Ease of Vetting: Digitisation can help streamline govt audits

January 9, 2021 4:20 AM

A digitised approach to audits can provide real-time data to Parliament, civil servants and citizens, which can hold governments at all levels accountable for their actions

Digitisation of audits is certainly not a silver bullet.Digitisation of audits is certainly not a silver bullet.

By Vibhav Mariwala & Prakhar Misra

In the last decade, the Indian government has harnessed technology at large to improve policy outcomes. Digitisation has been tremendously useful in improving the delivery of development schemes and streamlining internal government processes, not without its own controversies. 2021 should seek to learn from prior experience, at the same time, push for greater adoption of technology in governance. One such function, yearning for digitisation, is the audit of government processes.

India has demonstrated well how digitisation can improve key governance functions. The Direct Benefit Transfer has made money transfers worth Rs 8,200 billion to an estimated 900 million people since its inception in 2013. During Covid-19, it has been especially helpful to transfer welfare payments to sustain the livelihood of 160 million beneficiaries. Similarly, the government e-marketplace (GEM) platform has improved public procurement by instituting efficient tenders and ensuring delivery of quality goods. Problems such as corruption, delay in payments and bureaucratic indiscretion have been redressed to some effect, saving an estimated `700 billion of taxpayers’ money. Other processes should see similar digitisation drives.

To this end, the former Comptroller and Auditor General of India (CAG) has called for a Data Accountability and Transparency Act to ensure the digitisation of government spending. Government transactions are difficult to track as the budget line items have different meanings across different states. For example, NREGA funds allocated under different categories across states make such funds hard to track and create problems in audit. Further, spending decisions tend to be made on paper, which are often misplaced or lost. The CAG relies on departments for their accounts, resulting in delays and inaccurate audits. It is estimated that `1 trillion has been stuck in accounts because such funds are hard to trace. Auditing government budgets in India is notoriously hard and impacts policy outcomes directly.

Countries around the world have addressed this problem to some extent. The European Court of Auditors’ designed a platform for virtual exchange of documents securely onto a centralised platform. This allows the ECA to share its findings instantaneously with colleagues to quicken the audits. In the UK, the National Audit Office (NAO) has increased investments in audit technology, such automation software, IT systems and data analytics, 600,000 pounds/year. This move shall increase the efficiency of its audits and is estimated to save 145 million pounds.

The CAG’s current auditing system lacks the ability to assess government transactions, auditing only about 3% of all country reports. Its primary method for assessment is sampling, leaving 97% of all reports unaudited and unaccounted for. These limited audits, compounded with limited oversight from Public Accounts Committees (PAC), further weakens the integrity of the CAG. The scope for corruption increases affecting the delivery of goods and their quality. People of India ultimately suffer the consequences.

The digitisation of audits in a manner similar to GEM can make data readily available to oversight agencies. It can remove variations in accounting practices across levels of governments and between states and the Union. Since all transactions will be digitised, tracking and tracing funds will be far easier, avoiding wastage of funds stuck in accounts that are untraceable. Entities overseeing government spending will not be beholden to government departments leading to a larger proportion of transactions and departments since data will be easily accessible.

Digitisation of audits is certainly not a silver bullet. Experience with the GEM shows that government departments still invite tenders or even circumvent using it because of fear of corruption charges. Similarly, it was projected that annually 7 lakh crore transactions would occur on GEM, instead a mere 32,000 crore transactions have taken place. Clearly, technology alone can’t lead to change. Thus, reforms in institutions and structures will have to be brought about to improve the audit processes as well. For instance, digital audits can help improve access to spending reports, but other institutions such as PAC need to follow up and fulfil their accountability functions to improve audits and public policy outcomes in India. Additionally, the quality of the CAG’s audits is contingent on information sharing between the government ministries and the CAG. If the former thwarts attempts of having all data publicly available or circumvents posting its expenditures on a digitised platform, the quantity and quality of the CAG’s audits will continue to be inadequate.

There would also be concerns of security lapse and privacy issues with such a move. National security guidelines and privacy details could be leaked as the system could be hacked. In case of any welfare beneficiaries, it is possible that inadvertent linking of data can lead to privacy violations. However, it is more likely that non-personal data rather than personal-data will be accessed since the data is related to government transactions and contracts, which reduces the risk of harm that may be caused.

That said, relevant clauses need to be sharpened in the policy document to reduce such errors. The NAO has demonstrated this by developing stringent protocols to ensure that personal data is protected and adheres to standards set out in the General Data Protection Regulation. Data minimisation and time-limited collection lie at the crux of these policies. Similarly, the Income Tax Department’s faceless scrutiny of tax returns can provide a template to ensure anonymity and privacy in audits.

As one of India’s foremost institutions at promoting accountability and transparency, the CAG must be supported in its efforts, across the political and bureaucratic spectrum. A digitised approach to audits can provide real-time data to Parliament, civil servants and citizens, which can hold governments at all levels accountable for their actions.

Mariwala is a senior analyst, IDFC Institute, & is completing a Masters in Anthropology at Stanford University, and Misra is senior associate, IDFC Institute and leads the Data Governance Network.

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