The Government of Rajasthan is contemplating doing away with the existing treasury accounting system and instead shifting to the Payments and Account System. According to several media reports, the Comptroller and Auditor General of India (CAG) has written to the Rajasthan government that this “would disrupt the compilation, preparation and reporting of government accounts.”
On the one hand, it can be argued that it will allow the State government to have greater control over its finances and better, faster and prompter understanding of the local financial situation enabling them to make informed decisions on allocating resources quickly. But Section 10(1)(b) of the Comptroller and Auditor General’s (Duties, Powers and Conditions of Service) Act 1971 provides for the CAG to be responsible for compiling the Union's and each State's accounts.
CAG’s Auditing, Reporting Functions
The CAG is an independent constitutional authority responsible for auditing the accounts of the Union and state governments. Its role is defined in Article 150 of the Constitution of India and further, in the CAG (Duties, Powers and Conditions of Service) Act, 1971, which describes the manner in which it will discharge the role.
Section 13 of the CAG Act states that the CAG shall audit and report on the accounts of the Union and State governments and any other body or authority that is financed or controlled by the government. In discharge of this duty, the CAG has the power to call for and examine any document related to these accounts and to require the attendance of any person to give evidence or produce documents.
The CAG can also inspect any office of the government. In addition to auditing the government's financial transactions, the CAG has wide-ranging powers to report on any matter related to the economy, efficiency, or effectiveness of the government's activities. The CAG reports its findings to the President or the Governor of the state, who is required to place them before the Parliament or the respective legislatures.
Maintaining Accounts
In addition, Article 150 of the Constitution provides that the accounts of the Union and the States shall be kept in such form as the President may, on the advice of the Comptroller and Auditor-General of India, prescribe. Article 149 of the Constitution states that the CAG shall perform such duties and exercise such powers in relation to the accounts of the Union and State governments as may be prescribed by or under any law made by Parliament.
Maintaining the accounts in the form prescribed by the CAG is important because it allows the CAG to effectively carry out its constitutional mandate of auditing the government's accounts. It has the power to prescribe accounting standards and procedures to ensure that the accounts are maintained in a standardised and consistent manner that allows for effective auditing.
Hence, besides auditing, the matter of presenting a form of accounts is a constitutionally entrusted duty to the CAG. This is similar to the Institute of Chartered Accountants of India releasing the Indian Accounting Standards or the Indian Financial Reporting Standards for a uniform system of accounting for all companies to maintain their accounts, so that the same is amenable to subsequent audit by different chartered accountants.
A Way Out For Rajasthan, CAG
In the context of Rajasthan’s move, there is a provision in the CAG Act where “the Governor of a State may, with the previous approval of the President and after consultation with the Comptroller and Auditor-General, by order, relieve [the CAG] from the responsibility for compiling the said accounts of the State (either at once or gradually by the issue of several orders)”.
This means that while the power to conduct audits and prescribe the form of the accounts is Constitutional, the power to compile the accounts is statutory as far CAG is concerned. State governments may be allowed to maintain their pay and pension accounts, but the “form” in which the accounts shall be kept has to be prescribed by the CAG.
It is important to strike a balance between the need for state governments to maintain control over their finances and the need for transparency and accountability. While state governments could be allowed to maintain their pay and pension accounts, robust systems should be in place to ensure that these accounts are audited regularly and transparently. It is pertinent that the transition of the power to maintain and compile records from the CAG to the States must be done in consultation with the CAG and following the due process under the proviso to Section 10(1)(b) of the CAG Act of 1971.
In order to enable the CAG to effectively perform its constitutionally mandated duty to audit state governments' accounts, the Rajasthan government's Payments and Account System must follow the CAG's prescribed format under Article 150 of the Constitution after due consultation with him.
Dr Amar Patnaik is a member of the Rajya Sabha from Odisha and a former CAG civil servant. Views are personal, and do not represent the stand of this publication.