Audit & Good Governance

I consider it my privilege to get an opportunity to address the Civil Services community today on the merits of Audit for facilitating better governance. I also propose to utilize this opportunity to place my views before you, hopefully, to dispel the notion of Audit being an impediment in the overall process of governance. 2. In a system of representative democracy,

institutions of government and officials and agencies of government assist to serve the interests of the public. In such a constitutional system, the Parliament is the publics representative forum and it derives its ultimate legitimacy from the public on whose behalf it has been elected and acts. Parliament has the responsibility to promote the goals of openness, accountability and

integrity. The government auditor or the CAG provides a critical link between the Executive on the one hand and the Parliament and the community on the other. It alone subjects the operations of the Executive to regular, independent investigation and review, thereby providing credibility to government operations. To ensure long term sustainability of our Administrative and Economic institutions, we have to ensure that we have in place, transparent and credible institutional and administrative processes. Hence, the need to bridge the gap between the rhetoric of good governance and actual practices thereof. 3. The principles of good governance, namely;

transparency and accountability; fairness and equity; efficiency and effectiveness; respect of the rule of law; and high standards of ethical behaviour, represent the basis upon which a responsive and open government

can be built. I wish to place before you these concepts of governance and accountability and show how they are critically linked with each other. I also wish to discuss, specifically, what it means for an audit to add value and not detract from the process. I would conclude with the proposition of how audit and the executive can improve the efficiency of the administration and the effectiveness of Government spending. 4. You will agree that the framers of the Constitution,

while providing for distinctive roles for the Legislature, the Executive and the Judiciary provided for necessary checks and balances to ensure that the essential elements of objectivity and accountability are embedded in administration. Whilst the Executive has been given the freedom to frame and architecture schemes, projects and institutions to fulfill the requirement of growth, it is essential to ensure that subjective elements

do not enter the implementation process. Hence, the need to have an independent agencythe audit to ensure objectivity. I also wish to emphasize that between audit and the administration there is no WE and THEY. We are both on the same side of the table. Our goals are common. While the

administration is the expending agency of governmental resources, audit is merely the validation agency to provide comfort not only to the government but the man on the street that monies extracted from him, have been most efficiently expended. 5. The Government machinery represents a kind of

principal agent relationship. The principals are the main shareholders viz. the public at large. The executive, acting as the agent of the principal, must periodically account to the principal for their use and stewardship of resources and provide comfort of the

extent to which the public objectives have been accomplished. The principal relies upon the audit to provide an independent and objective evaluation of the accuracy of the agents accounting. The audit then reports on whether the agent used the resources in accordance with the wishes of the principal. It ensures parliamentary control over expenditure voted by the legislature. It also ensures the accountability of public authorities towards public monies raised and spent by them to implement policies and programmes approved by the legislatures. Accountability and transparency, the two cardinal principles of good Governance in a democratic set up, depend for their observance, to a large extent on how well the public audit function is discharged. It is for this reason that the legislatures of many countries the world over have ensured

independence of Supreme Audit Institutions. Be it, the

corporate entity in the private sector, the public sector entity or government itself, countries and institutions the world over have been trying to ensure transparency in their operations. 6. Internal control or concurrent evaluation is a

process, effected by an organizations top management designed to provide reasonable assurance regarding objectivity in efficiency of operations, reliability and financial reporting and compliance with applicable regulations. Effective internal control requires a strong internal audit function. The responsibility for such concurrent evaluation lies primarily with the executive and the vehicle of such evaluation in most jurisdictions, is internal audit. To the extent that government can enhance its capabilities for internal audit and control systems, the comfort for speedy implementation of projects gets also enhanced. If internal audit is

strengthened the so called fear of external audit gets mitigated. Unlike most countries in the world, we are yet to formally embrace a modern and reasonable objective framework of internal controls with attendant assertions in government departments and entities. These institutions have to bring themselves upto the task of formalizing their risk assessment and control processes in the interest of better governance, better accountability. This will also serve to allay fears of audit. 7. The Indian Audit and Accounts Department, in the

process of fulfilling the objectives laid before it by the Parliament, largely targets mainstream programmes which have a high degree of materiality and are sensitive. In this process, programmes involving huge sums of money, programmes in critical sectors and those which have come up for public and parliamentary

attention, usually fall within the audit plan. The Department has the discretion to decide on the areas to be audited. Considering that we have roughly 250,000 auditable entities, the Department obviously does not have resources to undertake audit of all these auditable entities. We thus, have to prioritize the audits on the basis of proper risk assessment and usually end up conducting about 60,000 audits in a year. The Department does not have the resources, manpower or the desire to venture into nit-picking or mundane issues. Whilst it has been argued that some observations do fall into that category yet, the attempt is to focus on the macro picture ignoring the thousands for the millions. Audit has often been labelled as being an impediment in accelerated performance. It is alleged to be blunting initiative. I submit that among the universe of government departments & PSUs liable to the same

audit, a majority have performed extremely well. We have examples of public sector banks, telephone companies, aviation companies and Government

departments in the social sectors who with the same so called draw-backs, have delivered better. They have in fact out-performed private sector agencies. Banks have provided growth, dynamic products and have

successfully led to financial inclusion despite diversities. This would lead one to the inevitable conclusion that citing audit as a stumbling block is indeed an alibi for non-performance. It tantamounts to echoing a bogey. No doubt, government programmes merit expeditious implementation and, Governments procedures are often long drawn and cumbersome. These deserve to be streamlined. But one has to be judicious in cutting corners as core issues cannot be compromised on grounds of expediency.

8.

We are a self-governing people. The Government all its institutions have a shared

including

responsibility in governance. The provisions of public services, the management of common problems and coping with community issues are the shared

responsibility between all agents of governance. The audit objective is to draw the attention of the executive to the loopholes, the lacunae, the acts of omission and the violations of the laid down policy guidelines in the process of implementation. The attempt is to improve the delivery system so that society benefits from better governance, and efficiency and effectiveness of

governmental devolutions are not lost. We provide oversight, over and above the internal accountability system of the executive through its internal audit systems. Once audit observations have been made the Executive has the option of either stonewalling them or

positively viewing them to make mid course corrections by incorporating the same in the agenda of ongoing programmes. In the event of the department choosing to ignore the observations, society at large loses. There is no gainer. The efficiency of public expenditure declines. Competitive edge is lost. In the eventuality of a department or institution actively engaging with audit in exploring the ways and means to incorporate the observations and upgrade its machinery, both the parties bring value to the table and thereby improve the efficiency of the delivery process. In this process, governments credibility and legitimacy improve. 9. I wish to emphasize that while commencing any

specific performance audit, we prepare detailed guidelines. The auditee institution is then sensitized about these guidelines through the process of an Entry conference. Value of audit can be enhanced if

these entry conferences are seriously taken by the auditee institutions. They have the liberty to make observations and provide guidance to audit prior to the process commencing. After completion of the audit and detailed discussions at various levels in the auditee organization, audit prepares its observations. Before these observations are concretized, they are again shared with the auditee institution through the process of an Exit conference. These conferences are expressly scheduled to provide an opportunity to the auditee at its highest executive level, to holistically view the observations. In instances where the concerned senior management of the department has taken these conferences seriously, avoidable observations are

dropped and only those which lead to improvement of the delivery process are included. Unfortunately, only about 50% of these conferences have been scheduled

within the time frame by the auditee departments. In the absence of such discussions severe differences of opinion develop after the Audit Report has been prepared. It is this stage at which I would seek the intervention of all senior functionaries assembled here today to make the exit conference more meaningful. This would serve to be the cornerstone for positive interaction and make the process productive. It would ensure that neither is audit an impediment nor does it detract from the ongoing process. Importantly also, the auditee moves out of a defensive mode and in turn takes audit as a partner in achieving its goal of an efficient, economical and effective programme delivery. 10. In conclusion, I would like to submit that we need

to attempt a positive and participative approach in the audit process. A very close rapport should be

established between the auditor and auditee to

encourage

interaction

without

sacrificing

audit

objectivity, independence and integrity. The auditee should shed the notion that audit is only a fault finder. This would help us in highlighting best practices and disseminate success stories among institutions. We have to outgrow the oft repeated clich of audit being an impediment and transcend to a partnering relationship in the quest for excellence in governance. Audit is no dragon. It is not a drag. It is not even a gun. It is an instrument in the hands of the administrator, awaiting positive application. We need to synergise to create a more credible administration from which people derive confidence. We owe it to the Economy. We owe it to the Country. ----------------------------