By Amit Cowshish
The Ministry of Defence (MoD) took a significant step last month to bolster the ‘Overall Internal Oversight and Risk Management Framework’ by tasking the Controller General of Defence Accounts (CGDA) with the responsibility of carrying out outcome-based ‘Performance/Efficiency Audit’ of various functions and activities performed at different echelons in the defence establishment.
The new mandate covers wide-ranging subjects like utilisation of weapon systems and other assets, prioritisation of procurement, assessment of optimum inventory levels, recovery of the government dues, and IT systems for handling logistics, inventory management, and tendering. The mandate also extends to a critical ‘review of the role, business process and performance of various organisations handling provisioning, indenting, procurement, tendering inspection, quality assessment, contract management, inventory, financial planning and budget, and processing of bills’.
It is not immediately clear whether this vast mandate is to be counterbalanced by reducing the scope of the transaction-based compliance audit – also called ‘local’ or ‘internal’ audit- which the Defence Accounts Department (DAD), headed by the CGDA, carries out through a large network of Local Audit Officers (LAOs). This internal audit is very extensive, unlike the statutory audit parallelly conducted by the Comptroller and Auditor General of India based on a smaller sample of transactions.
The Defence Accounts Department is one of the oldest institutions, tracing its origins back to the mid-eighteenth century when the first Military Pay Master was appointed by the East India Company in 1750 for handling finances of the Garrison at Fort Williams. In its present avatar, DAD is responsible for making personal and contractual payments, maintaining the accounts, rendering financial advice to the authorities from the MoD down to the lowest echelons in the armed forces which exercise financial powers, and of course, multifaceted ‘local audit’ of the defence establishments.
Over the years, local audits have been reduced to routine scrutiny of individual transactions relating to cash and stores carried out at the unit level and detecting aberrations vis-à-vis the rules which govern those transactions. A half-yearly report generated by the DAD based on internal audit findings received little attention in the Services Headquarters and the Ministry of Defence, not least because the findings were largely mundane.
Efforts by theDefence Accounts Department to conduct Performance Audit with a view to highlighting systemic lacunae did not receive much support from the auditees, especially at the Service Headquarters and MoD who often argued that a ‘subordinate’ office of the MoD had no business to audit the functioning of the ‘higher’ echelons.
The notification issued by the MoD on July 14 removes this impediment which, at times, was faced by the audit teams conducting performance audit even at the lower echelons. The notification clearly stipulates that the audit teams conducting Performance/Efficiency (P&E) audit ‘will have unfettered access to information, documents and files during the discharge of their internal Audit responsibilities’.
To identify the specific areas for P&E Audit and make sure that the audit findings receive due attention and corrective action is taken by the authorities concerned, MoD has also constituted an Apex Committee on Performance & Efficiency Audit (ACPEA) under the Defence Secretary. Other members include the Secretary (Defence Finance), Vice-chiefs of the three services, CISC, CGDA, DG (Acquisition), Additional Secretaries of the Departments of Defence and Military Affairs, and DG (R&M) of the Defence Research Development Organisation. The Additional CGDA will be the member secretary of the committee.
Intriguingly, important organisations like the Border Roads and Coast Guard are not represented in the committee.
With the MoD clearing the decks for P&E audit by the DAD, the department’s responsibilities have suddenly increased exponentially. As a part of the new mandate, it will have to examine whether the programmes, systems, activities, and organisations are performing according to the pre-assigned roles and objectives. It will also have to assess the reliability of the internal control mechanisms, identify risk factors, and suggest systemic improvements.
This humongous responsibility calls for a very deep understanding of the ethos and functioning of the auditee organisations, the ability to segregate systemic lacunae from the mundane procedural aberrations, knowledge of the global best practices from which lessons could be learnt, and the ability to suggest pragmatic remedies for addressing the systemic lacunae or improving efficiency.
With its deep and all-pervasive participation in financial management at all echelons of defence establishments, DAD is undoubtedly best suited for the job. However, it will be a mistake to assume that it can hit the ground running. The new job would require many structural, administrative, and attitudinal changes.
The LAOs, who carry out routine local audit cannot be tasked with the new responsibility also as the nature of the audit they conduct is totally different from the P&E audit. Keeping this difference in view, dedicated teams of middle or senior-level officers of the Indian Defence Accounts Service (IDAS) with the requisite aptitude for audit will have to be raised.
Depending on whether the P&E audit is to be conducted simultaneously at various echelons, DAD will also have to figure out whether to create a multi-layered structure of P&E auditors or it will be sufficient to raise a few peripatetic teams at its headquarters in New Delhi and depute them to wherever the audit is to be conducted.
Under the present dispensation, IDAS officers’ involvement in the audit function is very limited. However, there cannot be any meaningful P&E audit without their personal involvement, as this is an entirely officer-oriented task. It will require an attitudinal change on their part, as well as on the part of the auditee organisations. There is presently no love lost between the two. Winning mutual trust would be a big challenge.
Carefully crafted protocols and Standard Operating Procedures that, among other things, mandate defining of the scope of audit before its commencement and discussion with the auditee organisation on the findings before the audit report is submitted to ACPEA will be the key to developing that trust.
The trickiest part will, however, be to make practical recommendations for plugging systemic loopholes and improving the functioning of the organisations. It calls for not only very extensive domain knowledge that can be acquired only by transcending the immediate call of duty, but also the ability to figure out what prescriptions can work in the Indian context.
The author is a Former Financial Advisor (Acquisition), Ministry of Defence.
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