Role of Accountability and Audit in Government

Dr.MCR Human Resource Development InstituteHyderabad

26 October 2012

Need for accountability

What is Accountability?• Philosophy:

– No organ of the State can use the coercive powers of the State without concurrence of others

• Concept:– Broader than accountability institutions, processes or laws– Giving and demanding of reasons for conduct

• Two elements:– Account (information) and – Holding to account (account evaluated, compared against standards,

difference noted and praise or blame meted out.• Two parties:₋ Accounter (subordinate)₋ Accountee (superior)₋ Two way flow:₋ Formal top-down processes (such as elections, hearings, consultations) or ₋ Bottom-up strategies (such as participatory budgeting, social mobilisation, and citizen

monitoring)

Forms of accountability• Political

– Public servant exercising authority on behalf of elected representative accountable to people

• Public– Direct accountability to public, lobby and community– Rapidly growing form of accountability to pressure-groups and

community based organisations• Managerial

– Beyond traditional administrative accountability to new public management

• Professional– Owed to professional associations of public servants

• Personal – Fidelity to internalised moral and ethical values

Our Accountability heritage• Westminster Hierarchical model

• Variety of accountability relationships leading to accountability tensions

• Not only to immediate supervisor but also range of external institutions

People

Parliament

Ministers

Public servant

Horizontal Accountability Institutions

Accountability Pyramid

Legislative Accountability Lifecycle

Budget

Sanction

Expenditure

Accounts

Audit

Legislative review

Accounts and Accountability

• Holds bureaucrat in check and clinch responsiveness• Lays down what is to be done, resources to be used• Monitoring operations individually and in aggregate• Freezes decisions of the past and provides audit trail• Buffer organisation from political compulsions• Record of organizational choices and activities

Evolution of Public Auditing• Magna Carta 1215 AD• Commercial origins

– Separation of ownership and management– Owner’s confidence that the manager is acting to maximise

interest of the owner• Technical competence• Personal consumption of owner’s wealth

• Public Audit in India– Government of India Act 1935– Indian Audit & Accounts Order 1936– Constitution of India Articles 148 to 151– CAG’s Duties, Powers & Conditions of Service Act 1971

Objectives of Government auditing • Part of horizontal accountability system• Objectives of public audit

– Provide objective assessment of financial activities and financial position of Government

– Provide assessment of due observance of laws, rules and procedures and financial propriety in functioning of Government

– Provide assessment of achievement of economy, efficiency and effectiveness in implementation of government activities

• Method of achieving objectives– Financial attest audit– Audit against provision of funds– Audit against rules and orders– Audit against sanctions to expenditure– Audit against propriety

Evolution of Financial Attest Audit• Audit a dynamic process and scope

changes with time.

Detect errors

1896

1919

1929

1948

1969

Detect fraud

Audit of P&L

A/C

Report true &

Fair view

Report on view of A/C and Statement

Evolution of Public Audit• Focus changes with societal concerns

Compliance with

appropriation

1860

1936

1950

1990Compliance with rules

Achievement of three Es

Assessment of impact

Auditing powers of C&AG of India• Audit of expenditure from and receipts into

consolidated/contingency fund and Public Account of Union/States– Beyond formality to wisdom, faithfulness and economy in

expenditure– Canons of financial propriety

• Man of ordinary prudence• Not more than what occasion demands• No order to own advantage• Public expenditure not for benefit of a particular individual or community• Allowances are not a source of profit

• Audit of autonomous bodies• Audit of corporate undertakings

– Indian Companies Act 1956

Audit Principle

• Audit is an assurance processAudit Criteria What should

beAudit Evidence What isAudit Finding Deviation

• Audit to follow standards– Auditing standards of C&AG of India– International Standards of Supreme Audit

Institutions

Audit Process

Audit Planning

Audit Execution

Audit Reporting

Audit Monitoring

Audit Process

Audit enquiry

Inspection report

Draft Paragraph

Report of CAG of India

Report of PAC/COPU

Audit procedures• Compliance testing

– Evaluation of internal controls to locate deviations from control procedures

• Analytical review– Comparison involving single component– Comparison across components

• System analysis• Predictive analysis• Regressive analysis• Business analysis

• Direct substantive testing– Tests of transactions and balances to provide evidence as to

completeness, accuracy and validity of information

Kinds of audits

• Pre audit & Post Audit• Internal audit & External audit• Central audit & Field audit• Finance attestation audit, Compliance audit &

Performance audit• IT audit, Environmental audit, Social audit

Modern trends in accountability process• Impact of democratization of governance

– Transition from representative-raj to people’s-raj leading to direct democracy

– Demands from Right to Information Act and its restraining effect– In audit arena increasing demands for social audit

• Influence of decentralization of governance– Localising accountability– Inverse relationship of decentralisation and corruption– Disrupting accountability bonds between three tiers of government

and societies

Modern trends in accountability process

• Expectations for shifting focus of governance and audit from:– Process to productivity– Transactional accountability to transformational

accountability– Administrative to market accountability

Issues in accountability• Need to change language of accounts and audit– Need for changing language of accounts with changing

focus of governance resulting from changing conceptions of the state with need for accounting aims, actions and achievements

Function of Audit & Accounts Language of Audit & Accounts

Financial probity Traditional accounting language

Performance accountability Language of Output

Program accountability Language of objectives

Policy accountability Eclectic language

Issues in accountability• Overdose of accountability institutions?

– Too much analysis leading to paralysis?– Compliance cost consciousness?

• Emerging expectations of accountability for Private sector entities providing public service– Transition from economic accountability to social

accountability?• Complexity of governance and accountability norms

– Need for new supports for existing bonds of accountability?• Accountability of Accountability Institution

– Who audits the auditor?

Way forward to ensure accountability through audit

• Change of mindset:– From adversary to partner– From Hindsight to oversight and insight– From being reactive to being proactive– From emphasis on letter to spirit

• Need to chase the Rupee across multiple entities to assess outcome

• Modernising standard auditing operational procedures to rely on technology and to take care of sunrise areas of audit

• Mandate on audit of policies

Thanks!