Role of Accountability and Audit in Government Dr.MCR Human Resource Development Institute

1. Role of Accountability and Audit in Government Dr.MCR Human Resource Development Institute Hyderabad 26 October 2012

2. Need for accountability

3. What is Accountability? • Philosophy: • No organ of the State can use the coercive powers of the State without concurrence of others • Concept: • Broader than accountability institutions, processes or laws • Giving and demanding of reasons for conduct • Two elements: • Account (information) and • Holding to account (account evaluated, compared against standards, difference noted and praise or blame meted out. • Two parties: • Accounter (subordinate) • Accountee (superior) • Two way flow: • Formal top-down processes (such as elections, hearings, consultations) or • Bottom-up strategies (such as participatory budgeting, social mobilisation, and citizen monitoring)

4. Forms of accountability • Political • Public servant exercising authority on behalf of elected representative accountable to people • Public • Direct accountability to public, lobby and community • Rapidly growing form of accountability to pressure-groups and community based organisations • Managerial • Beyond traditional administrative accountability to new public management • Professional • Owed to professional associations of public servants • Personal • Fidelity to internalised moral and ethical values

5. Our Accountability heritage • Westminster Hierarchical model • Variety of accountability relationships leading to accountability tensions • Not only to immediate supervisor but also range of external institutions People Parliament Ministers Horizontal Accountability Institutions Public servant

6. Accountability Pyramid

7. Legislative Accountability Lifecycle Budget Sanction Expenditure Accounts Audit Legislative review

8. Accounts and Accountability • Holds bureaucrat in check and clinch responsiveness • Lays down what is to be done, resources to be used • Monitoring operations individually and in aggregate • Freezes decisions of the past and provides audit trail • Buffer organisation from political compulsions • Record of organizational choices and activities

9. Evolution of Public Auditing • Magna Carta 1215 AD • Commercial origins • Separation of ownership and management • Owner’s confidence that the manager is acting to maximise interest of the owner • Technical competence • Personal consumption of owner’s wealth • Public Audit in India • Government of India Act 1935 • Indian Audit & Accounts Order 1936 • Constitution of India Articles 148 to 151 • CAG’s Duties, Powers & Conditions of Service Act 1971

10. Objectives of Government auditing • Part of horizontal accountability system • Objectives of public audit • Provide objective assessment of financial activities and financial position of Government • Provide assessment of due observance of laws, rules and procedures and financial propriety in functioning of Government • Provide assessment of achievement of economy, efficiency and effectiveness in implementation of government activities • Method of achieving objectives • Financial attest audit • Audit against provision of funds • Audit against rules and orders • Audit against sanctions to expenditure • Audit against propriety

11. Evolution of Financial Attest Audit Report on view of A/C and Statement • Audit a dynamic process and scope changes with time. Report true & Fair view Audit of P&L A/C 1969 Detect fraud 1948 1929 Detect errors 1919 1896

12. Evolution of Public Audit Assessment of impact • Focus changes with societal concerns Achievement of three Es 1990 Compliance with rules 1950 Compliance with appropriation 1936 1860

13. Auditing powers of C&AG of India • Audit of expenditure from and receipts into consolidated/contingency fund and Public Account of Union/States • Beyond formality to wisdom, faithfulness and economy in expenditure • Canons of financial propriety • Man of ordinary prudence • Not more than what occasion demands • No order to own advantage • Public expenditure not for benefit of a particular individual or community • Allowances are not a source of profit • Audit of autonomous bodies • Audit of corporate undertakings • Indian Companies Act 1956

14. Audit Principle • Audit is an assurance process Audit Criteria What should be Audit Evidence What is Audit Finding Deviation • Audit to follow standards • Auditing standards of C&AG of India • International Standards of Supreme Audit Institutions

15. Audit Process Audit Planning Audit Execution Audit Reporting Audit Monitoring

16. Audit Process Audit enquiry Inspection report Draft Paragraph Report of CAG of India Report of PAC/COPU

17. Audit procedures • Compliance testing • Evaluation of internal controls to locate deviations from control procedures • Analytical review • Comparison involving single component • Comparison across components • System analysis • Predictive analysis • Regressive analysis • Business analysis • Direct substantive testing • Tests of transactions and balances to provide evidence as to completeness, accuracy and validity of information

18. Kinds of audits • Pre audit & Post Audit • Internal audit & External audit • Central audit & Field audit • Finance attestation audit, Compliance audit & Performance audit • IT audit, Environmental audit, Social audit

19. Modern trends in accountability process • Impact of democratization of governance • Transition from representative-raj to people’s-raj leading to direct democracy • Demands from Right to Information Act and its restraining effect • In audit arena increasing demands for social audit • Influence of decentralization of governance • Localising accountability • Inverse relationship of decentralisation and corruption • Disrupting accountability bonds between three tiers of government and societies

20. Modern trends in accountability process • Expectations for shifting focus of governance and audit from: • Process to productivity • Transactional accountability to transformational accountability • Administrative to market accountability

21. Issues in accountability • Need to change language of accounts and audit • Need for changing language of accounts with changing focus of governance resulting from changing conceptions of the state with need for accounting aims, actions and achievements

22. Issues in accountability • Overdose of accountability institutions? • Too much analysis leading to paralysis? • Compliance cost consciousness? • Emerging expectations of accountability for Private sector entities providing public service • Transition from economic accountability to social accountability? • Complexity of governance and accountability norms • Need for new supports for existing bonds of accountability? • Accountability of Accountability Institution • Who audits the auditor?

23. Way forward to ensure accountability through audit • Change of mindset: • From adversary to partner • From Hindsight to oversight and insight • From being reactive to being proactive • From emphasis on letter to spirit • Need to chase the Rupee across multiple entities to assess outcome • Modernising standard auditing operational procedures to rely on technology and to take care of sunrise areas of audit • Mandate on audit of policies

24. Thanks!