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Tuesday, 07 January 2014 00:00
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Courts widen CAG role, but with a welcome caveat

The ambit of companies/bodies that the CAG can audit has just got widened dramatically, thanks to a judgment of the Delhi High Court, but it has also got a lot more confusing. Delhi chief minister Arvind Kejriwal wants the CAG to audit the expenditures of various electricity distribution companies (discoms) to ensure they have not been overstating expenses—the discoms are opposing this, and point out the matter is in court anyway. The Delhi High Court, in a different case involving private sector telecom companies, on Monday ruled the telcos can be audited by the CAG, but with a very welcome caveat. Since CAG audits tend to be a bit wide-ranging, questioning the wisdom of any investment, the court has said the audit will be “pertaining to the receipts and no more”. The CAG, the order says, “would not confuse (itself) with (its) wide all embracing power … which includes inquiries into aspects like faithfulness, wisdom and economy in expenditures”. While that is a welcome relief, its implications in the matter of the CAG audit of the discoms are not clear.

What is disturbing about the court order is the much larger ambit that it seeks to give the CAG. It says that, according to Section 14 of the CAG Act, bodies or authorities that are substantially financed by government revenues have to be audited by the CAG; and that, according to Section 16, all receipts payable to the Consolidated Fund of India have to be audited by CAG—in a different part of the ruling, the word “revenues” is clarified to include taxes. Going by this, not only can CAG audit all PPP projects (the Delhi airport), it can audit private firms doing work on a revenue-share basis (telcos, private oil firms engaged in exploration activities), possibly even private firms whose sole connection to the Consolidated Fund of India is just paying taxes.

Given that court just wants the CAG’s telecom audit to be restricted to receipts, it is also not clear exactly what it hopes to achieve. While it is a very clear vote of no-confidence in both the army of private auditors that do this today and the telecom ministry/regulator that looks at this data, the fact is that it is private auditors who have delivered in the past. When a special audit was ordered by the ministry, it was private auditors that found telcos misclassifying their receipts in order to pay lower annual revenue-shares—revenues from data-services attract a lower revenue-share than those for voice revenues. The larger problem is that with the court allowing CAG to audit private firms, it may just be a matter of time before even the caveats on the type of audit are removed.

 

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