State audit in its present from was introduced for the first time in the UK in 1866, thanks to the missionary zeal of the then Finance Minister, writes B. P. Mathur in Government Accountability and Public Audit (email@example.com). The champion of reform was William Ewart Gladstone, who later became the Prime Minister. "He introduced the Exchequer and Audit Department Act which required all departments to produce annual accounts known as Appropriation Accounts, for the first time." The Act established the position of C&AG (Comptroller and Auditor General). The Indian Audit and Accounts Department (IAAD), patterned on the British model, dates back to 1858 "when the East India Company administration was taken over by the British Government and an Auditor General of India, who looked after both audit and accounts functions, was appointed," states a 2001 consultation paper on `Efficacy of public audit system in India' (http://lawmin.nic.in).
Till the 1960s, audit of income-tax was outside the purview of the CAG. "There was initial hesitation in giving this work to audit, as ITOs (income-tax officers) exercise judicial functions while assessing tax cases," chronicles Mathur. Gradually, the audit encompassed excise and sales tax. "The CAG Act, 1971, gives statutory power to audit all revenues of the Union and the State, both tax and non-tax."
Yet, it is not as if all bodies or authorities financed by government grants come under CAG audit. This happens "due to the complex arrangements through which funds are routed to them," writes Mathur in a chapter titled `evasion of audit'. He argues that the principle of democratic accountability demands CAG audit in cases where the government has substantial investment by way of shareholding, though not the majority stake. "In Japan, the Board of Audit can audit a body in which less than half of the capital is invested by the State."
Panchayati Raj institutions are another example of `evasion'. Articles 243J and 243Z of the Constitution state that the State Legislature "may, by law, make provisions with respect to the maintenance of accounts by the Panchayats/Municipalities, and the auditing of such accounts." However, no such law has been framed by any of the States, rues Mathur. In most of the States, the Examiners (Local Funds Accounts), functioning under the Finance Department, audit the accounts. "They have untrained staff and the audit remains in huge arrears. The existing audit arrangements are unsatisfactory."
In comparison, the UK has a separate Audit Commission, constituted in 1982, to audit local government work in health, housing, community safety, fire and rescue services. "The Commission has a staff of 2,500 and audits 11,000 bodies. For carrying on audit, the Commission appoints auditors from its own staff and from professional audit firms, who have to audit as per the Standard Code of Audit Practice laid down by the Commission." There are educative reports on the Commission's site www.audit-commission.gov.uk.
Mathur exhorts officers of the audit department to be inspired by a sense of mission that they are working for a national cause; that they have "a duty to safeguard public money." They should be ready "to confront people in power and pay the price if need be... "