Last week, the defence ministry brought in an important policy change that got little public attention. Through an order issued on July 15, it widened the scope of the Controller General of Defence Accounts (CGDA)’s role to include performance and efficiency audits of the activities undertaken by the defence services and organisations under itself as well.
So far, the CGDA had the mandate of conducting internal audits on compliance to various rules and regulations.
As per the government, a performance and efficiency audit will provide critical inputs to the top management of the defence ministry on shortcomings noted in “planning and execution of projects”, and suggest “systemic improvements in internal controls, soundness of financial procedures, identification of risk factors”, among other things.
What makes the move critical and also timely is the huge delegation of financial powers to competent financial authorities at all levels — service headquarters to lower field formations — both on the revenue and the capital side in the last eight years.
Among other things, this has led to multiple procurements of defence platforms and equipment as well as spares to keep them running and initiated new projects through the usual procurement route and under emergency powers as well.
Government officials tell me a need was thus felt to seek assurances over the utilization of such powers to meet the stated objectives. They say a relook on these procedures was needed, so that systemic improvements could be suggested, such as shortening the procurement cycle, outsourcing in non- core areas, among others.
This is what gave way to the decision to upgrade its internal audits and set up a system to mitigate risks with respect to the various activities undertaken by the defence services and organisations under the defence ministry—covering defence procurements, provisioning, logistics, inventory levels, maintenance of platforms and assets, to name a few.
Applicable in any project, risks mentioned here could include project delays, cost overruns, poor quality standards, misappropriation of funds, and failure of sellers to provide services to a few, to name some.
As part of the move, an apex panel was constituted with the defence secretary as its chairman with vice chiefs of the three services, secretary defence (finance), chief of integrated staff committee (CISC), director general (acquisition), CGDA and other senior officials of the Defence Research and Development Organisation (DRDO) and the ministry of defence as members.
As per the government, the panel will identify specific areas for the conduct of CGDA audits, monitor performance audit reports and actions taken on them. It will also advise the defence minister on corrective measures to be taken and ways to strengthen the internal oversight and risk management framework.
What prompted this order?
While the defence ministry has been working on this move for the last few months, the idea first came from a recommendation of the Arun Singh committee on defence expenditure set up in 1990. The committee had recommended that the CGDA should conduct performance and efficiency audits. The recommendations made by several expert committees over the years are being reviewed by the defence establishment, to implement those relevant today.
Additionally, a 2006 finance ministry order on the Scheme of Integrated Financial Advisor (IFA) had also stated that the internal audit wings working under the Controller of Accounts should be assisting the financial advisors in the appraisal, monitoring, and evaluation of individual schemes, aside from the regular compliance or regulatory audits.
There are instances galore where CAG reports have criticised the inefficient scaling process carried out by the armed forces and excess procurements of defence platforms, equipment or spares, after audits found they were either unnecessary or have been hardly utilised.
A stronger, all-rounded internal oversight mechanism may bring down such instances.
At the same time, many may also argue about the need for this additional CGDA oversight when the Comptroller and Auditor General of India is already entrusted with the job of carrying out external audits on all government bodies and the jobs performed by them.
However, it is pertinent to note that CAG audits are on a specific sample size and are more generic in nature. CGDA, on the other hand, might be able to carry out a more detailed audit on matters of defence.
The catch
The catch here is the humongous challenge that lies before the CGDA in meeting its expanded mandate.
Carrying out an outcome-based performance or efficiency audit will be a paradigm shift for the CGDA from its existing mandate of conducting transaction-based compliance audit.
The organisation may first need to ramp up its manpower. Towards this, the CGDA may look at reorienting its finance officials who have been freed up with the dissolution of the Ordnance Factory Board last year and create a specialised stream of internal auditors.
Additionally, the organisation may have to change its traditional approach and undertake specialised training for officials to equip them with the knowledge and enhance their capability required to perform the new role. The organisation will also need to standardise a process for carrying out the audits.
Performing the audits within specific timelines may turn out to be another challenge. With the new mandate, there would be expectations of faster delivery so that there is less flak from the CAG on any defence matter.
The CGDA will have much on its plate to finish before it dives into its new mandate.
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