The Auditor and Policy

And the sharpest form of the objection. The auditor is the most protected officer in this book and, chapter 1370, is chosen by the least regulated procedure in the Constitution. An official who cannot be removed, whose pay cannot be cut and whose budget cannot be refused should not be the judge of what the elected Government ought to have done.

Three: presumptive loss is a comparison of policies. To say that the public lost a sum is to say that a different course would have produced more. The alternative course is a hypothesis, and its yield is an estimate. An audit finding of that kind is not a statement about the accounts but a statement about a road not taken, and its confidence is the confidence of a forecast.

Four: the finding cannot be answered on equal terms. A Minister may reply, chapter 1470's stage three; but the auditor's report is laid before Parliament under article 151 and carries the authority of a constitutional officer, while the reply carries the authority of the party in default. The asymmetry is real.

The case for the auditor

One: propriety audit applies the Government's own standard. Chapter 1450: the canons of financial propriety are in the financial rules made under article 283. The auditor asking whether expenditure was more than the occasion demanded is asking whether the department obeyed its own rules, which is squarely within section 13(a)'s third test, conformity to the authority which governs it.

That answer disposes of question one almost entirely, and a candidate should say so: most of what is called propriety audit is regularity audit against the financial rules.

Two: section 23 commits the scope of audit to him. Chapter 1440: he is authorised to make regulations relating to the scope and extent of audit, including the broad principles in regard to audit of receipts and expenditure, and no approval is required. The Act therefore does not merely permit him to define the scope; it assigns the definition to him and to nobody else.

Three: the Act itself contemplates the method. Chapter 1420: section 16 requires him to satisfy himself that the rules and procedures are designed to secure an effective check on assessment, collection and allocation. That is a judgment about the adequacy of a system, and it is in the Act's own words. A statute that requires him to judge whether a system is well designed cannot be read as forbidding him to judge whether a scheme was well executed.

Four: a report that could say nothing would be useless. Article 151 sends the report to the House. Chapter 1010: the House's need is to know what became of the money it voted. A report confined to whether payments matched sanctions would tell a legislature that a scheme was lawfully executed and never that it failed, which is precisely the information a House needs in order to exercise the control chapter 1140 describes.

Five: and AUSPI supports the wider view of the office. Chapter 1460: "CAG can carry out examination into the economy, efficacy and effectiveness with which the Union of India has used its resources", and the whole reasoning turned on Parliament's entitlement to know, and on the fact that instances are not rare where the Executive acts hand in glove with those dealing with public resources.

Where this book takes its position

On question one, propriety: the objection fails. Most propriety audit is conformity to the financial rules, which is section 13(a) itself; and what is not is a legitimate exercise of section 23, which assigns the scope of audit to the auditor without any approval. An audit that may not ask whether a price was reasonable is not an audit.

On question two, presumptive loss: the objection has force, and the answer is a distinction rather than a defence.

A finding of ACTUAL loss is an audit finding. Money paid for goods not delivered; a rate paid above the contracted rate; a receipt due and not collected. The comparison is with what the transaction itself required.

A finding of NOTIONAL loss computed against an alternative policy is not. What a different method of allocation might have realised is a comparison between the course taken and a course not taken, and the second is a hypothesis whose value nobody can verify.

The distinction that this book proposes, and it is capable of being applied. An auditor may say what was lost against the standard the Government set itself; he should be slow to say what was lost against a standard he sets for it. The first is measurement; the second is preference.

And the honest qualification. The line is not always clean. A scheme may fail wholly because the policy was wrong, and a performance audit that reports the failure without saying why has reported half of what it found. The workable rule is one of expression rather than of jurisdiction: the auditor may report that the objectives were not achieved and why, and should stop short of recommending which policy should have been adopted instead. Reporting the consequence is audit; prescribing the alternative is government.

What both sides agree on

Worth stating, because it narrows the dispute usefully.

Nobody says the auditor may direct anything. Chapter 1010: he cannot disallow, surcharge or punish.

Nobody says his findings bind. They are a report, laid before a House, examined by a Committee.

And nobody says the Government has no answer. Chapter 1470: the draft paragraph goes to the Ministry before it is printed, and the action taken note is a written reply the Committee assesses.

Which reduces the controversy to its real proportions. It is a dispute about what a non-binding report to a legislature may contain, and the ultimate safeguard against an auditor who overreaches is the same as the safeguard against everything else in this paper: the report is public, the Government answers, and the House decides what to make of both.

A worked example

An audit examines the allocation of a scarce public resource by a first come first served method rather than by auction.

Finding one: the fee prescribed was not collected from three allottees. Actual loss, and squarely within section 13(a) and section 16: a receipt payable into the Consolidated Fund was not realised.

Finding two: the allotment rules required a solvency certificate and none was taken. Conformity to the authority which governs it: section 13(a), third test.

Finding three: the price fixed was below the rate the Government's own committee had recommended. Propriety, against the Government's own standard. The department departed from a benchmark it had itself adopted, and the canons of financial propriety require expenditure and forbearance to be justified.

Finding four: had the resource been auctioned, the public would have received a very much larger sum. This is the contested finding. It compares the course taken with a course not taken, and the figure depends on assumptions about what bidders would have offered.

How should the auditor express it? On this book's position: he may report that the method adopted did not secure the value the Government's own committee had identified, which is finding three; he may report that no assessment of comparative yield was made before the method was chosen, which is a finding about process; and he should be slow to certify a figure for what an auction would have realised, because that is a forecast and not a measurement.

The Ministry replies that the choice of method was a policy decision. Correct, and it is an answer to finding four and to nothing else. Findings one, two and three are about law, rules and the Government's own benchmark, and policy is no answer to any of them.

And who decides in the end? Not the auditor and not the Ministry. The report is laid under article 151, the Public Accounts Committee examines the Secretary, the Government furnishes an action taken note, and the House has both.

What beginners get wrong

That propriety audit has no statutory basis. Most of it is conformity to the financial rules, which is section 13(a)'s third test; the rest is section 23.

That the auditor claims a power to decide. He reports. He cannot disallow, surcharge or punish, and his findings do not bind.

That the Government has no opportunity to answer. The draft paragraph goes to the Ministry, and the action taken note is assessed by the Committee.

That the whole of performance audit is contested. Economy and efficiency are barely contested; it is effectiveness, and the quantification of loss against an alternative, that is.

That the controversy is about jurisdiction. It is in substance about expression: what a non-binding report to a legislature may usefully and fairly contain.

Quick revision

Two questions: (1) propriety, may he say a lawful payment was imprudent; (2) presumptive loss, may he quantify what was lost against an alternative course.

Against: s.13(a) prescribes legality only; policy belongs to a Council answerable under art 75(3) and to a House with a policy cut; the auditor is the most protected officer chosen by the least regulated procedure; a notional loss is a comparison of policies; and the asymmetry between a constitutional officer's report and a Ministry's reply is real.

For: propriety audit applies the Government's own canons of financial propriety under the financial rules, which is s.13(a)'s third test; s.23 assigns the scope and extent of audit to him with no approval; s.16 requires him to judge whether a system is designed to secure an effective check; a report that could never say a scheme failed would be useless to the House art 151 sends it to; and the Association of Unified Tele Services Providers decision speaks of examination into the economy, efficacy and effectiveness with which resources were used.

This book's position: on propriety, the objection fails. On presumptive loss, distinguish actual loss, measured against the standard the Government set itself, from notional loss measured against a standard the auditor sets for it; and the workable rule is one of expression: report that the objectives were not achieved and why; do not prescribe the policy that should have been adopted. Reporting the consequence is audit; prescribing the alternative is government.

Common ground: he may direct nothing, his findings do not bind, and the Government answers twice, at the draft stage and in the action taken note.

Test yourself

1. State the case against propriety and performance audit. That section 13(a) of the Act of 1971 defines the audit duty in terms of legality alone, requiring him to ascertain only whether the moneys were legally available for and applicable to the service or purpose to which they were applied and whether the expenditure conformed to the authority governing it, so that a duty framed in those terms is not enlarged by calling something else audit. That policy is committed by the Constitution to institutions that answer for it: article 75(3) makes the Council of Ministers collectively responsible to the House of the People, and the House expresses disapproval of a policy by a policy cut reducing a demand to one rupee. That the auditor is the most protected officer in this book, removable only as a Judge of the Supreme Court, whose pay cannot be reduced and whose budget is charged on the Consolidated Fund, and who is chosen by the least regulated procedure in the Constitution, so that an official so insulated should not be the judge of what an elected Government ought to have done. That a finding of presumptive loss is a comparison between the course taken and a course not taken, and the yield of the alternative is a forecast rather than a measurement. And that the report of a constitutional officer laid before Parliament is answered by a Ministry which is the party in default, an asymmetry that is real.

2. State the case for it. That most of what is called propriety audit is in fact regularity audit, because the canons of financial propriety are contained in the Government's own financial rules made under article 283, so that asking whether expenditure was more than the occasion demanded is asking whether the department obeyed its own rules, which is the third test in section 13(a). That section 23 authorises the Comptroller and Auditor-General to make regulations relating to the scope and extent of audit, including the broad principles in regard to audit of receipts and expenditure, and requires no approval from anyone, so the Act assigns the definition of scope to him. That the Act itself contemplates the method, since section 16 requires him to satisfy himself that the rules and procedures are designed to secure an effective check on the assessment, collection and proper allocation of revenue, which is a judgment on the adequacy of a system. That article 151 sends his report to the House, whose need is to know what became of the money it voted, so a report confined to whether payments matched sanctions would tell a legislature that a scheme was lawfully executed and never that it failed. And that in Association of Unified Tele Services Providers the Supreme Court spoke of his carrying out examination into the economy, efficacy and effectiveness with which the Union has used its resources.

3. What position does this book take? That on propriety the objection fails, because most propriety audit is conformity to the financial rules and so is regularity audit, and what is not is a legitimate exercise of section 23; an audit which may not ask whether a price was reasonable is not an audit. That on presumptive loss the objection has force, and the answer is a distinction rather than a defence: a finding of actual loss, such as money paid for goods not delivered or a receipt due and not collected, is measured against what the transaction itself required and is plainly an audit finding, whereas a notional loss computed against an alternative policy is a comparison with a course not taken whose yield nobody can verify. The proposed rule is that an auditor may say what was lost against the standard the Government set itself, and should be slow to say what was lost against a standard he sets for it, the first being measurement and the second preference. And since a scheme may fail precisely because its policy was wrong, the workable rule is one of expression rather than jurisdiction: he may report that the objectives were not achieved and why, and should stop short of prescribing the policy that ought to have been adopted, reporting the consequence being audit and prescribing the alternative being government.

4. What do both sides accept? Three things, and stating them reduces the controversy to its real proportions. That the Comptroller and Auditor-General may direct nothing: he has no power to disallow an item, to surcharge an officer or to punish anyone. That his findings do not bind: they are a report, laid before a House and examined by a committee. And that the Government is not without an answer, since a draft paragraph is sent to the Ministry for its comments before it is printed, and the action taken note furnished after the Public Accounts Committee reports is a written reply which the Committee itself assesses. What remains in dispute is therefore what a non-binding report to a legislature may properly contain, and the ultimate safeguard against an auditor who overreaches is the same as the safeguard against every institution in this paper: the report is public, the Government answers, and the House has both before it.