Concurrent audit to be a must for govt purchases

Written by Rishi Raj | New Delhi | Updated: Feb 7 2011, 09:15am hrs
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In an effort to avoid scams like those associated with 2G spectrum and Commonwealth Games, the government is planning to make concurrent audit mandatory for procurements by all departments.

The move shows that the UPA establishment is acutely aware that it can no more withstand big corruption cases. Currently, only defence department purchases go through a rigorous ex-ante/concurrent audit while those by other wings of the central government are subject only to ex post facto checks including the statutory audit by the Comptroller and Auditor General.

Government procurements at the central, state and local levels account for 25-30% of the countrys GDP, with the Centre accounting for bulk of this amount. The huge jump in revenue in recent years coupled with the expansionary fiscal stance that followed the global economic crisis has led to an over 60% increase in central government expenditure in the last five years to over Rs 11 lakh crore budgeted for this fiscal. Defence budget in 2010-11 is estimated at close to Rs 1.5 lakh crore.

Since the defence ministry deals with major procurements, the concurrent audit system is being followed there to assess revenue loss/gain due to each order. The same policy would now be implemented by other ministries as well, an official familiar with the matter told FE.

Last week, Prime Minister Manmohan Singh lamented that the high incidence of corruption strikes at the root of governance and impedes faster economic growth. He urged the states to take on corruption frontally, boldly and quickly. The new audit policy on government procurement being planned is obviously a move to set an example for the states.

Sources say it is not difficult to implement the system as all major ministries have an internal audit wing led by a deputy director who is a CAG representative. However, barring the defence ministry other ministries do not follow the practice of concurrent audit effectively. Under the new system, audit officers would be more explicit in providing the scenario of losses to the ministers who plan to award huge contracts. For instance, if a ministry is awarding contracts worth crores of rupees and the internal audit wing feels that proper methodology is not being followed and the award could lead to a substantial loss to the exchequer, it would clearly highlight the dangers and send them to the minister and secretary concerned. This would be done at each step so that the government is not stumped when later the CAG comes up with a number which is astronomical.

Sources said it is felt that the system of concurrent audit will help in checking wayward ministers who press ahead with their methodologies to award contracts without properly assessing the revenue implications. However, this would in no way curb the powers of the CAG. The CAG audit will continue as usual, the official said. For instance, in future if DoT wishes to grant licences to new firms as was done in 2008, the concurrent audit would simultaneously work out the revenue loss/gain from it and inform the minister. Though Raja had faced objections from ministries like law and finance to awarding licences in 2008 at 2001 rates, there was no revenue loss figure worked out by the audit department. Had that been done maybe the government would have been better placed to intervene, officials said. It was only when the CAG in November 2010 came out with figures of revenue loss ranging between Rs 57,000 crore and Rs 1.76 lakh crore that the government was jolted and Raja had to resign.

However, theres a flip side to the concurrent audit also. It may generally slow down decision-making in award of contracts in public sector undertakings, which may place them at a disadvantage in sectors where they are competing with the private sector.