Theory of Independence of Audit-Combination of Functions in relation to

Accounts and Audit

51. Auditor’s Independence of the Accounting Authorities. We have already seen, in paragraphs 8 and 19, why it is desirable, in the interests of honest and sound finance, that business transactions should be subjected to the audit scrutiny of an agency independent of that charged with the duty of keeping the accounts of those transactions. Theoretically, the same principles should apply equally to Government transactions. In some cases there is already a distinct separation of accounts from audit (see paragraph 53 below) while in others the combined Audit and Accounts Offices of the Indian Audit and Accounts Department are largely responsible only for the compiling of accounts at the final stage on the bases of accounts, records and information furnished by authorities who keep the accounts and are uncon- nected with the Indian Audit and Accounts Department (see paras 4 and 787). The final compilation is made after audit of accounts and other records furnished to combined Audit and Accounts Offices. Thus even in that case also there is no violation in substance of the principle indicated above.

52. Auditor’s Independence of the Executive. The theory that Audit should be independent of the authorities responsible for the transactions is based on the proposition that the conditions of an auditor’s office should enable him to discharge, without fear or favour, his duty of scrutinising the financial actions of various authorities and that he is not free to do so if he is dependent on one of those authorities whose orders he may have to challenge. Further the power of voting money, given to the Union and States Legislatures by the Constitution would be valueless unless the Legislatures were assured that the Executive is spending the voted money for the purposes for which it was voted. It must be evident that the control of the Legislatures would be merely nominal if they were not assured of a powerful and independent Audit, free to bring to their notice diversions of voted funds without inter- ference or influence from the Executive. It undoubtedly strengthens the hands of Government also to be in a position to point to an audit authority over which they have no executive influence of control. The true value of an Audit independent of the Executive is, therefore, to be gauged not by the irregularities which it actually discovers but by the certain effect of the knowledge that the auditor can and will, without fear or favour, report them if they come to his notice. That knowledge constitutes in itself the most effective security against irregularity.

As stated in paragraph 33, the full independence of Audit is adequately safeguarded under the provisions of the Constitution.

53. Separation of Accounts from Audit. In 1924 an experimental scheme of separation of Accounts from Audit was introduced on the civil side in the United Provinces (now Uttar Pradesh) and also in certain departments  of the Government of India. This experiment was abandoned in 1931 ex- pressly on financial grounds, as the separated Accounts system was found to be more expensive. Separation of Accounts from Audit, has, however, been definitely established in the case of Railway Accounts and brought into force as a permanent measure, while in the case of the Defence Services, the accounting authorities have never been subordinate to the Comptroller and Auditor General. Separate Pay and Accounts Offices have also been function- ing since 1955 in the Ministries of Works, Housing and Supply, Food and Rehabilitation, the Pay and Accounts Officer, Lok Sabha/Rajya Sabha and the State of Pondicherry. Similarly there are separate offices of Financial Adviser and Chief Accounts Officers attached to certain Irrigation Projects etc. of the Central and State Governments. The system of “separation” in these departments has been completed by arrangement under which the Comp- troller and Auditor General performs his statutory audit duties by means of a test audit of the independently compiled accounts through a separate audit staff.

54. Possible changes relating to compilation of State Accounts. Under the provisions of the Constitution, the audit of the accounts of the States, which, in terms, does not include the responsibility of compilation of the accounts also, is a Union subject (see entry No. 76 of List I of the seventh Schedule to the Constitution) and its cost is borne by the Government of India. Unless the Comptroller & Auditor General is relieved of the respon- sibility for compilation of these accounts by an Act of Parliament to be passed under the provisions of Article 149 of the Constitution, replacing the extant Audit and Accounts Order, 1936 as adopted, the entire cost of the combinect Audit and Accounts offices performing the functions of auditing and compila- tion of accounts of the States will continue to be borne by the Government of India.