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CAG questions govt’s accounting methods

CAG questions govt’s accounting methods
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First Published: Thu, Oct 30 2008. 12 06 AM IST
Updated: Thu, Oct 30 2008. 12 06 AM IST
New Delhi: As the government’s finances come under greater scrutiny than ever before in the face of a mounting fiscal deficit, its external auditor, the Comptroller and Auditor General (CAG), is asking some uncomfortable questions about the way expenses are being accounted.
Is the government shy of saying exactly how much it spent on the Haj subsidy—the cut in airfare given to Indian pilgrims headed to Mecca? While the ministry of health and family welfare showed details of how it spent amounts as low as Rs3.38 lakh (for urban and family welfare services), why wouldn’t it disclose where it spent Rs208.66 crore?
And, why would the Union government book nearly 99% of its expenditure for certain social services under the head “other expenditure”?
A review of the government’s accounts for fiscal 2006-07 by CAG found that a large number of departments booked between 50% and 100% of their expenditure under a section that is meant to record minor expenditure overruns without explaining where the money went. The accounts for 2007-08 are yet to be released.
According to a CAG official who didn’t want to be named, a random check of the government’s detailed revenue expenditure by minor heads and capital expenditure by major heads showed that in just 16 instances, departments had booked Rs19,129 crore under “other expenditure”, a subhead meant to record so-called sundry expenses.
In the case of the civil aviation ministry, CAG found that a significant portion of the Rs464 crore under “other expenditure” was spent on facilities provided for pilgrims to Mecca in Saudi Arabia.
“When they are booking Rs61 lakh on training and education, why not book this? I had to call the ministry to find out,” said the CAG official.
The questions it has raised, however, are being heard amid concern about the government’s fiscal deficit—a measure of expenditure that is in excess of revenue—and its ability to meet targets laid out by the Fiscal Responsibility and Budget Management Act legislated in 2003 to make government liabilities more transparent.
Most experts Mint spoke to said that while the government followed accounting norms that are significantly different from what is required of private companies, it should be able to open an expense head if it had to instead of shifting spending to a minor subhead.
“In the Companies Act, which governs even public sector firms, there is a clause that says that any expenditure above a certain percentage has to be explained in a separate section,” said Deepankar Sanwalka, an executive director with the India office of audit and consulting firm KPMG. “But government departments follow different rules.”
The Companies Act, which governs corporations in India, has a “materiality clause” under which companies have to disclose details of expenditure exceeding 1% of their total turnover.
The system needs to be reviewed, said M. Govind Rao, a director at the National Institute of Public Finance and Policy and a member of the Prime Minister’s economic advisory council. “Any expenditure incurred on a particular item beyond a particular amount should be put under a (separate) minor head. They need to make that prescription.”
Concerned over the increasing opacity in government accounts, CAG has said it will conduct an in-depth audit.
The CAG official said that while booking huge amounts under “other expenditure” doesn’t necessarily imply wrongdoing, it raises questions about transparency and possible misuse. And it also makes it difficult to monitor and control such spending.
Confirming findings, Vinod Rai, the comptroller and auditor general, said the matter was being probed and that CAG would qualify the accounts of such departments as irregular. “We are getting increasing instances. A lot of departments have started booking a great deal of their expenditure under this head and that’s a cause for worry because there’s no transparency. When there are minor heads for each, why should you be booking under 800?” Rai said, referring to the code for the “other expenses” head.
Rai said this expenditure head was started to accommodate contingencies because it is hard to foresee every small scheme or area where money may be spent. “So, the idea was you may have 5-10% overheads. So, this was seen as an enabling subhead. But it is only to book 5-10%, not 90% expenditure.”
“We will qualify the accounts of that particular department and say that this is irregular. You are committing a travesty of the trust of Parliament by booking (it thus). Parliament gave you a particular head under which the fund was supposed to be devolved, you have to place the expenditure under that head,” Rai said.
The way in which the government presents accounts was last reviewed in 1987 and, in the two decades since, various governments have announced several schemes, each with different financial models. As a result, government accountants often do not know how a particular expense has to be categorized, said a former finance ministry official. “If it is happening across the board, I look at it as a skill and knowledge gap,” added this person who did not want to be named. “If it were just one department, then we could have said that it was a transparency issue.”
A senior bookkeeper for the finance ministry said some of the issues would be corrected in an updated version of the finance accounts that will be presented this year.
“We have done some formatting and some of these issues will be fixed this year,” this person, who, too, did not want to be named, said. “The new format will have footnotes which will give the details of the expenditure.”
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First Published: Thu, Oct 30 2008. 12 06 AM IST