Committee Report

Draft Report of the Standing Committee on Public Accounts on Study Tour to New Delhi, India, dated 24 February 2003

The Committee having sent a delegation of 11 members to India reports as follows:

Background:
A delegation from the Standing Committee on Public Accounts (SCOPA) undertook a study visit to New Delhi, India from 16 to 24 November 2002.

Objectives of the Visit
The purpose of the visit was to meet with the members of the Public Accounts Committee (PAC); the Controller General of Accounts (CGA); the Controller and Auditor General (CAG) of India and senior officials from the two Offices, to share experiences and learn aspects of Public Finance Management and Financial Oversight;
To observe how the Public Accounts Committee (PAC) conducts public hearings and other business;
To investigate support and other resources the PAC receives from its Parliament;
To meet other role players and expects on Public Finance Management and Financial oversight in order to gain more insight in this field.

C. Meetings with Other Role Players
In addition to meetings with government officials and Parliamentarians, the delegation met with the following role players: academics at the National Institute of Financial Management (NIFM); academics at the National Institute of Public Finance and Policy (NIPFP); and academics at the International Center for Information Systems and Audit (ICISA).

The multi-party delegation consisted of:

NNP
Mr. F. Beukman (chairperson of the committee)
ANC
Mr. V.G. Smith
Mr. D.M. Gumede
Mr. B.W. Kannemeyer
Mr. P.A. Gerber
Mr. R. Mofoekeng
Ms. P.K. Mothoagae
Ms. N.L. Hlangwana
DP
Mr. M. Lowe,
IFP
Mr. L. Vezi
UDM
Dr. G.W. Koornhof
SUPPORT STAFF
Mr. L. Pakati (committees)
Ms. B.I. Letompa (Researcher)

Meeting with the High Commissioner of South Africa in India, New Delhi, Ms Maite Nkoana-Mashabane and Deputy High Commissioner, Mr Desmond Nxiweni on 17 November 2002.
The delegation had a brief but informative courtesy meeting with Ms Maite Nkoana-Mashabane and her Deputy, Mr Desmond Monde Nxiweni. After the chairperson of SCOPA had outlined the objectives of the visit, the High Commissioner welcomed the delegation and gave a general briefing about India. Her input covered areas such as: democracy in India, the economy and levels of socio economic development and the nature of party politics. She also provided useful hints about how to conduct business in India.

She referred to India as a country of a billion people, yet very democratic. Its party politics is robust; it is a shining model of democracy and is a country of many opportunities. She mentioned that this is despite abject poverty that engulfs millions of its population. Another positive element about India is that its citizens are very patriotic; they always portray their country in a positive light.

Meeting with the Controller General of Accounts (CGA) and Senior Officials at their Offices in New Delhi: 18 November 2002: chaired by Controller General of Accounts Mrs Usha Sahajpal.
The delegation met with the delegation from the Controller General of Accounts. In her input, she mentioned that the Accounting work of the Government of India is handled by four organizations with distinct identities of their own.
Civil
Defence
Railways
Posts and Telecommunications
The Controller General also gave an overview of the legal provisions governing Public Accounts management in India.

Legal Provisions
Her starting point was the Constitution of India. She mentioned that according to Article 150 of the Constitution ‘The accounts of the Union and the States shall be kept in such form as the President may, on the advice of the Controller and Auditor General of India prescribe’. The Constitution further states that the Account should be divided into Consolidated Fund; Contingency Fund and Public Account.

Consolidated Fund: All expenditure is incurred from the consolidated fund and no amount can be withdrawn from the Fund without authorization from Parliament.
Contingency Fund of India: The fund is placed at the disposal of the President to meet unforeseen expenditure, pending authorization by Parliament. Subsequent to Parliament approval the money is obtained and recouped from the Consolidated Fund.
Public Account: The account contains public moneys such as savings reserve funds, trusts and endowments.

F. Annual Financial Statement (AFS):
Article 112 of the Constitution prescribes that the President tables Annual Financial Statements (AFS) every year in both Houses of Parliament. The Annual Financial Statement must show separately, the expenditure voted and charged upon the Consolidated Fund of India, and distinguish expenditure on revenue account from other expenditure. The Constitution further states that the estimates for Charged Expenditure should not be submitted to the vote of Parliament, but should be submitted in the form of Demand for Grants to the House of the People.

G. Roles and Functions of Controller General of Accounts:
The delegation learned that one of the critical functions of the Controller General of Accounts was the Consolidation of Monthly Accounts and placing them on the Website with complete analysis by the last day of each month as this is a requirement of the IMF.
Another one is the analysis of receipts, revenues and other accounting figures of Government of India
Furthermore, the CGA is expected to report to Parliament every year on the actual expenditure with reference to the budget that was approved by Parliament and the variations between the two together with the reasons for the variations.
The Annual Appropriation Accounts is prepared demand wise. In this sense, it contains a group of functions to be carried out by specific department/ ministry or other administrative authority and takes into account supplementary appropriations, reappropriations and surrenders.
The action taken by the CGA is that of monitoring of the recommendations of the Public Accounts Committee and Audit Reports.

Meeting with Comptroller and Auditor General of India (CAG) and Senior officials in New Delhi on 18 November 2002: chaired by Controller and Auditor General P K Brahma.
As the most important instrument of accountability, the Comptroller and Auditor General of India have a dual role to perform:
Firstly, as an agency to function on behalf of the Legislature;
Secondly, as an agency to function on behalf of the Executive to ensure compliance by subordinate authorities with the rules and orders issued by the CAG.

The Comptroller and Auditor General, as the head of the Indian Audit and Accounts Department, is thus neither a part of the legislature nor the Executive, but is an office created by the Constitution to see to it that diverse authorities, in regard to all financial matters, adhere to the demands of the Constitution, and other laws that govern Public Finance Management. To this end, there are several provisions that are enshrined in the Constitution of India whose aim is to safeguard the Comptroller and Auditor General’s independent functions.

He/She is appointed by the President of India by warrant under his hand and seal and his oath of office requires him/her to uphold the Constitution of India and other laws in his/her area of responsibility. She/He can be removed from the office only on grounds of proven misbehaviour or incapacity after an address by both Houses of Parliament and supported by a vote of two-thirds majority. His/Her administrative powers and the conditions of service of persons serving in the Indian Audit and Accounts Department are prescribed by the rules made by the President only after consulting with the CAG. The expenses of his office are charged upon the Consolidated Fund of India and are not subject to being voted by Parliament.

The role of the Controller General of Public Accounts (CAG) in Regard to Other Government Institutions such as Parastatals.
The CAG has to undertake special audits for the parastatals.

The CAG issues standardized guidelines to Auditors on how to look at certain issues during the auditing process of the parastatals.

The CAG conducts a supplementary audit on all the parastatals after special Chartered Accountants have done the audit.

J. Who Oversees the Controller and Auditor General of Accounts (CAG)?
There is no formal body that oversees the functions of the Auditor General in India.
The Auditor General is regarded as the final authority to oversee the Accounts.
The CAG is fully funded by the government of India. To supplement their income the CAG recovers some of its monies from agencies, which were audited by the CAG’s office.
There is no connection between the Accounts office and the Audit Office. The CAG deals with Separate Accounts and separate Audits separately.

K. General Observations:
Although India is a Federal state, the Constitution provides for a Unitary Audit by the Comptroller and Auditor General, who conduct audits of the accounts of both the Union and the State Governments.

To ensure uniformity in Government accounting, the Constitution also prescribes that the accounts of the Union and of the States should be kept in a form prescribed by the President on the advice of the CAG.

The CAG plays a fiduciary role in federal financial relations. She/He ascertains and certifies the net proceeds of taxes levied and collected by the Union but assigned to the States or distributed between the Union and the States.

The CAG also authorizes the salary and allowances to gazetted officers serving under many State Governments, and authorizes payment of pension and other retirement benefits to employees of most of the State Governments and maintains their Provident Fund Account.

Meeting at the National Institute of Financial Management (NIFM) with Director P K Brahma and Senior Officials: 20 November 2002: Chaired by Director P K Brahma.
The Institute is an autonomous institution under the Ministry of Finance. It provides professional training to public officials. The NIFM has collaborative programmes with the World Bank on Procurement Procedures, and with the International Monetary Fund (IMF) on banking sector reforms.

From the academics at the institute, the delegation learned that the primary objectives of Public Financial Management System in India is to ensure the implementation of budgetary and other policy decisions; to obtain reliable financial and other data relating to execution of budgetary decisions; to prevent improper use of public funds and detect and correct instances of such improper use and to assess the efficiency of operations.

The delegation also learned that the Comptroller and Auditor General in India are regarded as the supreme Audit Institutions according to Article 148 to 151 of the Indian Constitution. They are regarded as a single Audit authority for Union and States. Accordingly, they audit all receipts and expenditures of the Government of India, States and Union Territories including expenditures incurred through voluntary or non-government organizations. Moreover, they audit Government Companies and other Local Self Government Bodies.

The relationship between the Public Accounts Committee (PAC) and the Controller and Auditor General (CAG):
The PAC considers reports of the CAG placed on the table of the Houses of Parliament; and the PAC is empowered to take suo-moto notice of any matter. During the interaction with the Members of the PAC, the delegation noted that:
The role played by the CAG in assisting the PAC has significantly changed over the past years to keep up with the changing demands of the PAC;
For the purpose of assisting the Committee in its examination of the Accounts, the office of the Controller and Auditor General prepares a document outlining important issues the Committee could look at in respect of each audit;
The Controller and the Auditor General are considered as the friend, philosopher and guide of the Committee;
The Controller and Auditor General and their officials attend the sittings of the Committee and by convention, they take their seats by the side of the chairperson;
When scrutinizing expenditure, greater emphasis by the PAC is placed on value for money with regard to economy, efficiency and effectiveness;
The supreme of the audit institution ends once the report has been presented to the house.
After the finalization of the Report copies are made available to the Ministry/Department, who are required to inform parliament Secretariat of the action taken by them on the recommendations contained in the Report within a specific period specified in the Report – six months or less.

N. Challenges Facing the Public Accounts Committee (PAC)
The academics were of the view that the Committee is sometimes unable to devote sufficient amount of time to examine all the reports presented to them;
Each report presented contains a massive amount of complex information, which requires more time;
The Committee is not entirely independent given that the office of the CAG assists it by coming up with recommendations on all the observations highlighted in the Audit Report;
That there is continuous interaction between the office of the CAG and the PAC;

Meeting at the National Institute of Public Finance and Policy (NIPFP) with Professor Om Prakash Mathur and Senior Officials in New Delhi: 21 November 2002: Chaired by Professor Om Prakash Mathur.
The NIPFP is a center for applied research in Public Finance and Public Policy. It was established in 1976 as an autonomous institution. The aim of the NIPFP is to contribute to policy-making in spheres relating to Public Economics. The Institute’s governing body is responsible for providing general policy direction to the Institute. The governing body comprises a Chairman; two representatives of the Ministry of Finance; one representative from each of the Planning Commission; a representative of the Reserve Bank of India; and the Industrial Credit and Investment Corporation of India; three eminent economists and taxation experts and twelve other members representing states governments.

Like most research organizations, the institute undertakes research on matters relating to tax policy and tax administration; public expenditure and control; public debt and its management; intergovernmental fiscal relations; economics and pricing of public and industrial enterprises.

Furthermore, the institute organizes training courses; seminars and workshops and facilitates policy dialogue. The aim is to enhance the understanding of Public Finance and policy.

All the information that is gathered in the process is published in the form of books, research reports, seminar papers and journals. Moreover, and most importantly, the institute assists the Minister of Finance by providing research support.

Views Expressed by the Academics on Challenges facing the Public Accounts Committee (PAC):
One of the concerns raised at the meeting by the academics relate to the fact that revenues in India are always overestimated and budgets underestimated. And this has become a systematic problem in India. One of the reasons for this is that the Income Tax is relatively small. The Gross Domestic Product (GDP) from 1997 has also been relatively small at 17 percent;
Another concern is lack of capacity for Members of Parliament to engage effectively with loads of complex reports;
Another area of growing concern is that all the work that is done by the Public Accounts Committee is seldom debated in the House. On this score, the academics argue that the PAC cannot be seen as a substitute to the House.

They argue that the Committee cannot be seen to be effective if the AG’s Reports on the misuse of funds are dealt with three to five years after the problem has occurred.

They were concerned about the fact that few actions are taken on the misuse of funds and sometimes there is virtually no feedback from departments/Ministers.

The committee has learned new ways to deal with public expenditure and subsidies with particular reference to the analysis of trends and structural shifts and its management and control;
How to deal with Government debt both at the center and state level;
Tax policy and administration, especially in reference to reform in the structure and administration of personal and corporate income tax; customs; excise; sales tax; as well as the impact of tax incentives on particular sectors.

Meeting with the Public Accounts Committee (PAC): at the Indian Parliament: 20 November 2002: Chaired by Hon. Mr Sardar Buta Singh, MP
A. Composition and work methods:
The Public Accounts Committee in India had its historical beginning during the pre-independence days of the British rule. The first Public Accounts Committee was set up in 1921 and it consisted of only 12 members. The committee now consists of 22 members of which 15 are from the Lok Sabha (Upper House) and seven from the Rajya Sabha (Lower House). By its composition, it is Parliament in miniature as the Members of the Committee are elected on the basis of proportional representation of political parties in Parliament.

However, once elected, the members cease to function on party political lines in the committee. The committee through its sustained scrutiny highlights cases involving losses; instances of waste; imprudence and financial irregularities.

When a case of proved negligence is brought to the notice of the committee, the concerned Ministry is called upon to explain as to what action, disciplinary or otherwise, has been initiated to pin-point responsibility and to prevent recurrence. The committee expresses no opinion on points of general policy but it is well within its jurisdiction to point out whether there has been extravagance or waste in carrying out the policy. The well considered the Government always takes recommendations of the Committee seriously and suitable remedial action is taken.

Being a sentinel on public expenditure, it has been the constant endeavour of successive Public Accounts Committees that the money voted by Parliament is disbursed legally for the intended purposes approved by Parliament and in accordance with the rules and regulations framed by competent authority. Indian Parliamentarians have evolved sound accountability procedure so as to see to it that the public money is well spent. The Committee has the proud privilege of eminent leaders adorning the office of Chairman of the PAC including two of the former Prime Ministers. By Convention, the chair of the PAC goes to the leader of the opposition or his or her nominee. The Committees deliberations have been marked by objectivity and fairness culminating in the unanimity of their recommendations.

S. Lessons Learnt:
The PAC, in India has the privilege of having long-term serving Members of Parliament as members of the committee. The advantage of this is that this allows for continuity and the accumulation of valuable experience.
The committee expresses no opinion on issues of general policy but it is well within its jurisdiction to point out whether there has been extravagance or waste in carrying out the policy.
The Government takes the recommendations of the Committee seriously, and suitable remedial action is always taken.
Being a sentinel on public expenditure, it has been the constant endeavour of successive Public Accounts Committees that the money voted by Parliament is disbursed legally for the intended purposes approved by Parliament and in accordance with the rules and regulations framed by competent authority
At the time of the visit by the delegation, the PAC in India was nine years behind with the processing of some of the reports.

Meeting with International Centre for Information Systems and Audit (ICISA): 21 November 2002: chaired by Dr Shri A Prasad
The meeting with ICISA was the last engagement for the delegation in India. The delegation learned that the Controller and Auditor General of India have been active in upgrading the skills of Auditors and Financial Managers, and this is illustrated by the apparent prevalence of training institutions in India. Among others is ICISA. Since 1979, ICISA has been involved in organizing international training programs in different areas of auditing and accounting. The government of India sponsors all its programs.

ICISA does not only cater for students from within India. It attracts students from many countries including: The European Union (EU); former Soviet Union Republics; Korea; China; etc. Most important about the institute is that it provides direct support to the Secretariat and members of the PAC. The government, also, from time to time, requires that ICISA do research and look at specific issues that require research.

U. Challenges Facing the Public Accounts Committee
Again, the challenges facing the PAC were highlighted and reemphasized by the academics of the institute. They argued that the PAC is facing monumental challenges. Every year the Controller and Auditor General present a plethora of reports with massive observations. Among others, they present reports of wide-ranging autonomous bodies with massive loans from government. In most cases, large sums of government money are channeled through these organizations. Yet, members do not have time to scrutinize these reports because they have to divide their time between Parliament and their constituencies. To help the PAC to deal with the challenges, ICISA assist the PAC to simplify the reports and priorities them. They also assist in the drafting of the reports of the Committee.

V. Other observations
India as a democracy faces challenges that are almost similar to South Africa, in terms of both socio economic development and Public Finance Management.

Their Public Accounts Committee is almost similar to the way SCOPA in South Africa is managed, organized and functions.

The activities of the committee are largely apolitical. Members totally divorce party politics from their Committee work.

The Controller of Accounts and the AG are facing serious challenges some of them bordering on undermining their independence. The delegation was told that, at some point the Controller was called by Parliament and reprimanded.
Like South Africa, India is moving from cash to accrual accounting.

W. Recommendations
1. The delegation noted that the Indian Government created a number of Institutions whose aim is not only to conduct research on Public Finance management, but also to conduct training for government officials and other stakeholders. In the public finance field, the Committee recommends that South Africa should also look at effective ways of training its public finance officials; Members of Parliament; the staff and other stakeholders specifically in Public Finance Management and Control. This could go a long way towards enhancing the oversight capacity and expertise of SCOPA members and staff.

2. The delegation noted that some institutions do not only cater for students from within India but they attract students as far as the Eurpean Union; China; Africa; etc. Against this background, the Committee recommends that in South Africa, such training should accommodate other stakeholders in Africa who are involved in Public Accounts Management. This could help to advance the common socio economic development objectives of African countries as captured in Nepad.

3. The delegation noted that the Public Accounts Committee of India is served by long term standing members - Some of them have been serving the Committee for 29 years. As a result there is wealth of experience among the members and continuity in the Committee activities. It also strengthens the collective memory and the use of precedents in the working of the committee. The Committee recommends that the South African Parliament should consider the possibility of appointing SCOPA members for a period of five years (the period of a Parliament) and try to keep redeployments to a minimum. This is critically important to an oversight committee like SCOPA.

4. The delegation noted that there is no effective legislation in India that seeks to promote the objectives of good financial management in order to maximize delivery through the efficient and effective use of public funds in India. The Committee, therefore, believes that the Public Finance Management Act (Act 1 of 1999) in South Africa is one of the correct tools to deal with accountability by Public Finance managers, and sets an example for other jurisdictions.

X. Conclusion
The Committee wishes to express its sincere gratitude to the High Commissioner of South Africa in India; Members of the Public Accounts Committee of India; officials of various government departments, academics and staff from the office of the High Commissioner, who made the visit such a resounding success.

The Committee would also like to thank Mr. Linford Andrews for his special assistance rendered to the committee members, Ms Ava Dowling and Ms Ntombi Madide in assisting with logistics, and the Department of International Development (DFID) for sponsoring part of the visit and assisting in organizing the logistics of the visit.