Speech of CAG at Inaugural Function of 150th Anniversary

The Institution of the Comptroller and Auditor General of India has completed 150 years of its existence. Hon’ble President of India Smt. Pratibha Devisingh Patil inaugurated the celebrations of completion of 150 years of this institution by releasing the Commemorative Postage Stamp, here today, at a function in Vigyan Bhavan. Hon’ble Prime Minister Dr. Manmohan Singh released the Vision and Mission Statement of the Indian Audit and Accounts Department (IA&AD) on this occasion. The Finance Minister Shri Pranab Mukherjee, Chairman, Public Accounts Committee, Shri Murli Manohar Joshi and Minister of State, Communications and Information Technology, Shri Gurudas Kamat were also resent on the occasion.

The Comptroller and Auditor General of India, Shri Vinod Rai delivered the welcome address at the inaugural function. Following is the text of his speech:

“It is a matter of great honour for each one of us in the Indian Audit and Accounts Department, to have the opportunity to welcome you to the inaugural function associated with the completion of 150 years of the Institution of the Comptroller and Auditor General of India. It was on 16th November, 1860 that Sir Edmund Drummond took charge as the first Auditor General of India. The importance of such an institution was realized by the then British Government immediately after they assumed power from the East India Company in 1858. This Department is one of the earliest institutions in the evolution of democratic processes in India and set up to bring about transparency, accountability and probity in public life. Our mission is to promote excellence in auditing and governance. Whilst distinctive roles were envisaged for the Legislature, Executive and the Judiciary; to ensure checks democracies worldwide have relied on Supreme Audit Institutions for providing assurance to the Legislature and public at large.

India is a vibrant democracy. With the reforms introduced in the economy and government, our institution also has kept pace in its approach to audit and the methodology of audit. We no longer submit to Parliament Reports which are dated and of limited relevance to the present day administration. We have shed our age old fixation of postmortem to merely extract petty faults in government functioning. Today, we bring to bear a holistic approach focusing on the macro picture. Our attempt is to present the Audit Report at the earliest so that mid course corrections can be undertaken. The mindset is positive so as to make recommendations for improvement. We undertake Performance Audits to provide government an objective and clinical analysis of the efficiency and outcomes of budgetary plan expenditures. We no longer focus merely on audit of government expenditure. Our audit focus is on the outcome of such expenditures.

I am proud that this institution, in about 60 years of its existence post independence, has withstood the test of its independence and objectivity. We have an excellent pool of professionals. We continuously upgrade their skills to keep abreast with international best practices. Our training institutions are highly acknowledged by other Supreme Audit Institutions. We train about 200 foreign Audit Officers every year on different aspects of audit. The institution of the Comptroller and Auditor General of India has, by its professional excellence and pool of knowledgeable experts attained a pride of place in the international audit community. It is in recognition of our skill sets that we have been chosen to audit large international agencies like the Food & Agriculture Organization, World Health Organization, World Food Programe and the United Nations among others.

Within the country, we have been aspiring to partner the Government to improve governance at the Centre and the States. The Government, through every Five Year Plan has improved on the delivery process of its flagship programmes. With the introduction of newer models of implementation such as Public Private Partnership, using Panchayati Raj Institutions for delivering social sector schemes and setting up specialized non-governmental institutions for better public participation, there is a need for us to revisit our legal mandate which did not envisage any such models earlier. It has to be recognized that more than 50% of central plan funds are now being routed through these channels. The Parliament and the Government, have to take a view on whether parliamentary oversight has to be maintained over such spending. It was in this context, and after full discussion with the Government, that we submitted in November last year a revised statute to ensure automatic legal mandate to the CAG on such spending. We await the introduction of the proposed statute in Parliament.

This department is of the firm view that policy formulation is the prerogative of Government. We merely seek to objectively analyse the implementation of those policies and assess the outcomes. We are engaged in this process to build capacity in the Centre and States for transition to Accrual accounting. We have associated ourselves with Government to help in devising efficient delivery programmes. We address systems and processes to ensure optimal utilization of resources. We seek out best practices and disseminate them across departments to partner in upgrading governance.

In conclusion, I am privileged to welcome all our distinguished guests on this occasion. On behalf of each of us in the department and on my own personal behalf, I would like to assure you that we stand committed to support excellence, probity, transparency and accountability.”

Union Audit Reports Scientific Departments (Compliance Audit - Report No. 16 of 2008-09) 2007-2008

Recovery of dues at the instance of Audit:-Inaction on part of National Institute of Oceanography, Goa in recovering rent and electricity charges etc., resulted in accumulation of dues amounting to Rs.47.71 lakh for over 17 years of which Rs.31.53 lakh were recovered at the instance of Audit.
Avoidable expenditure on electricity for staff quarters: Failure of Central Institute of Mining and Fuel Research, Dhanbad to get separate electric connection for its staff quarters despite assurance given by CSIR in July 2003 resulted in avoidable expenditure of Rs.32.70 lakh from August 2003 to March 2008 due to payment of electricity charges at commercial rates for residential staff quarters.
Activities of Institute of Minerals and Materials Technology, Bhubaneswar: Although Institute of Minerals and Materials Technology developed 35 technologies from 27 projects, it failed to transfer and commercialise a single technology. There were shortfalls in achievement of targets for generation of revenue and filing of patents. Project documentation was weak in respect of in-house projects. Intellectual fees and service tax amounting to Rs.29.20 lakh was under-charged in a number of consultancy projects which indicated lack of internal controls. Delays in the range of 6 to 63 months were noticed in installation and commissioning of 26 imported equipment. Management Council did not meet for the mandated number of times and monitoring at higher levels was inadequate.
Development of technologies on batteries/cells and their commercialisation by Central Electro Chemical Research Institute, Karaikudi :Technologies/processes developed under nine disciplines of major R&D programmes could not be transferred to industries due to non-existence of demand from industries and deficiencies in technology developed thus rendering expenditure of Rs.3.72 crore by Central Electro Chemical Research Institute unfruitful.
Activities of Central Glass and Ceramic Research Institute, Kolkata: Central Glass and Ceramic Research Institute (CGCRI) could not reduce its dependence on government grants which continued to remain at 74 per cent. During the period 2003-08, CGCRI transferred six technologies. However, premium and royalty earned by transferring the technologies was not commensurate with the cost of development of these technologies. CGCRI could not achieve the target fixed for publishing research papers. Project management in CGCRI was deficient as a result of which projects objectives remained unachieved in many important projects.

Total report here

SEBI, IRDA flout norms on surplus funds: CAG

New Delhi, Feb. 21 The capital market and insurance sector regulators — Securities and Exchange Board of India (SEBI) and Insurance Regulatory and Development Authority (IRDA) — are flouting Finance Ministry instructions by parking their surplus funds generated through fee charges, penalties, among other things outside the Government accounts.

This has been stated by the Comptroller & Auditor General of India (CAG) in its report on the Union Government accounts for 2007-08. The CAG had in its earlier reports also highlighted that SEBI and IRDA practice on parking of surplus funds were inconsistent with constitutional provisions.

As at end March 2008, sums aggregating to Rs 1,325.49 crore were parked outside the Government accounts. Of the Rs 1,325.49 crore, SEBI’s share stood at Rs 987.95 crore, with the balance Rs 337.54 crore relating to IRDA.

Issuing directions

The CAG report for the Union Government accounts 2007-08 said the Finance Ministry had in January 2005 directed all ministries and departments of the Government to ensure that funds of regulatory bodies are maintained in the Public Account.

“Retention of funds by IRDA and SEBI outside government accounts is not only violative of government instructions, but is also inconsistent with the Constitutional provisions,” the CAG has said.

These bodies have been established by Acts of Parliament and are to be treated as “State” within the meaning of the expression used in Article 12 of the Constitution of India. The monies collected by these bodies, therefore, should be credited to the Government account under Article 266 of the Constitution of India, according to CAG.

While IRDA was specifically directed earlier by the Finance Ministry in July 2002 to deposit its funds in the Public Account, the CAG report noted that no such specific direction has been issued to SEBI despite their continued violation of the Government’s instructions.

The CAG has said the retention of funds by IRDA and SEBI outside government accounts is also not consistent with the accounting procedure followed by other similarly placed independent regulatory bodies such as Telecom Regulatory Authority of India, which are maintaining their accounts as part of the Government accounts.

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Regularity Audit (Compliance)

• Audit against provision of funds to ascertain whether the moneys shown as expenditure in the Accounts were authorised for the purpose for which they were spent.
• Audit against rules and regulation to see that the expenditure incurred was in conformity with the laws, rules and regulations framed to regulate the procedure for expending public money.
  
• Audit of sanctions to expenditure to see that every item of expenditure was done with the approval of the competent authority in the Government for expending the public money.
• Propriety Audit which extends beyond scrutinising the mere formality of expenditure to it wisdom and economy and to bring to light cases of improper expenditure or waste of public money.
• While conducting the audit of receipts of the Central and State Governments, the Comptroller & Auditor General satisfies himself that the rules and procedures ensure that assessment, collection and allocation of revenue are done in accordance with the law and there is no leakage of revenue which legally should come to Government.

Performance Audit on Procurement of Stores and Inventory Control in Department of Space by CAG

Planning for procurement

• Out of a total procurement budget of Rs.8636.18 crore of Departmentof Space (DOS) during 2001-02 to 2006-07, the unutilised budget increased consistently from Rs.83.28 crore in 2002-03 to Rs.438.28 crore in 2006-07. The extent of savings was as high as 30 to 38 percent in some years in certain Centres, indicating serious deficiencies in procurement planning and management.[Para 2.6.1& 2.6.2]
  
• Procurement planning of DOS was deficient as it placed orders on piecemeal indent basis. Assessment of requirement and cost estimations by indentors were inaccurate, leading to large number of indents not resulting in purchase orders and wide variations between indent value and order value. Non-consolidation of similar purchases also resulted in uneconomical purchases and extra expenditure of Rs.93.95 lakh. [Para 2.7.2.1, 2.7.2.2 & 2.7.2.3]
  

Competitiveness in the tendering process

• Procurement practices adopted by DOS did not ensure adequate transparency and competition as 67 per cent of procurements amounting to Rs.996 crore were made on proprietary/ single tender basis. There were instances of proprietary purchases being made for routine items and also in cases where more than one source of supply was available.[Para 2.7.3.1 ]

Fairness and objectivity in the selection process and award of contract

• In violation of codal provisions and CVC guidelines, negotiations were held with other than lowest bidders resulting in placement of irregular purchase orders in eight cases, amounting to Rs.44.58 crore.Non-award of contract to the lowest bidders resulted in extra expenditure of Rs.3.42 crore in two cases.[Para 2.7.4.1]
  
• ISAC awarded contract to a supplier who was not found technically suitable and thus, extended undue favour by awarding contract worth Rs.4.27 crore. In other two procurements, ISAC extended undue favour to the suppliers in award of contract worth Rs.9.99 crore by changing the selection criteria after invitation of bids. Changes in terms of purchase order/contracts in other three cases benefited suppliers to the tune of Rs.1.87 crore. [Para 2.7.4.2, 2.7.4.3 & 2.7.4.4]
  
• Delay and inefficiencies in processing and finalisation of tenders resulted in avoidable additional expenditure of Rs.2.70 crore in two cases due to procurement of stores at higher rates, after expiry of initial validity of offer.[Para 2.7.4.4]
  

Efficiency in Post Contract Management

• There were significant delays in inspection of the stores received.Non-replacement of rejected items at ISAC resulted in unfruitful expenditure of Rs.8.73 crore in five cases. Moreover, non-installation/ delayed installation of equipment in six cases for period ranging from 5 to 60 months at LPSC and ISAC resulted in blocking of funds and idling of equipment worth Rs.12.43 crore.[Para 2.7.5.1 & 2.7.5.2]
  
• Advances in 1177 cases, worth Rs.437.73 crore, paid to foreign and indigenous suppliers were pending for 1 to 15 years and more. No interest was charged on these long pending advances by DOS.[Para 2.7.5.3]
  
• There was lack of monitoring of adjustment of advances and renewal of Bank Guarantees. Non renewal of 147 cases of Bank Guarantees amounting to Rs.83.65 crore may expose the organisation to financial risks in cases where suppliers default in making supplies/executing work orders. [Para 2.7.5.4]
  

Inventory Control

• ISAC did not revise its procurement policy for Bonded Stores since the last decade which resulted in blocking of funds worth Rs.600 crore.[ Para 2.8.1]
  
• There was overstocking in 9055 categories of electronic, electrical, electro-mechanical components (Bonded Stores) worth Rs.75.02 crore, resulting in infructuous expenditure due to obsolescence of items. No physical verification of Bonded Stores was conducted in ISAC after 1995-96.[Para 2.8.2, 2.8.4]

Summary of Recommendations

• To reduce delays, DOS should prescribe appropriate time frame for each stage of procurement viz., indenting, sanction, issue of purchase order, and supply. Such a time frame should be prescribed after taking into account the type of material to be procured and the sources of supply.
• DOS should streamline the system of assessment of requirement by the indentors by maintaining a centralised database of various items, their specifications, status of technology and availability in market, prevailing costs, sources of supplies etc, to ensure accurate projection of requirements and realistic estimation of cost.
  
• DOS should prepare annual procurement plans by consolidating requirements of all the end users in advance to avoid delays, repetitive procurements, maximise value for money by availing quantity discount and enhancing competition. DOS should strictly follow codal provisions in selection and award of contracts by placing orders on the lowest qualified bidder.
  
• To ensure transparency in the procurement process, DOS may consider going in for limited tendering for generic products where more than one supplier is available in the market.
  
• DOS may build up a database of vendors to bring in more competition in the procurement process and reduce proprietary/single tender procurements.
  
• DOS should ensure compliance to the CVC guidelines during evaluation of tenders.
  
• DOS should strictly follow codal provisions in selection and award of contracts by placing orders on the lowest qualified bidder.
  
• DOS should avoid inordinate delays in processing and finalisation of tenders to ensure timely procurement and avoid extra expenditure due to subsequent escalation in price.
  
• DOS should avoid inordinate delays in the placement of purchase orders and ensure strict compliance to the codal provisions for relaxation of terms and conditions of contracts.
  
• DOS should streamline its system of inspection of materials as delayed/non inspection deprived DOS of the opportunity of preferring damage/warranty claims and seeking replacement of rejected items.
  
• DOS should avoid delays in installation/commissioning of equipment by ensuring timely availability of site, infrastructure, etc.
  
• DOS should ensure that advance payments to suppliers are made only in exceptional circumstances subject to payment of interest at appropriate rates.
  
• DOS should make efforts to recover long outstanding advances from the defaulting suppliers.
  
• DOS should closely monitor adjustment of advances and renewal of Bank Guarantees to minimise its financial risk in cases of default on part of the suppliers in meeting their obligations under the contract.
  
• DOS may consider revision of its purchase procedures so as to make it consistent with the provisions of General Financial Rules, 2005.
  
• DOS may review its policy to stock Bonded Stores items on actual need basis and past consumption pattern. The procurement policy drafted in 1995-96 needs be reviewed in the present scenario.
  
• DOS should ensure that physical verification of all types of stores is conducted periodically to reduce inventory cost and make inventory management more efficient.
  
• The items declared as obsolete/ surplus/ un-serviceable should be immediately disposed off to avoid their intrinsic value from diminishing and thus incurring avoidable carrying costs.

Other comments

• Rule 161 of GFR, 2005 emphasises the importance of fixing time frame at different stages of procurement. Such a time frame will also make the concerned purchase officials more alert.
• Planning for procurement involves realistic and timely assessment of requirements, making proper cost estimates, conducting market surveys to identify the possible sources of supply, clubbing similar requirements to avoid repetitive tendering and obtain quantity discounts, selecting appropriate mode of procurement and formulating most suitable strategy to ensure timely availability of goods and services, as per the requirements of end users.
• As the estimated rate is a vital element in establishing the reasonableness of prices, it is important that the same is worked out in a realistic and objective manner on the basis of prevailing market rates, last purchase prices, economic indices for the raw material/ labour, other input costs etc., wherever applicable and assessment done based on intrinsic value.
• Competition is the key element of the procurement policy framework and promotes value for money. Effective competition requires non-discrimination amongst suppliers in procurement and the use of competitive procurement process.
• As per Rule 154 GFR “procurement from a single source may be resorted to only in emergency cases and in cases of availability of the sole supplier for the required goods, with the approval of the competent authority”.
• Good procurement practices offer all interested suppliers a level playing field to compete and thereby, directly expand the purchaser’s options and opportunities. A good procurement process should not only be fair but should be seen to be fair.
• Efficient post contract management includes immediate inspection of stores, their installation and commissioning, taking proactive action for replacement of rejected stores, monitoring of financial transactions to safeguard the interest of the organisation, by ensuring that the securities furnished by the suppliers are kept safely and updated periodically.
• The formulation of appropriate policy and procedures relating to inventory control and management assumes greater significance, especially in the context of the organisations where the level of procurement is very high. An efficient inventory management not only facilitates smooth operations of an organisation, but also optimises the level of inventory, thus, impacting expenditure on stores. This also involves physical verification of inventory on regular intervals which facilitates identification of surplus/obsolete/ unserviceable items and thus, efficient disposal.

Source here

Procedure for generation and utilization of ' Laboratory/ Headquarter Reserve Fund'

Please find here the CSIR OM No 1(11)/Acctt./2000-2001 Dated 4th September 2000 regarding Procedure for generation and utilization of ' Laboratory/ Headquarter Reserve Fund' as this has been quite in demand at the time of Audit & LRF expenditure . And this is also not available at CSIR website.