Credibility of govt accounting – On Public Account Committees

News: The Public Accounts Committee (PAC) completed a hundred years of existence, and this article discusses ways to improve the PAC’s oversight.

What is the significance of the PAC?

One, it plays a crucial role in scrutinizing the use of government funds. The PAC is a parliamentary committee, and customarily the leader of the largest opposition party in the Lok Sabha is the chairperson.

Two, the Comptroller and Auditor General’s (CAG) reports are submitted to Parliament, which are examined by the PAC.

What are the issues existing with government accounting?

First, both central and state governments use cash flow accounting, while private Indian companies follow accrual-based accounting standards.

Second, there are issues related to the appointment of CAG (article 148). For example, usually serving or recently retired government officer is appointed as CAG, and CAG is repeatedly selected from the Indian Administrative Service rather than from any other service.

Third, CAGs can be influenced to overlook errors, intentional or otherwise. The final appointing authority for the CAG appointment is the prime minister (PM). The selection process of the CAG is driven by the ruling central government, compared to that for the CVC or director, CBI.

Similarly, the dismissal of the CVC requires the recommendation of the Supreme Court, but only a special resolution has to be approved by both houses of Parliament to remove the CAG.

Fourth, PAC members are usually generalists and CAG’s reports require independent expert evaluation in the simplest of terms.

Fifth, Separate sub-committees of the PAC consider expenditures, and their reports are made available on Parliament’s website. However, these reports lack in-depth scrutiny of the government’s accounts.

What are the changes required to improve the PAC’s oversight?

First, the selection panel for the CAG’s office should include the PAC chairperson and the chief justice of the Supreme Court.

Second, there is a need to choose a professional who can present complex audit reports in simple terms. If CAG reports are complex, it becomes difficult for the PAC to go through the details and unjustified government spending go undetected.

Third, the PAC chairperson should have a reasonable understanding of accounting principles and practices.

Fourth, two independent private sector accounting firms can be selected by the PAC to provide analytical comments about CAG reports confidentially to the PAC. It would help in realizing transparency in government spending.

Fifth, huge volumes of funds are allocated repeatedly to recapitalize public sector banks (PSBs). The CAG needs to assess the extent and manner in which taxpayer funds are used to recapitalize PSBs.

Similarly, the implementation of farm loan waivers is also puzzled. The PAC should check if the net present value of the amounts waived added up to more than the announced total amounts.

What is the way forward?

First, the need is to correlate the budget numbers with recent CAG reports or the deliberations of the PAC.

Second, accounting statements of several state governments too, need careful examination by the PAC as they collectively spend more than the central government.

Source: This post is based on the article “Credibility of govt accounting” published in Business Standard on 27^th Jan 2022.