Financial Management

Answer : The Parliamentary Departmental Committees (PDC), over the years, have been emerged as the chief instrument for analyzing the demands for grants.

The POCs were created to exercise control over the executive, particularly financial control. Each committee consists of 45 members 30 from Lok Sabha and 15 from Rajya Sabha. The term for office of each committee is one year.

For analyzing the demands for grants, the PDC follows a certain procedure. After general discussion, the house is adjourned for a fixed period. The POC then considers the demands for grants for concerned ministries during the aforesaid period. The committees make their report for the aforesaid period which is considered by the House while analysing the demands for grants for concerned ministries.

Therefore, the report prepared by the PDCs acts as a mirror before house to analyse the demands for each ministry. If further helps in analyzing the performance of each ministry in the light of report of the PDC. The situation gets easier as the PDC prepares separate report for each ministry. At last, the PDCs are plying their role exceptionally well, by helping both the house and the ministries in getting demands for grants.

Answer : In any democracy it becomes imperative for the parliament to check whether the executive is spending the funds in a responsible, efficient and prudent way. The purpose is served by the Audit, which shows the inadequacies if any in spending the money. Thus it is one of the most important ingredients of democracy.

The primary purpose of audit is to ensure that the money has been applied to the purpose for which the grants made by the parliaments were intended to provide and that the expenditure conforms to the authority which governs it. The audit thus performed becomes an important instrument in the control of public expenditure, for it is this instrument which makes the expenditure accountable.

It has a dual role to play. First, it checks the extent of application by government servants, of rules and regulations issued on behalf of administration and secondly, it ensures, on behalf of the legislature, that the actions of the government have been in accordance with the views and requirements of the legislature.

Though audit is not directly responsible for ensuring economy in governmental expenditure through its working and through the submission of its annual audit reports, it brings to bear rational financial criticism based on the accounts and a subtle influence on the process of incurring expenditure and, after it has been incurred, by bringing to notice the wastefulness in public expenditure. The staff of the audit department is always vigilant to detect in accuracies and errors in accounts.

Thus, the purpose of audit is to offer ‘financial criticism’ and its value lies in its reports pointing out the impropriety or irregularity. In this way it serves as a vital functionary for democracy along with judiciary, executive and legislature.

Answer : Public Accounts Committee is said that its control is like post-mortem type i.e. it examines the accounts when the expenditure has already been incurred and the waste and misuse of the powers, if any, have been made by the executive authorities. But this does not mean that the recommendations of the committee are not futile.

Thus, the general charges levelled against the committee is that its work is only post-mortem. It is true that committee’s work is only post mortem. It is true that committee makes post-mortem examination of accounts, its enquiry is old by the time it looks at the problems arising out of the expenditure. But this type of control produces deterrent effect for the future. If the administration is aware that some day some parliamentary committee would sit in judgement on its activities, it shall be more meticulous than otherwise it would be. Again the committee itself pursue its recommendations, visits the spots, checks the department at fault and tells in the face of the officials its reactions. Therefore, the probe of the PAC cannot be dismissed as useless.

Answer : In case of governmental activities, audit acts as a watchdog of the nation’s financial interests. The administrative structure of the state is so vast and its operation so complex. That it is impossible for an ordinary tax payer to know that the money contributed by him/her to the running of the state is being misused. Audit helps to highlight losses, waste and under-utilisation of capacity due to improper decisions at the appropriate levels.

Constitutional Mandate of CAG

Article 148 broadly deals with the CAG’s appointment, oath and conditions of service.

Article 149 deals with duties and powers of the Comptroller and Auditor General of India.

Article 150 says that the accounts of the Union and of the States shall be kept in such form as the President may, on the advice of the CAG, prescribe.

Article 151 says that the reports of the Comptroller and Auditor General of India relating to the accounts of the Union shall be submitted to the President, who shall cause them to be laid before each House of Parliament.

Article 279 – Calculation of "net proceeds" is ascertained and certified by the Comptroller and Auditor General of India, whose certificate is final.

Third Schedule – Section IV of the Third Schedule of the Constitution of India prescribes the form of oath or affirmation to be made by the Judges of the Supreme Court and the Comptroller and Auditor General of India at the time of assumption of office.

According to Sixth Schedule the accounts of the District Council or Regional Council should be kept in such form as CAG, with the approval of the President, may prescribe. In addition, these bodies’ accounts are audited in such manner as CAG may think fit, and the reports relating to such accounts shall be submitted to the Governor who shall cause them to be laid before the Council.

The broad aim at the audit is to safeguard the financial interests of the taxpayer and to assist the parliament in exercising financial control over the executive. It is the function of the Comptroller and Auditor General to ensure that the various authorities set up by or under the constitution, act in regard to all financial matters, in accordance with the constitution and the laws of parliament and appropriate legislature and rules and orders issued thereunder. The real duty at the CAG is that of an auditor. The primary audit function is to verify the accuracy and completeness of accounts; to secure that all financial transaction viz., receipts and payments are properly recorded in the accounts, correctly classified and that all expenditure and disbursements are authorized and vouched and that all sums due are recorded regularly in accordance with the demands and brought into account. He/she acts as a watchdog to see that the various authorities under the constitution, function in regard to financial matters, in accordance with the constitution and the laws of parliament and appropriate legislature and rules and orders issued thereunder.

In connection with the discharge of the auditorial duties, the Comptroller and Auditor General can inspect any office accounts under the control of the union or a state, including treasuries and offices responsible for keeping initial or subsidiary accounts.

Thus, auditing is a tool, which safeguards the public money and brings efficiency in financial administration.

Answer : The Estimate Committee is an instrument of parliament set up with the primary aim of scrutinizing the estimates included in the budget and to make positive suggestion to introduce economy in govt. expenditure. Within this broad objective, the function of the Estimates Committee are to report what economies and improvements in organizational efficiency or administrative reforms, consistent with the policy underlying the estimate may be affected., to suggest alternative policies in order to promote further efficiency and economy in administration, to examine whether the money is well laid out within the limits of the policy implied in the estimates and to suggest the form in which the estimate shall be presented to the parliament.

At the beginning of each financial year and soon after the constitution of a new committee, all its members meet. The rules of the Estimates Committee prescribe an elaborate form in which the ministries are expected to furnish the material in support of the estimates. These relate to the organisation of the ministry, function and volume of work of the ministry and its attached offices, the broad details on which the estimates are based, schemes or projects undertaken, actual expenditure incurred under each subhead of estimates during the preceding three years, reasons for variations, if any between the actual expenditure of the past years and the current estimates and report, if any, issued by the department or ministry concerned.

Answer : Parliamentary question is a powerful technique of parliamentary surveilliance over the administration practiced in all the countries having representative parliamentary democracy. In this system, the government is answerable for all its acts of omission and commission to the parliament and through the parliament to the people. This answerability or accountability of the administration is exercised at two levels.

The House exercises this power collectively by itself and through its committees.

The questions are directed towards the proper implementation of the national and internationals policies as declared by the government and approved by the parliament. They relate to the whole range of diverse subjects and almost all aspects of administration therefore come under their scrutiny.

Question Hour forms the most interesting part of parliamentary proceedings. No other business evokes as much interest among the public, the press and the members themselves as the question hour. There are different types of question such as starred questions, unstarred question, short notice question.

Answer : Comptroller and Auditor General is a unique position in Indian constitution, which acts as a watchdog over public expenditure. He is the one single authority on whom vest the combined responsibility to safeguard public money through examination of accounts of government receipts and expenditure.

The Comptroller and Auditor General is responsible for auditing all expenditure from the revenues of the central or state governments. In its report, CAG satisfies himself about faithfulness, economy and wisdom of expenditure. He also ascertains whether money was legally available and spent by authorized agency. So he a watch dog against waste.

Despite such a broad scope the fact remains that his duties in regard to audit of receipts are limited The receipts from income tax, wealth tax, expenditure tax, estate duty etc. are excluded from scope of his duty. It is a happy augury that the income tax receipts are now being progressively brought under his purview. CAG as a comptroller is to control the exchequer and all expenses of the govt. But CAG has no such control over the issue of money from the consolidated fund. Many departments are authorized to draw money by issuing cheques, without specific authority from Comptroller and Auditor General, who is concerned only at the audit stage when expenditure has taken place.

The constitution undoubtedly, ensures that the grants voted and appropriations made by parliament are not exceed, but no action has so far been taken to introduce the system of exchequer control over the issue.

Answer : Control over public expenditure is an essential feature of accountable and responsible financial administration. It is imperative that the expenditure made from public funds be prudently made, no waste of resources occur, the money is not misappropriated, grants are made hastily. The public is not put under increased financial burden and, for the money spent adequate results are obtained.

In India, control over public expenditure is exercised through:

1. The Parliament;
2. The Comptroller and Auditor General; and,
3. The Finance Ministry.

The Parliament is the custodian of public money, and what better way to keep an eye on the authorities spending the money through the representatives of the public therein Parliament. The methods adopted by the Parliament for controlling expenditure may be broadly classified into two categories:

1. Built in techniques in Parliamentary Procedure, and
2. Committees appointed by the Parliament.

Under the in Built-techniques of Parliament, Parliament exercises financial control through, question asked in Parliament, through various resolutions, motions, and adjournment motion and finally debates and discussions take place on the floor of the house while passing Budgetary Proposals.

Now, the Second Parliamentary Control is exercised through the various committees of Parliament like :

1. Public Accounts Committee;
2. Estimates Committee;
3. Committee on Public Undertakings;
4. Standing Committees;

Public Accounts Committee: The main function of PAC is to examine the report of the Comptroller and Auditor General of India (CAG), which is laid before the Lok Sabha through the President. The Committee scrutinizes the audited accounts with the assistance of the CAG. It is also free to appoint the sub-committees and study groups to examine the accounts of government departments and other organizations.

The Estimates Committee: The estimates committee is an instrument of Parliament set up with the primary aim of scrutinizing the estimates included in the budget and to make positive suggestions to introduce the economy in government expenditure. Within the broad objectives, the functions of the estimates committee are:

1. To report what economies and improvements in organizational efficiency or administrative reforms, consistent with the policy underlying the estimates may be affected.
2. To suggest alternative policies in order to promote further efficiency and economy in administration.
3. To suggest the form in which the estimates shall be presented to the parliament.

Committee on Public Undertakings: This committee is entrusted with functions:

1. To examine the report and accounts of Public Undertakings specified in the schedule.
2. To examine the reports, if any of the CAG on the Public Undertakings falling within the scope of the committee.
3. To examine whether the affairs of Public Undertakings are being managed in accordance with sound business principles and prudential commercial practices in tune with requirements of autonomy and efficiency.

The most important mechanism of financial administration is to control public expenditure through the constitutional agency CAG which have been given constitutional authority to audit accounts of various departments and authorities of both central and state.

The major functions of CAG are as follows:

1. To prescribe, with approval of the President, the form in which the accounts of the Union and the states are to be kept.
2. To perform such duties and exercise such powers in relation to accounts of the Union and the states and of any other bodies or authority, as may be prescribed by any law made by the Parliament.
3. To report to the President or to the Governors of the states on the accounts of the Union or states.

Answer : The duty of auditor whether it is CAG or Professional auditor is to see that all the transactions of an organization or documents papers and accounts are drawn according to prescribed rules and regulation to which such organizational unit is subject to and all other statutory obligation has been complied while transacting any business. So, the audit conducted by CAG or Professional auditor is in the nature of Post Mortem, that is, it is conducted after the transaction or events takes place, now the statutory duty of any Professional auditor stops here.

But the Comptroller and Auditor General goes a step further and look into the wisdom, faithfulness and economy of transactions and events incurred, which is termed as propriety audit. And it is this propriety audit which distinguishes audit made by CAG and audit made by other professional auditor.

Answer : Government budgeting is one of the major processes by which the use of public resources is planned and controlled for public good. To the extent that this is done, governmental programmes are brought increasingly to the service of the citizens, enhancing their material standard of living and cultural status. Budget has become an instrument of public accountability, a guide for optimization of scarce public resources as marketed by public representative, a tool of transparency and openness in administrative working, an index of administrative effectiveness and continuing improvements in governmental policies, programmes and operations.

Budget in simple terms is a quantitative impression of a plan of action and an aid to coordination and implementation. Budget provides a framework for choices about ends and means. It, in a fundamental sense reflects the character of the state, the ideologies and values that govern its operation and interest it serves.

In a restricted sense, budgeting is planning. It represents a plan of action for the ensuing fiscal period. The primary concern of both functions and agencies is to facilitate the formulation and selection of policies and programmes which are most likely to achieve the goals of government. Policies and strategies play a vital role in achieving the goals of government.

The main difference between the commercial budget and a government budget is the goal set out by each and the means such as strategies and policies used in accomplishing the goal or objectives. The concern of government is to administer its several departments in the best possible way. For commercial concerns, the stress is on production, trading, marketing which in turn leads to profit – maximizing the shareholders’ wealth in the bottom line. Profit is essential for survival and growth. The concern of the government is calculating the minimum asset to be levied in order to maintain its necessary activities at a central level. The Government budget is large in its scope, import and consideration has public accountability and political character.

Despite differences in origin, there exit important similarities in budgeting between government and large commercial or private bureaucracies. Budgeting is regarded as a mechanism for setting goals and objectives, for identifying weakness or inadequacies in organization and for controlling and integrating the diverse activities. There is also broad similarity in the budget cycle and integrating the diverse activities. There is also broad similarity in the budget cycle, process and authorization (legislative in Government and by Board of Directors in the business).

The important differences are in the nature and rate. Commercial Budget starts with the market survey whereas Government Budget is a substitute for market signals. Government requires a non-market guide for the allocation of resources. In Government decisions are primarily governed by social desirability instead of profits in commercial enterprises. In business, resources for allocation are constrained whenever in Government the limit is only the sum of all resources of the society. Therefore, it may be said that Government attempts to adjust its income to intended levels of expenditure, while business has to cut the level on less than the income.

Answer : Financial control of the administration is the bulwark of parliamentary democracy and for exercising financial control an independent audit agency is an essential pre-requisite. The office of Comptroller and Auditor General of India is a constitutional device to ensure parliamentary accountability, federal supervision and expert administrative control over expenditure in the financial administration. The fundamental basis of the parliamentary system of government is the responsibility of the executive to the legislature for all its actions. The legislature will be able to enforce this executive responsibility only if it is competent to scrutinize the activities of the executive and exercise on each of them its judgement in an appropriate manner. There are certain activities of the executive which can easily be scrutinized by one, while others are difficult for a group to scrutinize.

The parliament needs the assistance of an expert for this purpose and it is in this context that the office of Comptroller and Auditor General (CAG) becomes an essential ingredient of Parliamentary Democracy. For it is the Comptroller and Auditor General who through his expert advice enables parliament to discharge this function efficiently.

The CAG is an independent constitutional authority not a plaything appended to parliament. As he/she is the holder of such an important office and such an important reason, without maintaining the dignity, independence, detachment of outlook and fearlessness necessary for a fair, impartial and dispassionate assessment of the actions of the executive in the financial is not possible.

Thus Constitution of India ensures the CAG’s independence through the following provisions – (1) The CAG is to be appointed by the president by warrant under his hand and seal, just as a judge of the Supreme Court is appointed, to ensure the independence of this office from the executive government of the day, it has been provided that the CAG shall not be removed from his office except on grounds of proved misbehaviour or incapacity, on an address passed by each of the two houses of parliament by 2/3 majority of these present and voting and a majority of the total membership of each House being presented to the president in the same manner as applicable to the judges of the Supreme Court, under Article 124 (4).

Next, his salary and other conditions of service may be determined by parliament. But once appointed, neither his salary nor his rights in respect of leave of absence, pension or age of retirement can be varied to his disadvantage; again the administrative expenses of the office of the Comptroller and Auditor General, including the salaries, etc. of the office of the CAG including the salaries etc. of office staff, are charged upon the consolidated fund of India, and lastly after retirement or resignation from office, he/she is not eligible for any office or profit under the Government of India or any State Government.

The sum and substance of all those provisions is that the CAG is an officer of parliament and is supposed to work for it without fear to favour and for this reason has been placed beyond the pale of any executive influence.

Thus, to protect his independence and to place him beyond the pale of the influence and interference of the executive government, both the ban on his employment after retirement as well as his removal by a special parliamentary process, have been retained and elaborated in the constitution.

Importance of the office of CAG arises from the fact that he exercises supervision over the accounts of all expenditure incurred by the ministries, departments and organizations of the centre. Thus CAG of India is undoubtedly entrusted with unique responsibilities. The CAG is not a mere Civil Servant, but also an servant of parliament.

Thus it can be summarized that, in a country like India where public expenditure is increasing at a fast pace year after year, there is scope both for the widening and for the intensifying of the role of the Comptroller and Auditor General for the better realization of the democratic ideals embodied in the constitution.

Answer : The main function of the Public Accounts Committee (PAC) is to examine the Appropriation Accounts containing the appropriation of moneys granted by the parliament, the Annual Finance Accounts of the executive government and such other Accounts laid before the House as the committee may think fit. While scrutinizing the Appropriation Accounts and the Audit Report thereon by the Comptroller and Auditor General, the Public Accounts Committee has to satisfy that itself, that public moneys have been spent by the executive government as the parliament intended it to be spent; that due economy has been exercised in the financial transaction of the executive government; and that high standards of public morality have been observed in all matters of finance. In Scrutinising the Appropriation Accounts and the Report of the Comptroller and Auditor General of India, it is the duty of the Public Accounts Committee to satisfy that moneys shown in the accounts as having been disbursed were legally available for, and applicable to the service or purpose to which they have applied or charged; that the expenditure conforms to the authority which governs it and that every re-appropriation has been made in accordance with the provision made in this behalf under rules framed by the competent authority.

Thus if any money has been spent on any service during a financial year in excess of the amount granted by the House for the purpose, the committee shall examine with reference to the facts of each case circumstances leading to such an excess and make such recommendation as it may deem fit.

Answer : The Ministry of Finance administers the finance of the government. Its responsibility is to formulate the “ Annual Financial Statement” in consultation with other administrative ministries; after parliamentary approval of the Budget it controls the entire expenditure of the governments, the objective being realization of economy in the spending of public money by the administrative ministries.

The Finance of Finance is headed by a Minister of cabinet rank. It has three departments:

1. Department of Economic Affairs.
2. Department of Expenditure.
3. Department of Revenue.

The work of government of India is carried out through various ministries. Of all the ministries, Ministry of Finance occupies place of pride. Its significance is increasing day by day in view of recent economic changes in the country. Finance is the most important ingredient in the process of socio-economic development. The Ministry of Finance administers the finance of government.

It formulates general financial and economic policies of government of India. Department of expenditure has several division namely, Establishment Division, Civil Expenditure Division, Plan Finance Division, Finance Commission Division and Miscellaneous Department Division. Establishment Division is primarily responsible for the administration of financial rules and regulations whereas civil expenditure division renders financial advice to the ministries of Government of India.

Next, Department of Economic Affairs- The department is headed by a secretary. It deals with the preparation of budget, carries out periodical assessment of country’s foreign exchange resources and suggests ways and means for mobilizing our national as well as international resources. It also deals with matters connected with banking currency, private foreign investment etc. In fact it is nodal wing of Ministry of Finance and attends to all economic policy matters. It oversees the performance of economy in the context of economic situation of the country. It suggests measures for containing inflation and prepares annual economic survey of the country, which is backward document of central budget.

Department of Revenue is responsible for controlling and administering of both direct and indirect taxation system. It examines taxation proposal, fiscal matters and modification of tax laws. The department is assisted by Central Board of Direct Taxes and the Central Board of Excise and Custom, both being statutory boards. The Department deals with central sales tax, gold control, narcotics etc.

The Government of India has nationalized some major banks in the country. With this nationalisation quite a large sum of money, which was hitherto in the private sector, has come in public sector.

Therefore a separate division now functions in the Ministry of Finance, which looks after all banking problems in the country. It deals with the investment problem of the banks, the pattern of expenditure, the spreading of bank network and also tries to promote the habit of people in investing through banks.

Control of Ministry of Finance is exercised in two ways:

1. Pre-Budgetary Control: The expenditure proposals of all the ministries/ departments are scrutinized by M.O.F before inclusion in the budget.
2. Post- Budgetary Control: Often the budget proposals are not fully scrutinized before inclusion in the annual budget. Therefore a second scrutiny is to be conducted.

It causes delay, entire control is super flows because MOF is not aware of technicalities in various depts.

Answer : The main function of the PAC is to examine the report of the Comptroller and Auditor General of India (CAG), which is laid before the Lok Sabha through the president.

If examines the accounts showing the appropriation of sums granted by Annual Financial Accounts of the central government and any other accounts laid before the house as the committee may think fit. CAG report is divided into two parts- The Finance Accounts set out receipts disbursement and cash balances and the Appropriation Accounts give a comparison of the grants made by the parliament for particular purposes with the actual expenditure on these purposes. Besides, there are separate audit reports for defense, post and telegraphs and railways.

Public Accounts Committee has to satisfy itself that the money shown in the accounts as having been disbursed was legally available for and applicable to the service or purpose to which it has been applied or charged; the expenditure conforms to the authority which governs it and every reappropriation has been made in accordance with the provisions made in this behalf under rules framed by the competent authority. The committee also examines the statement of accounts showing the income and expenditure of state corporations, trading and manufacturing schemes and projects together with the balance sheets and statement of profit and loss accounts which the president may have required to be prepared or are prepared under the provisions of statutory rules regulating the financing of a particular corporation, traditing concern or project and the report of the CAG thereon. However, the majority of public undertakings have been put under the security of the committee on public undertakings, a reference to which will be made later in this chapter. It also examines the statement of accounts showing the income and expenditure of autonomous and semi autonomous bodies, the audit of which may be conducted by the CAGeither under the direction of the president or by a statute of the parliament.

Answer : The audit reports of the CAG are landed over to the PACs at the centre and the Accountants General of the states do so at the state level.

The work of the Public Account Committee (PAC) is based on the audit reports of the CAG. The functions of this officer is provided by the constitution. His report is usually prepared after giving each ministry an opportunity to offer explanations or comments on the relevant portions of the draft audit report. After the report is submitted to the House and committed to the Public Accounts Committee, the programme of action of the committee is drawn up in the consultation with the Auditor General. He is in this way, is the friend, philosopher and guide of the Public Account Committee. He guides the PAC in its labours, detect the points of question, present them with such information as he has obtained and leaves the committee to pursue them further, to consider them and report on them. He is the ‘acting hand’ of the committee and its guide, philosopher and friend. The C & AG is in attendance every day for assisting the committee in its examination of the witnesses.

CAG has to watch whether the corrective action suggested by him has been taken or not. In cases where it has not been taken, he reports the matter to the PAC which will take up the matter.

Answer : The Estimates Committee is an instrument of parliament set up with the primary aim of scrutinizing the estimates included in the budget and to make positive suggestions to introduce economy in government expenditure. But as the advices rendered by the committee not binding on the government if it has a majority in parliament it has been said over and over that estimate committee merely gives a big list of advices. There are other provision and flaws in the estimate committee’s functioning that undermines its role in governmental as well as parliament’s functioning.

The members of the committee are not experts whereas the nature of its function demands expert body. It is not also assisted by CAG as Public Accounts Committee. Other thing that is always said about the committee is that it works on the basis of fault-finding motive and it does not work with reformist attitude. Because of this reason the government always rejects many of its suggestions. This creates a most undesirable situation detracting as it does from the prestige and authenticity of both the government and aparliamentary committee.

The other thing is that the committee has only advisory function and it’s the government which ultimately decides whether to take any action on the advice of the committee or not. Also in today’s world there is a vast expansion of governmental activity, the committee can not undertake an estimate of all the ministries. So, it selects a few, usually three to five ministries or departments in a session. All this results in the undermining of the advices rendered by the committee and it becomes merely a big list of advices.

Despite these limitations, the intrinsic merits of the committee, as an instrument of parliamentary control, can not be denied. If this committee works honestly in cooperation with government with reformist attitude then it can be proved vital for Indian Parliamentary democracy.