has been in the spotlight and has become better known to the average citizen.
CAG maintains a workforce of 43,700 spread across 150 offices throughout India. At least 87% of its 2012-2013 budget (Rs. 2214.86 crore - $400 million USD) is devoted to salaries. The 13% non-salary component (Rs. 343.63 crore - $62 million USD) is allocated for various operational expenses. The major chunk of the non-salary component goes toward travel expenses of the audit teams and miscellaneous office expenses.
What is the real damage from the 2G-spectrum scandal?
A 2010-2011 report propelled CAG into the national limelight. It alleged that the arbitrary and auction-less sale of 122 telecom licenses cost the Indian government Rs. 1.76 lakh crore (~$31.3 billion USD). This figure has become an issue of contention and has politicized what is supposed to be an independent institution. Members of a Joint Parliamentary Committee investigating the scandal have openly questioned the figure, and some have even accused CAG of having other interests in mind.
The scam has become shorthand for India’s corruption crisis. If the damage to India’s exchequer has been exaggerated for political gain, it’s an ugly reminder how Indian politicians and bureaucrats can politicize anything. It also speaks to the divide between the ruling National Progressive Alliance and the opposition led by the Bharatiya Janata Party (BJP).
A Raja Wants to Grill CAG Chief in Court (Economic Times)
How Suresh Kalmadi Spiked India’s Coming Out Party
Hosting an international sporting event is a matter of pride for a country. It is supposed to signal a country’s economic, political, and social maturation. The 2010 Commonwealth Games in Delhi, however, were marred by corruption, incompetence and apathy. Suresh Kalmadi, chairman of the Organizing Committee, was arrested amid allegations of corruption. Media and public outcry followed the conclusion of the games. In its 700-page report, CAG faulted the governance, planning, and financial management of the biggest sporting event India ever hosted. While acknowledging the successes, it cited corrupt deals, incompetent senior officers, disregard of procedures (and at times, the law), intentionally bloated budgets, security lapses, and other related issues. Moreover the report blamed the Prime Minister’s Office for installing Kalmadi as chairman. It also slammed the Administration of Delhi Chief Minister Sheila Dikshit over infrastructure projects and “questionable policy decisions.” The report caused a huge media uproar, and opposition party members called for Dikshit’s resignation. Except for Kalmadi’s arrest, little substantive action has been taken against the many individuals named.
No Glory for India in Commonwealth Games Scandals (by Soumik Mukherjee, The National)
CAG Holds PMO Responsible for Making Kalmadi Commonwealth Games Chief (Economic Times)
The Coast is Clear
The 26/11 2008 Mumbai terrorist attacks emanated from the sea. Consequently a series of programs were implemented to strengthen Indian Coast Guard (ICG), which is responsible for securing Indian shores. In August 2011, almost three years after the attacks, a CAG performance report criticized the ICG for its persistent inability to protect Indian coasts. The scathing report listed several structural as well as management flaws. In a serious blow to ICG’s credibility, the report revealed that prior to the 26/11 attacks, ICG did board and inspect any suspicious watercraft. Further, it accused ICG of misleading CAG officials by providing inaccurate data to cover up its lack of activity. The report concluded that, “ICG remains ill equipped to discharge its enhanced role and meet the challenges of today.” It seriously questioned the credibility of Indian government efforts to protect its citizens and further highlighted the bungling and apathetic nature of Indian governance and bureaucracy, even in matters of national security.
CAG Report Exposes Gaping Holes in Coast Guard’s Operations and Maritime Preparedness (Defence Now)
India’s Dangerous Skies
In a series of reports, CAG took aim at India’s incompetent civil aviation sector. A performance audit noted that the “dismal state” of Air India (AI) is a result of chronic operational deficiencies, risky acquisitions, dependence of debt funding, and incompetent officials. CAG noted that acquisition processes for the new aircraft was flawed, opaque, and took way too long. Further, the dependence on debt financing raised the AI’s debt liability over a thousand fold, from Rs. 29 crore ($5.2 million USD) to over Rs. 38,000 crore ($6.9 billion USD). The report termed it a “recipe for disaster.” It also cited that AI was flying many uneconomical routes, and that bilateral rights for foreign carriers were eating into AI’s profitability.
In another report, CAG attacked the Ministry of Civil Aviation for leasing land to Delhi International Airport Limited at a discounted rate. CAG believes this will cause the Indian government to lose out Rs. 1.63 lakh crore (~$29.4 billion) in revenue over 60 years. The ministry hit back at CAG for not investigating the issue thoroughly, and further stated that the reported figure is “grossly misleading.” Yet another report highlighted the “apathetic attitude” of the Bureau of Civil Aviation Security (BCAS) officials, and questioned the Directorate General of Civil Aviation for flawed purchases. Apart from denunciations and calls for management reforms from the media and civil society, no real action has been taken to address the specific issues highlighted by CAG.
CAG's Report on Aviation Strongly Indicts the State Ownership of Airlines (Economic Times)
CAG Report on Leasing Land to DIAL Grossly Misleading: Ministry (Economic Times)
Overspending, Apathetic Attitude Ails Civil Aviation Industry: CAG (by Bipin Kumar Singh and Sanjay Pandey, Mid-Day)
Give CAG Some Teeth
Although CAG has the authority to undertake extensive audits of central and state government bodies, it lacks any power to enforce its findings. Its reports get submitted to the legislature where they are left to the whims and calculations of politicians. While CAG is a politically independent body, its reports are used as political footballs. Opposing parties block action against their members and interests while using CAG’s reports to attempt to bring prosecutions against the other side. In light of this, CAG needs legislative backing to strengthen it. A Consultation Paper on CAG for the National Commission to Review the Working of the Constitution suggested that that CAG ought to be given powers to summon and question individuals. CAG should recommend individuals found guilty are subject to disciplinary action or, in cases of criminal liability, a prosecutor takes up their cases. To enable these actions, heads of the various audit departments should be granted with powers akin to ones under the Commission of Enquiry Act.
Ramaswamy Iyer, a former member of the Indian Audit and Accounts Service, authored a opinion piece in The Hindu¸ a leading daily, delineating steps to improve CAG’s effectiveness and strengthen it. Recommended reforms include creating a growing awareness of all CAG reports in the media and the public; attending to more CAG reports that are now collecting dust in the PAC; recharging the role of the auditor as a proactive financial and accounting detective in order to uncover scams and corruption rather than simply reporting on it after a scam has occurred at; and making full use of the constitutional and statutory provisions of CAG to convert into a truly powerful body.
A Consultation Paper on Efficacy of Public Audit System in India: CAG - Reforming the Institution (National Commission to Review the Working of the Constitution, Union Ministry of Law and Justice)
2G Spectrum Scandal Report
The 2G spectrum scandal involved the illegal sale of telecom licenses in January 2008. Then telecommunications minister A Raja, in conjunction with close associates in the telecommunications ministry and corporate executives, awarded 122 telecom licenses in one day based on 2001 prices (as opposed to the more expensive 2008 prices). It is further alleged that Raja arbitrarily added, changed, and ignored procedures in order to benefit telecommunications companies he favored, even those that were ineligible for the frequency allotment. An actual auction of the licenses was therefore not possible. The Central Bureau of Investigation (CBI) and the Income Tax Department believe that Raja probably received around Rs. 3,000 crore (~$533 million USD) in bribes for his actions.
CAG investigated the license issuance process and submitted a strongly critical report in November 2010. The report concluded that, “the entire process of allocation of licenses lacked transparency and was undertaken in an arbitrary, unfair and inequitable manner.” CAG alleged that, among other things, Raja deliberately ignored the advice of the Ministry of Law and Justice; refused to adhere to Prime Minister Manmohan Singh’s recommendations; made arbitrary changes to the application process; and issued licenses to ineligible applicants (85 out 122 were deemed ineligible). Perhaps most importantly the report alleged that Raja’s actions cost the government a staggering Rs. 1.76 lakh crore (~$31.3 billion USD) in lost revenues. This created a major political backlash. Because of the potential loss, the 2G scam is considered to be one of the worst corruption cases in Indian history. The figure, now disputed, has ignited a political debate.
In February 2011, the government established the Joint Parliamentary Committee to Examine Matters Relating to Allocation and Pricing of Telecom Licenses and Spectrum (JPC) to investigate the scandal in detail. The committee invited Vinod Rai, CAG, to testify. In particular the committee wanted to know how CAG quantified the loss to reach the Rs. 1.76 crore figure. Rai has held on to the Rs 1.76 lakh crore figure, whereas JPC members as well as outsiders disputed its accuracy.
The CAG Figure is Inaccurate
A number of different figures have been floated to quantify the true loss. Kabil Sibal, a member of the Congress Party (Raja, a DMK member, was part of the current Congress-led coalition), stated outright that “zero loss” occurred. The CBI believes that the loss was Rs. 30,984 crore ($5.5 billion USD). R.P. Singh, then Director General of Audit for the posts and telecommunications sector and lead auditor for the 2G scandal, stated that the loss was much lower, around Rs. 2,645 crore (~$477.2 million USD). The Telecom Regulatory Authority of India (TRAI) on the other hand maintained that Raja’s transactions, in fact, earned a profit between Rs. 3,000 crore ($533 million USD) and Rs. 7,000 crore ($1.2 billion USD). The debate over the number arose because CAG calculated the presumptive loss based on disputed factors, particularly the actual 2008 2G prices which remain unknown. Manish Tewari, a Congress MP and member of the JPC, hinted that by subjectively using certain numbers, CAG botched the real loss figure. To make matters worse, he further alleged that in computing the Rs. 1.76 lakh crore number “certain sections within CAG” might be in acting in corporate interests. Headlines Today, a prominent news outlet, alleged political interference in the report. It ran a story that said opposition party (BJP) strongman and Public Account Committee (PAC) chairman Murli Manohar Joshi “took an active interest” in the report, thereby implying that the huge figure is a result of political pressure. JPC also deliberated whether CAG had overstepped its constitutional mandate in calculating this presumptive loss.
The CAG Figure is Accurate
Since his first testimony to JPC in mid-2011, Vinod Rai has ardently held on the initial Rs. 1.76 lakh crore figure. CAG used three main factors to calculate a range for the lost amount: offers made by other private companies to companies who had been issued the license by Raja; using the 3G value; and the value of shares sold by license beneficiaries. The Rs. 1.76 lakh crore loss is based on the 3G value. In its report, CAG mentioned that, according to TRAI, 2G services today are actually offering 2.75G services. TRAI concluded that, “It is fair to compare existing 2G systems to 3G systems.” Further, scarcity of airwaves and supply and demand also would have played an important role in an actual auction. These factors, CAG states, make its figure an accurate estimate of the potential loss. Rai has strongly maintained that calculating the presumptive loss was within CAG’s constitutional mandate and also explicitly denied that PAC chairman Joshi had any influence on the initial report. In June 2012, CAG conducted an extensive internal audit on its 2G report and substantiated its claims. It provided evidence for its case by noting that TRAI’s new 2G prices (for 2012) are well above the 3G prices that CAG used (for 2010) in its calculations. It also highlighted the Supreme Court’s decision to rescind the 122 licenses. CAG has received support from opposition and other party members who allege politicization of the scandal.
Background
What is 2G Spectrum Scam? (NDTV)
Performance Audit Report on the Issue of Licenses and Allocation of 2G Spectrum (Comptroller and Auditor General of India)
'A Raja Made Rs 3,000 cr in Bribes' (by Dhananjay Mahapatra, Times of India)
2G loss? Govt Gained over Rs 3,000cr: TRAI (by Dhananjay Mahapatra, Times of India)
House Panel Members Quiz CAG Vinod Rai over 2G Loss Estimates (NDTV)
Vinod Rai Deposes before JPC, Stands by 2G Loss Figures of Rs. 1.76 lakh crores (India Today)
2G Scam: Auditor did not overstep Mandate, Vinod Rai Tells JPC (Economic Times)
Did PAC Chief Help CAG Peg 2G Loss Figure? (India Today)
'No PAC Influence on Our 2G Report' (NDTV: Video)
Is the Government's Auditor becoming a Victim of Politics? (by Tanima Biswas, NDTV)
Vinod Rai
Vinod Rai began serving as CAG in January 2008. Rai has extensive experience in business and finance, as well at state and national level governments. A 1972 batch Indian Administrative Service (IAS) officer from the Kerala cadre, he holds a Master’s in Economics from the Delhi School of Economics and another Master’s in Public Administration from Harvard University. His more prominent positions include Principal Secretary (Finance) for Kerala, Managing Director of the Kerala State Co-operative Marketing Federation, senior positions in the Union Ministries of Commerce and Defense, Secretary and Additional Secretary in the Union Ministry of Finance, and Director of board for several financial institutions including the State Bank of India, ICICI Bank, IDBI Bank, and Infrastructure Development and Finance Company of India. He is also involved in the international auditor community and serves as the chairman of the U.N. Panel of External Auditors and the Governing Board of the Asian Organization of Supreme Audit Institutions.
Vinod Rai (Wikipedia)
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