Prime Minister of India - Dr. Manmohan Singh

PM's address at the 24th All India Conference of Accountants General

"I am very happy to be here today in this All India Conference of Accountants General.

Yours is a very important conference. The issues that you have gathered to discuss have far reaching effect on the functioning of our government, of the functioning of our economy and in particular, the delivery of public services in our country.

The role of audit today is more important than ever before. The scale of Government expenditure is expanding and much of it is now directed into new areas where the design of emerging programs is somewhat experimental. With increasing public expenditure and the increased complexity of programmes and transactions, it is imperative that the audit set up in our country is vigilant and effective and is modernized in the passage of time so that public interest is truly safe-guarded. This would not only prevent wasteful expenditure and promote financial discipline and detect financial and procedural irregularities, but would also contribute to improving the quality of governance in the vast country of ours.

The office of the Comptroller and Auditor General is one of the key pillars of Indian democracy. It plays a major role in ensuring the accountability of the executive to the legislature and thereby to the people at large of this vast country. It would be instructive to recall what Dr. B.R. Ambedkar had said about the office, and I quote

I am of the opinion that this dignitary or officer is probably the most important officer of the Constitution of India. He is the one man who is going to see that the expenses voted by parliament are not exceeded, or varied from what has been laid down by Parliament in what is called the Appropriation Act.

The concept and practice of public audit is undergoing a major transformation even though the underlying principles of neutrality, transparency and evidenced reporting remain the same. The movement beyond the traditional regularity and financial audits has to be welcomed. Today we must see audit organizations as partners in strengthening the quality of governance by providing key inputs to the executive for systems improvements.

The measurement of performance in Government and the evaluation of Government programs have traditionally been done by measuring inputs. On this approach, as long as the targeted expenditure is made in a particular sector, the objectives are said to be achieved. But, we all know expenditure does not always result in the intended benefits. This could be due to faulty programme design or poor implementation. To measure the real efficiency of Government schemes, we need, therefore, to develop a system of evaluating outcomes and, beyond outcomes, evaluating impacts. If we take education as an example, we could measure performance in terms of enrolment ratios or student teacher ratio as outcomes of Government's specific interventions. However, what we are really interested in is the final impact - whether we are able to give our citizens good quality education and outcomes are recognized to be difficult to measure and their measurement involves collection of non-financial data, which is costly. The Government in the last few years has been attempting to move from monitoring outlays to monitoring outcomes by means of outcome budgets for the various Ministries and Departments. It is for you to judge how far this experiment has contributed to greater efficiency in our Government's system. But there is no doubt that this is a step in the right direction but we still have to go considerable distance in putting in place an effective systems for monitoring final impacts.

Traditional auditing has also been oriented towards transactions and regularity. Each office and transaction is audited in isolation. This orientation perhaps needs to be replaced with an integrated and a more holistic approach. A public auditor cannot be like the statutory auditor of a company, merely certifying the financial statements of an entity. His or her role should also not be restricted to testing the regularity of transactions against the relevant rules. A public auditor's focus ultimately has to be on good governance and audit processes need to be oriented towards this wider governance perspective. The new practices brought about by the CAG's Performance Audits have indeed provided fresh impetus in this direction.

Liberalization and globalization have brought forth new issues that public auditors must address. To give an example, Public Private Partnerships are becoming increasingly common in projects in the key infrastructure sectors of transport, power, urban infrastructure, tourism and railways. Audit needs, therefore, new skills to evaluate these complex arrangements. I hope that all of you are alive to these new challenges.

The Government has embarked on a massive National e-Governance Action Plan for increased use of Information Technology in processes of Government. This is expected to catalyze good governance. I am happy that the Comptroller and Auditor General's core competence in IT audits has been internationally recognized in the auditing fraternity. I recall that the IT Audit initiatives of the Comptroller and Auditor General have bagged the Prime Minister's Award for excellence in public administration last year. I congratulate all these magnificent engineers. I sincerely hope that the good work done in this direction will continue in the future too.

Substantial funds under the Centrally sponsored schemes are released by the Central Government to the State Governments and also directly to the implementing agencies like the DRDAs, autonomous bodies, NGOs, societies etc. The amount released is booked as revenue expenditure in the books of the Central Government at the time of release itself. The utilization of the amounts released is known to the Central Government only through a utilization certificate issued. This arrangement your would appreciate does not reveal the exact position at any given point of time vis-a-vis the amounts actually utilized for the end use, the amounts in transit, the advances to local bodies, Panchayati Raj Institutions or to the executive agencies and unspent balances. I am happy that the Comptroller and Auditor General's office, together with the Central Accounts Office (CAO) and the Planning Commission has taken an initiative to rectify these deficiencies. I am also told that this important issue was discussed in your Conference and I hope that useful and practical recommendations would emerge from your discussions.

The significant changes in public sector accounting and financial reporting systems all over the world and their increasing convergence to an accrual basis of accounting over the last two decades have underlined the need for a review of existing Government accounting practices in India as well. Our current accounting system derives its form and substance largely from the cash based accounting procedures, we inherited from our erstwhile British rulers. Though we have modernized the system, it still continues to be essentially cash based. It is somewhat deficient in terms of transparency and user friendliness and there is a need to move to an accrual based system of accounting. The Twelfth Finance Commission has recommended the introduction of an accrual-based system of accounting in the Government. This recommendation has been accepted. I am happy to know that the Government Accounting Standards Advisory Board established under the CAG has been working on migration to an accrual basis accounting system.

The effectiveness of audit depends to a considerable extent on cooperation between the audit and the auditee. The relationship between audit and executive agencies should not be the familiar adversarial relationship. It should be one of partnerships with a common goal of improvement of systems to enable the Government to deliver better to serve our people better. The basic purpose underlying external statutory audit is the need to ensure accountability, transparency and good governance. While working towards these objectives, we need to take care so that audit does not become an exercise which obstructs speedy implementation of agreed programmes and in the process discourages worthwhile initiative. The role of auditors in the ultimate analysis should be a positive one, as a group that contributes to improve the quality of governance in our country.

I am sure that you all have had very useful discussions in this Conference. I have no doubt that public auditors in India have the competence and the will to fully meet the new challenges that they face. Let me conclude by wishing each one of you all success. I sincerely hope that as public auditors you will contribute even more actively in the processes of nation building in the future. You have an important constitutional function in our democracy."