strategic plan 2020 prepared by the group of officers and perspective plan

STRATEGIC PLAN ‐ 2020

FOR IAAD

SEPTEMBER 2010

Table of Contents

Executive Summary ......................................................................................................................... i

1 Setting the Context.........................................................................................................................1

1.1 Institution of the CAG and the Indian Audit and Accounts Department........................................................... 1

1.2 Existing/ Previous Plans......................................................................................................................................... 2

1.3 Changing Focus of Governance in 2020............................................................................................................... 3

1.4 Need for a separate Strategic Plan ‐2020 for IAAD............................................................................................. 4

2 Overall Framework of Strategic Plan‐2020 for IAAD.......................................................................6

2.1 Terms of Reference ............................................................................................................................................... 6

2.2 International Practices .......................................................................................................................................... 6

2.3 Scope and Coverage of Strategic Plan – 2020 for IAAD ...................................................................................... 7

2.4 High Level Strategic Goals..................................................................................................................................... 7

2.5 Mechanism for Implementation and Monitoring ............................................................................................... 7

3 Goal 1: Integrating audit efforts .....................................................................................................9

3.1 Background ............................................................................................................................................................ 9

3.2 Re‐Organising Audit of GoI according to Ministry.............................................................................................10

3.3 Current Audit Organisation.................................................................................................................................11

3.4 Proposed Audit Organisation..............................................................................................................................11

3.5 Staff Implications of Re‐organisation of GoI Audits ..........................................................................................14

3.6 Re‐organisation of Audit of States......................................................................................................................14

4 Goal 2 : Promoting Professionalism in Public Sector Auditing ......................................................16

4.1 Sector‐specific knowledge centres and resource persons................................................................................16

4.2 Encourage central and state governments to build and strengthen institutional arrangements for internal

audit and risk management ..........................................................................................................................................18

4.3 Establishing a Chartered Institute of Public Accountants and Auditors of India (CIPAAI)..............................19

4.4 Setting up an International Consultancy wing...................................................................................................22

5 Goal 3: Improving communication with stakeholders and ensuring higher visibility....................24

5.1 Need for the CAG to be more proactive in his interactions with the media...................................................24

5.2 Setting up a separate Parliamentary/Legislative Relations Unit......................................................................26

5.3 Building a brand for the organisation ................................................................................................................26

5.4 Treat Inspection Reports as products of the CAG for consumption by the public and other stakeholders .27

5.5 Introduce more Value added products other than audit reports like ‘Aid to Management Series’ .............27

5.6 Setting up counters in each city for distributing audit reports to common citizens ......................................30

5.7 Giving more focus on dissemination and communication through Hindi/ Vernacular languages ................30

5.8 Revamping the CAG Website ..............................................................................................................................31

6 Goal 4: Enhancing Audit Effectiveness and Impact.......................................................................32

6.1 Integrated Approach to Financial and Compliance Audit.................................................................................32

6.2 Enhanced Focus on Financial Attest Audit of Government Accounts..............................................................35

6.3 Financial Attest Audit of Government Companies and Autonomous bodies..................................................39

6.4 Reorientation of approach to Compliance Audit ..............................................................................................40

6.5 Strengthening Performance Audit......................................................................................................................43

7 Goal 5: Improving delivery of accounting and entitlement functions...........................................48

7.1 Accounting Functions ..........................................................................................................................................48

7.2 Entitlement functions..........................................................................................................................................56

8 Goal 6: Improving Human Resource Management.......................................................................58

8.1 Background ..........................................................................................................................................................58

8.2 Review of existing staff strength ........................................................................................................................59

8.3 Ensuring optimum span of control .....................................................................................................................59

8.4 Recruitment and Promotion ...............................................................................................................................60

8.5 Ensure stability of tenure....................................................................................................................................65

8.6 Develop leadership qualities in young IAAS Officers by giving higher responsibility .....................................66

Annexe 1 – Perspective Plan 2010‐15 – Key Goals......................................................................................................69

Annexe 2 – Mapping of Goals between Strategic Plan – 2020 for IAAD and Perspective Plan 2010‐15 ................72

Annexe 3 – Indicative Performance Measures..........................................................................................................73

Annexe 4 – Proposed Re‐organisation of GoI Audit Offices .......................................................................................75

Annexe 5 ‐ Proposal for establishing a Chartered Institute of Public Accountants & Auditors of India (CIPAAI)...78

Annexe 6 – Suggested Approach to Integrated Financial‐cum‐Compliance Audit ...................................................84

GLOSSARY OF TERMS.....................................................................................................................................................88

Strategic Plan2020 for IAAD

Executive Summary

Background In March 2010, the CAG had indicated that the vision and mission statements for the IAAD were being

revisited, and a Strategic Plan was necessary in order to realize the vision and elaborate on the activities that would flow from the mission. The Strategic Plan is expected to provide direction to the Department for the next ten years, and would cover both audit and accounts/ entitlement functions. A working

group, consisting of Shri KR Sriram, Shri RG Viswanathan, Ms. Rebecca Mathai, Shri YN Thakare (Convenor), Shri Anadi Mishra, and Ms. Vidhu Sood, was constituted to come up with a Strategic Plan that was in consonance with the existing/ proposed legislative mandate.

We reviewed the strategic / corporate plans of several SAIs, in order to consider the international

practices followed in corporate planning. Further, we also identified the following patterns in governance that are likely to emerge over the next ten years or so:

• Delivery of basic services will continue to remain Government’s responsibility.

• PPP will become the predominant mode for delivering infrastructure and other economic

services.

• Devolution and decentralization will increase substantially.

• IT will be used in an integrated fashion to drive governance and empower the citizen.

• Sustainable development and the rights of underprivileged groups will become larger concerns.

• Fraud, corruption and waste will continue to remain key concerns.

These patterns have acted as drivers for our Strategic Plan. In our view, this Strategic Plan should represent the overarching framework for planning in the IAAD, which will need to be supported by detailed plans over five year and annual time horizons. We have identified six key goals. Our recommendations in respect of these goals are summarized below:

Goal 1 – Integrating Audit Efforts Our current arrangements for audit of GoI entities are organized based on the nature of the entity (Government office, PSU, autonomous body etc.), rather than with a Ministry/ sectoral perspective. We recommend the following:

1A. Re‐structuring the organizational structure for audit of Government of India entities on the basis of the Ministry/ Department, rather than on the type of the entity (Government office, PSU, Autonomous Body etc). In this way, a Central Ministry as well as the PSUs and Autonomous Bodies under it will be audited together by a single office (or group of offices), and audit of several Ministries/ Departments (grouped sector‐wise) will be under a single DAI. The existing boundaries of Civil, Defence, Railway, Commercial and Autonomous Bodies Audit will be done away with.

1B. Regional ADAIs for State Reports, with arrangements for co‐ordination and ensuring consistency in a country‐wide approach.

Goal 2 – Promoting professionalism in public sector auditing We recommend the following measures, to promote greater professionalism within the IAAD:

2A. Creating an institutional mechanism of Knowledge Centres (KCs) for knowledge capture and maintenance on a sector‐specific basis

2B. Creating sector‐specific pools of Knowledge Resource Persons (KRPs) at two levels (IAAS and supervisory officials) and providing suitable remuneration for this continuing, additional responsibility

2C. Encouraging Central and State Governments to build and strengthen institutional arrangements for internal audit and risk management

2D. Establishing a Chartered Institute for Public Accountants and Auditors of India (CIPAAI) on the lines of ICAI and ICWAI, under the aegis of the CAG of India.

2E. CIPAAI would tackle issues of day‐to‐day accounting problems and professional upgradation of the skills of the vast pool of finance, accounts and audit personnel at the grass roots level, and address deficiencies in the accounting processes and financial controls across organisation

like huge arrears in accounts finalisation and weaknesses in internal audit.

2F. CIPAAI would provide professional certification to the Group A professionals of the CAG organisation entering into the Government of India through Civil Service Examinations.

2G. CIPAAI would provide professional certification to the Group B and C professionals from the CAG by subsuming the SOGE currently being conducted by the CAG and also to other finance, accounting and audit professionals in State/Central government departments on demand.

2H. The need in SAI India to set up an International Consultancy wing, as there is a great demand for SAI India’s expertise in areas of Public Audit and Financial Management amongst many SAIs who are in the process of developing the public audit systems in their countries.

Goal 3 – Improving communication with stakeholders and ensuring higher visibility

We recommend the following measures for improved communication with all stakeholders:

3A. Need for the CAG to be more proactive in his interactions with the media

3B. Setting up a separate Parliamentary/Legislative Relations Unit to extend proactive support

3C. Building a brand for the organisation

3D. Treating Inspection Reports as products of the CAG for consumption by the public and other stakeholders

3E. Introducing more value added products like study reports, compendiums etc., so that they act as ‘Aids to Management’

3F. Setting up counters in each city for distributing audit reports to common citizens

3G. Giving more focused dissemination and communication through vernacular languages

3H. Revamping the CAG website

Goal 4 – Enhancing audit effectiveness and impact With regard to an integrated approach to financial and compliance audits, we recommend:

4A. Conducting pilot integrated financial‐cum‐compliance audits in different areas with a view to assessing the advantages and disadvantages of such integration, and drawing up a phased approach to integrated financial‐cum‐compliance audit

We recommend the following approach for financial attest audits

4B. Strengthening the assurance based approach to financial attest audit of Government accounts

4C. Preparing detailed annual financial attest audit plans and evolving appropriate statistical

models

4D. Combining inputs from past audit findings and VLC data analysis into the financial audit process

4E. Commenting on adequacy and effectiveness of internal controls affecting the accuracy of financial statements, and encourage moves towards a Management Responsibility Statement

4F. Introducing audit automation software, towards preparation of assurance memos

4G. Building capacity for the forthcoming alignment of Indian Accounting Standards with IFRS from April 2011

4H. Move towards conduct of certification audit of autonomous bodies exclusively by commercial audit staff

With regard to compliance audit, we recommend the following:

4I. Switching to a thematic approach for compliance audit (involving at least 80% of available compliance audit resources), with assurance‐based reporting and follow‐up based on recommendations

4J. Reducing the number of compliance audits and IRs drastically, and introducing detailed audit planning for thematic audits

4K. Introducing audit automation software, for systematic documentation and working papers

With regard to performance audit, we recommend the following:

4L. Since Performance Audits greatly enrich public accountability and enable the CAG of India to make practical contributions to improving the efficiency and effectiveness of the public administration, there is a need to increase the allotted party man days on such audits from the current exposure of around 10 per cent to 50 per cent by 2020.

4M. New strategies to strengthen the process of Performance Audits like greater stakeholder involvement, fine‐tuning audit methodology and redefining the follow‐up process, need to be institutionalised so that Performance Audits make the desired impact.

Goal 5 – Improving delivery of accounting and entitlement functions

With regard to accounting and entitlement functions, we recommend the following:

5A. Encouraging States to assume ownership of accounts, where they express willingness and possess adequate capacity

5B. Leading reforms of the accounting structure and partnering the GoI/ States in ushering in institutional accounting mechanisms for direct transfers of funds

5C. Transforming A&E offices into data centres for financial information and analysis

5D. Encouraging States in developing capacity for assuming entitlement functions, and managing a diminishing role

5E. Ensuring effective use of technology for delivering services of the highest quality, as long as entitlement functions remain with IAAD

Goal 6 – Improving Human Resources management In view of the enormous demands on our audit resources due to the likely changes in governance, HR (both at the Group A and Group B levels) will need considerable revamping. We recommend the following:

6A. Reviewing office wise existing sanctioned staff strength to ensure that audit resources are optimally deployed across all offices

6B. Determining the right span of control for Group Officers to achieve quality performance

6C. Recruiting only at Assistant Audit Officer level and phasing out recruitment at auditor, clerk, steno and Group D levels.

6D. Creating an exclusive IAAS Group B Service (with DAG level posts in the Group B cadre)

6E. Creating Zonal Cadres of IAAS‐Group B in the short term and an All India cadre in the long term

6F. Modifying Recruitment Rules for IAAS‐Group A to include fast track promotions from IAAS – Group B

6G. Creating an IAAD Recruitment Board

6H. Ensuring a constant intake of Professionals into IAAS Group B

6I. Raise benchmark for promotion by selection to “Very Good”

Operationalising the Strategic Plan and Monitoring Implementation

For operationalising the Strategic Plan‐2020 (after its approval), a full‐time Strategic Planning Group needs to be created. This group will be responsible for finalizing the detailed implementation (for approval by the competent authority), and monitoring its roll‐out in a phased manner.

For ensuring effective monitoring of implementation of the Strategic Plan, formal mechanisms for monitoring are essential in the form of performance measures for each goal, along with associated timelines. An indicative set of performance measures and timelines has been suggested.

9th September, 2010 Strategic Plan‐2020 prepared by Group of Officers Page 1

Strategic Plan ‐2020 for IAAD – 9 th September 2010

1. Setting the Context

1.1 Institution of the CAG and the Indian Audit and Accounts Department

The Comptroller and Auditor General of India (CAG) is an independent Constitutional functionary, who derives his authority from Articles 148 to 151 of the Constitution. His duties, powers and conditions of service have been amplified in the CAG’s DPC Act, 1971 1 .

The Indian Audit and Accounts Department (IAAD) under the CAG is the instrument through which his Constitutional and legal functions are discharged. Our current vision, mission, and core values are as follows:

Vision

We strive to be a global leader and initiator of national and international best practices in public sector auditing and accounting, and renowned for independent, reliable, balanced and timely reporting on public finance and governance.

Mission

As mandated by the Constitution of India, we promote accountability, transparency and good governance through high quality auditing and accounting and provide independent assurance to our primary stakeholders – the Legislature, the Executive and the Public – that public funds are being used properly, and for the intended purposes.

Our Core Values

Independence

Objectivity

Integrity

Credibility

Professional Excellence

Transparency

Innovation

Knowledge‐centric Organization

Constructive Approach

1.2 Existing/ Previous Plans

1 In addition, certain other Central Acts e.g. The Companies Act, 1956 also assign additional responsibilities to the CAG.


1. 2. 1 Strategic Audit Plan

A Strategic Audit Plan for 2002‐08 was prepared for the Department as a whole, setting forth the Organisation’s strategic perspective for the six year period. The priorities adopted for the X Plan of the GoI by the Planning Commission by the key drivers for this Strategic Audit Plan.

The Plan identified five key themes having a critical bearing on the Indian economy and the quality of life of people – human development; economic liberalization; infrastructure modernization; technology upgradation; and national security. It also identified 21 strategic objectives under these five themes, in respect of which detailed performance goals for audit were set.

Currently, IAAD does not have a Strategic Audit Plan, which cuts across all functions/ wings/ offices; the last Strategic Audit Plan for the IAAD covered the period from 2002‐2008.

We need a single Strategic Audit Plan for Central Government Audit (typically for a five year period), covering all functions/ wings – Civil, Commercial, Defence, Railways, P&T, Autonomous Bodies, Revenue – and also covering performance and compliance audit by the State PAGs/ AGs of implementation of Centrally Sponsored Schemes (CSS)/ Central Sector Schemes through grass‐root level implementing agencies. The key themes/ focus areas for this Strategic Audit Plan will be driven by the priorities spelt out in the XI Plan and its Mid‐Term Appraisal, the Finance Commission Report etc. Such a plan has to be necessarily adopted/ approved at the level of IAAD top management and the CAG, as its implementation would require commitment and support from all wings and functions. A similar approach has to be

adopted in respect of each State, covering all wings – civil, works, commercial, autonomous bodies, local bodies, revenue.

However, drawing up such a Strategic Audit Plan is a distinct exercise from this document, and would require a separate task force.

1. 2. 2 Perspective Plans – 200308 and 201015

Two sets of perspective plans, setting out Department‐wide perspectives on different areas for the next five years, have been prepared. The first Perspective Plan was for the period 2003‐08, while the Perspective Plan for 2010‐15 was finalized recently. A summary of the key goals of the Perspective Plan 2010‐15 is given in Annexe‐1.

There is substantial congruence between the goals and objectives set out in the latest Perspective Plan and the strategic objectives indicated in this document, although the time horizon of this Strategic Plan is longer. A mapping between key goals in these documents has

been prepared and is indicated in Annexe‐2.


1. 2. 3 Discussions and Recommendations of Conferences of Accountants General

The Conferences of Accountants General (in particular the last two Conferences) have dealt with several strategic issues in different areas, through preparations of theme papers on areas of concerns and discussions/ recommendations thereon. Many of the issues discussed in this document have featured in the recent XXV AsG Conference.

1. 2. 4 Audit Plans of Individual Offices

Individual field audit offices prepare their Annual Audit Plans, which detail the allocation of audit resources across different categories/ sub‐categories of audit, the themes for performance audit and units for compliance audit etc. In addition, some field offices also prepare Strategic Audit Plans for performance and compliance audits, which detail the key focus areas to be covered during the next 3‐5 years.

1.3 Changing Focus of Governance in 2020

Over the next ten years or so, we believe that the following patterns in governance are likely to emerge:

• Delivery of Basic Services will continue to remain Government’s responsibility – Despite

the high trajectory growth of the Indian economy in the last few years and the increasing

contribution of the private sector to the Indian economy, the Government (Central, State and Local) will continue to retain responsibility for providing most basic services to the

common citizen e.g. health, education, employment support, rural infrastructure etc.

• Public Private Partnerships (PPP) will become the predominant mode for delivering

infrastructure and other economic services – The Government has recognized PPP to be the preferred mode for provision of infrastructure services, both on account of the limited

resources available to Government (which would be better utilized for delivery of social services) as well as increased efficiency in delivery of services; this trend will accelerate further to go beyond national highways, ports and airports to cover other infrastructural

services. The Government will step in only in situations where such services are inherently uneconomical, either through viability gap funding or through direct provision of services. Also, in other economic services (particularly those involving exploitation of natural resources e.g. oil and gas, minerals etc.), private sector participation through appropriate revenue sharing arrangements will become the norm. The role of Government in these

areas is likely to become more and more facilitative and regulatory, focusing on aspects like ensuring a level playing field, protecting the interests of the citizens/ users, and ensuring Value For Money to the Government.

• Devolution and Decentralisation will increase substantially – The trend towards devolution

of powers not only to the State Governments (e.g. the proposed GST) but also PRIs and


ULBs will gain momentum. Also, decentralization of programme implementation (through NGOs, civil society organizations, as well as quasi‐ government organizations, Govenrment/ NGO partnerships) will continue 2 to gain pace.

• Information Technology will be used in an integrated fashion to drive governance and

empower the citizen – Although IT has made considerable inroads into many Government

Departments and Ministries, it has been implemented, by and large, in a fragmented fashion and provision of e‐governance services to citizens has been very limited in scope. IT is still not as critical to or integrated into Governmental operations, as in the Indian corporate sector. Over the next ten years, with the implementation of various e‐governance initiatives/ missions, introduction of Unique Identification for citizens, leveraging of GIS and

other technologies, and better integration with mobile technology (which represents the most accessible technology for the common citizen), we expect that IT driven governance in

2020 will reach at least the current levels prevalent in developed countries, if not surpassing them. Citizens – rich and poor – will be far more empowered to hold Governments and Government officials accountable for delivery (or non‐delivery) of mandated services.

• Sustainable Development and the Rights of Underprivileged Groups will become larger concerns – With the increased role for private players, conflicts between the rights of

private parties as well as those of society will continue to increase (as is to be expected in a

vast, diverse and yet democratic nation like India). Ensuring sustainable development (while minimizing the adverse impact on environment) and protecting/ promoting the interests of underprivileged groups in society will become larger concerns, and the role of NGOs and civil society organizations in promoting greater public debate on these issues will increase.

Governments will have to play an increasingly sensitive role in managing these conflicts, and balancing the interests of all parties.

• Fraud, Corruption and Waste will continue to remain key concerns – Notwithstanding

projections of economic growth and improved governance structures, fraud, corruption, waste and other financial irregularities (which have been longstanding concerns of not only the IAAD but also the CBI and CVC) will continue to remain key concerns.

These trends in governance will have serious and long‐term implications for our strategic audit approach, which will have to adapt to newer methods of programme and service delivery, while at the same time retaining our focus on fraud, corruption and related issues.

1.4 Need for a separate Strategic Plan 2020 for IAAD

2 Notwithstanding our concerns on the weakened structures for accountability and financial management


In this context, there is a need for an overarching framework which would provide direction and guidance on all significant areas for a longer time horizon (10 years or more). For example, the changes proposed in terms of Human Resources management as well as audit integration will take longer than a 3‐5 year time frame (which is the normal timeframe for other plans) for being fully operationalised, and for benefits to be derived from such changes to be fully achieved. This Strategic Plan‐ 2020 for IAAD seeks to fulfil this need.

Hierarchy of Plans


2 Overall Framework of Strategic Plan2020 for IAAD

2.1 Terms of Reference

In March 2010, the CAG had indicated that the vision and mission statements for the IAAD were being revisited, and a Strategic Plan was necessary in order to realize the vision and elaborate on the activities that would flow from the mission. The Strategic Plan is expected to provide direction to the Department for the next ten years, and would cover both audit and accounts/ entitlement functions. A working

group, consisting of Shri KR Sriram, Shri RG Viswanathan, Ms. Rebecca Mathai, Shri YN Thakare (Convenor), Shri Anadi Mishra, and Ms. Vidhu Sood, was constituted to come up with a Strategic Plan that was in consonance with the existing/ proposed legislative mandate.

2.2 International Practices

In order to consider the international practices followed in corporate planning, the group reviewed the strategic / corporate plans of several SAIs – USA, UK, New Zealand, Canada, Australia, South Africa, and Ireland. The practices followed by different SAIs for corporate planning varied widely, as summarized below:

• The US GAO’s Strategic Plan was predominantly a strategic audit plan – three out of four

top‐level strategic plans were “external” goals, while only one goal was an internal goal focused on “achieving results that are unmatched by any other accountability organization in the world”. The corporate plans of the other SAIs did not, however, spell out their audit focus areas in detail.

• Most of the strategic plans were for periods ranging from three to six years.

• The mix of performance and financial audit in the corporate plan varied from SAI to SAI. The

US GAO is predominantly performance audit oriented, while UK and New Zealand are financial audit focused (New Zealand allocates 87 per cent of its resources to financial

audit). None of the developed country SAIs had anything similar to our transaction/ compliance audit – they had either financial audit or performance / VFM audit.

• Most SAIs conducted formal periodic surveys of their stakeholders (Legislature/ Executive)

to take into consider their requests for audits, and also obtain feedback about the quality of their audit products. In fact, between 86 to 94 per cent of GAO’s programme audits were undertaken in response to legislative requests.

• Other SAIs treat all their outputs (audit opinions on financial statements, VFM/ program

evaluation reports, legislative testimonies, briefings to Congressional assistants etc.) as audit products. In contrast, our general position is that Inspection Reports represent only a

set of preliminary audit findings, rather than a stand‐alone audit product.


• All SAIs used their Annual Performance Report (or equivalent document) as a tool for

periodic reporting of progress vis‐à‐vis the goals and targets stipulated in the Corporate/ Strategic Plan.

2.3 Scope and Coverage of Strategic Plan – 2020 for IAAD

The Strategic Plan ‐ 2020 should form the overarching framework for planning in the IAAD. This will have to be supported by detailed functional plans over a five year time horizon ‐ a Strategic Audit Plan; a Strategic Plan for Accounts and Entitlements; HR and Infrastructural Support Plan etc. Annual Plans for different offices will have to be derived from these detailed functional plans, and should be in consonance with the overall Strategic Plan.

2.4 High Level Strategic Goals

The high‐level strategic goals indicated in this Strategic Plan are summarized below:

Goal 1 – Integrating audit efforts Goal 2 – Promoting professionalism in public sector auditing

Goal 3 – Improving communication with stakeholders and ensuring higher visibility

Goal 4 – Enhancing audit effectiveness and impact

Goal 5 – Improving delivery of accounting and entitlement functions

Goal 6 – Improving HR management

2.5 Mechanism for Implementation and Monitoring

For operationalising the Strategic Plan‐2020 (after its approval), a full‐time Strategic Planning Group (headed by a DG/PD, and with two Directors) needs to be created. This group will be responsible for finalizing the detailed implementation (for approval by the competent authority), and monitoring its roll‐out in a phased manner.

For ensuring effective monitoring of implementation of the Strategic Plan ‐2020 3 , formal mechanisms for monitoring are essential:

• Performance measures for each goal, along with associated timelines, need to be finalized.

An indicative set of performance measures and timelines is indicated in Annexe‐3; these will need to be firmed up and approved.

• An annual review by IAAD top management of implementation of the goals and objectives

should be conducted, with decisions on corrective measures to be taken.

3 As well as the Perspective Plan 2010‐15


• The Annual Performance Report should be re‐oriented from reporting activities in different

areas (auditing, accounting, budget, personnel) to reporting performance vis‐à‐vis the laid down goals and objectives; this can be supported by internal half‐yearly reports.


3 Goal 1: Integrating audit efforts

This strategy is about:

1A. Re‐structuring the organizational structure for audit of Government of India entities on the basis of the Ministry/ Department, rather than on the type of the entity (Government office, PSU, Autonomous Body etc). In this way, a Central Ministry as well as the PSUs and Autonomous Bodies under it will be audited together by a single office (or group of offices), and audit of several Ministries/ Departments (grouped sector‐wise) will be under a single DAI. The existing boundaries of Civil, Defence, Railway, Commercial and Autonomous Bodies Audit will be done away with.

1B. Regional ADAIs for State Reports, with arrangements for co‐ordination and ensuring consistency in a country‐wide approach.

3.1 Background

Our audit arrangements in respect of entities under the Government of India (GoI) are organized primarily based on the nature of the entity, rather than on a sect oral perspective. For example,

• While Ministries and Departments of Government of India are audited by the respective

Principal Audit Offices (DGACE, PDAESM and PDASD on the Civil Side; DGADS, PDAFN, PDAOF on the Defense Side, the Railway Audit Offices etc.), the commercial undertakings

under the administrative control of these Ministries/ Departments are audited by the MABs

reporting to DAI(C).

• Units of Ministries/ Departments located outside Delhi are audited by the concerned State

PAGs/ AGs, except in Mumbai and Kolkata, where they are audited by DGA(C)/ PDA(C), whose primary reporting relationship is, however, to DAI(RA).

• The autonomous bodies functioning under these Ministries/ Departments are audited by

the respective Principal Audit Offices as well as State PAGs/ AGs, but are processed by a separate wing in Hqrs under ADAI(C&AB).

Problems with Existing Audit Organisation

• Each audit office, and functional wing in Headquarters, is concerned primarily with audit of

the units under its audit jurisdiction. There is lack of overall perspective for the Ministry/ Department as well as the sector.


• Currently, integration of audit perspectives across audit offices and functional wings takes

place on an ad hoc/ case to case basis, and effective integration depends to a large extent on the persons involved in such an exercise. While there are many successful instances of

integrated audit across functional boundaries 4 , in the absence of an institutional mechanism for integration, there are often cases of lack of adequate ownership for an integrated audit exercise.

• The current organizational structure does not facilitate creation of domain knowledge on a

sectoral basis; such knowledge is restricted to individual pockets in different offices and that too to a limited extent.

This organization of audit offices may be contrasted with the organization of the auditee entities under GoI, where the administrative control of PSUs, autonomous bodies, as well as attached/ subordinate

offices (located in Delhi and elsewhere) rests with the Ministry/ Department.

3.2 ReOrganising Audit of GoI according to Ministry

In the light of the need for institutional mechanisms for integrated audit, the audit of entitites

under the GoI should be completely re‐organized on the basis of the Ministry/ Department, rather than on the nature of the auditee entity.

The existing boundaries/ divisions such as Civil/ Defense/ Railway Audit, Commercial Audit, Autonomous Bodies Audit should be done away with. This will provide a far better platform for integration, than the current structure.

Two issues are likely to be thrown up in the context of such a radical re‐organisation:

• Currently, commercial audit staff form a separate pool and are deployed for commercial

audit of Central and State PSUs (with ad hoc deployment for certification audit of Central/ State Autonomous Bodies). Under the proposed re‐organisation, these entities will no

longer fall within a limited set of audit offices. In such a situation, the cadre of commercial audit staff will be deployed for all Audit Offices which require their services, particularly for

certification audit and also for specialized sect oral knowledge (e.g. oil and gas); this should not be a major handicap.

• The audit reports of the reorganized audit offices will be referred either to PAC or COPU

(depending on the subject matter of the report). This is also not a major problem, as the auditee Ministries/ Departments deal with several Committees of Parliament (PAC, COPU as

well as the Departmental Standing Committees) as part of their normal operational

activities. The paragraphs/ chapters dealing with PSUs can be referred to the COPU (as in

4 E.g. co‐ordination between the Commercial and RC wings on performance audits of Hydrocarbon Production Sharing Contracts and NACIL.


the case of Commercial Chapters in combined State Audit Reports in the North Eastern States). Further, the proposed Parliamentary Relations Unit will also handle co‐ordination issues, if any.

3.3 Current Audit Organisation

Currently, there are 43 audit offices dealing with audit of GoI entities, as summarized below:

• 13 Commercial Audit Offices (12 MABs plus DGA P&T);

• 4 Defence Audit Offices;

• 6 Civil/ Central Revenue Audit Offices (DGACE, PDAESM, PDASD, DGA (C) Mumbai, PDA (C) Kolkata, and DGACR);

• 17 Railway Audit Offices; and

• 3 Overseas Audit Offices.

These audit offices are currently reporting to four DAIs – DAI(RC), DAI(C), DAI(LB & A), and DAI(RA), and one ADAI (ADAI (C&AB)).

3.4 Proposed Audit Organisation

We now propose that the audit of GoI be reorganised under 53 audit offices – 43 existing offices plus 10

new offices 5 , as summarized below:

Function No. of Audit Offices

7 DGs/ PDs for

Economic Ministries

• DG/ PD – Petroleum (Upstream)

• DG/ PD – Petroleum (Downstream)

• DG/ PD – Steel

• DG/ PD – Coal

• DG/PD – Heavy Industries & Micro, Small and Medium Enterprises (MSME)

• DG/PD – Commerce, Corporate Affairs, Textiles and Tourism

• DG/ PD – Mines, Chemicals and Fertilisers

DAI (Economic and Infrastructural Ministries)

5 DGs/ PDs for Infrastructure

• DG/ PD – Power (Thermal)

• DG/ PD – Power (Hydropower and Power

5 Or alternatively by diversion of existing DG/ PD level posts in other areas (e.g. PD – RTIs, PDA Railways for some of the smaller, newly created zones), as deemed appropriate by senior management.



Transmission)

• DG/ PD – Shipping, Road Transport and Highways

• DG/ PD – Civil Aviation, Urban Development, Housing and Urban Poverty Alleviation

• DGA P&T

3 DGs / PDs for Social Sector

• DG/ PD – Agriculture, Food Processing Industries, and Consumer Affairs and Food & Public Distribution

• DG/ PD – Human Resources Development, Panchayati

Raj, Water Resources, Labour & Employment, Social Justice & Empowerment, Minority Affairs, Tribal Affairs, and North Eastern Region

• DG/PD – Health and Family Welfare, Women & Child Development, and Rural Development

3 DGs/ PDs for Scientific Departments

• DG/ PD – Atomic Energy and Space

• DG/PD – Science and Technology, Agricultural Research and Education, Earth Sciences, Information Technology, and Medical Research

• DG/ PD – Environment & Forests, and New and Renewable Energy

3 External Audit Offices

• PDA London

• PDA Washington

• PDA Kuala Lumpur

DAI (Social and General Services Sector)

2 DGs/ PDs for General Services

• DG/PD – Home Affairs, UT, External Affairs, Overseas Indian Affairs, Law and Justice, and Parliamentary Affairs

• DG/ PD – I&B, Culture, Personnel, Youth Affairs and Sports, Planning Commission, Statistics and Programme Implementation

DAI (Finance and Revenue Audit)

4 Revenue Audit Offices

• DGACR, New Delhi

• DGA CR, Mumbai

• DGA CR, Kolkata

• DGA CR, Southern Region (Bengaluru/ Hyderabad/ Chennai)



2 Financial Audit Offices

• DG/ PD – Finance (overall responsibility for certification of GoI accounts, and audit of Ministry of Finance)

• DG/ PD – Finance & Insurance PSUs

7 DGs/ PDs for Defence

• DGADS, New Delhi

• PDA – Northern and Central Commands, Chandigarh

• PDA – Southern Command and DRDO, Pune

• DG/ PD – Air Force

• DG/ PD – Navy

• DG/ PD – Ordnance Factories

• DG/ PD – Defence PSUs

DAI (Defence and Railway Audit)

17 Railway Audit Offices

• Re‐structuring/ reduction of Railway Audit Offices may be considered, after considering the workload (especially in the newly created Railway Zones) and also in view of the current and future availability of IAAS Officers at AG level

• Audit of Railway PSUs (KRCL, DMRC, CONCOR, RITES, IRCON etc.) should be with the Railway Audit Wing

Ideally, a separate post of DAI (Accounts) would be required, so as to focus full attention on this important function and also for appropriate direction for standard setting (including GASAB). Till such time as a separate post is not available, this function can be handled by one of the DAIs –DAI (Finance and Revenue Audit) or perhaps DAI (Hqrs) or DAI (Defence and Railway Audit), depending on an assessment of their relative workload

Details of the proposed re‐organisation of audit offices in respect of GoI are indicated in Annexe‐ 4.

The proposed re‐organisation is a complex one, involving major restructuring on a scale not

seen in the IAAD since 1984 (when the State AG Offices were bifurcated into Audit and A&E Offices). Hence, a gradual and long‐term approach will be required for its implementation, even in phases.

Further, audit of all central units (expenditure/ receipts/ ABs) – whether located in New Delhi or elsewhere ‐ would be done only by the Central Audit Offices. State PAGs/ AGs will be responsible only for conduct of All India Reviews of Central Sector/ Centrally Sponsored Schemes within their State audit jurisdictions.


While the proposed re‐organisation would ensure integrated audit for Ministries/

Departments and other units of GoI in most cases, All India reviews (in particular those in the social sector) will need active involvement and co‐operation of the State PAGs/ AGs, without which effective integrated audit cannot be achieved. There would, thus, need to be extensive co‐ordination between DAI (Social and General Services Sector) and the ADAI (Reports States), primarily in audit of Centrally Sponsored/ Central Sector Schemes.

3.5 Staff Implications of Reorganisation of GoI Audits

Considering the sensitivity of such re‐organisation on IAAD staff, we propose that no

transfers of IAAD officials on account of this re‐organisation outside their current station of posting would be made, without their consent.

Officials who consent to move to other locations could be appropriately posted, while officials who do not agree to move to other locations may either be adjusted in other audit offices at the same locations with vacancies, or adjusted against posts personal to them (which will lapse with their transfer/ retirement).

Such re‐organisation is not expected to be a major problem in terms of staff implications, since there are not only huge vacancies (especially on the Central Civil side) but there is need for increasing the sanctioned staff strength in many areas which have seen a huge increase in expenditure in the past (without corresponding increase in staff strength). Such increases in staff strength should be only at the supervisory grades.

3.6 Reorganisation of Audit of States

Recent proposals for re‐organisation of audit of States have centred around creating posts of Regional ADAIs; this would have the advantage of a uniform command structure and single reporting relationship for field PAGs/ AGs. Considering the advantages and disadvantages, we broadly agree with the approach of creating Regional ADAIs (either four or five, depending on whether a separate ADAI(North East States) is to be created. In addition, the Regional ADAI organization would also facilitate co‐ordination amongst the different State PAGs/ AGs to ensure a commonality of audit approach, and minimizing

chances of important audit areas not being audited due to lack of co‐ordination.

With Regional ADAIs, there would also be no need for the concept of a single PAG, with a co‐ ordinating responsibility in respect of other AGs in the State. Such an approach of a “co‐ordinating” PAG would add an additional layer in the organizational hierarchy, without any commensurate benefits

to the organization, since he/ she will not be held accountable for the Audit Reports produced by the other offices.


However, two key issues with the Regional ADAI structure need to be addressed:

• There is a danger of All India Reviews of Central Schemes being “orphaned”, with one DAI

having to deal with five zonal ADAIs; this could seriously compromise the objective of “integrating” audit efforts. To minimize this problem, in respect of Centrally Sponsored Schemes/ Central Sector Schemes involving transfer and utilization of funds at the State and lower levels, the concerned DAI (primarily DAI ‐ Social and General Services Sector) will have

to be assigned a formal co‐ordinating role in this regard.

• Even in other areas, the opportunity for a uniform country‐wide approach (particularly for

Commercial and State Receipts) should be retained. This could be achieved through designation of nodal DAIs/ ADAIs for a specific topic 6 . The responsibilities of the nodal DAIs/ ADAIs would include providing overall guidance and, as far as possible, uniformity on an All‐ India basis, and also resource support in cases of shortage of resources with the requisite

competencies. This concept of nodal DAI/ ADAI would also tie in neatly with the concept of

knowledge centres and resource persons proposed in the next chapter.

6 This need not necessarily be the DAI dealing with Central Audit. While DAI (Economic and Infrastructural Ministries) could be the nodal officer for roads and highways, the Regional ADAIs could be the nodal officers for areas like public works, irrigation projects, power distribution etc.


4 Goal 2 : Promoting Professionalism in Public Sector Auditing

4.1 Sectorspecific knowledge centres and resource persons


2A. Creating an institutional mechanism of Knowledge Centres (KCs) for knowledge capture and maintenance on a sector‐specific basis

2B. Creating sector‐specific pools of Knowledge Resource Persons (KRPs) at two levels (IAAS and supervisory officials) and providing suitable remuneration for this continuing, additional responsibility

4. 1. 1 Need for Knowledge Centres

The issue of constituting knowledge centres and pools of resource persons with sector‐specific domain knowledge in areas has been engaging the attention of top management at several forums. Our current work in different sectors (whether performance or thematic audits) is structured on an assignment‐by‐ assignment basis, and there is little long‐term continuity in maintaining and tracking developments in a specific sector. While instructions have been issued by Headquarters from time to time for preparing auditee profiles in the form of permanent audit files etc., these are prepared routinely in most field audit offices and cover only individual ground level units, without providing an overall sect oral perspective.

Consequently, as and when a performance audit (especially an All India Performance Audit) is undertaken, literature and information have to be collected and assimilated ab initio, and there is no institutional structure or mechanism for maintaining an organizational “memory” on a sect oral basis. In the absence of such sector‐specific knowledge gathering mechanisms, the audit guidelines often place

undue emphasis either on generic issues which cut across all sectors (e.g. planning, financial management, monitoring and evaluation) or go down to very highly entity/ unit‐specific issues arising out of past audit reports/ IR findings. There is thus a pressing need for institutional arrangements for

knowledge capture and maintenance on a sector‐specific basis.

Illustrative Sample of Sectors for Knowledge Centres

• Petroleum

• Power generation and transmission

• Power distribution

• Agriculture and food security;

• Rural employment and poverty alleviation;

• Irrigation;

• Telecommunications

• Railways

• Roads

• Shipping

• Internal Security

• Defence Preparedness

• Financial markets

• State Finances


• Steel and Coal (including mining)

• Environment

• Scientific Institutions

• Women and Child Development

• Health

• Education

• Civil Aviation

• Atomic Energy and Space

We are proposing two arrangements for sector‐specific knowledge building:

• Offices to be designated as “Knowledge Centres” (KCs) for specific sectors;

• Individual officials to be designated as “Knowledge Resource Persons” (KRPs).

4. 1. 2 Knowledge Centres (KCs)

With the proposed re‐organisation of GoI audit offices, generally the office dealing with a specific sector (or a State PAG/ AG office with rich experience and competence in a specific sector) will act as the

knowledge centre for that sector, and will also cater to the needs of State PAGs/ AGs. The responsibilities of the knowledge centers will include the following:

• Preparing periodic comprehensive sector‐specific papers as well as status updates (with the

assistance of Knowledge Resource Persons);

• Preparing electronic compendiums of sector‐specific data relating to (a) auditees (b) audit

findings (both audit reports and IRs) (c) accounting and other statistical information of a

sector‐specific nature (d) other policy and related documentation (both national and international) for use by IAAD offices;

• Providing assistance to individual field offices in preparing guidelines for performance/

thematic audits of specific sectors – including drawing up of audit objectives, audit criteria, and audit issues;

• Providing assistance in hiring of external experts (for providing second‐level sector‐specific

knowledge which cannot be provided from within the Department).

4. 1. 3 Knowledge Resource Persons (KRPs)

Given the wide variation in competencies and skills of officials within the Department (and

indeed Government as a whole), we cannot rely exclusively on institutional mechanisms such as knowledge centres for sector‐specific knowledge building.

In addition to such knowledge centres, we also need to create sector‐specific pools of Knowledge Resource Persons (KRPs) at two levels:

• IAAS Knowledge Resource Persons (KRPs) – who could be a mix of DGs, PDs, and Directors

so as to ensure continuity in the event of retirement, deputations etc. (ideally three persons


for each sector); these IAAS KRPs will continue to act as resource persons for that sector, irrespective of their current place of posting or function. These KRPs will have to prepare a draft comprehensive paper for the specified sector (typically once every three years) along

with half‐yearly status updates; these will be routed through the concerned offices acting as Knowledge Centers. They will also need to take training sessions on these topics at NAAA, iCISA etc. For this continuing item of work, suitable remuneration in the form of honorarium

(e.g. one month’s basic plus grade pay per annum) could be provided as an incentive

• Supervisory Knowledge Resource Persons (KRPs) – these would be at the level of

SAO/AO/AAO who would be posted to the Knowledge Centres in the specified offices; they would be responsible for collecting background information (both from the Ministries/

Departments/ units, as well as websites, newspapers etc.) and would be feeding this information to the IAAS KRPs. In addition, these supervisory KRPs would be responsible for

ensuring that sector‐specific electronic databases / compendiums are kept upto date and also for internal circulation (hard copy/ IAAD website) of these documents within IAAD offices and officials. They will also need to take training sessions on these topics at the RTIs

etc. For this continuing item of work, suitable remuneration in the form of honorarium (e.g. one month’s basic plus grade pay per annum) could be provided as an incentive

4.2 Encourage central and state governments to build and strengthen institutional arrangements for internal audit and risk management


2C. Encouraging Central and State Governments to build and strengthen institutional arrangements for internal audit and risk management.

4. 2. 1 Encouraging Internal Audit systems

A strong internal audit system in any organisation aids in evaluating the adherence of the organisation to the policies laid down by management. Effective response to issues flagged by the internal audit mechanism coupled with timely intervention by the management improves the governance levels in the organisation. A weak internal audit leads to an additional burden on external audit as the external auditors are forced to examine the basic issues of compliance rather than concentrating on critical policy, performance and system related issues.

In the Government of India internal audit mechanisms have largely been non starters. Most of the ministries barely have a few internal audits being conducted every year. Rarely do the internal audit teams flag critical issues, which can be relied upon by the external audit teams in the assurance process. Even after the strengthening of the role of Financial Advisors by the Government of India, the situation

does not seem to be improving significantly. Though the Financial Advisors of the Ministries have been given independence to act in a fair manner without pressure from the line ministries in which they


serve, they have really not been able to deliver the goods. The situation in the States is even worse, and but for a few exceptions, in most of the states, internal audit is a very low priority.

It is, therefore, in the interest of the CAG of India to promote robust internal audit mechanisms within

the Central/State Governments, so that the CAG could concentrate on more critical issues that require evaluation by an external auditor. The CAG of India would need to aid the Central/State governments in capacity building in audit skills through training programmes. The proposal for creation and setting up a separate institute for training (CIPAAI), which could aid the Central and State Governments in building capacity for internal audit, has been discussed separately in this strategy document. The inclusion of a section on internal audit in the Management Responsibility Statement and a comment on the adequacy of internal audit systems has been discussed further in paragraph 6.2.2.

4. 2. 2 Encourage better risk management by Central and State Governments

Audit of risk management focuses on how well the executive has managed risks associated with its key activities. As auditors, we are equally interested in promoting adoption of good risk management frameworks/practices in Ministries/ Departments; as such management practices would facilitate better

governance and implementation of public sector schemes, programmes and activities. However, risk management is, and should be, the responsibility of the Executive (and not audit) and it will be the endeavor of the CAG to promote better risk management by supporting the Internal Control and Risk

Management (ICRM) framework initiatives of the Government of India. Better management of risk and better internal controls will go a long way in aiding the assurance that is to be given by the CAG on the accounts of the Government.

4.3 Establishing a Chartered Institute of Public Accountants and Auditors of India (CIPAAI)


2D. Establishing a Chartered Institute for Public Accountants and Auditors of India (CIPAAI) on the lines of ICAI and ICWAI, under the aegis of the CAG of India.

2E. CIPAAI would tackle issues of day‐to‐day accounting problems and professional upgradation of the skills of the vast pool of finance, accounts and audit personnel at the grass roots level, and address deficiencies in the accounting processes and financial controls across organisation like huge arrears in accounts finalisation and weaknesses in internal audit.

2F. CIPAAI would provide professional certification to the Group A professionals of the CAG organisation entering into the Government of India through Civil Service Examinations.

2G. CIPAAI would provide professional certification to the Group B and C professionals from the CAG by subsuming the SOGE currently being conducted by the CAG and also to other finance, accounting and audit professionals in State/Central government departments on demand.


4. 3. 1 The Rationale for establishing a separate Institute

4 .3 .1 .1 Current Background

Finance, Accounts and Audit Management in India is currently being carried out in the Government by constituted Accounts and Audit Services and by Chartered Accountants, Cost and Works Accountants

and MBAs in the Public Undertakings and Private Sector. These professionals undertake financial, accounts and audit management functions mostly at the top levels. Further, there are a multitude of other layers (at the supervisory and clerical cadres) in the Government and Non Government Sectors also involved in managing and improving finance, accounts and audit administration in this country. Most of these institutions only address and tackle the higher level of financial policymaking, accounting and standards, instead of day‐to‐day accounting problems and the need for professional upgradation at the grass roots level.

While the certifications by the Institute of Chartered Accountants of India, Institute of Cost and Works Accountants of India etc, are professionally recognised, the skills acquired by the Government auditing and accounting services/ specialists are without any professional recognition. Though some of these functionaries have a formal background in finance, accounts and audit, a majority of them do not possess professional qualifications. Even those possessing professional qualifications have acquired them only at the entry point and do not go in for upgradation/ continuing professional education in the course of their long career spanning 30 to 40 years. In the past, clearing the ‘SAS’ (Subordinate Accounts Services) examination (currently known as the Section Officer Grade Examination) conducted by the CAG was considered as a suitable qualification for recruitment in other Public Sector Organisations. However, this practice has disappeared now.

4 .3 .1 .2 The problem

Currently, there is lack of professionalism amongst the lower and the middle level functionaries in the area of finance, accounts and auditing. This has led to deficiencies in the accounting processes and financial controls across organizations e.g.

• Huge arrears in finalization of accounts of many institutions both Governmental and Commercial, with even routine functions like reconciliation within offices are being

neglected.

• Internal Audit, which is required to flag accounting, control and other related issues to

the management, is most often nonexistent or ineffective.

Finally the burden of this falls on the External Auditors, who have been pointing out numerous shortcomings year after year. The problem has acquired acute dimensions and is widely recognized.

There is also a huge shortage of properly trained and skilled accounting/auditing personnel at the lower


and middle levels. Without any professional qualification (apart from their experience), the lower/middle level accounts/audit functionaries do not have a sophisticated understanding of the principles of accounting or their implementation. In the absence of any growth prospects linked to qualifications, they are not adequately motivated enough to upgrade themselves in line with best practices. There is, therefore, a kind of vicious cycle that operates, leading to a lower level of efficiency and effectiveness in the finance, accounting and auditing processes in State Governments, State/Central Government undertakings, Cooperatives, Autonomous Organisations, Urban & Rural Local Bodies, Universities, Public utilities etc.

With the advent of globalization, policy makers, state/central governments, the CAG, end users and the World Bank and other multilateral funding agencies have highlighted the need for upgrading and professionalizing the skills of the finance, accounts and audit staff at the lower and middle levels. Further, the need for such up gradation is also validated by the fact that India is emerging globally as a leading service provider in business process outsourcing in the Financial Sector.

4 .3 .1 .3 International Scenario

This problem has already been addressed in many countries by setting up professional bodies like the Government Finance Officers Association (GFOA), Association of Government Accountants (AGA) and Certified Government Auditing Professionals (CGAP) in the United States of America (USA), Chartered Institute of Public Finance and Accountancy (CIPFA) in the United Kingdom, Association of Accounting Technicians (AAT) in South Africa, Australia, Sri Lanka and the U.K. In Canada, certification in the form of “Certified General Accountant” (CGA) addresses this need. These Institutions/ certifications have helped in bridging the gap of skill and knowledge requirements at the grass roots level.

4 .3 .1 .4 Why the need for a separate Chartered Institute

It could be argued that the already existing institutions like the ICAI, ICWAI etc. could address the issue of skill upgradation at the middle and lower levels of accounts professionals. However, the mandate and culture of these institutions do not easily facilitate them to undertake this task, as they have well‐ established procedures, which cater to a predetermined select target group, which forms a miniscule elite. It would be difficult and disadvantageous for them to expand their processes to cater to a lower target group. Further, the existing Institutes have maintained their standards, mainly due to the homogeneity of the background of their members. Hence it is essential that a separate national body establish a specialised institution for creating a professional layer of lower/middle accountants/auditors with individual aspirations and qualifications, especially since massive numbers across the country are involved. In such a scenario, it would be essential for a well‐established organisation like the CAG to take the lead and address the various issues detailed in the proposal.

4 .3 .1 .5 What the institute would do

The establishment of a Chartered Institute is likely to be a major step in:


• Overcoming the deficiencies in the available knowledge and skill of the lower and

middle level of finance, accounts and audit functionaries, and acting as a major provider, motivator and facilitator for upgrading their skills, and also bringing about a quantum change in the quality of finance, accounts and audit in the country and serving as a model for developing countries.

• Providing professional certification to the Group A Audit and Accounts professional entering into the Government of India and State Governments through Civil Service

Examinations.

• Providing professional certification to the Group B and C Audit and Accounts

professionals.

• Establishing a programme for Continuing Professional Education (CPE) for certified

professionals.

4 .3 .1 .6 Statutory Recognition for CIPAAI

The certification being issued by the CIPAAI would require to be recognized by the government so that the certification being offered has value in the market. In order to operationalise CIPAAI as a separate chartered or national institute on the lines of ICAI or ICWAI, it would, therefore, be necessary to obtain parliamentary approval through passing of an Act. Thereafter, CIPAAI degree/certification could strive to have the same kind of recognition in the public auditing and accounting space that the CA certification enjoys in the commercial accountancy space.

The detailed proposal is given in Annexe‐ 5.

4.4 Setting up an International Consultancy wing


2H. The need in SAI India to set up an International Consultancy wing, as there is a great demand for SAI India’s expertise in areas of Public Audit and Financial Management amongst many SAIs who are in the process of developing the public audit systems in their countries.

With 150 years of history in auditing and accounting, the CAG of India has been able to emerge as one of the most developed and matured SAIs in the world. In the last 3 decades, SAI India has been also

showcasing its strength by taking up many prestigious international audit assignments. Further there also been a very great demand for SAI India’s expertise in many other SAIs who are in the process of developing the public audit systems in their countries, especially because of the similarity of the auditee environment and challenges (unlike SAIs in developed countries). Further, in many emerging areas of audit like IT audit, social sector audit and environment audit, the CAG has been able to make a mark internationally and emerge as world leaders.


In the years to come there is need to build a wing in SAI India which would project itself as serious player involved in taking up International Public Audit and Finance consultancies. The specialized wing could be initially headed by a Director General of Audit/Principal Director of Audit and have a young team of 3 to 4 Director level officers who could specialise in areas like accounts, Performance Audit, Compliance Audit, Certification Audit etc. In addition, a panel of experts (both IAAS and supervisory officers) with sector‐specific domain expertise could also be maintained. The identity of this wing could, perhaps, be separate from the International Relations Wing though the two wings would require working together while soliciting and undertaking international assignments.

The International Consultancy wing could also associate itself with some of the multilateral funding agencies like World Bank and the Asian Development Bank who could also fund such consultancy initiatives in SAIs who feel the need for upgrading their Public Audit and Financial systems.


5 Goal 3: Improving communication with stakeholders and ensuring higher visibility


3A. Need for the CAG to be more proactive in his interactions with the media

3B. Setting up a separate Parliamentary/Legislative Relations Unit to extend proactive support

3C. Building a brand for the organisation

3D. Treating Inspection Reports as products of the CAG for consumption by the public and other stakeholders

3E. Introducing more value added products like study reports, compendiums etc., so that they act as ‘Aids to Management’

3F. Setting up counters in each city for distributing audit reports to common citizens

3G. Giving more focused dissemination and communication through vernacular languages

3H. Revamp the CAG website

5.1 Need for the CAG to be more proactive in his interactions with the media

5. 1. 1 Current position

• The current practice being followed for interactions with the media in the CAG organisation

only entails holding a press conference with the media after presentation of audit reports to

the parliament/legislature. Thereafter, interactions on these audit findings are not structured, and only happen in rare cases in a reactive, ad hoc manner.

• Sometimes (especially on the Central side), multiple Audit Reports are bunched together

for tabling, and a single Press Conference is held covering a variety of disparate topics. Often, adequate attempts are not made to target media correspondents from specific beats (health and education, water and irrigation etc.) due to lack of adequate internal

communication between different wings.

• Even in the press conference, the presentation and the press brief which are presented to

the media are based largely on the highlights/executive summary forming part of the approved Audit Report. Hence, no additional information of a clarificatory/ supplementary nature is shared in the press conference. Thus, an opportunity for invoking the kind of


response which is commensurate with the strong information and findings contained in the reports is not fully exploited.

• Accordingly, only those issues that qualify as ‘sensational news’ according to the press, are

picked up. All this leads to a skewed reporting of the Reports and very often small issues get

highlighted unduly, at the cost of leaving out big ticket issues. This situation is further

handicapped by the fact that there is no strategy in place to counteract and rectify such skewed reporting.

5. 1. 2 Need to frame a more realistic media policy

There is a need to frame a suitable policy that allows press briefings to extend beyond the approved highlights/executive summary that already features in the audit reports. Field offices needs to be empowered (and trained) to suitably brief and handle controversial questions from the media without putting the CAG in a difficult position. Whenever a media interaction is planned by any field office, there is a need to ensure the presence of representatives from the media wing of the CAG. This will ensure a certain degree of consistency in the approach of different field formations to the media. Thus, there is a need to spell out a clear media policy to ensure that the vast reach and sphere of influence of the media is taken advantage by us for disseminating the CAG audit findings.

5. 1. 3 Need for structured dissemination of audit findings through media

For wide dissemination of audit reports, we are largely dependent on the print/TV media. However, we find that media often picks up only those audit reports or issues within an audit report, which in their view make good/sensational news. This very often leads to skewed focus on certain issues in our audit reports. To address this issue and to increase the impact of the audit reports, the IAAD could consider regularly buying space in print/TV media so that these reports are disseminated in a structured, focused and sustained fashion throughout the year. The IAAD could also consider disseminating the audit reports and its findings through organisationally sponsored (by the CAG) columns in newspapers/magazines, programmes on TV etc.

In order to manage these processes more effectively, the IAAD may also consider empanelling full time Public Relations/Media Management agencies 7 for this purpose.

5. 1. 4 Need to more proactively aid the media

7 An exercise for appointing a PR agency for the celebrations of the 150 years of the institution of the CAG is currently underway. In our view, this should be extended to a longer term engagement, with clearly defined scope, objectives, and deliverables. Building the “IAAD” or “CAG” brand as a long term exercise should also be part of this assignment.


Very often issues get flagged by the media which stir up a debate in the country. At this juncture, the media looks for audit reports of the CAG as a credible and independent source of information to supplement the debate. This poses a great opportunity for the CAG to showcase its reports which could add value to the issues being debated earlier also. However, currently we do not have any mechanism to aid the media with such inputs. It is, therefore, proposed that as and when topical issues arise, there must be a mechanism of collating and presenting (on the website, through the media wing) past audit findings or other related issues (covering findings across Centre/ State/ different functional wings) so that the media gets an appropriate perspective. This will go a long way in improving the image of the organisation.

For example, whenever any railway accident occurs, the media starts hunting for reports of the CAG that had flagged such safety issues in the past. However, if the CAG quickly puts together all reports in the last few years issued relating to safety and highlights the response by the railways 8 , it will go a long way in enhancing the presence and image of the organisation.

5.2 Setting up a separate Parliamentary/Legislative Relations Unit

Parliament (and the State Legislatures) are the primary stakeholders for the CAG. All major SAIs have separate Parliamentary Relations Units or such equivalent arrangements, which provide information and feedback to PAC members/ other MPs/ Congressional staff on request. The CAG must position itself to the first point of contact and support on accountability and assurance issues to the Parliament/

Legislatures in a more proactive way. Currently, such support is being handled by individual report wings, who have to process these cases in addition to their ongoing and continuous work. We need to have an adequately staffed Parliamentary Relations/ Liaison Unit, which needs to respond to

Parliamentary requests. In due course of time, such a Unit should also envisage a pro‐active role in providing briefings/ documents to Parliamentarians. Such a structure should be appropriately replicated at the State Level.

Further, in addition to supporting the PAC/ COPU, we could also consider offering appropriating support

(through this unit) to a few selected Departmental Standing Committees of Parliament.

5.3 Building a brand for the organisation

To ensure recall in the minds of citizens regarding any institution, it is necessary to distinctively brand the products of the institution. For this, there is a need to ensure that the products of the institution like audit reports, presentations, references etc., have some distinguishing and standardized features such as a particular colour scheme, logo, header, footer, font etc, so that they can be recognised easily as a branded product of that institution. In this context there is a need to standardise the letterheads, visiting cards, presentation templates etc., for the CAG organisation. Introducing a clip‐on

badge/brouche for all field audit staff with the insignia of the organisation would also go a long way in building a brand for the organisation.

8 As was done recently. However, instead of being a one‐off exercise, this should be institutionalized.


The services of PR agencies, who specialize in such brand building exercises, should be utilized to the extent possible.

5.4 Treat Inspection Reports as products of the CAG for consumption by the public and other stakeholders

Inspection Reports issued by the CAG to audited entities are a storehouse of information regarding the entities 9 . It is important that such information is available for the scrutiny of all stakeholders who would like to get educated on all such issues. Such education could also lead to other stakeholders acting as pressure groups in ensuring corrective action by the executive. However as per the current system, this information is not available in the public domain and is left to either the auditors and the audited entities to follow up on the issues reflected in these inspection reports. Disclosure to other parties (including the public) is made only in a reactive fashion in response to requests under the RTI Act.

In order to improve the overall governance in the country, it becomes necessary to ensure that other stakeholders like the general public are educated on such issues. It is thus proposed that we should take proactive measures to ensure that all Inspection Reports which are already accessible to the public through the RTI Act be made publicly accessible through the various websites of the CAG.

We have drawn attention to the indifferent quality of IRs and the isolated nature of findings reported through these IRs (rather than an overall perspective). However, despite these obvious deficiencies, the IRs still remain a valuable source of information for interested stakeholders. In addition to making these IRs publicly available, parallel action should be taken to improve the quality of IRs through measures suggested elsewhere in this document.

A phased approach could be adopted to public disclosure of IRs through uploading on the Internet. Initially, IRs arising out of thematic audits could be disclosed, followed up a selection of high quality IRs after careful scrutiny. In the third phase, all IRs could be placed in the public domain; hopefully by that time, measures to strengthen and reorient compliance audit would be fully implemented.

5.5 Introduce more Value added products other than audit reports like ‘Aid to Management Series’

Currently the CAG audit reports are the only public products being put out in the public domain. With just about 150 audit reports being presented to Parliament/legislature every year, the voice of the CAG as an aid to management in improving governance gets restricted. Recently, the CAG has been experimenting with some other value added products which are targeted to act as an ‘aid to management’ and not for presentation to the Parliament. A few such products already brought out by the CAG like study reports and compendiums have met with great success. There is a need to consolidate and popularise these products and also look at a few more such products in the near future.

9 An introduction about the entity Part I(a), outstanding objections in brief from previous reports Part I(b), major compliance irregularities which point to system failure Part IIA, irregularities or recoveries to be effected or regularised, which though not major are to be brought to the notice of higher authorities Part IIB and Test Audit Note containing minor irregularities, to which a schedule of items settled on the spot should be attached Part III.


We should roughly be able to target at least 75 such alternate products that could be

presented to the Executive as an ‘Aid to Management Series’.

5. 5. 1 Study Reports

Study Reports like the one on the “Preparedness for the XIX Commonwealth Games” have been very positively received by the Executive; these were followed by Study Reports on preparedness for the SAF Games in Uttarakhand as well as CWG‐related Railway Projects. Such Study Reports help us to position ourselves in a more pro‐active participatory role towards the common objective of both the auditee and the auditor of improving governance, i.e. as part of the solution, rather than merely highlighting deficiencies.

5. 5. 2 Compendiums

The recent compendium on “Police Modernisation” was another product which was very well received by the Executive to plan their future strategies across states in the country. This product was timely in highlighting the critical issues that the executive need to address while tackling important law and order

issues in the country.

5. 5. 3 Transitioning products for new governments/legislature

Whenever there is transition between governments, the CAG could evaluate and bring out a report that highlights critical issues to be addressed by the new government. However, this has to be done in a very sensitive and professional way so that it is ensured that the critical issues identified by the CAG do not get construed as a report highlighting the weak areas of the previous government and do not take on political overtones. The idea of this transitioning product is more to flag all the critical issues that require new or continued focus by the new government.

5. 5. 4 Preparing a high risk list for Government

In addition to examination of risk management processes in the Government, the CAG could consider

attempting a list of high risk areas for the Union Government, based on past audit experience. Such audit experience would essentially be based on past Audit Reports (Performance, Compliance and Financial Audits) and action taken thereon (or lack of such action). Such a document would be

worthwhile producing, as it would, in a single document, highlight the CAG’s key concerns (top 10‐20) on the government’s accountability. However, such an audit assessment of high risk areas would have to be a macro, high‐level assessment, and cannot afford to focus on less important/ routine issues. Further, it would have to be based primarily on audit report material (which is what our institution’s credibility comes from). Theoretical analysis of issues – without audit effort – could, at best, be used only to supplement findings based on audit, since such analysis could be produced by several other institutions and not just the CAG.


5. 5. 5 Good Practice Seminar Series

Over the years, the role of the C&AG has been recognized as an institution that has aided in improving governance, but only indirectly. This is largely because most of the wisdom which has been imparted by the C&AG has been through the vehicle of audit reports, which are more in the nature of post mortems. The general perception has been that auditors always come in after the event is over and this has very often impacted on the overall image of the C&AG in the eyes of its numerous stakeholders. In order to

enhance the image of the C&AG, we need to consider the concept of ‘Preventive audit’ on the lines of ‘Preventive vigilance’. In this context, we could consider holding a series of ‘Good Practice Seminars’ all over India. These seminars would help in:

• Increasing awareness amongst stakeholders on important governance issues

• Sensitizing executive departments to the prevalent rules and regulations and discussing its

complexities

• Reviewing new trends, techniques and best practices both national and international.

• Suggesting improvements to the existing frameworks

Some topics for these ‘Good Practice’ seminar series could be procurement, public private partnerships, research & innovation, consultancy, performance measurement, project management, regulation,

public service delivery etc. The modalities of conducting the seminar could be

• Select a topic and after due internal research, finalize the sub themes for deliberation in the

seminar and prepare a status paper for deliberation.

• Run these ‘Good Practice Seminars’, across the country in around 4 to 6 cities for a period of

6 months. The duration of the seminar could either for a day or two depending on the subject.

• Invite panelists from a mix of stakeholders (e.g. implementing departments, NGOs/ Civil

Society Organisations and auditors) to share their thoughts .The number of panelists could vary between to 5 to 10 depending on the subject. Some panelists could be common across cities

• Invite participants from mix from implementing departments and auditors. The number of

participants could vary between 50 to 60 participants in each city. The local Accountant General could identify the participants.

• Circulate seminar deliberations immediately after 6 months and bring out a good practice paper as part of CAGs ‘Good Practice Series’.

• Target two such ‘Good Practice Series every year.

Conducting a series of ‘Good Practice Seminars and bringing out a ‘Good Practice Series’ will go a long way forward in enhancing the image of the institution of the CAG as being involved in improving


governance in the country, and also provide additional avenues for media coverage and communication with the larger stakeholder community, which would be separate from the Audit Reports.

5.6 Setting up counters in each city for distributing audit reports to common citizens

Our Audit Reports (as well as pictorial CD booklets, which provide a summary of the main audit findings along with an electronic copy of the full Audit Report) represent the easiest way to communicate “what we do” to our target audience. Currently, printed copies of the CAG’s Audit reports are available only with the offices producing these reports. However, our mechanisms for distribution are very weak, and accessibility of stakeholders and the general public to these reports remains limited. There is no easy way by which anybody can ask (whom?) for a copy of an Audit Report, and get it immediately or quickly.

While electronic versions of the report (in English) are available on our Internet website, these represent only a supplementary method of distribution (targeted primarily at a younger IT savvy audience). Consequent, there is a need to broaden the channels for distribution of audit reports:

• Setting up counters in each city (the location of which is in a high visibility area and is easily

accessible by common citizens), where common citizens can collect copies of our Audit Reports (Central as well as State Audit Reports) and CD booklets. The Audit Reports for the last few years should be arranged theme‐wise. Further, electronic version of all Audit Reports (Centre and States) for the last 12‐15 years should be available, so that through

appropriate searches based on the topic, reports/chapters of relevance could be located and either made available on CD or printed out and distributed at nominal cost.

• Displaying selected Audit Reports in other Government Buildings (appropriately tailored e.g.

Social Sector Audit Reports in the reception area of Ministries of GoI dealing with the social sector);

• Making reports available through the field offices of the Directorate of Publications Division

(DPD), Ministry of I&B; leading libraries in academic and research institutions, as well as through the National Book Trust offices as well as leading bookstore chains – with the clear

understanding that the objective is not to recover costs or generate revenues, but to generate awareness.

5.7 Giving more focus on dissemination and communication through Hindi/ Vernacular languages

All CAG Reports are published in English as well as a vernacular language/Hindi depending on the state in which the report is being presented. While over the years, the quality of language used in the English reports has by and large been standardised, the quality of the translated reports in Hindi/Vernacular languages needs some enhancement in quality, primarily on account of the use of highly stilted phrases


and usages 10 which are used only in bureaucratic parlance and are not easily understandable by the common man. In order to improve the quality of these translated reports, there is a need to use quality professionals to enhance quality. This is particularly important as most of our stakeholders prefer to read the reports in Hindi/Vernacular languages over the English language. This is an area where renewed focus is required.

Further, the CAG website does not update and upload Hindi/Vernacular reports as currently as the English ones. There is, therefore, a need to upload all CAG reports (in English/Hindi/Vernacular Language) in the website on the day of presentation along with tickers to attract attention. Further, all other products of the CAG should also be translated into some key local languages wherever required so that readability and our reach could improved.

5.8 Revamping the CAG Website

In the new IT age, Internet websites have become the most common sources of information and

knowledge sharing by any entity. The more informative and interactive the website, the more the chances of increased hits on the website.

The CAG’s Internet website should position itself as a one‐stop portal for independent, credible and validated information on governance. For example if any visitor to our website wants information about

health related issues featuring in audit reports across the country, then the search engine should be able to list out all such issues reported on the CAG, suitably categorized and classified (e.g. compliance/financial/performance audits, year‐wise, state‐wise, department‐wise etc).

The search facilities currently available on our website are rudimentary. Thus there is, therefore, a need

to revamp our website to ensure that:

• All audit products (Audit Reports, Management Studies, IRs etc.) are available on the

website.

• Any member of the general public can easily navigate through the website to elicit subject‐

wise and sector‐wise information.

• It is possible to easily query the system and extract the required information

• The website is visually more appealing, yet simple.

10 This generally arises because of frequent, over‐use of English‐Hindi dictionaries by our staff for translation of the English Report


6 Goal 4: Enhancing Audit Effectiveness and Impact

6.1 Integrated Approach to Financial and Compliance Audit


4A. Conducting pilot integrated financial‐cum‐compliance audits in different areas with a view to assessing the advantages and disadvantages of such integration, and drawing up a phased approach to integrated financial‐cum‐compliance audit

Most developed country SAIs conduct only two types of audit:

• Financial / regularity audit, which covers both expression of an audit opinion on financial statements, as well as assessment of compliance with applicable laws, rules and regulations;

and

• Performance/ VFM audit

There is no separate type of “compliance” or “transaction” audit; this is an integral part of the annual financial audit process.

The transaction/ compliance audit by IAAD 11 is, thus, different from the financial/ regularity audit, as is internationally practiced, in the following ways:

• It is undertaken separately from the certification/ audit process and no co‐ordination is

attempted.

• Major findings arising out of the transaction audit (viz. instances of non‐compliance,

irregular/ wasteful expenditure, fraud etc.) do not “feed” into the annual certification process; do not, in general, have an impact on the CAG’s audit certificate that the accounts

present a “true and fair view” of the financial position of Government; and, thus, do not contribute to providing “assurance” on the financial statements.

• While the annual audit opinion is based on findings relating to activities/ transactions during

the financial year only, compliance audit findings, as presented in the CAG’s Audit Report, are not restricted to transactions during that year and could cover transactions upto 3‐ 4 years old 12 .

Thus, our transaction/ compliance audit process is, in many ways, an anachronism (viewed with reference to international practices). It would, therefore, be logical to integrate financial and compliance

11 And some other SAIs in developing countries (notably the sub‐continent) 12 The preface to the CAG’s Compliance Audit Reports carries a specific reference that findings relating to transactions of earlier years have also been included. As a matter of practice, however, findings relating to transactions which are five years old or more are not generally considered for inclusion in the Audit Report.


audit into a single process geared towards the objective of providing audit assurance on the financial statements, as also on the adequacy and effectiveness of the internal controls.

However, as against the numerous advantages of the integrated financial‐cum‐compliance audit

approach, several difficulties in practical implementation of such an approach have also to be recognized:

• The IAAD itself has been conducting integrated financial ‐ cum‐ compliance audits during its

audits of the UN, WHO, FAO and other international agencies. For such prestigious internal audits, officers and staff are chosen through a rigorous selection process targeted to maintain a high quality of audit resources; however, this, in itself, is not an insurmountable obstacle to an integrated audit approach in domestic assignments. Similarly, our audit of

expenditure on World Bank and other multilaterally funded projects is increasingly an integrated financial‐cum‐compliance audit, as is the case for small autonomous bodies.

• The main impediment to conduct of integrated audits is the poor governance and internal

control structures of our auditee agencies. It is well recognized that the adequacy and effectiveness of internal controls, including financial controls, in most Government Departments and agencies leaves much to be desired. The timeliness of rendering of

accounts (both the primary accounts by the Treasuries and Divisions of the State

Governments as well as the Appropriation Accounts and Finance Accounts statements by the different Pr. PAOs of the Central Government) and adherence to the stipulated time schedules is extremely poor. The process of rendering the audit opinion on the annual accounts is thus a race against time. Combining the financial and compliance audits might well delay the finalization of the CAG’s audit opinion.

• A case could be made for a two/ three phase audit in a concurrent manner throughout the year, so as to minimise the time taken at the end of the year for finalizing the audit opinion.

It is however well recognized that a significant proportion of the annual expenditure (and in some cases, the majority of the expenditure) is incurred in the last quarter of the financial year, especially in the month of March itself. The risk for non‐compliance, impropriety and wastefulness (if not fraud) of such expenditure late in the financial year is extremely high, and conducting financial‐cum‐compliance audit in a highly compressed timeframe, so as to

ensure timely finalization of the audit opinion, carries potential audit risks.

• Given the state of internal controls in most Government organisations 13 , it would not be

difficult to give suitable qualifications/ disclaimers on the adequacy and ineffectiveness of

13 An Internal Control and Risk Management framework is under adoption. However, even this draft framework is not an integrated framework, covering the entire activities of the Ministry/ Department. By contrast, listed PSUs have, in general, better corporate governance and internal control structures, primarily due to the requirements of quarterly financial reporting, the rigour of external scrutiny by private shareholders, investors and financial analysts, and the corporate governance requirements stipulated in the listing regulations by SEBI.


control structures 14 , as part of our audit opinion on the financial statements; indeed, this would be appropriate and desirable. However, given the expectations of our stakeholders (the legislature, the media, and the public at large) who look forward to our audit findings

highlighting instances of irregular/ wasteful expenditure etc., a disclaimer on the state of internal controls would not absolve us from conducting and reporting the results of our compliance/ transaction audits.

It is, thus, clear that while an integrated financial‐cum‐compliance audit approach has

enormous advantages in terms of providing overall audit assurance, there are serious practical issues in its potential implementation, primarily on account of the poor internal control and governance structures in Government Departments and agencies.

Considering that an integrated audit approach has not been tried out by IAAD in its

mainstream audits, we recommend that pilot integrated audits be conducted in different areas, with a view to

• assessing the advantages arising from such integrated audits,

• assessing the difficulties (external and internal) in such integration and how these can be

addressed with a view to providing overall audit assurance,

• ascertaining the limits of integration (where control deficiencies in auditees and other

external factors would constrain our audit approach, and beyond which our credibility could be potentially compromised), and

• drawing up a phased approach (with indicative timelines) to integration, given the above

factors.

Such pilot audits could cover a mix of:

• selected Central PSUs (especially listed PSUs, where internal control and corporate

governance structures are part of an institutional framework 15 and a three‐phase audit approach has already been adopted for certification audit u/ S 619(4) of the Companies Act)

• Two State Governments – either as a whole, or selected Departments within the State

Governments;

• Two Central Government Ministries/ Departments

14 The findings in Report No. 1/ Chapter‐II relating to appropriations in the Central/ State Governments is, by itself, adequate to justify such qualifications/ disclaimers. 15 Thanks to Clause 49 of the Listing Agreement


The pilot studies could be conducted for the financial year 2011‐12, for which adequate

preparatory steps would need to be undertaken. Based on the results of the pilot studies, a phased strategy for integrated financial‐cum‐compliance audit could be drawn up thereafter.

Details of a suggested approach to integrated financial‐cum‐compliance audit, which could be adopted for the pilot studies, are enclosed in Annexe‐6. Pending the introduction of an integrated financial‐cum‐ compliance audit pursuant to these pilot studies, the approach to financial audit and compliance audit is discussed separately in the succeeding sections.

6.2 Enhanced Focus on Financial Attest Audit of Government Accounts


4B. Strengthening the assurance based approach to financial attest audit of Government accounts

4C. Preparing detailed annual financial attest audit plans and evolving appropriate statistical models

4D. Combining inputs from past audit findings and VLC data analysis into the financial audit process

4E. Commenting on adequacy and effectiveness of internal controls affecting the accuracy of financial statements, and encourage moves towards a Management Responsibility Statement

4F. Introducing audit automation software, towards preparation of assurance memos

6. 2. 1 Background

The financial attest audit of Central and State Government accounts, resulting in the expression of the CAG’s audit opinion, is a core product of the CAG under Article 151 of the Constitution. However, the financial audit process in an AG office receives inadequate priority, and primarily comprises of:

• Central audit of vouchers by the CAP/ CASS Sections – In the typical AG office, these

sections are staffed with human resources of less than adequate quality (who cannot be effectively utilized for assignments considered to be of higher priority). The proportion of vouchers to be examined, as prescribed in the existing manuals and instructions, is very

high, since it is based on monetary limits prescribed several decades ago and is entirely inconsistent with current expenditure levels. In practice, the output of CAP/ CASS is largely limited to preparation of audit notes, covering relatively inconsequential items, and does

not feed into the financial audit assurance process in any meaningful manner.

• Scrutiny of the draft Finance and Appropriation Accounts – At this stage, given the available

resources and tight timeframes for finalization of the audit opinion, the scrutiny is restricted


to checks at aggregate levels (primarily in terms of arithmetical accuracy), based on fairly rudimentary checklists (which are generally filled in a routine fashion).

Consequently, the financial audit process, as currently practiced, is not appropriately geared

towards providing overall audit assurance (at acceptable confidence levels, based on well designed and structured methodologies and truly representative samples) on whether the annual accounts really present a true and fair view of the state of finances of the Central/

State Government.

6. 2. 2 Strengthen assurancebased approach

In order to ensure that the financial audit process is re‐oriented to providing assurance on the reliability of the financial statements of the Central and State Governments, the following steps need to be taken:

6 .2 .2 .1 Prepare a detailed Annual Financial Attest Audit Plan

Such a plan cannot be a mere listing of the units to be covered and the time allowed for each unit, but must identify the key areas of high risk (typically, a listing of top risks), based on background search and scrutiny of past expenditure and budget profiles, annual reports and other relevant documents and also considering key weaknesses in financial controls identified in the past. This will also involve allocation of a far higher proportion of resources for audit planning; allocation of about 20 per cent of overall time and resources to audit planning would be reasonable, and would also be consistent with international best practices.

6 .2 .2 .2 Evolve appropriate statistical models for sampling

There is a need to design statistical models, linked to the risk analysis mentioned above, which minimizes the substantive testing of vouchers in the field (thus keeping the cost of audit down and also reducing the demand placed on State Government Departments in attending to our audit), but at the same time is designed to provide assurance at acceptable confidence levels. The current system of nodal statistical officers has been confined, by and large, to sample selection for performance auditing, and has not been very effective in either financial or compliance audits. Consequently, an approach involving across‐IAAD guidance on the general approach, as well as customization at the field level (based on inputs drawn from locally available trained statisticians – not necessarily IAAS officers) would be necessary.

6 .2 .2 .3 Combine inputs from past compliance audit findings, CAP/ CASS audit findings, and

analysis of VLC data into the financial audit process

Even without full scale integration of financial‐cum‐compliance audit, it is necessary to consider past compliance audit findings (analysed and summarized on a Department‐wise basis) to identify focus areas for substantive testing in individual Appropriation Accounts and Finance Accounts Statements. Similarly, analysis of VLC data (and COMPACT/ e‐Lekha data on the Central Government side) on an ongoing/ periodic basis will also throw up potential irregularities/ deficiencies, which will need to be validated through substantive testing. Further, CAP/ CASS audit has no relevance, unless it is fully


integrated into the financial audit process, so that offsite scrutiny of vouchers/ sanctions is combined with onsite scrutiny of selected vouchers/ sanctions; also, central audit should also be introduced in a phased manner in respect of audit of the GoI 16 .

6 .2 .2 .4 Encourage a move towards a Management Responsibility Statement

Internationally accepted audit standards requires the auditor to obtain a statement from management that they understand and accept their responsibility towards preparation of accounts. In line with these

standards, we should encourage a move towards a management responsibility statement from the Central / State governments on the lines of the Responsibility Statement for Directors in commercial organizations. In the case of the State Governments, such a Responsibility Statements should clearly acknowledge their responsibility for preparation of the initial accounts (the monthly treasury accounts as well as dividisonal accounts). The responsibility statement should also cover compliance with the applicable financial reporting framework; for such internal control that is necessary to enable the preparation of such statements and to assure compliance to rules; and to provide the auditor with access to all documents that the management is aware is relevant to the preparation of financial statements/ additional information that the auditor may seek for his work/ and access to persons within the auditee from whom the auditor determines it necessary to obtain audit evidence. Such a Management Responsibility Statement should also give details of details of internal audits/internal appraisals conducted, and compliance thereto.

6 .2 .2 .5 Comment on adequacy and effectiveness of internal controls affecting the accuracy

and reliability of financial statements

In the absence of full integration between financial and compliance audit, it is not possible to focus on all categories of internal controls. However, in addition to pointing out individual comments/ errors/ issues (arising out of substantive testing), the audit opinion and/or the Audit Report should draw attention to the adequacy and effectiveness of internal controls, which directly affect the accuracy and reliability of financial statements. The adequacy of internal audit (based on the information furnished in the Management Responsibility Statement and audit verification thereof) could be mandatorily commented upon.

6 .2 .2 .6 Consider a two/ three phase audit approach, where feasible

A three phase audit approach is already functional for S 619(4) audit of listed PSUs. Subject to the issues raised in paragraph 6.1, we should consider a two/ three phase audit approach, where feasible, whereby

at least a portion of the financial attest audit work is done concurrently during the year (and not after the end of the year and after receipt of the draft/ final annual accounts). In addition to crunching the

16 The bifurcation of compilation and central audit took place in 1984, after the restructuring of IAAD into separate audit and A&E offices for the States. However, since the Departmentalised accounting organization in respect of the Central Government was introduced in 1976, there is no provision for central audit in respect of GoI audit.


time for finalizing the audit opinion, this would also provide an opportunity to provide concurrent feedback to the auditee, providing an opportunity for immediate corrective action.

6 .2 .2 .7 Preparation of an Assurance Memo

A detailed Annual Financial Attest Audit Plan is of use, only when at the end of the annual audit, a formal assurance memo is drawn up (typically in the form of an aide memoire) which clearly highlights the audit efforts undertaken in respect of each area, the results of audit – either a

comment/qualification/note or audit assurance (either positive or negative 17 ) or alternatively justifiable reasons as to why the area could not be examined in audit (all suitably cross‐referenced to KDs/ supporting documentation), and suggestions for future action in the future. Such an assurance memo or aide memoire is far more assurance‐oriented than the current system of KDs only for those findings/ comments which appear in the audit report.

6 .2 .2 .8 Introducing Audit Automation Software

The rigour that exists in performance audit on documentation of working papers for all findings (regardless of whether the assurance is positive or negative) should be extended to financial and compliance audit; this will also ensure accountability of field audit parties/ team members or, at the least, make assessment of their work more objective. Considering the volume of financial audit assignments being undertaken, the only practical way to document/ establish that audit assurance has been provided is through use of automation software. Such software should, at the minimum, have provisions for capturing each audit activity/ step (in the form of audit checklists/ sub‐checklists for individual account areas), the details of audit findings, and the results in the form of comment/ qualification/ audit assurance; additionally, features for audit planning, HR assignment and other ancillary activities can also be built in. Such software is commercially available off the shelf (e.g. Price Waterhouse Coopers’ Team Mate software), but it is likely that bespoke development of audit automation software for the IAAD is likely to be cheaper (considering the large number of licenses that would be required for off‐the‐shelf software) and is also likely to better meet our needs through appropriate customization.

6 .2 .2 .9 Fine tune the Financial Attest Audit Manual

Currently, the Financial Attest Audit Manual only lists the general principles for financial audit, and except for one Annexure providing certain limited information, does not provide detailed guidance specifically for certification of Government accounts e.g. for individual Finance Accounts statements as

well as Appropriation Accounts. Consequently, the manual needs to be fine tuned, with supporting detailed guidance, which will also form the basis for the detailed financial audit plan (as well as for the assurance memo).

17 A statement that “we found no significant evidence of weaknesses/ deficiencies etc.” provides negative assurance. While this is less satisfactory than positive assurance “our audit revealed that the internal controls were broadly adequate and effective…”, many of us in the IAAD may be more comfortable with such assurance, given the weight of historical precedence.


6.3 Financial Attest Audit of Government Companies and Autonomous bodies


4G. Building capacity for the forthcoming alignment of Indian Accounting Standards with IFRS from April 2011

4H. Move towards conduct of certification audit of autonomous bodies exclusively by commercial audit staff

The current system of attest audit of Government Companies envisages appointment of Chartered Accountants as statutory auditors by the CAG (who also issues directions for the conduct of the audit) combined with a system of supplementary audit of accounts (on a selective basis) by audit teams from the IAAD. This system provides a high level of assurance on the reliability of PSU accounts with an arrangement that minimizes duplication of audit effort and optimizes the utilization of scarce resources with the IAAD.

As a further improvement, a three‐phase system of audit has been introduced in respect of listed PSUs:

• In the first phase, which is conducted after finalization of the accounts of the second quarter, a general review of accounting policies, changes and compliance with past

observations is carried out.

• The second phase audit is conducted after the draft annual accounts are received, and

deviations/ deficiencies noticed are communicated to the PSU management for quick remedial action to improve the quality of its accounts.

• In the third phase, the modifications made by the PSU’s management in the draft accounts

are reviewed along with the statutory auditor’s report.

This innovative measure has substantially improved the quality of accounts of PSUs, reduced the timeframe for finalization, and also minimized the adversarial relationship between the PSU and the IAAD.

The main challenge to be faced by PSU audit teams is the forthcoming alignment of Indian Accounting Standards (IAS) with the International Financial Reporting Standards (IFRS) from 1 st April 2011, which will have far‐reaching implications for our certification audit approach. Our main challenge is to build

capacity to respond to these changes; the commercial audit wing has taken suitable steps such as (a) preparation of audit check lists for IFRS and (b) training of audit personnel. It is important that these measures are taken to their logical end so that the capacity to audit IFRS compliant accounts is established before 1 st April 2011.

The other major area of certification audit is the audit of the accounts of autonomous bodies, which are prepared in line with a common format of accounts (based on accrual accounting principles) prescribed


by the Ministry of Finance (in consultation with the CAG). The quality of maintenance of accounts across different autonomous bodies is inconsistent; correspondingly, the quality of certification audit needs to be substantially upgraded. While there are instructions for assistance from the CA wing in terms of commercial audit staff, in the long run we must ensure that all certification audit of autonomous bodies is conducted exclusively by commercial audit staff. Further, it would be desirable to move towards adoption of IFRS‐compliant Accounting Standards in respect of these bodies, which would ensure that the quality of their accounts is consistent with internationally accepted benchmarks.

6.4 Reorientation of approach to Compliance Audit


4I. Switching to a thematic approach for compliance audit (involving at least 80% of available compliance audit resources), with assurance‐based reporting and follow‐up based on recommendations

4J. Reducing the number of compliance audits and IRs drastically, and introducing detailed audit planning for thematic audits

4K. Introducing audit automation software, for systematic documentation and working papers

6. 4. 1 Current Position

Review of compliance with laws and regulations is important in public audit, because rules provide the framework in which government decisions become transparent and against which internal controls can be substantively checked. This is an important area of audit work and the assurance process; its place

and importance need reiteration in an environment where rules and by implication, audit are occasionally seen by certain parties as speed‐breakers or even as detrimental to innovation. However, our compliance audit, as currently practiced, has certain systemic weaknesses, which are summarized

below:

• Not assurance oriented ‐ The compliance audit process is not oriented towards providing assurance or an overall perspective on governance and compliance issues. Instead, our

Compliance Audit Reports/ Chapters depict isolated findings (which ‘came to our notice during the course of “test” audit’). The issue as to what the presence of certain selected findings in our Audit report means or implies is left vague; are we providing a kind of negative assurance to our stakeholders (i.e. we found no significant deficiencies)?

• Oriented towards numerical targets – In a sense, our compliance audit is largely driven by

numerical targets – primarily the number of draft paragraphs (DPs) featuring in the Audit Report, and secondarily the number/ percentage of Drawing and Disbursing Officers (DDOs)

covered through transaction audits. Covering as many DDOs as possible through transaction audits (often of a week’s duration or less) is largely seen as an end in itself, rather than a means to an end.


• Inadequate attention to audit planning – The audit planning exercise consists mainly of

categorization of units into A, B and C category units (according to a rough risk assessment), assigning audit periodicities and duration to such units, and trying to cover as many units as possible, given the available audit parties (which are generally divided and assigned to different types of receipts/ expenditure). No unit level audit planning is conducted and

there is no identification of a limited number of high risk areas within a unit.

• Indifferent quality of Inspection Reports (IRs) – Given the enormous number of units

covered in compliance audit, an equally large number of IRs of indifferent quality are issued. The debate over whether our IRs can be made proactively disclosed through the Internet and also our general defense that the IRs represent “preliminary audit findings, which have not been approved by top management” is generally driven by our own perception of the poor quality of IRs; this is also confirmed by the negligible ratio of conversion of IR

paragraphs into Audit Report paragraphs (i.e. findings which we are confident about

defending publicly). It is next to impossible for the Group Officer (with his other priorities) to significantly improve the quality of so many IRs at his level; all he can do is some editing of the language, and drop some of the worse/ unsupported findings.

• Huge volume of outstanding audit objections ‐ The other result of voluminous production

of IRs of less than adequate quality is a growing “Objection Book” of outstanding audit

objections, where the pressure for settling audit objections falls on the auditor and not the

auditee; this is usually in the form of quantitative targets for reduction of outstanding audit paragraphs. Unfortunately, due to the lack of running themes across the audit objections, we cannot even easily suggest a set of key recommendations, which, if implemented, would reduce recurrence of such irregularities/ deficiencies.

6. 4. 2 Reoriented Approach to Compliance Audit

While certain measures (e.g. integrated audits, DDO‐centric audit, internal control audits) have been taken over the last few years, we believe that the entire approach to compliance audit has to be oriented towards providing overall assurance on the governance and control structures on Ministries, Departments and other entities. For this purpose, the following measures need to be undertaken:

6 .4 .2 .1 Switch to Thematic Approach

Instead of covering individual DDOs, we should switch to a thematic approach to compliance audit. The themes could be:

• Chief Controlling Officers (CCOs)/ Departments/ Directorates as a whole, or components or

parts thereof;


• Development or other activities within a District/ constituency or other geographical unit 18 ;

• Activities cutting across CCOs/ Departments/ Divisions e.g. (eg like PPP, environment

management, procurement, vigilance etc)

The objective of the compliance audit will be to provide overall assurance on the theme, and associated governance/ control structures. Obviously, the HOD of the field office will need considerable flexibility in the type of themes to be selected (to provide adequate scope for innovation), as also the extent and depth of coverage of DDOs (or other entities) to be covered as part of the thematic audit. In general, the scope of these thematic audits will be narrower than those covered through full‐scale performance audits, and will be akin to “mini‐reviews” produced in the past. In time, at least 80 per cent of the available compliance audit resources should be devoted to compliance audits, with a maximum of 20 per cent (or even less) to be allocated for one‐off audits of DDOs/ auditees.

6 .4 .2 .2 Reduce the number of compliance audits and IRs drastically

Adoption of a theme‐based compliance audit approach will inevitably result in a drastic reduction in the

number of compliance audits conducted and IRs issued, and indeed in the number of DDOs/ auditees covered 19 . In our view, there is nothing – either explicit and implicit – in our audit mandate, which prescribes that we must inevitably cover all (or most DDOs) with some kind of periodicity (every 1, 2, 3, 5 or even 10 years), and failure to do so is in a sense a failure of audit. This view may have been appropriate several decades ago, where there were a relatively small number of DDOs. In the current era, with some larger States having lakhs of DDOs on the civil side alone, focusing on the coverage of DDOs is inappropriate.

6 .4 .2 .3 Detailed Audit Planning

Instead of just planning for the number of DDOs to be covered, we will have to move towards detailed audit planning for each thematic audit (with specific audit objectives, audit criteria, and issue analysis – on a simplified basis), adopting most of the rigour followed for performance audit planning. In order to provide reliable assurance, we also need to have long‐term planning for each wing/ field to ensure that all significant areas are covered either through thematic audits or full‐scale PA reviews, and no material/

significant area is omitted and “falls through the cracks”. Such compliance audit planning will also require a substantial allocation of audit time – allocating 20% of the total time for compliance audits for audit planning would not be unreasonable.

6 .4 .2 .4 Assurance‐based Reporting

The reporting of thematic audits should be assurance‐based, highlighting negative findings or positive findings (or absence of deficiencies) in perspective to our audit sample. Further, the reporting should cover all the audit objectives/ focus areas indicated in the audit plan, and should also give specific

18 E.g. the KBK Districts in Orissa (covering the erstwhile Kalahandi, Bolangir and Koraput Districts) 19 With a corresponding increase in the duration of each audit


recommendations. HODs should be free to decide whether and how specific audit findings (in the form of extracts of the thematic IRs / sub‐ IRs) would be made available to lower‐level functionaries of DDOs/ individual units (in addition to the main IR).

6 .4 .2 .5 Follow‐up based on Recommendations

Follow‐up action on audit findings should flow from our recommendations; such recommendations could include recommendations for systemic improvement, financial recovery, as also action to fix

accountability and responsibility for irregularities, fraud etc.

6 .4 .2 .6 Systematic Documentation and Working Papers

As recommended for financial audits, an assurance memo (in the form of an aide memoire) would need to be prepared at the conclusion of each compliance audit, summarizing the results of audit in respect of each area indicated in the audit plan. Also, for appropriate cross‐reference and documentation of working papers, introduction of audit automation software for compliance audits would be necessary. It may, however, be noted that while the checklists for financial audit would be relatively uniform, similar checklists / individual audit steps in respect of compliance audit are likely to vary widely from audit to audit; the automation software will also have to provide for such flexibility, and also incorporate provisions for preparing and updating libraries of audit processes for common themes, which are likely to be replicated across States.

6 .4 .2 .7 Audit Scope Limitation

The issue of non‐production of records may also need to be dealt with squarely. It could be argued that the remedy for non‐production of records lies in intensive interaction with the Ministry but such “intensified” efforts on each audit is a depletion of audit time and resources. International auditing standards provide that “in all cases when a reasonable assurance cannot be obtained and a qualified opinion in the auditor’s report is insufficient in the circumstances for the purposes of reporting to the intended users of the financial statements, the auditor can disclaim an opinion”. Audit scope limitations and/ or disclaimers could be considered in extreme situations – both for financial and compliance audits ‐ and its efficacy tested with the Executive.

6.5 Strengthening Performance Audit

The highlights of this strategy are:

4L. Since Performance Audits greatly enrich public accountability and enable the CAG of India to make practical contributions to improving the efficiency and effectiveness of the public administration, there is a need to increase the allotted party man days on such audits from the current exposure of around 10 per cent to 50 per cent by 2020.


4M. New strategies to strengthen the process of Performance Audits like greater stakeholder involvement, fine‐tuning audit methodology and redefining the follow‐up process, need to be institutionalised so that Performance Audits make the desired impact.

Performance Audits (PAs) greatly enrich public accountability and enable the CAG to make practical contributions to improving the efficiency and effectiveness of the public administration. PAs analyze and assess the performance of government programmes or public services. In contrast to financial audit, PAs focus on the activity rather than the accounts and flow of money. In contrast to compliance audit, PAs relate mainly to intentions behind government interventions and to the concepts of economy, efficiency and effectiveness rather than mere compliance to certain laid down rules and regulations. PAs in India assume even more significance as the funds allotted for development schemes of Government of India

have been increasing manifold over the years. However, there is no credible system for evaluation of the effectiveness and impact of these schemes as the systems within the ministries for internal audit and internal evaluations are inadequate. In such a scenario, in India, PAs by the CAG are one of the most comprehensive tools available for making a critical evaluation of such schemes.

Currently, most field offices devote roughly 10 to 15% of audit party maydays on Performance Audits 20 . Considering the positive impact PAs have been having on improving governance, it would be our endeavor to increase this to 50% by 2020.

Parallely, there is also a need to strengthen the process of Performance Audits, a few strategies for

which are discussed below.While many of these strategies (e.g. balanced reporting, use of innovative evidence gathering techniques etc.) have been used in some performance audits and by some field offices, there is a pressing need to institutionalize these strategies across all field audit offices and for

all performance audits.

6. 5. 1 Greater stakeholder involvement

6 .5 .1 .1 Identify key stakeholders with due care

The Legislature (in particular, the members of PAC/ COPU) and the Executive are our primary stakeholders for performance audits. However, in addition, some of the other stakeholders who could be consulted, could include

• Planning Commission, our Audit Advisory Boards, Prime Minister’s Office and Ministry of

Finance

• Research/monitoring agencies like National Council for Applied Economic Research,

Institute of Economic Growth, Centre for Monitoring of Indian Economy etc

• Media organizations;

• Civil Society Organisations;

20 Although their contribution to the printed Audit Reports is substantial – typically more than 50 per cent of the material for the Audit Reports.


• Considering an individual Member of Parliament/Legislative Assembly as a stakeholder and

doing a PA on a constituency as a whole (either all governance functions or some specific sectors like social development, health etc.)

• General public (for connecting with the general public, new methods such as surveys,

advertisements in papers etc. have, and can be used for eliciting their views)

6 .5 .1 .2 Selection of Performance Audit Topics in Consultation with Key Stakeholders

To ensure the success of any PA, it is imperative to actively involving all key stakeholders (other than just the audited entities) in the audit process so that the actual concerns of all parties are flagged at the

initial stage of the audit process itself. Selection of topics for PAs in consultation with key stakeholders is a sound strategy in ensuring that PAs find ownership at a later stage. This aids in building up pressure on the audited entities to act on the recommendations of audit, and also helps in minimizing the adversarial relationship that often develops between the auditee and the IAAD. For this purpose, formal and structured interactions at periodic intervals (in addition to informal meetings) are necessary. AIso, in addition to selection of PA topics, stakeholders could also be consulted on its scoping and audit objectives.

The final decision on the selection of PA topics is ultimately that of the CAG; the role of other stakeholder is only advisory and consultative. However, the international practice is to take serious note of requests from the stakeholders (primarily legislative). As mentioned earlier, our US counterpart, GAO, takes pride in stating that between 86 to 94 per cent of the programme audits (over the last three years) were undertaken in response to legislative requests.

6 .5 .1 .3 Evolving criteria for evaluation in consultation with stakeholders other than the executive/audit

Most government programmes especially in the social sector do not have performance indicators which can act as benchmarks for assessment of the programme. Even where indicators have been defined, they do not take on board the concerns of other key stakeholders. Thus there is a need to set parameters, agreeable to key stakeholders, on the basis of which the programmes can be evaluated. Such criteria that are evolved in consultation with key stakeholders may be quite different from those evolved by the policy making or implementing agencies. These criteria can be the guiding principles for audit evaluation of such schemes.

6 .5 .1 .4 Maximise our domain knowledge and enhance our understanding of critical issues from stakeholders

Keeping abreast of the latest developments in any sector is key for any auditor to come up with timely and critical recommendations that lead to improvement in the overall governance. While domain knowledge can be acquired by theoretical research, it is imperative to tap the huge practical knowledgebase which the informed stakeholders have. This is possible by ensuring that we have structured and periodic stakeholders meetings.


6. 5. 2 Finetune the Performance Audit Methodology

6 .5 .2 .1 Balanced Reporting

Traditionally auditors have shied from reporting the good performance of the executive due to the lack of an assurance based audit approach, which resulted in lack of appreciation of good performance and led to an imbalance in performance audit reporting. Balanced Reporting should be encouraged as reporting on both positive and negative performance is essential in bringing out a fair representation of performance. Balanced reporting will also ensure that the audited entity is more positive in acting on

the deficiencies pointed out as they come along with an endorsement of good performance, wherever achieved. Specifically, we need to eschew the practice of excluding areas from our Audit Reports, where we do not have “good” (i.e. strong negative) findings.

While of late we have been adopting balanced reporting in our Performance Audit, we need to move

towards institutionalizing this practice with well defined guidance for doing the same.

6 .5 .2 .2 Suggesting good practices both local and international

Following up important audit findings with a bouquet of best practices (including positive innovations) being followed both locally and internationally is a step forward to make the recommendations of audit more user‐friendly. This facilitates the public administration to contemplate solutions best suited to local conditions. This also enables other stakeholders to influence policy makers in making more effective policy level interventions which are based on successful practices adopted both locally and worldwide.

6 .5 .2 .3 Enhanced and widespread use of innovative methods of collection of collateral evidence

• Field Inspections ‐ There is need to institutionalize joint site inspections and extensive field

visits, with photographic evidence gathering. Field visits are able to pinpoint the specific

gaps in the implementation at the ground level and photographic evidence helps in establishing the risks various critical projects suffer from.

• Surveys ‐ Widespread beneficiary surveys help in identifying the actual levels of delivery of

benefits to the targeted citizens.

• Use of IT ‐ There is also a need to extensively use Information Technology for data

compilation, collation, and analysis. Extensive collation of huge volumes of grass root level data relating to compliance with rules, regulations and programme guidelines, as well as

status of implementation will help in driving home audit conclusions more effectively. Recommendations have been made for automated audit software for financial / compliance audits; these could also be considered for extension to performance audits (although this would require greatly enhanced flexibility for customization of checklists, collation of All‐

India/ across the State data etc.)


6 .5 .2 .4 Hastening the time taken to conduct Performance Audits

Normally it takes around a year for a PA report to be printed from the time of selection of the topic.

While for all‐India PA reports, this time frame could be justified, there is a need to speed up the process for other PA reports which do not involve audit being conducted all over the country. This is particularly relevant for PAs which deal with topical issues. While the time taken for field audit need not be compromised, the processing of the PA reports both at the field office level and the headquarters office level needs to be speeded up so that the PA reports are printed within 3 to 4 months of selection of the topic.

6. 5. 3 Follow up of Performance Audits based on recommendations

Currently the audit findings used in the PAs to arrive at audit conclusions are treated as individual comments warranting individual response and individual action taken reports. Action taken to address the final conclusion and the recommendations that flow from them are not considered adequate to address the PA. For example in a PA on procurement systems in any department, the individual cases of

defective procurements are used to arrive at some larger systemic conclusion followed by a recommendation by the auditor. The PA requires action to be taken on the larger point i.e. the particular systemic deficiency that led to defective procurement and not necessarily the individual cases used to

arrive at that audit conclusion. It has been our experience that the audited entities tend to address the individual cases and often tend to ignore the main governance issues.

In order to ensure that the recommendations are addressed, it is suggested that in future, for all PAs, we pursue the action taken through just follow up on the recommendations made. Cases where the

executive has either not accepted the recommendations or has not acted upon the accepted recommendations can be brought to the notice of the Parliamentary Committees. In this way, only a PA report which has low acceptability by the audited entities would get discussed in Parliament/Legislature. This procedure would also act as an incentive to the executive to address the recommendations of audit more seriously. This would also ease the Parliament/Legislature of the heavy load of reports that it has to deal with.


7 Goal 5: Improving delivery of accounting and entitlement functions

7.1 Accounting Functions

The strategy is about:

5A. Encouraging States to assume ownership of accounts, where they express willingness and possess adequate capacity

5B. Leading reforms of the accounting structure and partnering the GoI/ States in ushering in institutional accounting mechanisms for direct transfers of funds

5C. Transforming A&E offices into data centres for financial information and analysis

7. 1. 1 Background

The IAAD undertakes accounting and entitlement functions in respect of the State Governments and UTs. Goa, Puducherry and NCT of Delhi are the only State/ UT Governments which prepare their own accounts. Accounting and entitlement functions in respect of the Central Government were taken over by the Central Government in 1976, when a departmentalized accounting structure was adopted.

In respect of accounting arrangements for the States, concerns have been expressed occasionally from the perspective of international best practices of a somewhat incongruous situation where the SAI, in addition to its auditing responsibilities, is responsible for compilation of accounts and submission of accounts (both monthly and annual financial statements). In practice, this situation does not result in any significant conflict of interest or adverse impact in the independent and objective discharge of audit functions, since:

• The responsibility for “passing” payments and preparing initial accounts vests with the

Treasury Officers under the State Governments, and A&E Offices are only responsible for compilation of accounts.

• A “clean” bifurcation of audit and accounting functions is in place since 1984, with complete

separation of personnel at all levels (except at the level of IAAS).

7. 1. 2 Encourage States to assume ownership of accounts

Over a period of time, the possibilities of State Governments preparing their own accounts have multiplied, given extensive efforts at treasury computerization and the ability of the States to network accounting units. However, so far no State has expressed willingness to take over the accounting function.


It is imperative that a departmental view be formulated on the response to future requests

from the State Governments to take over accounting responsibilities. As and when States express willingness to take over accounts and demonstrate adequate capacity for such a takeover, the IAAD would encourage handover of accounting responsibilities to State Governments and would ensure a smooth transition.

An assessment is required to be done by all AsG (A&E) for at least the next ten years to anticipate the possibility of the State taking over the function, in which case avenues for utilization of manpower and resources have to be planned. A year wise alternative manpower and resource deployment plan from 2015 onwards should be prepared for all offices so that as and when the possibility arises, a smooth transition is possible.

While doing so, however, we must be careful to ensure that access to accounting information is ensured to our offices at all times. This can be ensured if we develop our offices as data centres, networking all information channels available in the State, so that even if we do not compile accounts, information is available on a near real time basis for validation, certification and audit purposes.

7. 1. 3 Lead reform of accounting structure

7 .1 .3 .1 Concerted efforts towards improving quality of Finance and Appropriation Accounts

As the organisation on whose advice the form of accounts is finalized (under Article 150 of the Constitution) and who compiles the accounts of the State Governments and UTs, the responsibility on

the CAG with regard to quality of accounts is immense. In the present scenario, the ownership of accounts is also somewhat diffused. While in the last few years, significant steps have been taken to improve the quality of accounts, yet in certain areas, systemic deficiencies are difficult to overcome. For instance, the amount of physical assets represented in the accounts (through the figures for capital expenditure) and financial assets represented by loans need greater verification. Information on loans given by the State Departments is sketchy and they too do not have data that can be easily retrieved and verified. Similarly, assets registers, though prescribed, are not maintained by most departments. While the onus of maintaining the details is on the State Governments, yet the accounts get identified with the organisation of the CAG. Hence, efforts are needed to identify such areas and partner States in promoting improvements.

7 .1 .3 .2 Work towards standardizing chart of accounts (sub head and below) across Centre and States

Under the current six tier chart of accounts (introduced from 1987), uniformity across all Governments (Central and State) is achieved at the level of the first three tiers (major, sub‐major and minor heads), while at the lower three tiers (sub‐head, detailed head and object head), there is no uniformity and the Central and individual State Governments adopt different coding systems. While this approach has worked reasonably well over the last two decades, the advent of large‐scale computerization has been a game changer, throwing up opportunities for detailed data analysis with scope for drilling down to individual items of expenditure across Governments (e.g. subsidies, grants‐in‐aid). However, the scope


for collecting and analyzing such granular data is affected by the lack of standardization of account codes (sub‐head and below). There is thus a growing need to work towards standardizing the chart of accounts (sub‐head and below) across the Central and State Government for purposes of better transparency and information sharing, as well as ease of comparison.

We will need to take the State Governments on board and dispel any doubts since such standardization may be perceived to be anomalous to the sense of autonomy of the States. While standard heads of account for the entire budget would not be feasible, standardization could be restricted to the following categories:

• Objects heads which represent the item of expenditure and which do not really vary across

States, e.g. salaries, wages, office expenses etc. Some standardization is available but the entire gamut of activities need to be assigned common codes

• Subheads/Minor heads denoting central/ACA schemes and other such schemes common to

all States and their components which could be coded at the level of the detailed head and below

7 .1 .3 .3 Partner CGA in a new chart of accounts, especially for the Union

The other major issue with the current chart of accounts is the accounting for the large number of

Centrally Sponsored Schemes and Additional Central Assistance Schemes, being funded by different Ministries and Departments of GoI. It is difficult to obtain a high‐level perspective of expenditure on key flagship programmes from the Union Finance Accounts in their current format; in the case of many Additional Central Assistance (ACA) schemes (e.g. JNNURM), the exact expenditure on these schemes is concealed at the sub‐head level or below, and cannot be traced from the Finance Accounts. There is thus a need to partner with the Controller General of Accounts (CGA) and the Ministry of Finance towards developing a new chart of accounts, especially for the Union Government, which is more in tune with the diverse and newer functions current performed by the Ministries and Departments.

The CGA has constituted a committee for the purpose and our organization is represented in the committee. It will be our endeavour to sensitise the committee for the need for standardization as mentioned above and facilitate adoption across States.

7. 1. 4 Partner States in improving institutional mechanisms for monitoring public expenditure and receipts

7 .1 .4 .1 Usher in institutional accounting mechanism for agencies that receive funds through

the society mode

Increasingly, the major portion of GoI funding through CSS/ ACA is released, not through the Consolidated Funds of the States, but to State‐level implementing agencies, which are typically

incorporated as societies and are outside the Government accounting loop. In turn, releases of funds by


the State‐level implementing agencies to lower level agencies at the district, block, and Gram Panchayat levels is also outside the Government accounting structure.

The reasons stated by most Ministries/ Departments for switch over to the “society mode” include

faster transfer of funds to the grass root level (with reduced chances of diversion for unrelated schemes/ activities) and less bureaucratic and more efficient systems for programme delivery 21 . However, one major weakness of the “society mode” of funds transfer is the lack of effective institutional mechanisms for accounting for releases and utilization of funds at different levels (State, District, Block and GP). Since fund releases to lower levels of agencies are usually booked as expenditure under the cash system of accounting, it is difficult to ascertain how much of the funds released by the GoI actually translate into grass‐root level expenditure.

Further, the systems for accounting of releases (both inward and outward), utilization, bank reconciliation etc. are often inconsistent and less than adequate, despite finance and accounting manuals/ procedures having been developed for some schemes; auditing arrangements (usually through Chartered Accountants and/ or Local Fund Auditors) are also often weak. While web‐based MIS reporting arrangements for financial and operational data have been put in place for most schemes, data reported through the MIS does not have the credibility or authenticity of audited accounts/ financial statements, with errors in the data often being attributed by the concerned officials/ agencies responsible to data entry/ compilation or other errors. There is no real substitute for the rigour of properly audited accounts, which is necessary to provide assurance as to the utilization of funds provided.

Currently, the AG (A&E) offices compile about 70 percent of the expenditure in the State. We would be able to compile accounts for the remaining 30 per cent of expenditure, provided there are institutional arrangements in place to capture plan funds released by the Union and State Government to implementing agencies/ societies and resultant expenditure. In order enable the AG (A&E) offices to account for funds released under the society mode, the following aspects will need to be taken care of;

these would have to be taken up with the Planning Commission and the Ministry of Finance.

• Uniform accounting formats for the implementing agencies would have to be devised which are amenable for integration/link with the State Accounts. For the PRIs, some accounting

formats have been framed. Their completeness, utility and practicability should be assessed and applied to other implementing agencies.

• Electronic data capture of accounts of the autonomous bodies/societies and NGOs

maintained in uniform accounting formats on an IT system has to be ensured, providing

21 This alternative method of fund transfer and its implementation may have some advantages in terms of cutting through bureaucratic delays, but the fact remains that these bodies are also headed by the same bureaucratic structure. Further, lack of accountability of these bodies is an equally serious concern. These mechanisms were conceived about a decade and a half back and now with tremendous strides made in core banking, monitoring timeliness of release of funds should not be an issue. More and more funds should be routed through treasuries; any other system has to necessarily be sub optimal. However, despite our views on this issue, we will have to promote better accounting mechanisms for direct transfers, as long as they continue.


access to both AG (A&E) and Pr.AG/AG (Audit). The vouchers and other documents should be retained by them, for off‐site verification by the audit/ A&E teams as appropriate.

• Suitable mention would have to be made in GFRs of both GOI and the States and in

sanctions issued by GOI/States for rendering accounts in these formats to the AsG, failing

which further grants are to be stopped.

• Amending the Societies Registration Acts, or alternating suitable provisions in the sanctions (or standardized addendum to the sanctions) to incorporate provisions regarding

maintenance of accounts and disclosure requirements, filing of accounts, appointment of auditors and constitution of audit committees.

• At present, a UC issued by a State‐level agency is inadequate, as it treats releases to lower

level agencies as expenditure, without obtaining documentary evidence. Consequently, in the absence of a “pyramid’ of UCs from the grass root level implementing agency upwards, the UC issued at State‐level is largely meaningless. Rule 212 (1), note 1 of the GFR states that the UCs of Central Autonomous Organisations shall disclose separately the actual

expenditure incurred and the loans and advances given to suppliers of stores and assets, to staff, to construction agents etc that do not constitute expenditure at that stage. This

should be applied to the DRDAs, Societies etc which, too, do not incur expenditure at their level but extend loans, grants etc. to down the line implementing agencies. In essence, the UCs submitted by all levels of agencies should clearly specify whether it is direct

expenditure or a loan/transfer. In case of actual expenditure, broad categories of expenditure could be specified (assets creation, construction, maintenance, wages, grants to beneficiaries etc). Also, a copy of these UCs, along with audited statement of accounts (in the prescribed formats), should mandatorily be endorsed to the AG(A&E) and Pr AsG

(Audit).

7 .1 .4 .2 Arrangements for audit of direct fund transfers

While most central plan schemes involving releases through societies have a provision for audit (by Chartered Accountants) of accounts of such societies, the results of such audits are not wholly satisfactory. Annual audit of such societies are carried out by chartered accountant appointed by the

governing body of the State or district society or State Government. There is an issue of lack of independence of auditors as the auditors are usually appointed by the societies themselves. Also, the CAs are not required to assert or confirm that the funds have been utilised for intended purposes. In order to improve accountability through audit the following measures can be thought of:

• An element of independence may be brought in the process of selection by a process similar

to that in PSUs where the auditors are appointed by the CAG.


• Guidelines may be formulated either by the CAG (similar to the directions issued under S.

619(3) of the Companies Act to PSU statutory auditors) or in consultation with CAG for the auditors to cover a list of additional issues (general issues such as internal controls, control over assets, inventory, reconciliation of expenditure, physical verification and also scheme/ sector‐specific issues).

• Provision should be made for preparation of annual reports, reflecting the performance for the year together with audited financial statements, within a specified time frame

(uniformly for all schemes involving direct GoI transfers) after the close of financial year

The increasing tendency of routing the government assistance through intermediaries with the immediate grantee body or authority assigning a part or whole of the amount of such assistance to sub‐ grantees for actual expenditure and programme delivery has raised the issue of CAG’s audit jurisdiction and independent oversight in regard to sub‐grantees. CAG audit jurisdiction over the sub‐grantees in such cases can be made mandatory and placed beyond doubt by making suitable changes in GFRs/sanctions as under:

• Prescribing in the General Financial Rules that it shall be the duty of the grantee to make available the relevant books of accounts and records for CAG’s audit including the related

books of accounts and records of the sub‐grantee, if any, to whom a part or whole of Government assistance may be transferred by the original grantee; and the grantee shall incorporate a suitable back‐to‐back condition to this effect in the order of release of any amount that may be so transferred to the sub‐grantee; and include a suitable condition in

the Government sanction on the above lines.

• The Pr.AG/AG (Audit) should have free and complete access to the accounts, accounting documents and other related documents to the state/central autonomous bodies, PRIs and

Urban Local Bodies.

• Pr. AG/AG (Audit) could earmark a portion of his resource for concurrent random

verification of the correctness and completeness of data provided and maintained by the implementing authorities across the State(s). Such random verification should be able to detect the errors in reporting without estimating the full impact of it.

7 .1 .4 .3 Usher in detailed accounting of receipts and analysis; aid in pointing out areas of

resource generation

Traditionally, accounting of expenditure has been given far more importance than accounting of receipts, where compilation of receipt figures is done on the basis of the abstract submitted by the Treasuries (Cash Account) without the supporting challans. This should be an important thrust area for accounting at the State level, where detailed accounting of receipts should be considered. Such detailed accounting would also provide opportunities for detailed analysis, which could aid in pointing out areas where scope for additional resource generation exists.


On the receipt side, we do not collect basic challan‐wise data, as the data is not even available with the Treasury. Usually, the Commercial Tax Range or the RTO deposits the daily collection through a consolidated challan in the Treasury. Unless we capture challan‐wise data, we would not be in a position to offer much analytical support. On the other hand, if we manage to build up a few years’ challan‐wise data, predictive models of tax rate and collection, tax administration and collection etc. can be developed. We would be in a position to do sensitivity analysis of the impact of various pronouncements relating to changes in taxation rates. Improvement in accounting would offer greater value for the decision makers when receipt accounting is also made comprehensive.

Two States have been currently asked to undertake pilot studies in the field. Necessary linkages with the receipt databases in the States will have to be established to access data and necessary capacity developed to analyse the same.

7. 1. 5 Develop treasury inspection as a robust and regular feedback mechanism on the financial management system in States

Inspection of treasuries is a key institutional mechanism, whereby the AG (A&E) can gain assurance about the adequacy and effectiveness of controls over financial accounting and reporting by the Treasuries (who prepare the initial accounts, which are subject to compilation by the AG (A&E)). However, this activity has generally not been accorded high priority in most States, and is often conducted in a routine fashion. It is therefore necessary to accord extremely high priority to treasury inspection and develop it as a robust and regular feedback on the financial management system in the State.

7. 1. 6 Accounts Offices to evolve as data centers for financial information

7 .1 .6 .1 Complete Electronic Data Capture

Electronic data capture from the treasuries is at various stages of implementation across States, and it is expected that in the next two years, there would be near universal coverage of the same. However, computerisation of Public Works and Forest Divisions is not even close to the levels achieved in the treasuries. We therefore, have to stress on computerization of the divisions and capture detailed data from them, as against the compiled accounts that we receive today. Moreover, the electronic capture of data should be facilitated by networking the offices with the respective directorates so that data is captured on real time basis or with minimum time lag.

The need for data capture from other agencies that receive funds directly from the GOI and those who receive funds from the State but whose transactions do not pass through the treasuries have also to be brought into a common accounting framework. Electronic data capture from these agencies has to be ensured so that integrated accounts for the State as a whole are prepared. The totality of all

expenditure and receipts in the State would then be captured. A fundamental requirement for this is the need to define these bodies as meaning the ‘State’ and developing widespread consensus for the same.


Given that these bodies are substantially financed by the Governments, there is an urgent need to ensure that they are brought into a common accounting framework.

7 .1 .6 .2 Development of Data Warehouse

Though there is a wealth of data available on the financial position of a given state before the close of the succeeding month at state level, the position on any available parameter is not amenable for comparison, on a concurrent basis, among all the states or among a few chosen ones. Establishment of a

central Data Warehouse would serve the purpose well.

The Data Warehouse, with data primarily being fed by the VLC systems, should be developed and maintained centrally for the entire country by one field office. A dedicated data analysis group should be responsible for the upkeep and enhancement of the central Data Warehouse. While there are many

variants of VLC database across different A&E offices, suitable extraction of data will ensure uniformity of the formats for reporting through the Data Warehouse. All reports should be capable of being accessed over the VPN/ intranet or through offline modes. The Data Warehouse should use and provide

the best possible reporting solution, as is available through the latest developments in the field of Business Intelligence and Data Mining.

The associated advantages are immense. Audit would also be able to extract suitable data from the Warehouse, either online or using offline analysis tools. The reports available through a Data

Warehouse and Business Intelligence (BI) solutions can be different from the reports generated through VLC. The BI reports are analytical in nature, and empowers the user to “Slice‐and‐dice” the data, and see only the data that he wants and in the manner that he wants. Making a BI solution available to audit will facilitate real‐time use of accounts data by audit for both audit planning and execution.

A data warehousing project has been initiated and is expected to be completed by the last

quarter of 2011. Once accounting information available through the VLC in the States is made available, the next step would be to integrate receipt databases and information on receipts and expenditure of bodies that receive funds directly from the GOI etc.

7 .1 .6 .3 Combined Finance and Revenue Accounts as a live analytics product

At present, the Combined Finance and Revenue Accounts (i.e. combined Finance accounts of the Union

Government, all State Governments and UTs including Goa, Puducherry and the NCT of Delhi) are prepared almost a year after the accounts for any year are finalized. It takes huge manual efforts, as there is no IT application at present to facilitate easy data compilation. With the data warehouse, the

CFRA would be prepared as soon as the accounts of all the Governments are finalised and it is expected that the time taken would be reduced to one fifth of the time taken now. Further, the electronic version of the CFRA could be made available on the Internet, with hyperlinks enabling “drilling down” in a highly granular fashion to both historical and live data. The CFRA could then become a truly live analytics product.

7 .1 .6 .4 Development of value added products which aid in financial management functions


Presently, there is a whole set of data that is available on State finances from any number of sources‐ accounts, budgets, RBI etc. However, except for the compendium on CFR prepared from 2007‐08 onwards, we have not been able to prepare any niche products, that draw upon the rich and granular data that is available in the VLC system. The information on deposits, advances, suspense transactions (payables and receivables of the State), loans, AC bills etc can be analysed across states and presented to evaluate the real financial health of States/ country as a whole. This can be of immense use in enhancing accountability of Government functionaries, as the information hitherto hidden in accounts is brought to the fore.

7. 1. 7 Partner States and Union Government in instituting adequate reporting standards

The Government Accounting Standards Advisory Board (GASAB), a high level advisory board with

representatives from the CAG, the Ministry of Finance, other accounting organizations of the GoI as well as representatives from the State Governments (nominated on a rotational basis) has been actively developing standards on government accounting, aimed at improving the transparency and readability

of Government Financial Statements. However, continous efforts need to be made to persuade GoI to formally notify the standards on cash basis accounting already prepared by GASAB.

Further, GASAB is actively involved in preparatory work (including pilot studies and research) towards adoption of accrual accounting in both the Union and State Governments. We need to engage with all relevant stakeholders to build a concerted opinion in favour of moving towards accrual accounting, and then plan a phased transition to accrual accounting.

7.2 Entitlement functions


5D. Encouraging States in developing capacity for assuming entitlement functions, and managing a diminishing role

5E. Ensuring effective use of technology for delivering services of the highest quality, as long as entitlement functions remain with IAAD

7. 2. 1 Strategic Approach

With the New Pension Scheme (NPS) in place, the role of the AsG offices in regards to entitlement functions is a dwindling one. It is evident that over the next few years, we would be dealing with diminished activities/ operations in pension and provident fund and within the next 20 years, the role would be minimal. Our focus should therefore be twofold:

• to assist States in taking over such functions; and


• to deliver services of the highest quality, as long as the entitlement functions remain with

us.

For the highest quality of service, we need to lay down enhanced standards for delivery of service (in time and quality terms) for all offices, and also enforce the same.

7. 2. 2 Encourage States to develop capacity for assuming the entitlement functions and ensure smooth transition

We need to anticipate assumption of entitlement functions by each State Government, assess the

capacity of State Governments for the same and lay down step by step processes for transfer in each office. We also need to lay down the time frame for the transfer of functions and ensure completeness of records to ensure smooth transition. Simultaneously, plans for alternate deployment of remaining staff across audit offices need to be in place. A realistic assessment is required of the manpower that would be available and of its suitability of redeployment given that most of this staff would not have any audit experience. Training may also require effort given the age profile of the staff, average age being about 45‐50 across offices.

In the event that the States do not take over the function and for the next 20 years the function remains with us, the attrition of staff would largely be in tune with the rate at which the pension and provident fund work will dwindle.

7. 2. 3 Ensure latest technological changes are harnessed for efficient service delivery

Various offices are at different levels when it comes to interface with service recipients. While activities in some States are automated (IVRS, web‐based enquiry etc.), others are struggling to keep up‐to‐date with technology. A committee has been constituted to look into the different systems running across all offices and has been entrusted with the task of laying down standards of public delivery and technological aids that could be adopted by all offices. The recommendations are expected by October 2010 and systems should be in place within a year.


8 Goal 6: Improving Human Resource Management


6A. Reviewing office wise existing sanctioned staff strength to ensure that audit resources are optimally deployed across all offices

6B. Determining right span of control for Group Officers to achieve quality performance

6C. Recruiting only at Assistant Audit Officer level and phasing out recruitment at auditor, clerk, steno and Group D levels.

6D. Creating an exclusive IAAS Group B Service

6E. Creating Zonal Cadres of IAAS‐Group B in the short term and an All India cadre in the long term

6F. Modifying Recruitment Rules for IAAS‐Group A to include fast track promotions from IAAS – Group B

6G. Creating an IAAD Recruitment Board

6H. Ensuring a constant intake of Professionals into IAAS Group B

6I. Raise benchmark for promotion by selection to “Very Good”

8.1 Background

Human Resources (HR) constitute the most valued asset of any knowledge based organization – more so in IAAD which is entirely dependent on the output generated by its employees. Human Resources management essentially involves:

• recruiting competent people;

• providing rich job content to keep the workforce satisfied;

• ensuring decent career progression prospects to keep the workforce motivated;

• imparting periodical training to hone their skills; and

• giving them professional pride.

Over the years, we have not been able to improve and optimize our Human Resource Management as our stereotyped recruitment system has affected our Human Resource capabilities. There is, therefore, a need to take a relook at our existing Human Resource systems and overhaul our system.


8.2 Review of existing staff strength

At present, the office‐wise strength of staff among IAAD offices across the states is not based on adequate scientific analysis and there is wide disparity among them given the nature, volume and complexity of audit work. For instance, the sanctioned staff strength in a smaller state of Kerala is higher than the combined sanctioned strength of Bihar and Jharkhand. Such a skewed distribution leads to sub‐optimal utilization of manpower 22 . Therefore, we need to evolve a criterion to determine the staff strength required for each office based on scientific work study norms, risk perception etc. The need to move towards ‘quality’ from ‘quantity’ and from ‘individual irregularity’ to ‘system evaluation’ should be kept in mind while determining the strength. With the move away from audit of DDOs, the number of DDOs cannot be considered as a significant factor for determining the staff strength.

8.3 Ensuring optimum span of control

Another issue affecting the performance of officers in IAAD is the span of control. The current ratio of Group A (Group Officers) to Group B Officers (Senior Audit Officers, Audit Officers, Assistant Audit Officers) on the audit side is around 40 23 . While span of control may not be as critical a concern in the A&E Offices, for a knowledge based activity like auditing, a supervisory span of control of 40 (12 to 15 audit parties) is indeed a critical area of concern which needs to be brought down substantially to increase the effectiveness of management control by Group Officers 24 . This is especially important with the re‐orientation of approaches to all streams of audit (financial, compliance and performance audit).

About 5 to 7 Audit Parties in the audit set‐up could be considered as a more appropriate span of control for a Group Officer. Considering a strength of around 10,000 officers (Senior Audit Officer/Audit Officer/Assistant Audit Officer) on the audit side, this would entail around 3300 parties (party consisting of 3 supervisory officers in the rank of Senior Audit Officer/Audit Officer/Assistant Audit Officer) warranting control by around 500 Group Officers (span of control of around 6.6 parties per Group Officer). Currently we have only around 250 Group Officers, and we would require another 250 Group Officers in order to reduce the span of control to this figure.

To fine tune the span of control issue, a committee consisting of all players involved in this process could decide as to what should be the ideal span of control depending on the nature of assignment of work (specifically keeping in view the varied audit activities like civil audit, works audit, commercial audit, revenue audit, accounts, entitlements etc as well as the mix of financial, performance and theme‐based

22 The skewed distribution is largely due to lack of any norms for civil field audit parties, as well as outdated norms for other field audit teams. For example, for field inspection of PW Divisions, a graded system of norms for audit periodicity and duration, linked to works expenditure has been prescribed; however, the highest audit duration for annual audits has been set for PW Divisions with annual works expenditure of Rs. 1 crore and above. It is inconceivable that any PW Division in a normal State (excluding some of the tiny NE States) would have annual works expenditure of less than Rs. 1 crore. 23 Historically, each Group Officer was supposed to “control” 30 field audit teams, although no documented record of this ratio could be traced easily. While the current profile of posts of Group Officers suggests a lower ratio, even this is highly inadequate, in view of the renewed emphasis on “officer‐driven” audits. 24 This may perhaps need to be factored into the ongoing study on work norms being piloted by the Staff Wing of Hqrs. Office through external consultants (Deloitte and Touche).


compliance audits). However, the fact remains that the current span of control would necessarily need to be reduced from the current span of about 40 Audit Officers to One Group Officer. Even though the extent of reduction may vary, depending on the detailed analysis by the committee, there is no other option but to increase the posts of Group Officers in the near future. We propose certain measures as stated below to address this issue.

8.4 Recruitment and Promotion

The present system of direct recruitment to Group ‘A’ level of IAAS officers through UPSC (Civil Services Examination) is functioning well and needs no change. It ensures that IAAS officers come from varied academic backgrounds and this augurs well with the need to audit various sectors of the Government as well as to exercise managerial control over the entire audit process.

The recruitment below Group ‘A’ level is mainly done at two levels – i.e. Group B level (Assistant Audit Officers) and Group C (auditors, clerks, stenos etc.). There are inherent issues of competence which require a change in the present system of recruitment as explained below.

It may be noted that there are separate provisions for the terms and conditions of service for officials of the IAAD under Article 148 (5) of the Constitution. While for Group ‘A’ officers we

may continue with the uniform pattern of GoI, for our Group B staff, we should consider appropriate deviations from the GoI pattern; this is absolutely essential if we are to be fully equipped to discharge our Constitutional mandate.

8. 4. 1 Recruiting only at Assistant Audit Officer level by phasing out recruitment at Auditor level

The job of an auditor entails careful examination of records of auditee and hence warrants the audit staff to be one step ahead of the auditee. The minimum qualification for recruitment at the auditor level has been fixed as a graduation degree. However, over the years, recruitment at the auditor level has not been attracting the right kind of talent due to lower pay scales at the auditors’ level and the perception

of better prospects outside the department. This leads to only those candidates staying back as auditors who are not able to make it to other more attractive jobs. Thus, IAAD starts with ‘capacity deficit’ which cannot be made up through subsequent training. The ‘capacity deficit’ is also compounded by the fact

that these candidates are selected only on the basis of their dossiers forwarded by the Staff Selection Commission without any other specific selection criteria needed for auditing responsibilities.

Recruitment even at the Assistant Audit Officer level also has only a minimum qualification requirement of a Graduate degree. Further, the change in working of the Government from archaic methods to more

modern practices makes the audit process more conducive to audit by Assistant Audit Officers with higher understanding, higher responsibility and higher salaries rather than by Auditors. As the job of an Assistant Audit Officer has better prospects for career progression, it attracts a far better range of candidates who look at this job as having better future prospects and hence become a valuable work force for the IAAD. Hence there is a need to move towards a situation where we are able to recruit only


at the Assistant Audit Officer level. This will ensure that we are able to recruit and nurture better talent within the IAAD for the future.

The recruitment in the A&E Offices could, however, be continued at the Accountant level as the nature

of assignments in these offices warrants presence of staff at that level.

8. 4. 2 Phasing out recruitment at the clerk, steno and Group D level

Recruitment at clerk, steno and Group D levels needs to be phased out. These personnel render support services which can be outsourced at much lower costs with much higher efficiency levels. The IAAD should focus on core audit areas and outsource the non‐core functions of its offices so that its management remains focused and does not have to divert scarce resources for control and supervision of staff in non‐core areas. However, those working in IAAD at present will continue to be governed by the present set of rules.

8. 4. 3 Creating an exclusive IAAS Group B Service

Assistant Audit Officers, Audit Officers and Senior Audit Officers constitute gazetted Group B Officers. They are the cutting edge level of officers who carry out actual field audits. These Group B officers constitute the ‘face’ of the Audit Department. However, these Group B officers have very little options for future advancements and often remain in the same post for nearly 20 years of their working careers leading to stagnation and frustration. Considering the important role played by them in the audit process, there is a strong case to give the Group B Officers a sense of ownership within the IAAD and duly recognize their role and services rendered by them by creating an Indian Audit and Accounts Group B Service. The contours of such a Group B Service would broadly be as follows:

• The Indian Audit and Accounts Group B Service could span the cadres of Assistant Audit

Officers, Audit Officers, Senior Audit Officers and Deputy Accountant General‐Group B (in the senior time scale).

• Thus, Assistant Audit Officers, after initial recruitment, will become members of this Group

B Service and will have an opportunity to rise to the level upto Deputy Accountant General instead of upto the level of Senior Audit Officers. Their posting as Deputy Accountant General could be restricted to the station from which they are promoted. However, if posts

are not available in the station, they would be considered for posting within a zone.

• The Deputy Accountant General (Group B) will act as Group Officers, which will supplement

the existing pool of Group Officers from the Indian Audit and Accounts Group A Service. These DAGs (Group B) will be entitled to the same perquisites and allowances (e.g. telephone expenses, pooled car for travel etc.) as their DAG – Group A counterparts, and will also have the same audit responsibilities as their Group A counterparts.

• Besides motivating these officers, this scheme will also take care of the additional

requirement of more Group Officers in view of proposed reduction in span of control for


Group Officers. Further as these officers would possess knowledge of local language, this would aid in supervising and controlling field audits which are more and more becoming dependent on knowledge of the local language.

• The Indian Audit and Accounts Group B Service Officers would also have an opportunity to

get inducted into IAAS – Group A where they will have opportunity to rise to higher levels 25

depending on their merit. However, as IAAS – Group A Officers, these elevated officers would also be subject to the same All India transfer liability as other officers of the cadre currently.

8. 4. 4 Modifying Recruitment Rules for IAASGroup A to include fast track promotions from IAAS – Group B cadres

Currently the IAAS ‐ Group A recruitment rules allow for 33.34% quota for promotions from within the IAAS on selection basis and 66.66% direct recruitment through the Civil Service Examination conducted by the UPSC. Over the years, it has been observed that most of these officers promoted into the IAAS ‐ Group A cadre get only around 5 years in the IAAS before their retirement. Hence promotion to the IAAS does not really act as an incentive either to the officers or to the organisation as these officers are not satisfied with their outstation postings at the fag end of their career.

In order to ensure a longer tenure for the promoted officers, we should consider a modified scheme for recruitment:

• 60 per cent of the vacancies will be reserved for direct recruitment through UPSC (DR) – as

against the current 66.66 per cent;

• 20 per cent will be retained for promotion from the Group B cadre – as against the current

33.34 per cent;

• 20 per cent is kept for induction of IAAS – Group B officers into the IAAS –Group A on a fast

track promotion (FTP) scheme based purely on merit (outstanding past performance, examination and interview) 26 .

The FTP scheme would ensure that on a yearly basis, we are able to get some smart IAAS – Group B

Officers, with relatively longer tenures and the scope and to reach up to the Selection Grade/ Senior Administrative Grade in the future. These officers would be inducted at the level of Group Officers but would be awarded the seniority along with the directly recruited IAAS Group A Officers who were recruited in the same year. Thereafter, their future promotions to higher grades like Junior Administrative Grade would be governed on the same basis as for the directly recruited IAAS ‐Group A Officers (6 years from induction). The Recruitment Rules for the IAAS ‐ Group A would need to be modified accordingly.

25 A modified IAAS – Group A recruitment scheme has also been suggested in this document. 26 Broadly on the lines of the procedure for one‐time recruitment of IAAS Officers in 1996.


Concerns have been expressed that such a fast track promotion would lead to an imbalance

in the career progression of IAAS officers from other streams, especially at the Selection Grade of JAG and the SAG levels, as was experienced in the earlier one‐time recruitment of 49 officers into the IAAS. In order to ensure that balanced career progression of IAAS Officers recruited from different streams takes place:

• Bunching of FTP recruitment should be strictly avoided. The recruitment should take place

annually, and no more than 10 to 15 IAAS officers should be recruited through FTP in a year.

• The FTP recruitment would be from within a pool of Group B Officers (at all levels) with an age of 42 to 48 years, with at least 12/ 14 years of post‐SOGE experience in the Group B

cadre, and outstanding performance records.

8. 4. 5 Creating Zonal Cadres of IAASGroup B in the short term and an All India cadre in the long term

At present there are numerous cadres within the IAAD for managing Group B officers at the state level. The existence of different cadres has led numerous inconsistencies in promotional avenues across the country. In some states, officers at Assistant Audit Officer level get promoted as Audit Officers within 5 years and in some states they take 20 years. This problem cannot be addressed in a systemic manner, without moving towards unified cadres. 27

One way to address this problem is to consider having an All India Cadre for the IAAS ‐ Group B officers. However, a task of integrating nearly 30 to 40 small cadres in no easy task and would lead to numerous amalgamation and integration anomalies. Keeping in view these constraints, we could consider Zonal cadres, which could be more manageable and would also take care of issues of need for local language for our auditing staff 28 . There could be four or five zonal cadres (North, South, East West and North East) with respective ADAIs acting as cadre controlling authorities. In addition, there would be a single All‐ India cadre for Central Government Audit, which would encompass all wings.

Currently, at the level of offices of Government of India or central PSUs, the knowledge of local language is not essential as most of the records are maintained in English; hence, such audit is conducive to an All‐ India cadre. However, audit of State Government records requires knowledge of local language and very often our field audit staff, though capable, faces a language constraint; hence, a zonal cadre is more desirable.

27 Headquarters has, from, time to time, sanctioned additional posts of AOs to Offices suffering from acute promotional problems. However, this does not, and cannot, address the issue of other offices with promotions in 5‐6 years. 28 The language constraint could be addressed by ensuring that every recruit passes a language paper (for any of the languages in the zone) at the time of recruitment.


Amalgamation of the existing office‐wise cadres 29 into zonal cadres for audit of State Governments, and an All‐India cadre for audit of the Central Government will be an arduous and complex task. The following factors merit consideration in this regard:

• All future recruitment (from AAO onwards) could be only to the Zonal/ All India cadres

• As regards existing staff, amalgamation is difficult, especially at the AO/ SAO level, since promotions in some offices to AO take place in just 5‐6 years (from the date of passing

SOGE), while in some other offices, this can take as long as 15‐20 years. One via media is to specify a cutoff date (say SOGE 1998) and upgrade adequate number of AAO posts to AO level to accommodate all AAOs, who have been waiting for 12 years or more for promotion). The upgradation of posts per se will not impact work substantially, as the SAO/

AO is also currently required to directly undertake audits of critical areas (in addition to his

supervisory responsibilities).

• Any amalgamation exercise will result in the time from promotion from AAO to AO

approaching an average figure (somewhere between 10 to 12 years). This will inevitably benefit those AAOs who have been waiting for long periods of time, while offices where

promotions take place very quickly would be at a disadvantage. There would, thus, be both gainers and losers in any such exercise; this cannot be avoided. The consequential implications of the “losers” taking recourse to judicial remedies etc. will have to be

managed.

Once the Zonal Cadres stabilize, in the long run we could consider an integrated All India Cadre for all IAAS ‐ Group B Officers.

8. 4. 6 Creating an IAAD Recruitment Board

Auditing is an in‐depth knowledge intensive exercise which warrants auditors having varied exposure and knowledge of subjects. This requires the recruitment process to be flexible so that shifting domain knowledge requirements like in areas of economics, environmental sciences, information technology, science, engineering etc, are met promptly through the recruitment process. In this context, agencies like the Staff Selection Commission (SSC) have not been able to cater to these shifting requirements

effectively and promptly. While the reasons for non delivery of effective recruitment services by the SSC may not all be attributable to them, the fact remains that the IAAD, being an organisation serving a constitutional authority needs the flexibility to recruit the right kind of officers it needs.

Thus, IAAD needs flexibility to fix the eligibility requirements for candidates appearing for Assistant

Audit Officers recruitment. It would, therefore, be desirable that IAAD undertakes its own recruitment for its Group cadre just like the Railway Board does for itself for its Group C Cadre. Such an organisation could also cater promptly to the requirements of the deficit staff in certain domain areas like

29 Some offices (e.g. DGA P&T) have separate cadres even for each branch office.


information technology, environment etc and certain geographical pockets like the North Eastern states in India.

8. 4. 7 Ensure a constant intake of Professionals

Many supreme audit institutions recruit only qualified accountants (equivalent of Chartered Accountants). This not only helps in financial attest audit but also in conduct of performance audit, as these accountants are well trained in auditing techniques. In India, the examination for Chartered Accountants course is very tough and hence an average Chartered Accountant would have higher ability and competence than an average Assistant Audit Officers (with a graduate qualification) recruited through SSC/UPSC. The 6 th Pay Commission has changed the paradigm for pay by making the Assistant Audit Officers salary (Rs. 30,000 plus) attractive even for Chartered Accountants. In view of inherent

advantages that the Chartered Accountants (and for that matter cost accountants and company secretaries) bring to the job; we could consider that 20 per cent recruitment into the IAAS ‐ Group B to be reserved only for Chartered Accountants, Cost Accountants and Company Secretaries.

8. 4. 8 Raise Benchmark for Promotion by Selection to “Very Good”

Currently, the benchmark for promotion to and within Group B cadres, as well as from Group B to Group A follows a mix of “seniority‐cum‐fitness” as well as selection, but based on “Good” CR ranking as the benchmark for promotion. The use of “good” as the benchmark for promotion has not had desirable effects on the quality of promoted staff, as well as acting as a disincentive for staff of Very Good/ Outstanding rating, who are now clubbed with other officials.

In order to ensure that we have the right pool of quality officers and staff for discharging our onerous duties, it is essential that the benchmark for promotions which are based on selection (viz. AAO to AO, and Sr. AO to DAG – either Group B or Group A) is raised to Very Good. The current procedure of “seniority‐cum‐fitness” will continue for other non‐selection promotions (e.g. Sr. Auditor to AAO, AO to Sr. AO). This will balance the interests of career progression for staff with the interests of the

organization.

Without ensuring “Very Good” as the benchmark for promotion on selection basis, creation of a Group “B” IAAS Service or other measures to increase the career prospects for supervisory staff will be counterproductive, as it is likely to flood the Department with

officers and staff of less than the desired quality.

8.5 Ensure stability of tenure

Quick rotation is normally followed for assignments which have direct public dealing and also involve sensitive financial matters. In such assignments, rotation of Officers helps to ensure that no vested interests are developed and the integrity of the system is maintained.


On the other hand, auditing involves indepth assimilation of knowledge and experience about the sector or organisation being audited. Stability in tenure always aids in increasing the quality of audit. The stability of tenure enhances accountability and also the quality of output. There is no stability of tenure in the present system. Therefore, it would be desirable to post AGs/ PDs with a minimum tenure of 3 to 5 years.

8.6 Develop leadership qualities in young IAAS Officers by giving higher responsibility

Young IAAS officers rarely get to work independently, as they report to DG/PAG/AG/ PD sitting in the same station/ building. This situation is not conducive to developing leadership qualities in such officers. They need to be given independent charges (or at least charge of separate branch offices) and responsibility, so that they get opportunity to become leaders. This can be done in several ways:

• As a result of integration of audit efforts as suggested in this document, there would a need

to establish several offices for the various sectors of audit of the Central Government, each of which would have distinct branch offices. Giving responsibility for these distinct branch

offices to young IAAS officers would provide opportunities for developing their leadership qualities for the future

• Consideration could be given to Sr. DAGs holding independent charge for commercial and

receipt audit in the smaller states (e.g. the North Eastern States) and directly reporting to the zonal ADAIs.

Reference has already been made in paragraph 3.6 that with the concept of Regional ADAIs, there would be no need for a PAG in each State with a “co‐ordinating” role. In addition to the other issues with such a co‐ordination mechanism mentioned earlier, this would also not be conducive to developing

leadership qualities in young IAAS Officers by adding an additional “co‐ordination” layer.

9 th September, 2010 Strategic Plan‐2020 prepared by group of officers Page 67

ANNEXURES


Annexe 1 – Perspective Plan 201015 – Key Goals

Compliance Audit

• Define as providing overall assurance on governance and control processes, and re‐

orient to CCO‐based, district/ constituency centric and/or theme based approach

• Detailed unit‐level audit planning

• Build capacities in domain specific audits and upgrade staff skills

Financial Audit

• Reorient towards providing assurance on reliability of financial statements

• Revise procedures to consider sampling, risk

assessment, controls evaluation and materiality

• Integrate with CAP/ CASS audit and audit of VLC data

• Re‐orient commercial audit towards IFRS adoption

Performance Audit

• Prepare a strategic performance audit plan, based on Departmental Strategic Audit Plan

• Ensure engagement with all stakeholders, and

synergise with social audit groups

• Ensure wider use of new methodologies

• Bring out stand‐alone reports, where feasible

Audit of Local Bodies

• Provide for actual staff requirement

• Integrate LB audit with civil audit

• Improve quality of existing audit

• Collaborate in devising user friendly

accounting systems

Audit Mandate

• Pursue initiatives to expand audit mandate/

reach

• Strengthen role of DG (Audit) as head of policy, planning and research activities

Integration of Audit Efforts

• Ensure co‐ordinated selection of audit themes

between different functional wings and an institutional framework for integrating audit efforts

• Ensure co‐ordination between offices to verify

Audit Planning and Risk Assessment

• Prepare comprehensive Strategic Audit Plan

for the Department and identify focus areas for 3‐5 years

• Ensure preparation/ dovetailing of Functional Strategic Audit Plans and Office‐wise Annual

Plans

• Formal mechanisms for mid‐term review of progress vis‐à‐vis the Strategic Audit Plan

• Embed unit‐level audit planning in audit process


utilization of GoI funds transferred through CSS

• Strengthen role of DG (Audit) as head of

policy, planning and research activities

• Initiate exercises for audit evaluations of risk management, and focus on potential risks as part of audit reporting

Stakeholder Interaction

• Formally identify major stakeholders, and introduce mechanisms for consultation for identifying audit themes

• Channelise information with citizens as inputs for audit planning and evidence gathering

• Explore opportunities for providing support to selected Parliamentary Standing Committees

Reporting

• Simpler, reader‐friendly Audit Reports

• Increase use of CDs and booklets

• Expanded use of Study Reports, Evaluation Studies and Management Letters

• Standardise format of Inspection Report

• Place IR in public domain, and ensure quality on par with Audit Report

Communication and Public Relations

• Move out of ivory tower approach

• Formulate an action plan for engaging with media in the long run, and engage media proactively

• Give a free hand to field HODs for media interaction, subject to broad framework

Entitlements

• Define quality of service indicators and

measure actual service delivery

• Have helplines and information kiosks for ensuring service quality on par with banking services; provide more online facilities

Accounts

• Review format of Finance & Appropriation Accounts, as well as Chart of Accounts

• Facilitate implementation of accrual accounting and standards‐based accounting

• Stabilise and upgrade VLC; develop interface with Treasury Accounting Systems

• Digitize vouchers, and launch procedures for

capturing accounts of e‐payments

• Set up a central data warehousing with data mining facilities

Information Systems

• Identify more closely at system development stage with auditee for mission critical systems

• Integrate IT systems for audit planning and

Recruitment and Career Progression

• Ensure adequate no. of IAAS Officers

• Appropriate criteria for promotion to IAAS

• Stability in tenure of officers (especially


support with VLC systems

• Plan for IT systems for knowledge gathering

• Use technology (notebooks and IT infrastructure for audit teams, video

conferencing)

• Redesign CAG’s website and develop application for disseminating audit findings and action taken thereon through the Internet/ intranet

PAG/AG)

• Ensure requisite quality and number of officers for financial, compliance and performance audits

• Draw up career progression plans for individuals

• Mover from “appraising” performance to “managing” performance

• Ensure appropriate incentives for Group ‘B’

• Post promoted officers with less than 10 years of service in their area of familiarity

Training and Capacity Building

• Upgrade training infrastructure at training establishments; provide impetus to research activities

• Development and dissemination of standardized courseware by RTIs designates as “Centres of

Excellence”

• Improve domain knowledge by using services of consultants, sector‐specific training institutes, auditees etc.

• Specialised training for officers and staff in premier institutions in India and abroad

• IR wing to disseminate global best practices and audit methodologies


Annexe 2 – Mapping of Goals between Strategic Plan – 2020 for IAAD and Perspective Plan 201015

Goal Strategic Plan: Specific Goals Perspective Plan: Corresponding Goals

Goal 1 Para 3.6 ‐ Reorganisation of Audit of States

Goal 2.3(i), (ii) and (iii); Goal 1.4(i)

Para 4.1.2 ‐ Knowledge Centres Goal 1.1(vi); Goal 6.3(iii),(iv) and (v)

Para 4.1.3 ‐ Knowledge Resource

Persons

Goal 6.3(ii)

Goal 2

Para 4.2 – Institutional Arrangements for Internal Audit and Risk Management

Goal 2.2(iv)

Para 5.1 ‐ To be more proactive in interactions with the media

Goal 2.6(i) to (v)

Para 5.4 ‐ Treat IRs as products for the public

Goal 2.5(iv) and (v)

Goal 3

Para 5.5 ‐ Introduce more value added products

Goal 2.5(iii) and (vi)

Para 6.1 ‐ Integrated approach to Financial and Compliance Audit

Goal 1.2(iv)

Para 6.2 ‐ Financial audit of Government accounts

Goal 1.2(i) to (iv) and (vi) Goal 2.2 (vii)

Para 6.3 ‐ Financial Attest Audit of Government Companies and ABs

Goal 1.2(v)

Para 6.4 ‐ Reoriented approach to

compliance audit

Goal 1.1(i) to (vii)

Goal 2.2 (v), (vi) and (x)

Goal 4

Para 6.5 ‐ Strengthening performance audit

Goal 1.3.2(ii), (iii) (v) and (vi) Goal 2.4 (i) (ii)

Goal 5 Para 7.1.3 ‐ Reforms of accounting structure

Goal 3(ii)


Para 7.1.6 ‐ Data Centres for financial information

Goal 3(viii)

Para 7.1.7 ‐ Adequate Reporting

Standards

Goal 3(iii)

Para 7.2.3 ‐ Efficient service delivery Goal 4(i), (iii) and (iv)

Para 8.4 ‐ Recruitment and Promotion Goal 6.1(i), (ii), (iii) and (v) Goal 6.2(iii)

Goal 6

Para 8.5 Stability of tenure Goal 6.1(iv)


Annexe 3 – Indicative Performance Measures

Activity Tentative Timeframes Goal 1: Integrating Audit Efforts Formulating a detailed scheme for reorganization of Central and State Audit Offices

6 months to 1 year

Phased Implementation of re‐organised structure 2 to 4 years Goal 2: Promoting Professionalism in Public Sector Auditing Identification of Knowledge Centres and Knowledge Resource Persons 6 months to 1 year Decision on establishing CIPAAI 6 months Establishing CIPAAI 2 ‐3 years Setting up an International Consultancy Wing 1 year Goal 3: Improving Communication with Stakeholders and Higher Visibility Steps for more proactive interaction with media 6 months – 1 year Setting up a Parliamentary/ Legislative Relations Unit 1 year Building a brand for the Organisation 1 ‐2 years Introduction of Value Added Products Phased over 2‐3 years Counters for Distribution of Audit Reports 6 months – 1 year Steps for improved dissemination in vernacular languages 6 months – 1 year Goal 4: Enhancing Audit Effectiveness and Impact Pilot studies on integrated audit 1‐2 years Steps for enhanced focus on financial attest audit of Government accounts

1 – 2years

Preparedness for alignment with IFRS 1 year Re‐oriented approach to compliance audit Phased over 1 to 3 years Steps for Strengthening Performance Audit 1 ‐2 years Goal 5: Improving Delivery of Accounting and Entitlement Functions Formulate IAAD strategy on ownership of accounts 6 months – 1 year Reforms in accounting structure 2 – 4 years Transforming A&E offices into data centres 1 – 2 years Goal 6: Improving Human Resources Management Plan and implement restructured HR strategies 2 ‐5 years


Annexe 4 – Proposed Reorganisation of GoI Audit Offices

Sr New Audit Office Ministries Mapping to Present Office(s)

Outstation Branches

1 DG/ PD ‐ Petroleum (Upstream) Petroleum & NG (1) MAB‐II Mumbai Baroda and Dehradun 2 DG/ PD – Petroleum

(Downstream) ‐‐‐ MAB‐II New Delhi Mumbai, Kolkata, and Chennai

3 DG/ PD – Steel Steel (1) MAB Ranchi Bhilai and Vizag 4 DG/ PD – Coal Coal (1) MAB‐II Kolkata Ranchi 5 DG/ PD – Heavy Industries and

MSME Heavy Industries & PE, Micro, Small & Medium Enterprises (2)

MAB‐I Kolkata Delhi

6 DG/ PD – Commerce, Corporate Affairs, Textiles & Tourism

Corporate Affairs, Commerce & Industry, Textiles and Tourism (4)

New office at Delhi ‐‐‐

7 DG/ PD – Mines, Chemicals and Fertilisers

Mines and Chemicals & Fertilizers (2)

MAB Hyderabad ‐‐‐

8 DG/ PD – Power (Thermal) Power (1) MAB‐III New Delhi Kolkata and Chennai 9 DG/ PD – Power (Hydropower and

Power Transmission) ‐‐‐ New office at Delhi Kolkata

10 DG/ PD – Shipping, Road Transport and Highways

Shipping and Road Transport & Highways (2)

MAB‐I New Delhi Mumbai and Chennai


Outstation Branches

11 DG/ PD ‐ Civil Aviation, Urban Development, Housing & Urban Poverty Alleviation

Civil Aviation, Urban Development and Housing & Urban Poverty Alleviation (3)

PDA ESM New Delhi Mumbai and Kolkata

12 DGA P&T Communication & IT (1) (excluding Deptt of IT)

DGA P&T 11 branches (same set‐up)

13 DG/ PD – Agriculture, Food Agriculture, Food Processing MAB‐IV New Delhi Chandigarh, Mumbai, Kolkata and


Processing Industries and Consumer Affairs and Food & Public Distribution

Industries and Consumer Affairs, Food & Public Distribution (3)

Chennai

14 DG/PD – HRD, Panchayati Raj, Water Resources, Labour & Employment, Social Justice & Empowerment, Minority Affairs, Tribal Affairs and NE Region

HRD, Panchayati Raj, Water Resources, Labour & Employment, Social Justice & Empowerment, Minority Affairs, Tribal Affairs and NE Region (8)

DGACE New Delhi ‐‐‐

15 DG/ PD – Health and Family Welfare, Women and Child Development and Rural Development

Health and Family Welfare, Women and Child Development and Rural Development (3)

New Office at Delhi ‐‐‐

16 PDA (Atomic Energy and Space) Atomic Energy, Space (2) New Office at Mumbai Bengaluru 17 PDA (Scientific Departments) Science & Technology,

Agriculture Research & Education, IT, Earth Sciences, and Medical Research (2)

PDA (SD) New Delhi


Outstation Branches

18 PDA (Environment Audit) Environment & Forests, New and Renewable Energy (2)

New Office at New Delhi (linked with iCED, Jaipur)

‐‐‐

19 PDA Washington PDA Washington ‐‐‐ 20 PDA London PDA London ‐‐‐ 21 PDA Kuala Lumpur PDA Kuala Lumpur ‐‐‐ 22 DG/ PD – Home Affairs, UT,

External Affairs, Overseas Indian Affairs, Law and Justice and Parliamentary Affairs

Home Affairs, UT, External Affairs, President/Parliament, Overseas Indian Affairs, Law & Justice and Parliamentary Affairs (7)

New Office at Delhi Port Blair and Chandigarh

23 DG/ PD – I&B, Culture, Personnel, Youth Affairs and Sports, Planning Commission, Statistics and

I&B, Culture, Personnel, Youth Affairs and Sports, Planning Commission, Statistics and

New Office at Delhi ‐‐‐


Notes:

1. There will be a net increase of nine offices – 7 new offices at New Delhi, 1 in Pune, 1 in Mumbai. Further, MAB Chennai will be replaced by one new DGACR (Southern Region).

2. Additional branch offices to be created will be Mumbai (3), Kolkata (5), Chennai (5), Delhi (2) and Bengaluru (2); Durgapur and Bhopal offices are proposed to be closed.

Programme Implementation Programme Implementation (7)

24 DGACR New Delhi DGACR at New Delhi 25 DGACR Mumbai DGACR at Mumbai 26 DGACR Kolkata PDACR Kolkata 27 DGACR Bengaluru/ Chennai/

Hyderabad New office

Taking over Group Officers dealing with CRA in the State PAG/ AG offices

28 DG/ PD – Finance Finance (1) New office Sr New Audit Office Ministries Mapping to Present

Office(s) Outstation Branches

29 DG/ PD – Finance and Insurance PSUs

MAB‐I, Mumbai Kolkata, Chennai, and New Delhi

30 DGADS Ministry of Defence (1) DGADS at New Delhi Meerut, Allahabad, and Patna 31 PDA DS (Northern & Central

Commands) None PDA DS at Chandigarh Jammu

32 PDA (Southern Command & DRDO)

DRDO New Office at Pune Delhi, Chennai and Bangalore

33 PDA (Air Force) MoD (AF) PDA (AF & NAVY) Dehradun and Bangalore 34 PDA (Navy) MoD (Navy) New Office at Mumbai Delhi 35 PDA (OF) MoD (OF) PDA (OF) Kolkata Jabalpur, Kanpur and Chennai 36 PDA (Defence PSUs) MAB Bangalore ‐‐‐ 37to 53

17 Railway PDAs Railways (1) 17 Railway Audit Offices To be reorganized by Railway Audit Wing


Annexe 5 Proposal for establishing a Chartered Institute of Public Accountants & Auditors of India

(CIPAAI)

1. The Rationale for establishing CIPAAI 1.1 Finance, Accounts and Audit Management in India is currently being carried out in the Government by constituted Accounts and Audit Services and by Chartered Accountants, Cost and Works Accountants and MBAs in the Public Undertakings and private sector. These professionals undertake financial, accounts and audit management functions at the middle and top levels. While the certifications by ICAI, ICWAI etc, areprofessionally recognised, the skills acquired by the Government Auditing and Accounting Services/ pro are without any professional recognition.

1.2 There also exists a multitude of finance, accounts and audit functionaries consisting of accounts clerks, accountants, auditors, assistants, treasury officials and others, who fill up the lower and the middle levels of the financial, accounting and auditing hierarchy in the Government. Though a few of these functionaries have a formal background in finance, accounts and audit, a majority of them do not possess professional qualifications. Even those possessing professional qualifications have acquired them only at the entry point and do not go in for upgradation/ continuing professional education in the course of their long career spanning 30 to 40 years. In the past, clearing the ‘SAS’ examination (currently known as the Section Officer Grade Examination) conducted by the Comptroller and Auditor General of

India was considered as a suitable qualification for recruitment in other Public Sector Organisations. However, this practice has disappeared now.

1.3 The lack of professionalism amongst the lower and the middle level functionaries in this very important area of finance, accounts and auditing has led to deficiencies in the accounting processes and financial controls across organisations. There are huge arrears in the finalization of accounts of many institutions, both Governmental and Commercial. Even routine functions like reconciliation within offices are neglected. Internal Audit, which is required to flag accounting, control and other related

issues to the management, is most often nonexistent or ineffective. Finally the burden of this falls on the External Auditors, who have been pointing out numerous shortcomings year after year. The problem has acquired such acute dimensions that it has resulted in numerous court cases and indictments from the judiciary. The shortcoming has also been recognised by the multilateral agencies like the World Bank, Asian Development Bank etc.

1.4 One of the reasons for uneven and deficient accounting and auditing is the huge shortage of properly trained and skilled accounting/auditing personnel at the lower and middle levels. Without any professional qualification (apart from their experience), the lower/middle level accounts/audit functionaries do not have a sophisticated understanding of the principles of accounting or the implementation of it. In the absence of any growth prospects linked to qualifications, they are not


adequately motivated to upgrade themselves in line with best practices. There is, therefore, a kind of vicious cycle that operates, leading to a lower level of efficiency and effectiveness in the finance, accounting and auditing processes in State Governments, State/Central Government undertakings, Cooperatives, Autonomous Organizations, Urban & Rural Local Bodies, Universities, Public utilities etc.

1.5 With the advent of globalisation, policy makers, state/central governments and end users, in India feel the need for upgrading and professionalising the skills of the finance, accounts and audit staff at the lower and middle levels. The Comptroller and Auditor General of India, World Bank and other Multilateral Funding Agencies have also flagged the need to upgrade the skills of the vast pool of finance, accounts and audit personnel in India. Further, the need for such upgradation is also validated by the fact that India is emerging globally as a leading service provider in business process outsourcing in the Financial Sector. In such a scenario it would be essential for a well‐established organisation like that of the Comptroller & Auditor General of India to take the lead and address the various issues detailed in the proposal.

1.6 There are a multitude of players in the Government and Non Government Sectors involved in managing and improving finance, accounts and audit administration in this country. Most of these institutions only address and tackle the higher level of financial policymaking, accounting and standards instead of day‐to‐day accounting problems and issues of professional upgradation at the grass roots level. While on one end we are looking at adoption of International Financial Reporting Standards (IFRS), computerisation of accounts, acceptance of Best Practices and even considering shifting to accrual accounting, the reality is that government/quasi government organisations do not often have the accounting/auditing skills at the grass roots level even to maintain basis books of accounts on cash basis. This holds true for the private sector also where books of accounts in some of the small enterprises are still maintained in traditional single entry systems (bahi‐khata).

2. International Scenario This problem has already been addressed in many countries by setting up professional bodies like the

Government Finance Officers Association (GFOA), Association of Government Accountants (AGA) and Certified Government Auditing Professionals (CGAP) in the United States of America (USA), Chartered Institute of Public Finance and Accountancy (CIPFA) in the United Kingdom, Association of Accounting

Technicians (AAT) in South Africa, Australia, Sri Lanka and the U.K. In Canada, certification in the form of “Certified General Accountant” (CGA) addresses this need. These Institutions/ certifications have helped in bridging the gap of skill and knowledge requirements at the grass roots level. Even international organisations like United Nations are already addressing the issue of improvement in financial systems in their Millennium Development Goals. UNCTAD has also sought to bring out a set of Accounting Standards for small and medium enterprises.

3. Why the need for a separate Chartered Institute 3.1 It could be argued that the already existing Institution like the ICAI, ICWA etc. could address the issue of skill upgradation at the middle and lower levels of accounts professionals. However, the mandate and culture of these institutions do not easily facilitate them to undertake this task. The existing institutions have well‐established procedures, which cater to a predetermined select target


group, which forms a miniscule elite. It would be difficult and disadvantageous for them to expand their processes to cater to a lower target group. Further, the existing Institutes have maintained their standards mainly due to the homogeneity of the background of their members. Hence it is essential that a separate national body establish a specialised institution aligning its objective of establishing a professional layer of lower/middle accountants/auditors with individual aspirations and qualifications. Since massive numbers across the country are involved, a separate organisation with an identity is required.

3.2 In a federal setup, it is essential that a Chartered Institute of this kind be set up at the National level, since it has to be a national provider for upgrading and maintaining financial information with International credibility. Such an Institute would strengthen grassroots level accounting and auditing all over the country in every sector and will have national acceptance and international validity. Further, this Institute would establish relationships and linkages with bodies within the country and abroad like CIPFA, CGA and AAT, which have similar objectives.

3.3 In India, there is no opportunity, apart from the entry‐level qualification (School Boards or undergraduate degree) for continuing upgradation of skill and knowledge for the finance, accounts and audit functionaries. Continuing education is required to be delivered in graded capsules over the average work span of 30 to 40 years. The proposed Institute would provide continuing professional education like an open university to a multitude of persons all over the country through examinations, counseling and learning material. Hence, national and several sub‐national centres would need to be set up. Therefore it would be impractical to link the proposed Institute with an already existing one. In other countries also, separate Institutes have been set up for this objective.

3.4 The proposed Institute would also provide low‐end advisory and consultancy services. The services could include setting up of internal audit systems in institutions, guidance relating to accounting policies, procedures and practices in Municipalities and even in the private/Non Government Organisation (NGO) sector. This Institute could also undertake development of Management

Information Reports from the Accounts of organizations so that the decision makers have relevant information. Creation of reliable data banks at the lower and middle levels could be another objective.

4. The Institute The basic aim of the proposed Institution is to address the capacity building needs for lower and middle

level finance, accounts and audit functionaries in India. The Institute could be known as the Chartered Institute of Public Accountants & Auditors of India (CIPAAI).

4.1 Vision Statement Develop a large pool of highly trained middle and lower level finance and audit functionaries in India, which would in turn enable timely and relevant financial reporting for decision makers in line with best practices.


4.2 Mission Statement

• To raise the benchmark of knowledge and skills in finance, accounting and auditing for

lower and middle level government/semi government/commercial and semi commercial

functionaries in India.

• To motivate the middle and lower level accounts functionaries by providing an opportunity

to acquire a nationally recognised professional qualification supported by continuing professional certification.

• To provide grass root level advisory consultancy & research services, accounting, internal

audit, management information systems etc.

• To disseminate professional information on finance, accounting and auditing to the

members of the institute and other organisations in need of these services.

• To serve as a centre of excellence for promoting generally accepted accounting and auditing

standards at the institutional level including Government/Commercial Sector, Cooperatives, NGOs, Universities, Public Utilities, Autonomous Institutions, Urban and Rural Local Bodies.

4.3 Guiding values

• To ensure complete transparency and fairness in the certification process.

• To maintain impartiality and professionalism in providing technical support and guidance in

respect of accounting systems, procedures and practices.

• To advance accountability in organisations through individual excellence in accounts and

audit.

• To ensure integrity in performance of all the members of the Institute.

5. Directorates of CIPAAI CIPAAIwould function through 3 Directorates as listed below:

• Directorate for Certification & Continuing Education (DCCE) will design, develop and

conduct 5 levels of certification examinations, create new syllabus for training and prepare learning material for the examinations. The DCCE would also provide Distance education, counseling services and establish centres at the State and Regional levels. The first 3 levels of Certification Examinations would aim at addressing general areas of finance, accounting

and auditing. The Section Officer Grade Examination being conducted by the CAG could be subsumed in the second and third levels. The fourth level would address the needs of

specific sectors like power, municipalities etc. The fifth and highest level would address issues like accrual accounting, international best practices, ethics in profession, management information systems, certified information systems audit etc. The fifth level


could also be the level for certifying the Indian Audit and Accounts Service Officers after their intensive training in the National Academy of Audit and Accounts, Shimla on joining the service. The Directorate would also be responsible for establishing programmes for

Continuing Professional Education (CPE) for certified professionals, which would be mandatory for maintaining the validity of the certifications acquired (as is the case for other national/ international professional certifications); this would ensure that these

professionals are kept up‐to date with the latest developments in the profession.

• Directorate of Technical Guidance & International Relations (DTGIR) will provide technical

guidance for accounting and auditing and give necessary expert opinion when referred to. DGTIR would maintain close interface with Government Accounting Standards Advisory

Board (GASAB). DTGIR would also bring out a monthly newsletter to inform members about latest decisions/trends. This Directorate would study the interface with other organisations

within the country and abroad in order to establish relationships and linkages with bodies in India and abroad, which have similar objectives.

• Directorate of Membership Administration & Secretariat (DMAS) will inter‐alia administer

and monitor membership and professional certification. The Secretariat would provide all the administrative support service to the CIPAAI.

6. Beneficiaries

The target group coming under the scope of CIPAAI would be in the range of 10 to 20 lakh persons from

various sectors. The various levels of certification could be:

• Levels 1, 2 and 3 certification

Ø Lower & middle level governments/semi government/commercial & semi commercial

staff in Central and State Government Organisations, Central and State Government Autonomous Bodies, Urban and Rural Local Bodies, Cooperatives and NGOs

Ø Supervisory and lower cadre officials in the Indian Audit and Accounts Department and other accounts services of the Government of India (SOGE equivalent). While SOGE could be equivalent to level 3, the level 1 could be targeted at the accountant/auditor level

examinations.

• Levels 4 certification

Ø Specific certification for sectors like Educational Institutions, Medical Institutions, Public Utilities – Power, Sewerage, Water etc.

• Levels 5 certification (Highest Level Certification)


Ø Group A Officers of Indian Audit and Accounts Department and other accounts services of Government of India and State Governments.

7. Statutory Recognition for CIPAAI

The certification being issued by the CIPAAI would require to be recognized by the government so that the certification being offered has value in the market. In order to operationalise CIPAAI as a separate chartered or national institute on the lines of ICAI or ICWAI, it would, therefore, be necessary to obtain

parliamentary approval through passing of an Act. Thereafter, CIPAAI degree/certification could strive to have the same kind of recognition in the public auditing and accounting space that the CA certification enjoys in the commercial accountancy space.

8. Conclusion

The constitution of a Chartered Institute as outlined above is likely to be a major step in overcoming deficiencies in the available knowledge and skill of the lower and middle level of finance, accounts and audit functionaries. It would serve as a body, which would provide professional certification for the lower and middle level finance, accounts and audit management, which the Institute of Chartered

Accountants of India provides at the higher end. It would also provide professional certification to the Group A Audit and Accounts professionals entering into the Government of India and State Governments through Civil Service Examinations. This platform should work as a major provider, motivator and facilitator for upgrading finance, accounts and audit skills of those at the lower end of the hierarchy in the country and in adopting and implementing strategies evolved internationally. There would be quantum change in the quality of finance, accounts and audit in the country and this could also serve as a model for developing countries.


Annexe 6 – Suggested Approach to Integrated FinancialcumCompliance Audit

1. Our regularity audit (i.e. financial and compliance audit) should result in an informed opinion on the overall public financial administration in the country‐ of the Government of India; separately for each state government; and together. The aim should be to trace the rupee to its last point of implementation, through the governmental schemes to the reporting statements. The audit output must be accurate, timely, complete and balanced.

2. Our audit processes are, however, very target‐oriented. The quest for draft paragraphs has an overwhelming impact on the entire process of audit planning, implementation and reporting. The narration of an event of individual infraction is paramount: the enormous audit efforts through a very large quantum of substantive testing do not yield an overall audit opinion; trace the rupee; or help develop a syncretic view of the CAG on any sector or on overall governance and delivery of services. Despite the sheer spread of the CAG’s audit mandate and deploying such a large workforce, complete, accurate and timely reporting is yet to be achieved. Financial attest is the mainstay for every auditor. But it is placed very low in the priorities of an AG office and is the weakest link in the audit chain.

3. An audit report on government should, for an ordinary citizen, report for governance i.e., report on delivery of services, which is entirely different from reporting on departments. We certify figures for instance, UP spending around Rs 73,000 crore for development during 2009‐10, which may not find resonance with ground realities. In the absence of norms for disaggregation of components of expenditure to work out the delivery cost, we are not in a position to report the same to an ordinary citizen.

4. The fragmentation of audit is currently reflected in planning, execution and reporting. Fragmentation of audit by fitting audit resources into silos of transactions audit, central audit, performance audit, has led to gaps in audit, whereby large chunks of governmental activity is either not audited or is audited in a disparate manner that does not yield a comprehensive coverage.

Contours of a model: reporting for governance

5. The threshold and hence the most important stage is the audit plan. Each office must draw an annual audit plan integrating all streams of regularity audit‐ transactions, financial audit and central audit. A thematic approach will be necessitated to orient our reports towards governance. The audit should be planned with the ordinary citizen and the quality of governance he receives, in the centre stage. The box illustrates the possible themes for audit.


The bases could also be districts/ constituencies /other geographical units eg: KBK districts in Orissa; CCOs/ departments/ directorates as a whole; or activities across CCOs eg: PPPs. A value‐added product, drawn from a strong attestation process, would be a report of the CAG on cost of delivery of basic services (gross/ per capita) across the States. We should, thus, be in a position to harness the strength of our audit reach.

6. An important consideration is that this basis should concurrently lend to drawing a sample that is fairly representative of the universe (so that a coherent, comprehensive audit opinion can be drawn) and that it should reflect areas of high risk in governance. While the annual budget will be the principal document that will be the template for the selection of the basis, the sources should be as broad‐based as possible. This requires collection of data relating to each programme/ scheme; research studies on the sector, plan documents, past reports etc.

7. The audit plan and the selection of the auditee units will need to be based on twin requirements: the audit must provide an opinion on the theme and also meet the requirements of financial attest. Audit planning should be allocated 20% of the overall allocation of time and resources.

Themes Focus Audit areas Changing security threats

Internal security Audit of Home Ministry Use of army; paramilitary forces in internal security State Police Judicial system

Changing nature of Governance

Government as a facilitator and regulator

Audit of Regulatory functions Audit of Non tax Receipts to ensure cost recovery

Sustainability concerns Financial health; use of natural resources; environment protection,

Non Plan expenditure Fiscal policies Environment Audit Mining; allocation of natural resources Dispute resolution mechanisms Agriculture Science and Technology

Serving the underserved Inclusive growth, development of backward areas

Tribal welfare Management of Forest areas Rural development and panchayati raj Labour

Improving the quality of life of citizens

Provisioning of services

Health Water Education

Protecting financial security of government resources

Audit of Tax Revenues Investment in Public Sector Creation of Asset Register FRBM

Food security Sustaining provision of food

Procurement of food Research in agriculture and extension Public distribution Midday meals


8. Two parties will be deployed for every audit: the team for auditing particular department/CCO should be the same. One of the teams will focus only on internal controls that impact financial attest. The audit period will depend on the number of DDOs proposed to be covered under each CCO during the year. For this purpose, departments can be categorised under high risk (HR); medium risk (MR) and low risk (LR). The selection will not be on the need for equitable distribution across wings etc., but on the need to draw an audit opinion on the selected sample. 20% of the audit parties could be kept aside to cover other departmental CCOs (other than those selected for detailed thematic study during the year but will be important for the purpose of financial attest). The number of DDOs, if any, to be selected from these remaining departments will depend on manpower availability.

9. After the first year, the audited units automatically get shifted to a fourth new category under the sub category “HR Done”. Depending on the results of the audit of the selected B and C category units, the AG office can decide for a more extensive audit : for example if during the coverage of the Handloom department for two months it is felt that this is a potential unit which requires a further in depth analysis then more time could be devoted. Otherwise these departments get categorised into “LR done” and “MR done” category. Assuming that there are 40 departments in a State, the audit base of an office will be as illustrated below:

No. of departments HRD MR LR HR Done MR Done

LR Done

Total

First Year 8 15 7 0 0 0 40

Second Year 6 11 5 2 4 2 40

Third Year 4 7 3 4 8 4 40

10. In the second year, the audit of the units already covered will be mainly, a follow‐up on the control weaknesses identified in the first year of audit. Hence the allocation of party days to the units

already covered will be proportionately lower, thus providing space for coverage of units that are yet “uncovered”. Within a period of 4‐5 years, all departments can get covered.

11. Central audit could be the fulcrum for directing our audit efforts for financial attest. The central audit wing or the financial attest unit (FAU) will identify the risks specific to each area by

analyzing the accounts; prepare the themes for the financial attest; co‐ordinate with the themes on other aspects (other than financial attest) in the area; select vouchers biased to those themes (or bases like CCOs) under check; receive Treasury inspection Reports from A&E offices; receive monthly appreciation notes issued by the A&E office etc. It will play a central role in audit planning. The concept of three‐phased audit could be introduced in financial attest of State governments as well. For instance, the central audit wing could issue (every quarter) the infractions that deviate from rules, for

HR MR LR Period for Conducting Audit

6 months 3 months 2 months

Number of DDOs to be covered in the Department

10 6 4


eg: nil payment vouchers that show transfer of plan funds to PDAs in 1 st quarter, and request the State government to reverse the transfer, lest it should impact the final certification.

12. The effectiveness of the audit report will be enhanced if the integration is reflected in the

report. Our regularity audit is not geared to provide an overall opinion‐ this would appear to an outsider, as shying away from clear responsibility. The role of audit in identifying the risk of frauds and gross errors must be integrated and reflected in the audit products. Investigative audit geared to determining the risk of frauds, is currently weak. This is particularly important in new areas where government rules are inchoate or not adequate or where experiential wisdom is minimal. A value added product that we can add to our platter, would be a yearly appreciation of risks in identified sectors; it could be provided when there is change of government; or tailored as we so decide.

13. Review of compliance with laws and regulations is important in public audit because rules provide the framework in which government decisions become transparent and against which, internal controls can be substantively checked. This is an important area of audit work and the assurance process; its place and importance need reiteration in an environment where rules and therefore, audit is seen as speed‐breakers or even as detrimental to innovation. The decision makers need to know if the laws are being followed, whether they have the desired results and if not, what revisions are necessary. The concept of materiality must also be suitably adopted in public audit. The qualitative aspects of materiality, measured by whether it could affect decisions of the legislature to continue a programme or grant funding‐ plays a greater role in public sector than in the private sector. The ISAs recognize that “while misstatements of small monetary amounts may be deemed trivial, they may be related to compliance or internal control, and thus may not be seen as trivial.” Important in arriving at an audit opinion on whether the infraction is qualitatively material, is that auditor exercises his professional judgment, maintaining professional skepticism in his audit approach. A KD‐based approach often underestimates the importance of such judgment; there is a need to shift in the approach which allows the auditor to base his opinion on persuasive rather than conclusive audit evidence.

14. The integrated audit requires that the field offices have considerable freedom in audit planning and implementation, free from the tyranny of numerical targets. In place of such targets that are so out of place in an assurance based audit process,we could strengthen the already existing mechanism of seeking an audit assurance‐ a report like an aide memoire, that will, with regard to each sub‐part of the audit plan, provide an audit opinion that will assure, qualify or draw attention to any specific risks. Care should be taken that processes automatically lead to such an aide memoire, without placing a strain on the AG office. We recommend automated software (e.g. Teammate) for use in audit planning and implementation. The rigour that exists in performance audit on documentation of working papers for all findings, regardless of whether the assurance is positive or negative) should be extended to regularity audit as well. This will also ensure accountability of field audit party and its members, at least, make assessment of their work, more objective.


GLOSSARY OF TERMS

ABBREVIATION EXPANSION

ADAI (C&AB) ADDITIONAL DEPUTY COMPTROLLER & AUDITOR GENERAL (COMMERCIAL & AUTONOMOUS BODIES)

AG (AUDIT) ACCOUNTANT GENERAL, AUDIT AG (A&E) ACCOUNTANT GENERAL, ACCOUNTS & ENTITLEMENTS BI BUSINESS INTELLIGENCE CAP – CASS CENTRAL AUDIT PARTY – CENTRAL AUDIT SUPPORT SECTION CCO CADRE CONROLLING OFFICER CFRA COMBINED FINANCE & REVENUE ACCOUNTS CONCOR CONTAINER CORPORATION OF INDIA COPU COMMITTEE ON PUBLIC UNDERTAKINGS CSS CENTRAL SECRETARIAT SERVICE DAI DEPUTY COMPTROLLER & AUDITOR GENERAL DAI (C) DEPUTY COMPTROLLER & AUDITOR GENERAL (COMMERCIAL) DAI (LB&A) DEPUTY COMPTROLLER & AUDITOR GENERAL (LOCAL BODIES & ACCOUNTS) DAI (RA) DEPUTY COMPTROLLER & AUDITOR GENERAL (RECEIPT AUDIT) DAI (RC) DEPUTY COMPTROLLER & AUDITOR GENERAL (REPORT CENTRAL) DG DIRECTOR GENERAL DG (P&T) DIRECTOR GENERAL, POSTS & TELECOMMUNICATIONS DGA (CE) DIRECTOR GENERAL OF AUDIT, CENTRAL EXPENDITURE DGA (CR) DIRECTOR GENERAL OF AUDIT,CENTRAL RECEIPT DRDO DEFENCE RESEARCH AND DEVELOPMENT ORGANISATION GOI GOVERNMENT OF INDIA HOD HEAD OF DEPARTMENT IAAD INDIAN AUDIT AND ACCOUNTS DEPARTMENT IAAS INDIAN AUDIT AND ACCOUNTS SERVICES IFRS INTERNATIONAL FINANCIAL REPORTING STANDARD IRCON INDIAN RAILWAY CONSTRUCTION COMPANY IRs INSPECTION REPORTS IT INFORMATION TECHNOLOGY KBK KALAHANDI‐BOLANGIR‐KORAPUT MAB MEMBER AUDIT BOARD NGO NON‐GOVERNMENTAL ORGANISATION PAC PUBLIC ACCOUNTS COMMITTEE PAG PRINCIPAL ACCOUNTANT GENERAL PAO PAY AND ACCOUNTS OFFICER PD PRINCIPAL DIRECTOR PDA (AF&N) PRINCIPAL DIRECTOR OF AUDIT, AIR FORCE & NAVY PDA (E&SM) PRINCIPAL DIRECTOR OF AUDIT, ECONOMIC & SERVICE MINISTRIES PDA (OF) PRINCIPAL DIRECTOR OF AUDIT, ORDNANCE FACTORIES PDA (SD) PRINCIPAL DIRECTOR OF AUDIT SCIENTIFIC DEPARTMENT PR.PAO PRINCIPAL PAY AND ACCOUNTS OFFICER PRI PANCHAYATI RAJ INSTITUTION


PSU PUBLIC SECTOR UNDERTAKINGS RITES RAIL INDIA TECHNICAL ENGINEERING SERVICES RTI REGIONAL TRAINING INSTITUTE ULB URBAN LOCAL BODY UTs UNION TERRITORIES VFM VALUE FOR MONEY VLC VOUCHER LEVEL COMPUTERISATION VPN VOICE PHONE NETWORK

Indian Audit & Accounts Department

perspective plan

2010-15

For internal circulation only

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Table of Contents

1 Audit.............................................................................................................................. 5

1.1 Compliance Audit ................................................................................................... 5

1.2 Financial Audit ....................................................................................................... 8

1.3 Performance Audit ................................................................................................ 10

1.3.1 Strategic Audit Plan for IAAD ...........................................................................

1.3.2 Audit Plan for Performance Audits ................................................................ 11

1.4 Audit of Local Bodies ........................................................................................... 12

1.5 Audit of Greenfield Areas ..................................................................................... 14

2 Audit Methodologies and Practices.............................................................................. 16

2.1 Audit Mandate ...................................................................................................... 18

2.2 Audit Planning and Risk Assessment .................................................................... 19

2.3 Integration of Audit Efforts................................................................................... 20

2.4 Stakeholder Interaction ......................................................................................... 21

2.5 Reporting .............................................................................................................. 22

2.6 Communication and Public Relations.................................................................... 22

3 Accounts ..................................................................................................................... 23

4 Entitlements ................................................................................................................ 25

5 Information Systems.................................................................................................... 26

6 Human Resources........................................................................................................ 28

6.1 Recruitment .......................................................................................................... 30

6.2 Career progression ................................................................................................ 31

6.3 Training and Capacity Building............................................................................. 31

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Preface This Perspective Plan outlines the goals that the Indian Audit and Accounts Department will

pursue to realise the Vision and Mission of the Department. It defines the broad parameters

for medium term progress of the Department, specifies the major milestones and identifies

the supervisors and managers responsible for ensuring that each of the goals is achieved. All

the Functional Wings will draw up their annual programmes in sync with the overall structure

laid down in this Perspective Plan and commit resources for specific activities relating to

these programmes.

Vision of SAI India

We strive to be a global leader and initiator of national and international best practices in

public sector auditing and accounting, and renowned for independent, reliable, balanced and

timely reporting on public finance and governance.

Mission of SAI India

As mandated by the Constitution of India, we promote accountability, transparency and good

governance through high quality auditing and accounting and provide independent assurance

to our primary stakeholders – the Legislature, the Executive and the Public – that public

funds are being used properly, and for the intended purposes.

Our Core Values

ü Independence

ü Objectivity

ü Integrity

ü Credibility

ü Professional Excellence

ü Transparency

ü Innovation

ü Knowledgecentric organization

ü Constructive Approach

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1 Audit

The Indian Audit and Accounts Department has been an active stakeholder in promoting

transparency, accountability and good governance though its oversight function over the

financial and related transactions of the Government and providing inputs to the Government

on the status of financial and programme management viz. issues relating to fraud, waste and

noncompliance with prescribed rules and regulations in Governmental transactions and the

economy, efficiency and effectiveness of implementation of developmental programmes.

In keeping with our new Mission, we need to provide assurance to our primary stakeholders

that public funds are being used properly and for the intended purpose. This would involve

moving away from reporting isolated and individual instances of irregularities, towards

bringing out weaknesses in the control environment, analysing key risks and challenges to

projects/schemes/programmes and suggesting suitable and timely recommendations for good

governance.

Towards this end, our challenges and goals for audit, to be achieved over the next five years,

are detailed below.

1.1 Compliance Audit

Challenges

In terms of the need for qualitative improvement, compliance audit is perhaps our most

critical area. Compliance audit has far too often been perceived, both within and outside the

Department, as following a “needleinthehaystack” approach with undue attention being

paid to minor pay/TA and other related issues. This has two implications – (a) we are

perceived as gunning for individuals at a personal level and (b) more importantly, audit effort

and resources allocated to such audits are not available for more significant and material

issues like execution of high value projects and core operational activities.

While we identify the departments/areas for audit based on high, medium and low risk, we do

not generally carry out any such exercise to determine the extent of risk within an audit area.

For instance, we may select a DDO, whose office is categorised as ‘high risk’ for audit, but

within that DDO’s office, we do not assess the risk level of various transactions or

operational areas. At the unit (auditee) level, we do not even determine the scope and

coverage of audit, sample size or the mode of sample selection.

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Our current approach to transaction audit and the excessive focus on establishment audit has

come in for debate and discussion at various levels, both within and outside the Department.

The common response to such perceptions is that transaction audit is our bread and butter

audit and it provides a deterrent effect on the auditees. While it is possible that most of the

audit observations come from establishment audit, these audits do take away the focus from

more serious issues relating to development and governance and the resources allocated to

audits of this nature deprive attention to other sectors, where we can make a difference to

good governance. Establishment audit should certainly not be ignored but it can be carried

out on thematic basis so as to provide assurance (could be either positive or negative) to the

stakeholders, rather than as isolated instances, except in case of individual fraud.

If we are to be perceived as making a difference to governance, we need to move away from

our traditional approach of reporting a few audit paragraphs without providing any assurance

on the rest of the activities of the Ministries/Departments of Government, towards an

assurance based approach as outlined in our Mission. For this purpose, we need to:

Goals

i. Define the objective of compliance audit as providing overall assurance on governance

and control processes in Ministries/ Departments/ entities (rather than highlighting

isolated irregularities arising from “test check”)

ii. In line with the redefined objective, reorient our compliance audit approach from

coverage of DDOs to CCObased, District/ Constituencycentric and/or themebased

approach.

iii. Gain internal assurance about our audit processes and procedures through detailed unit

level audit planning, scoping the work and documentation of working papers

iv. Revise our compliance audit methodologies/ practices in line with the redefined

objective and approach

v. Optimise the allocation of audit resources for compliance audit

vi. Build capacities in domain specific audits like power, irrigation, mining, aviation,

telecom etc.

vii. Upgrade our staff skills to meet the redefined compliance audit objectives and

approach.

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Goal Supervisor: All DAIs and ADAIs

Goal Manager: DG (Audit) and DGs/AGs/PDs (Audit)

Roadmap:

a. Chapter on Compliance Audit in MSO (Audit) should be revised by June 2011; detailed

audit checklists for common areas of audit e.g. education, health etc. should be drawn

up and fine tuned in a phased manner by March 2012.

b. Compliance Audit Chapters/Reports to be tabled in 201112 should contain at least

50% thematic/CCO based or other assurance based paragraphs. This should increase to

80% by 201213. Further, by 201213, at least 80% of the audit resources (party days)

for compliance audits should be devoted to thematic audits; only 20% or less of the

available compliance audit resources should be set aside for audit of individual DDOs.

c. For works audit, which is one of our major transaction audit areas, the focus should be

on large projects based on prioritisation rather than on audit of individual divisions;

works audit should invariably combine document scrutiny with physical inspection

and assessment of controls – both financial and operational controls.

d. Audit Plans for 201112 for individual Audit Offices should provide for unit level audit

planning for 50% of the compliance audits; this should result in a drastic reduction in

the ‘number of units’ planned for audit during the year. By 201213, this should be

increased to 80% of the audits.

e. The process of audit planning should be reviewed and standardised working papers

should be prescribed by June 2011. All Audit offices should ensure that working

papers are maintained to reflect the audit planning as well as execution process by

December 2011. For this purpose, the department should also select/design and

implement audit automation software (on the lines of TeamMate 1 ).

f. The department should create a pool of knowledge resource persons (KRPs) for

specific domains cutting across office boundaries by March 2011. This should be

complemented by a second level KRPs in each Audit Office for relevant domain, who

should be groomed with appropriate skills in that domain by June 2012.

1 Considering that TeamMate is an expensive proprietary software and is designed primarily for financial audit of accrual based accounts, we may need to design our own software which will provide for customised checklists for compliance audits of different departments.

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g. All the Audit offices should chalk out plans in coordination with RTIs/auditee training

institutes/sector specialists and other premier training institutes, to organise at least two

trainings in a year in the selected domain to build capacities in that domain by 2012.

1.2 Financial Audit

Challenges

There are two types of financial audit carried out by us – relating to the (a) accounts of the

PSUs/Autonomous Bodies and (b) Government accounts. We have brought out the Financial

Attest Audit Manual recently and have also been endeavouring to formulate our Government

and Public Sector Accounting Standards in line with international standards.

Our focus on financial audit, especially with regard to Government accounts, has been rather

inadequate. The emphasis here has generally been, on arithmetical accuracy and

completeness in terms of compliance with Headquarters instructions, rather than on audit and

analysis of the underlying data. We have revised the Chapter – I of the Civil Audit Report

with a lot of valuable additional information and have brought it out as a standalone volume

since 2009. We have also done that with Railway finances with effect from 200910

accounts. However, we have not changed the manner of audit of the Accounts. Not too many

personnel are familiar with the way Finance and Appropriation Accounts are prepared, to be

able to appreciate, understand and analyse them from an audit perspective. We need to build

capacities and acquire domain knowledge in this regard.

A significant number of PSUs have automated their financial accounting system. However,

we continue to carry out a manual audit of these accounts, without giving any assurance

about the adequacy of the internal controls in place to take care of the risks and

vulnerabilities of these systems to such risks. While it is the responsibility of the

Management/executive to put in place adequate controls, we should gain assurance that these

controls are functioning as envisaged, to be able to express an opinion on the accounts

compiled from such systems. Towards the goal of improving our financial audit, we need to:

Goals

i. Reorient our financial audit approach towards providing assurance on the reliability of

the periodic financial statements of Governments and entities within our audit

jurisdiction

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ii. Revise our financial audit procedures in line with international best practices in terms

of sampling, risk assessment, controls evaluation, and materiality

iii. Increase the allocation of audit resources for financial audit of state commercial

undertakings and autonomous bodies.

iv. Integrate CAP/ CASS audit and audit of VLC data with audit of Government financial

statements, and also ensure linkages between financial and compliance audit

v. Reorient our commercial audit of PSUs (under Section 619 (4)) to meet the challenges

arising out of the forthcoming move to IFRS from 2011 onwards

i. Upgrade our staff skills to meet the redefined financial audit approach.

ii. Evolve a formal platform for engaging with audit firms in the private sector to

exchange information/experience about the best practices in audit of various industries.


Goal Manager: DG (Audit) and DGs/AGs/PDs (Audit)

Roadmap:

a. For audit of Finance and Appropriation Accounts from 201011 onwards (i.e. from

April 2011 onwards), a detailed financial attest audit plan should be prepared by all the

PAGs/AGs (Civil Audit), identifying the key areas in important Appropriations/

Finance Account statements. This financial attest audit plan should also integrate

CAP/CASS audit, analysis of VLC data and scrutiny of Finance and Appropriation

accounts at various stages.

b. Include a specific section in the standalone report on State, Central and Railway

Finances from the accounts for 201011 onwards, on the adequacy and effectiveness of

internal controls affecting the accuracy and reliability of financial statements. This

should cover aspects like timeliness of rendition of accounts, reconciliation etc. The

results of Treasury Inspection (our key tool for assessing controls at the primary

accounting unit) should feed in to this section.

c. Audit automation software should be selected/designed and implemented in time for the

financial audit of accounts for 201112.

d. Checklists for all the IFR Standards should be prepared by December 2010 and all the

commercial audit staff should be trained in these by March 2011.

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e. Carry out a pilot study by June 2011 on how to leverage the information and experience

of private sector audit firms in our certification audit.

1.3 Performance Audit

Challenges

We have been evaluating various socioeconomic developmental programmes, especially the

flagship schemes of the Government individually as PA reviews. If, as the SAI, we are to

identify strategic risks at the Government level, then there is a need for a centrally co

ordinated strategic plan to conduct audit evaluations on a longterm cycle of the identified

areas in each sector. This would necessarily have to be supplemented by plans for audit of

areas of State/ local importance, which would be derived from State Plan schemes, local

media, legislative and public perception etc. The Strategic Audit Plan prepared in 2003

covered the period 200207 to be coterminus with the Tenth Five Year Plan. It analysed all

the issues identified by the Tenth Plan as key for development of various sectors during the

Plan period and formulated strategies for audit of those areas. Almost all the areas/issues

identified in that Audit Plan have been covered during the last five years and it is time to

prepare another Strategic Plan after proper risk assessment, in line with the priorities

identified by the Eleventh Plan to provide a clear focus and direction to our audit efforts in

the next five years. It is estimated that about 90 per cent of the total Plan outlay is consumed

by no more than 10 to 15 programmes across all sectors. These programmes need to be

constantly on our radar.

There are however, important sectors with key nonplan activities (e.g. fertilizer and

petroleum products subsidies) which do not directly fit into the plan framework. Fiscal issues,

which do not form part of the Planning Commission’s remit, need to be covered, including

transfers through the Finance Commission. Moreover, the defence sector and the complete

receipts side (tax and nontax receipts) also need to be covered in our Strategic Audit Plan,

apart from the key areas of national significance identified by the Eleventh Plan and

programmes that engage the attention of public, media, legislators and policy makers.

We could also consider identifying the strategic risks for each sector and those that cut across

sectors at the end of the annual audit cycle and report to the Governments – both Central and

State with clear and logical explanations as to why we have considered these as high risk, and

what corrective action needs to be initiated by the Government in order to mitigate these

risks.

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For example, a host of socioeconomic developmental programmes target beneficiaries based

on their BPL (Below Poverty Line) status. The identification of an individual beneficiary as a

BPL household is a critical element, which significantly affects their entitlement to various

schemes (housing, healthcare, education, food distribution, credit, employment etc.). Our

audit evaluations have also, from time to time, thrown up deficiencies in the identification

process – e.g. inclusion of higher income households, Government servants in the BPL list

etc. However, the process of identification/ updation of BPL families has not received the

required attention of Governments. Further, this process has also not been reviewed

separately in audit, as it does not have separate financial materiality, nor is it a specific

scheme or a programme in itself.

We need to dovetail our performance audits of individual schemes in a sector to provide a

holistic perspective on each sector to facilitate good governance and right decision making by

policy makers. We also need to improve our domain knowledge of various sectors and

strengthen and consolidate the progress that has been made so far in our performance audit.

For this purpose, we need to:

Goals

1.3.1 Audit Plan for Performance Audits

i. Prepare and implement a performance audit plan (for selection of performance audit

themes), as a subset of the Strategic Audit Plan of the department, cutting across

functional and geographical boundaries

ii. Ensure engagement with all the stakeholders in the process of planning and execution

of performance audits

iii. Ensure wider use of new methodologies/ techniques for evidence gathering (field visits/

inspections, photographic evidence, beneficiary surveys/ interviews, and other social

audit techniques) and reporting (user friendly presentation, use of pamphlets, CD

brochures etc.)

iv. Synergise our performance audit efforts in social sector with those of social audit

groups and civil society organisations.

v. Bring out standalone reports wherever feasible, to focus the attention of the

stakeholders.

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vi. Substantially increase the allocation of audit resources to performance audit on a long

term basis, by correspondingly reducing the allocation for compliance audit (except for

thematic audits).


Goal Manager: DGs/AGs/PDs (Audit) & Functional wings in Hdqrs

Roadmap:

a. See the Roadmap under Strategic Audit Plan with regard to performance audit plan and

interaction with stakeholders.

b. With effect from Audit Plan 201112 onwards, synergise our audit efforts in social

sector with those of social audit groups and civil society organisations

c. Every Audit Office should endeavour to bring out at least one Study Report per year

from 2011 onwards in addition to the regular audit report.

1.4 Audit of Local Bodies

Challenges

Increasingly, many social sector programmes are being implemented by the Government

through Panchayati Raj institutions (PRIs). PRIs at the Block and Gram Panchayat levels are

receiving enormous funds which are often beyond their financial, operational and

administrative capacity to handle. On the Urban Local Bodies (ULB) side, mega programmes

like JNNURM 2 are similarly ensuring huge devolution of funds. In fact, the 13 th Finance

Commission has recommended allocation of grants to local bodies on a basis which mimics

the allocation of resources to State Governments. Considering this paradigm shift in funding

and governance pattern, we need to gear ourselves up to play the role envisaged by the policy

makers as a ‘mentor’ as well as a mechanism for ensuring accountability for public

expenditure on social sector involving livelihood, social amenities, utilities and basic

infrastructure, among others. This involves strengthening our institutional framework for

conducting audit of urban and rural local bodies.

Currently, the staff available for audit of PRIs and ULBs is extremely inadequate to cope

with the expectations of our stakeholders or discharge the role set by the department for itself

2 Jawaharlal Nehru National Urban Renewal Mission

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in this area. While there is huge transfer of funds to the PRIs for implementation of

developmental programmes, there is no clarity both within IAAD as well as the auditee units,

as to who should be auditing these programmes – whether it should be the civil audit wing or

the LB wing. Since the LB wing has confined itself to standardising the accounting formats,

providing technical guidance and carrying out technical inspections, audit of public

expenditure at the grass root level is not getting the attention that is required. We need to

overcome this predicament if we are to respond to decentralised governance adequately.

Goals

i. Determine the actual staff strength required for auditing the local bodies and provide

for it expeditiously.

ii. Integrate LB audit with civil audit, so as to ensure proper audit of centrally funded

schemes at grass root level

iii. Continue to collaborate with Ministries of Panchayati Raj, Urban Development and

Finance, as also with the State Governments, to devise user friendly accounting

systems and accounts based MIS.

iv. Improve the quality of existing LB/ PRI audit, where it is with CAG (Bihar, Jharkhand

and West Bengal)

v. Improve the quality of our financial audit by tracing funds from GoI to States/ States to

Districts/Districts to Blocks/ Blocks to GPs/ ULBs etc.

Goal Supervisor: DAI (LB)

Goal Manager: DG (LB)

Roadmap:

a. Work out the staff requirement for LB wing by December 2010 and initiate recruitment

process, so as to have the staff in place by March 2012 (including training).

b. Carry out an integrated audit of at least two social sector schemes (preferably NREGA

and NRHM) on a pilot basis by March 2011 involving LB audit and civil audit wings

and replicate it across the department by September 2011. As part of this integrated

audit effort, trace the funds from GoI to States/ States to Districts/Districts to Blocks/

Blocks to GPs.

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c. Prepare specific checklists by March 2011 for audit of PRIs/ULBs where CAG is the

sole auditor and superimposed audit of the work done by Chartered Accountants etc. to

gain assurance about internal controls in place in the PRIs/ULBs

d. Review the quality of existing LB/ PRI audit in Bihar, Jharkhand and West Bengal,

where CAG is the sole auditor, by March 2011 and put in place adequate mechanism

by June 2011 to gain assurance about audit quality in these States in LB/PRI audit.

1.5 Audit of Greenfield Areas

Challenges

We have, over the years, gained sufficient expertise and knowledge in various traditional

areas of audit. It is time now, to plan for audit of greenfield areas i.e. emerging areas of audit,

where we are still in the learning process. These are the areas where there is substantial

investment and change in the structure of management and governance. It therefore

necessitates a paradigm shift in audit approach as well as audit methodologies and

techniques. Some of the greenfield areas for audit are Publicprivate partnership projects

(PPP), egovernance projects, environment audit, social audit, audit of regulatory bodies etc.

Of late, Government of India and increasingly State Governments, have been going in for

publicprivate partnerships for bringing in the much needed investment into infrastructure,

like roads, airports, ports, railways, power etc. PPP projects are considered to be projects

between the private and public sector based on legally enforceable contracts or concession

agreements for delivering services, historically provided by the public sector. Payment for the

services can be made either through userfinanced charges or payments by the Government.

PPPs involve allocation of risks between the private and public sectors, depending on which

party is in the best position to manage a specific risk.

Audit of such PPP ventures would have to go beyond the current forms of auditing to address

issues like revenue and risk sharing, choice of the PPP model, scope for innovation, tariff

setting, accounting treatment and project/ contract management. The guidelines for audit of

PPP have already been formulated and circulated to all the field offices.

Egovernance refers to the delivery of Governmental services electronically primarily to its

citizens and secondly, other clients within the Government. This is a governance process in

which Information and Communications Technology (ICT) plays a significant role. E

governance seeks to transform the governance process, to improve the delivery of services to

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the citizens and ensure transparency and responsiveness in the functioning of the

Government.

The Government of India formulated an EGovernance National Action Plan 20032007 to

give impetus to egovernance to promote long term growth, and facilitate high quality and

high speed services to its citizens. Some of the services that are currently being provided by

the Central Government/State Governments through electronic means include details of land

records, treasury transactions, digital mandis, utility payments, eSeva/ electronic service

delivery etc. Many other areas like Customs and Central Excise, postal services, registrations,

healthcare, entertainment and various other services and administrative functions of the

Government are being automated and information is being provided to the citizens through

internet and mobile technologies.

The initiatives of both the Central and the States Governments in this regard have posed new

challenges to the auditors. We need to understand the working of not just our area of focus,

but also the linkages between the different departments involved in egovernance, interfaces

between different systems, interaction among different agencies, expectations from different

quarters etc.

Our Department has now gained considerable experience and expertise in the field of IT

audit, and we have reviewed a few egovernance projects. However, our efforts in the audit of

egovernance need to keep pace with the explosive growth in eGovernance projects. Further,

with many of our traditional audit areas being automated through egovernance, there is an

urgent need to change our conventional audit methodologies in these areas.

Social audit is increasingly becoming popular as it seeks to make the audit process more

transparent and take audit findings to a wider public domain of stakeholders, i.e. users of the

Government schemes, services and utilities. The spread of social audit has been increasing

due to the steady shift in devolution of Central funds and functions relating to socio

economic schemes to the local tiers of Government like PRIs, ULBs and other special

purpose agencies set up by the Government for implementation of specific schemes like

NRHM, SSA etc. Discussions were held with the stakeholders and other opinion makers

active in social audit; guidelines have been drawn up for synergising and mainstreaming

social audit with public audit and circulated to all the offices.

SAI India has been focusing on environment related issues vigorously and has been

conducting a number of international training programmes and workshops to create

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awareness on this issue and conducting performance audit of various environment related

projects and concerns. We have a field office dealing specifically with environment audit and

an RTI designated as a Centre of Excellence in this area. Initiatives are afoot for creating

international training facilities for environment very soon. We need to build on this initiative

and expertise by mainstreaming environment audit in to our regular audit and bring out, not

only the concerns relating directly to preservation and development of environment, but also

the environmental impact of various policies and programmes of the Government. A manual

on ‘Environment Audit’ will be available within the year 2010.

Goals

We have already initiated action for developing our skills for audit of these and other

emerging areas. We need to follow suit with the other identified greenfield areas and build

capacities at various levels to face the relevant challenges in a time bound manner.


Goal Manager: DG (Audit)

2 Audit Methodologies and Practices

Challenges

Over the last few years, we have breached new frontiers in terms of taking up audits in areas

which were hitherto not perceived to be part of our mandate. For example, we have made a

foray in to audit of PPP projects, private oil companies, private telecom companies etc. at the

specific request of the Government. However, these are sporadic instances and not built in as

part of our regular mandate. There have also been instances where the field audit teams have

been questioned about the audit mandate.

Further, in keeping with the changing priorities of the Government, huge funds are being

devolved to the local self governing institutions like ULBs/PRIs and other special purpose

agencies, as mentioned in paragraph 1.4. Our audit mandate with regard to these bodies is

nebulous and requires clarity. There are also a number of ‘funds’ which are being operated

outside the authority of Legislatures, although these receive budgetary support. These are all

outside the purview of audit as of now. In order to fulfil the role envisaged by the

Constitution makers and the role being assigned by successive Governments to play an active

part in ensuring transparency, accountability and good governance, we need to strengthen our

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mandate to make it comprehensive and encompass all the activities which are currently being

taken up on request basis or where we would like to review the

programmes/schemes/activities in view of the involvement of tax payers’ money.

One of the important areas that require attention is our audit planning process. While we do

carry out a risk assessment of the government departments/PSUs/other agencies/bodies based

on the auditee profile, expenditure incurred over the past three years and other parameters, we

also go by categorisation of auditee entities (A,B,C categories) based on the norms relating to

expenditure, fixed many years ago. There has been an explosive growth in expenditure over

the decades and it would not be possible for us, given the time and resources available, to

audit all the auditable units over a cycle. Therefore, our risk assessment process needs to be

more stringent and we need to take a relook at the norms for categorisation of the auditee

units.

There have been changes the world over in the way the SAIs plan their audits. Apart from

risk assessment, some countries have been consciously trying to take inputs from the public

in their audit planning process. A case in point is SAI, Korea, which invites views from civil

society while planning the audits and shares the results of audit with the public. SAI, Korea

notifies the citizens in advance, of the scope and timing of planned audits, where the issues

concern the citizens and their inputs are considered in finalising the audit reports. A

‘Citizen’s Audit Request System’ was introduced in 2001 to enable the citizens to request for

audits related to public sector institutions, where they perceive corruption/malpractices that

could undermine public interest, which has become very popular with the citizens. These

initiatives have also helped the SAI in monitoring its own errant staff, apart from

strengthening its oversight over Government functioning. In keeping with our new Mission,

where ‘Public’ has been identified as one of the stakeholders of audit, we could consider

factoring the inputs of civil society/informed citizens in our audit planning process.

One of the main strengths of IA&AD is its comprehensive reach across multifarious Central

and State Departments, agencies and bodies, and its ability to trace funds down to the last

rupee. Our mandate is comprehensive (although there is a need for further clarity and

expansion as mentioned above), and we should not take a “tunnel vision” approach to audit of

various programmes of the Government. We need to move towards an integrated audit to

harness our experience and knowledge in this regard to provide highlevel strategic inputs on

a sectoral basis for informed decision making by policy makers. There have been sporadic

efforts to carry out integrated audits but we need to, as a department, leverage the unitary

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nature of audit in the Indian Constitution, and ensure integration of audit efforts across

functional wings, and Central/ State Audit Offices.

There has been better and more formal interaction with the Executive in the form of entry and

exit conferences as part of our performance audit process. We need to continue with this

approach and interact with not only the Executive, but also with the other stakeholders more

frequently so that their output forms the input for our audit planning process and our output

forms part of their input for decision making and policy formulation process.

While we have been appraising almost all the flagship programmes of the Government and

other important financial and related transactions and making far reaching changes in the way

we carry out our work, our Audit Reports do not get the visibility that they deserve and not

many people seem to really read our Reports apart from the concerned people in Government

and Legislature. This is primarily on account of two factors (a) our reports are not user

friendly in terms of the format and style (except for a few recent reports) and (b) we are

media shy. It is time to improve the quality and presentation of our reports and

simultaneously make a conscious effort to engage the media proactively to disseminate the

content of our reports.

We have been endeavouring to improve and upgrade our audit methodologies constantly and

have made good progress with the targets set for ourselves in the Perspective Plan 200308.

We need to consolidate and further strengthen our audit methodologies, practices and

procedures as mentioned above, to keep pace with global best practices, client expectations,

and be a partner in governance process. Towards this end, the following specific action is

proposed with regard to the areas detailed in the preceding paragraphs.

Goals

2.1 Audit Mandate

i. Ensure comprehensive Legislative changes to the reach/mandate of CAG’s audit

ii. Pursue the initiatives taken for expanding the audit mandate of CAG to fruition

iii. Formulate specific timeframe in consultation with the Government, for tabling Audit

Reports in Parliament/State Legislature

iv. Declutter the Audit Wing in Headquarters and strengthen the role of DG (Audit) to

function more effectively as the head of policy, planning and research activities,

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considering the myriad emerging areas of audit that need to be addressed in a focused

manner.

Goal Supervisor: DAI

Goal Manager: DG (Audit)

Roadmap:

a. Create a separate Strategic Planning Unit headed by a DG/PD under DAI (Hdqrs) by

December 2010 and entrust the work relating to policy, planning, preparation of a

Strategic Audit Plan for the department, monitoring and followup of the relevant

activities to this Unit. DG (Audit) should be tasked with research and formulation/fine

tuning of audit methodologies and dissemination of best practices in various areas of

audit within the department.

2.2 Audit Planning and Risk Assessment

i. Prepare a comprehensive Strategic Audit Plan for the Department with appropriate

linkages to the Eleventh Five Year Plan and identify key focus areas for audit over the

next three to five years.

ii. Ensure preparation of Strategic Audit Plan for each Functional Wing /Field Office,

dovetailed with the Strategic Audit Plan of the Department

iii. Ensure that the Annual Audit Plans of every Functional Wing/Field Office flow from

the concerned Strategic Audit Plan of the Functional Wing/Field Office.

iv. Institute a formal mechanism for high level midterm review of progress visavis the

Strategic Audit Plan and determine the associated changes, if any, required in audit

methodologies and procedures to comply with the Strategic Audit Plan.

v. In addition to macrolevel planning (strategic and annual), ensure that detailed unit

level audit planning is embedded in the audit process, especially for compliance audits.

vi. Ensure that audit planning (both macrolevel planning and unit audit planning) involves

a detailed, formal and documented assessment of significant risk factors, while

deciding themes and audit scope/ coverage.

vii. Use VLC data extensively for audit planning and risk assessment.

viii. Initiate exercises to conduct audit evaluations of risk management (risk identification,

assessment, and mitigation) by selected Ministries/ Departments.

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ix. Increase focus on potential risks (in addition to actual instances of fraud, irregularities

etc.) as part of audit reporting.

x. Ensure preparation of Audit Plans for individual audits, indicating scope of audit,

sample size, timeframe and resources; make available detailed audit guidelines and

checklists for audit of different functional areas to field audit teams.

xi. Institutionalise the use of services of experts/consultants for various areas of audit.

Develop a database of all the outside experts in various areas so that their technical

inputs can be obtained as and when required.

xii. Set up a knowledge centre at Headquarters to decide on the mode of selection of

themes/topics for various audits and provide guidance in execution and reporting the

results of such audits.


Goal Manager: DGs/AGs/PDs (Audit)

Roadmap:

a. Prepare a Strategic Audit Plan for the department, primarily covering the audit of

activities/schemes/programmes of GoI by March 2011. All the Functional wings in

Headquarters and field Audit offices should prepare a similar Plan by September 2011,

covering the focus areas for audit over the ensuing three to five years. Review these

plans at periodical intervals (six monthly for GoI and annual for other entities).

b. Hold discussion with the stakeholders like representatives of Planning Commission,

PAC/COPU, Parliamentary Standing Committees, Auditee Ministries/Departments etc

on an annual basis (December preferably) to obtain their inputs in the audit planning

process.

c. Design and implement a database of outside experts/consultants in various areas by

June 2011 so as to tap their technical expertise as required.

2.3 Integration of Audit Efforts

i. As a followup of the Strategic Audit Plan, ensure coordinated selection of themes for

performance and compliance audit between different functional audit wings,

especially:

a. Central Civil/ Defence/ Railway Audit Offices and MABs

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b. Central Civil Audit Offices, State PAGs/ AGs (Civil Audit) and State Local Bodies

Audit Offices

ii. Ensure coordination between Central Civil Audit Offices, State PAGs/ AGs (Civil

Audit), State LB Audit Offices, and A&E Offices to verify the chain of transfers and

ultimate utilisation of GoI funds transferred under Centrally Sponsored/ Central Sector

Schemes.

iii. Put in place an institutional framework (organisational and procedural) for integrating

audit efforts across various functional areas and carry out the required structural

changes both at Headquarters and field level.

iv. Institute a formal mechanism for ensuring the success of such cooperation among

various wings and handling of cases of miscommunication/ inadequate cooperation.


Goal Manager: DGs/AGs/PDs

Roadmap:

a. Restructure the organisational set up of the Department by December 2010 on the basis

of Ministry/department rather than on the type of entity, to ensure integration of audit

efforts and presentation of a sector based perspective to the Government.

2.4 Stakeholder Interaction

i. Formally identify major stakeholders in the audit planning and reporting process (e.g.

PAC/ COPU members and other legislators, Planning Commission/ Finance

Commission, Ministry of Finance/ Finance Department, Other Ministries/

Departments, Civil Society Groups, Media etc.), in addition to the Audit Advisory

Boards.

ii. Introduce mechanisms for formal consultation with stakeholders (at least on an annual

basis) for identifying themes for performance/ compliance audits.

iii. Explore opportunities for providing support to selected Parliamentary Standing

Committees along the same lines as PAC/COPU.

iv. Consolidate guidelines for interaction with the auditee institutions in performance

audits, and consider guidelines for similar interactions during compliance audits.

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v. Channelize the information base available with the citizens, NGOs, civil society

organisations, government servants etc. in to inputs for audit planning and evidence

gathering purposes.


Goal Manager: DGs/AGs/PDs (Audit)

2.5 Reporting

i. Simplify the Audit Reports and make them more reader friendly; give adequate

attention to presentation of Audit Reports in terms of formatting, use of colours, print

quality etc.

ii. Increase the use of CDs and booklets for wider dissemination of significant audit

findings

iii. Besides reporting the results of audit to Parliament/State Legislature in discharge of our

Constitutional responsibility, we could expand our reporting relationship to cover

Study Reports/Evaluation Studies/ Management Letter etc. to top management and

policy makers, where considered appropriate

iv. Standardize the format of Inspection Reports of all the Functional Wings

v. Ensure that the quality of Inspection Reports is on par with that of Audit Reports and

place the Inspection Reports in public domain

vi. With the flow of funds from GoI directly to the lowest level of governance, ensure

translation of Inspection Reports in to the local language and make them available to

the PRIs. Also, make these available in audiovisual format.


Goal Manager: DG (Audit) and DGs/AGs/PDs (Audit & Functional Wings in Hdqrs)

2.6 Communication and Public Relations

iii. Move out of our ivory tower approach in dealing with the public and media

iv. Formulate an action plan for engaging with the media in the long run rather than

initiating action for specific events alone.

v. Engage media proactively to create awareness among the general public and policy

makers about the critical and constructive role we play in facilitating good governance.

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vi. Make a conscious effort to reach out to the opinion makers through the media.

vii. Consider buying media time to create awareness among citizens about CAG’s reports

and facilitate informed discussions in this regard.

viii. Give a freehand to the DGs/PAGs/AGs/PDs at the field level to interact with media

relating to audit activities subject to broad framework rather than retaining control at

Headquarters for every detail.


Goal Manager: DG (Communication Policy)/Media Advisor

Roadmap:

a. Formulate a proactive Media Policy and engage a PR Agency by October 2010 to

enhance the visibility of the Department and educate the public and the policy makers

about the role of audit and the significant findings emerging from CAG’s reports.

3 Accounts

Challenges

We have initiated a series of measures in the last few years, to bring about reforms in

Government Accounts and the way these are presented. However, our focus in this regard has

essentially been on timeliness and transparency with very little attention being paid to the

quality of accounts itself. There are a number of Suspense Heads in Accounts where huge

amounts are reflected. There are also a large number of transactions/Heads, which have been

figuring in the Accounts for decades (some of them dating back to partition of the country or

earlier) without any change in the status of amounts/no fresh transactions and/or have become

redundant due to various reasons. There are also a huge number of misclassifications every

year. Concerted action should be taken to review all such Heads/transactions, analyse and

clear/adjust to the correct Head of Account, and if not possible to identify the correct Head or

adjust the transaction, write off in consultation with the State Government within a specific

timeframe.

The Additional Central Assistance (ACA) given by the Government of India to the States for

various developmental programmes is in the nature of grantsinaid and does not get reflected

as funds allocated for specific programmes under the relevant Head of Account.

Consequently, neither the Central nor the State Governments get the complete picture relating

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to allocation and expenditure for programmes at one place. There is also no uniformity in

booking expenditure under certain Heads among States due to lack of uniformity in Object

Heads and the expenditure on similar schemes is reflected under different Heads across

States. We need to bring about uniformity in this regard so as to enable proper analysis and

comparison of expenditure under various Heads across States.

The VLC system has served a very useful purpose for over a decade but with the changes in

technology and rapid obsolescence, the system is becoming increasingly difficult to maintain

and is not able to provide the functionality expected of it. Also, with all the States going in

for computerisation of treasuries, it is important to build proper interface between the

Treasury Accounting systems and VLC system so that we can harness the advantages offered

in this regard to compile/finalise the State Government accounts more realtime.

We need to continue with our endeavour to bring about reforms in Government Accounts

with the ultimate objective of enhancing the quality and transparency of Government

accounting while providing valuable inputs to State Governments in fiscal management and

expenditure control. Towards this end,

Goals

i. Review the format of Finance Accounts & Appropriation Accounts to:

a. Provide appropriate level of reporting detailed vs. high level

b. Include overall financial performance and cash flow

c. Aid in moving to accrual based accounting

d. Provide more analytical reasons for excesses & savings

e. Ensure all the States include the mandated appendices to Finance Accounts

f. Facilitate meaningful analysis of the accounts

ii. Review accounting procedures/ chart of accounts to :

a. Track expenditure incurred out of Central grants right down to the grass roots level

b. Bring about uniformity in object heads; address the need for distinct heads for flagship programmes and distinct capital heads

iii. Facilitate the implementation of accrual accounting and standardbased accounting

system in consultation with the stakeholders

iv. Stabilize and upgrade the Voucher Level Computerisation systems.

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v. Develop an interface between the Treasury Accounting systems and VLC systems.

vi. Digitise the vouchers in consultation with the State Governments to enable

comprehensive digitization of accounting process.

vii. Where epayment has been initiated by the States, launch procedures to capture and

compile accounts of such receipts in a more detailed manner.

viii. Set up a central data warehouse to house the detailed accounting information of all the

States with appropriate data mining facilities.

Goal Supervisor: DAI (AEC)

Goal Manager: DG (AEC)/ PAGs/AGs (A&E)

Roadmap:

a. Identify the problems with the existing VLC system by December 2010; prepare the

specifications for a new system by March 2011 and implement a new VLC system by

December 2011. This system should also provide an interface with the Treasury

systems and capture all the epayments/etransactions/egovernance initiatives of the

State Governments.

b. In consultation with CGA (for Central Accounts), revise the Chart of Accounts by April

2011 to bring about uniformity in object heads and track expenditure to the last paisa.

c. Pursue with the State Governments vigorously so as to move towards accrual based

accounting during the Eleventh Plan.

d. Plan for setting up a central data warehouse with data mining functionality by

December 2011 to capture all the accounting information of the States and facilitate a

meaningful analysis for management reports/research/advice to the Government etc.

4 Entitlements

Challenges

With regard to entitlements, while we have been making all efforts to ensure that pensionary

benefits are released to the retired employees expeditiously, there are often delays in

authorising the benefits due to delay in receipt of the requisite documents from the

departmental officers. We need to coordinate with the latter and ensure that they send us all

the necessary documents well before time to enable us to keep up our target dates. There is

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also a need to improve the quality of services provided to the State Government employees in

terms of ensuring that all the deductions made from their pay bills towards GPF are credited

timely and correctly to their accounts.

Goals

i. Define indicators for measuring quality of service and measure actual service delivery

at periodic intervals; make our service delivery mechanism transparent to the public.

ii. Ensure that the quality of service relating to entitlements is at par with that of banking

services as far as facilitation of online transactions are concerned. Consider setting up

information kiosks for the purpose.

iii. Strengthen our commitment to the citizens through the Citizen’s Charter by adding

additional areas like Gazetted entitlements and maintenance and settlement of long

term advances taken by government servants

iv. Have a helpline for registering complaints against unsatisfactory service delivery by the

department

v. Improve interface with DDOs/departments to obtain complete information relating to

pension/GPF documents

vi. Hold Pension Adalats every month and interact more proactively with the pensioners

vii. Provide more online facilities to access information and to contact the AG regarding

GPF Advances and Gazetted entitlements and update the website of the AG (A&E) on

a regular basis.

Goal Supervisor: DAI (AEC)

Goal Manager: DG (AEC)/PAGs/AGs (A&E)

5 Information Systems

Challenges

IAAD was among the first Government Departments to make extensive use of Information

Technology (IT) for automating both its internal processes, as well as audit of IT systems

from late 1980s. SAI India has been recognised among INTOSAI/ASOSAI and other SAIs as

an expert in audit of information systems and has been the Chair of the INTOSAI Working

Group on IT Audit for about 19 years. We need to leverage the recent developments in IT

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primarily in terms of web connectivity and make optimum use of IT to (a) improve sharing of

knowledge across the organization for increased productivity, control and transparency and

(b) increase public interface and visibility to the world (c) be a leader in audit of IT systems.

For this purpose,

Goals

i. Identify more closely at the system development stage with auditee in respect of

mission critical systems of the Government (both Central and State)/ PSUs by

intimating the important controls that are required to be built in, in the systems and

state the audit requirements in terms of ‘Audit Module’, ‘Exception Reports’ etc.

ii. Identify major/core applications of Government/PSUs where we need to acquire

additional skills in auditing, and plan for building capacities in such areas

iii. Integrate our IT systems relating to audit plan and support functions with VLC systems

iv. Plan for IT systems within IAAD for knowledge gathering for our traditional audit

activities. Develop electronic libraries to deliver domain specific support to our audit

teams in terms of making available all the relevant information about specific audit

areas (like mining, aviation, power etc) at one place.

v. Develop knowledge networks to ensure that not only audit related information but also

audit department related information, rules, procedures etc. are available and shared on

line.

vi. Make use of video conferencing and other cost effective technologies to impart training

and discuss work related issues.

vii. Disseminate the latest trends and methods of carrying out IT audits through the

intranet/news letters at regular intervals

viii. Use technology (eg. Netbooks or mini notebooks) to reduce the time lag between the

conduct of audit and submission of IRs by the audit teams.

ix. Develop and implement an IT application for capturing all audit findings and action

taken thereon, to be made available on the intranet/internet.

x. Improve the IAAD’s IT infrastructure and develop/ upgrade applications for

management and monitoring of audit and administrative activities within field offices

and CAG’s office.

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xi. Redesign the CAG’s website for better presentation and search facilities, and ensure

constant up dation of content.

Goal Supervisor: DAI (AEC & LB)

Goal Manager: PD (IS & IT Audit)

Roadmap:

a. Ensure that Audit Management System is in place by April 2011 so as to provide

management information on the activities of the Department at both macro as well as

micro level.

b. Revamp the CAG’s web site by November 2010 (in time for 150 year celebrations of

the Department) to present it as a one stop portal for complete information on the

activities and products of the Department with search and query facilities.

6 Human Resources

Challenges

HR is an important area of focus to enable us to convert our plans mentioned above in to

action. We need to transform this function from one of cadre control, to development of

human resources and formulate human resources development policies and procedures to

attract and retain the best to IAAD fold.

Over the years, audit function has moved gradually from one where there was contribution

from the Auditors level in field audit and the Audit Officer was required to supervise their

work, to one where the Assistant Audit Officer and Audit Officer do the actual field audit

under the supervision of Group Officer and at times AG/PD, depending on the significance of

the area being audited. With the depletion in the number of staff and officers and increase in

the areas and expenditure to be audited, it is becoming increasingly difficult to fulfil the

expectations of the stakeholders and adhere to the benchmarks and standards of quality of

audit set for ourselves.

Even with a risk based audit planning where we focus our attention on essentially the key

areas, we are having to juggle the few quality staff available and the burden of supervising

about ten teams or more and ensuring good quality Inspection Reports and Audit Reports on

the Group Officers (due to severe shortage of Group Officers, a majority of Group Officers

have been holding additional charge) and AGs/PDs is enormous. With the benchmark for

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promotion to IA&AS being merely ‘Good’, on one hand, we do not always get Group

Officers of high calibre, and on the other hand, the aspirations of relatively young and high

calibre Group ‘B’ officers are not met.

We need to be more circumspect while allocating portfolios to officers promoted from Group

‘B’ cadre. Often they are posted to an office/area of work, where they have never been

exposed to during their 2530 odd years of service. For instance, Group ‘B’ officers promoted

to IA&AS from A&E stream are posted to Audit and those from Audit stream are posted to

A&E stream. This would not help either the officer concerned, nor does it improve the

productivity of the office concerned.

The Section Officers Grade examination mostly tests the candidates on ‘FRSR’ related

knowledge and there isn’t enough emphasis on practical field level skills. Further, the newly

recruited AAOs do not always get exposure to field level audit at initial stages to hone their

skills and despite the shortage in this cadre, we tend to demote them in case they are unable

to clear the exams within the given time. Apart from the other factors, this is one of the

reasons for the high attrition rate in directly recruited AAOs. While it is important to ensure

quality staff, it is also important to groom the new recruits and provide the right orientation to

ensure that their services are available in the long run.

Despite the emphasis on training and career progression on paper, we have a vast pool of

‘trainees’ who are, quite often than not, the ones deputed for any and every training at RTIs,

since the really good staff ‘cannot’ ostensibly, be spared. The training requirements of

IA&AS officers also needs to be planned and intimated to them well on time, so as to avoid

last minute cancellations due to exigencies of work. Career progression plans need to be in

place to ensure that officers and staff are trained as per the requirements of work and not on

availability basis.

The following course of action is proposed to dovetail the HR function with the professional

development of the human resources, which are our greatest asset.

Goals

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6.1 Recruitment

i. Ensure availability of adequate number of IAAS officers in the Department through

initial induction, lateral entry and promotion (both fast track and when due), especially

in view of the increased responsibilities cast on IAAD and the pivotal role of Group

Officers in leading critical audit assignments.

ii. For promotion to IA&AS, ensure the prescription of appropriate criteria to meet the

demanding requirements of IA&AS, so that the aspirations of bright and relatively

younger officers in Group ‘B’ cadre are fulfilled.

iii. Ensure requisite quality and number of officers is available, keeping in view the

suggested reoriented approach for financial and compliance audits and renewed thrust

on performance audits.

iv. Expedite the implementation of the recommendations of the committee on staff norms,

where already accepted.

v. Ensure stability in the tenure of officers in a post, especially at the PAG/AG level.

vi. Reorient the SOGE to meet the requirements of work as detailed in the section on

‘Audit’.


Goal Manager: AC (P) /PD (Staff)

Roadmap:

a. Revamp the Recruitment Rules for induction to IA&AS by March 2011 and provide for

60% direct recruitment, 20% promotion and 20% fast track promotion through

examination and track record.

b. Ensure, in consultation with the Central Government, that only the candidates fulfilling

the minimum benchmark of ‘very good’ are promoted to IA&AS with effect from

2011.

c. Recruit/promote at least double the current number of Group Officers by June 2011 to

facilitate adequate planning and supervision of audit work.

d. Revise the staffing norms by March 2011 and ensure that staff is provided to offices

based on work load.

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6.2 Career progression

i. Draw up career progression plans for individuals in terms of timeframe for upward

mobility and area/field of specialization, places of posting, long term training needs,

special assignments and secondment of services to other departments/organizations.

ii. Transform the present system of ‘appraising’ the performance of officers and staff to a

system of ‘managing’ the performance; this would involve changing the present ACR

system keeping in view the ARC’s recommendations, to enable a two way consultative

process – promote growth and learning and recognising that capacity building and

individual performance improvement leads to better achievement of organisational

goals.

iii. Ensure appropriate incentives are given to the cream of Group ‘B’ cadre so as to

motivate them to realise their full potential and improve the overall productivity of the

Department.

iv. In case the officers promoted from Group ‘B’ cadre to IA&AS have over ten years to

go before retirement, they may be posted to any stream of work like the directly

recruited IA&AS officers. If not, they may be posted to the area of work with which

they are familiar.


Goal Manager: AC (P) /PD (Staff)

6.3 Training and Capacity Building

Develop the capacity and skills of personnel to keep pace with the changes in functioning of

Government and expectations from IAAD:

i. Consolidate and upgrade training infrastructure at RTIs/RTCs and other training

establishments; strengthen inhouse training infrastructure

ii. Provide impetus to research activities; identify specific individuals/office/RTIs for

carrying out research in selected areas of audit with clear timelines for completion of

research work

iii. Ensure RTIs that have been designated as Centres of Excellence, develop standardised

courseware in the identified subject/area and devolve the responsibility of

disseminating that domainspecific knowledge within IAAD to that RTI

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iv. Take help of auditee entities/sector specific training institutes for improving our domain

knowledge through training courses/ workshops and seminars/ talks.

v. Use services of consultants and eminent persons to build capacities in new and

emerging areas of audit

vi. Depute officers and staff at various levels for specialised training in identified areas, to

premier Management Institutes / Universities (both within the country and abroad)

and/or other organisations of repute in the identified area.

vii. Ensure that global best practices and new methodologies of audit are disseminated from

IR wing to all the offices and NAAA/iCISA/RTIs

viii. Provide IT infrastructure for audit teams – PCs, notebooks, pen drives and digital

cameras (for capturing photographic evidence).


Goal Manager: AC (P) / DG (NAAA)/DG (iCISA)

Roadmap:

a. Standardise course design, course material and training methodology across all RTIs

and RTCs by March 2011.

b. Prepare a shelf of case studies by June 2011 to enhance the impact of training and

upgrade the quality of faculty in various training institutes.

c. Identify specific individuals/office/RTIs by December 2010, for carrying out research

in selected areas of audit and dissemination of best practices.

strategic plan 2020 prepared by the group of officers and perspective plan

Documents