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Reinventing the Indian Audit & Accounts Service


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Reinventing the Indian Audit & Accounts Service

  1. 1. Reinventing the IA&AS Shantanu Basu Pr. Director of Audit North Eastern Railway Gorakhpur 273 012 SHANTANU BASU Issued on August 9, 2010 0
  2. 2. Table of Contents Table of Contents ............................................................................................................................. 1 Highlights .......................................................................................................................................... 3 Introduction ...................................................................................................................................... 4 2. LPG-FIT Model of Governance ................................................................................................. 4 3. Limitations of Audit Reports .................................................................................................... 5 3.2 Executive & Legislative Indifference ............................................................................... 6 4. The Need for Decentralization, Delayering & Differentiation ................................................. 6 5. The Need for Restructuring ..................................................................................................... 8 5.1 Inadequate HR and Coverage ......................................................................................... 9 5.2 The Audit Vision of Government..................................................................................... 9 5.3 The GAO’s Organization .................................................................................................. 9 6. SWOT Analysis of IAAD .......................................................................................................... 10 7. Levels of Reform in IAAS – Paradigm Shift to Hub & Spoke .................................................. 11 7.2 Three Levels of Restructuring ....................................................................................... 13 7.3 Five Functional Reporting Levels & Two Streams of Management .............................. 14 7.4 Separating GOI from State Audit .................................................................................. 14 7.5 IAAS: All-India Service Options...................................................................................... 15 8. The Process of Restructuring............................................................................................. 16 8.1 Differentiation in Qualifications at Entry ...................................................................... 16 8.2 Separate Induction Examination ................................................................................... 16 8.3 Undergraduate & Graduate Entry................................................................................. 17 8.4 Lateral Entry .................................................................................................................. 18 8.5 Modifying the NAAA Curriculum................................................................................... 19 8.6 Foreign Training ............................................................................................................ 19 8.7 Incentives for Acquiring Professional Qualifications .................................................... 20 SHANTANU BASU Issued on August 9, 2010 1
  3. 3. 8.8 New Legal & Publicity Chiefs ........................................................................................ 20 8.9 The Need for Rewards .................................................................................................. 21 8.10. Level Imbalance in IAAS & Lack of Promotions as Disincentives .................................. 22 8.11 Basis of Comparison ..................................................................................................... 22 8.11 Building Specialization in IA&AS ................................................................................... 23 9. Post-Restructuring Scenario .................................................................................................. 24 10. National Audit Boards ....................................................................................................... 27 10.1 Organizational Layout in States .................................................................................... 28 11. Cost of Restructuring ........................................................................................................ 29 11.1 Audit Operations Fund ................................................................................................. 31 11.2 CAG & IAAD: Charged vs. Voted Expenditure............................................................... 31 12. Perspective and Strategic Plans .................................................................................... 32 13. Shaping the Proposals ....................................................................................................... 33 13.1 Implementing the Proposals ........................................................................................ 33 14. Conclusion ......................................................................................................................... 33 A. Illustrative List of New Posts as part of GOI Expenditure Audit ....................................... 35 B. Illustrative List of New Posts at HQ in new structure ............................................................ 36 C. List of New Designations for DAI/ADAI in new structure ...................................................... 37 D. Illustration for reorganization of MABs ................................................................................. 37 SHANTANU BASU Issued on August 9, 2010 2
  4. 4. Highlights Vertically differentiates IA&AD into State and GOI audit components Horizontally differentiates GOI audit by clusters of executive functions /themes Horizontal and vertical differentiation extended to different tiers of HR Group ‘A’ level creating distinct audit and strategic management entities with five distinct operative levels Creates two audit streams, viz. strategic management and audit management each for GOI and State audit Limits layers of accountability to three in each audit stream Assures autonomy of operation -> speeds audit process Unifies chain of command -> Ends intra-jurisdictional conflict Shortens span of control -> encourages innovation and timeliness Shifts operating paradigm of IAAD from geographical to functional theme-based hub and spoke audit divisions -> PARADIGM SHIFT Extends audit coverage -> Encourages flexibility and innovation in specialized sectors Promotes wider skill sets and raises level of planning and execution of audit above SAO/AO level Inducts fixed numbers of professionals into IA&AS Group ‘A’ cadre -> provides in-house and on-call availability of technical expertise Creates promotional avenues for SAOs/AOs and makes them a part of the restructuring process Creates two entry points to IA&AS, viz. undergraduate and graduate Proposes separate induction examination scheme akin to specialized services Proposes 45% increase in sanctioned strength of IA&AS Shifts audit planning and implementation to JAG and above -> improves quality of audit SHANTANU BASU Issued on August 9, 2010 3
  5. 5. Introduction The phenomenal growth of the private sector, the unshackling of the public sector, dereservation of areas of operation by the private sector, and foreign collaboration since 1991 has been felt everywhere in government. While flexibility to the private sector has been allowed by government even in sensitive areas, yet govt. rules and regulations most invariably are tied to their colonial origins. Even when a new policy is declared with the best of intentions by the govt., it mainly remains a slave to dated rules and regulations. Thus govt. rules come onto collision course with new initiatives, wrecking even the simplest models of public-private partnership. The Dabhol Power Company deal is a grim reminder of such conflict. Yet the model of governance is rapidly changing, e.g. DIAL for airports, NHAI for highways, private airports and toll roads, SEZs with regulatory government becoming facilitator for governance. 2. LPG-FIT Model of Governance (L)iberalization, (P)rivatization and (G)lobalization require (F)lexibility, (I)nnovation and (T)imeliness of business decision-making by government as the facilitator and regulator. The fine line of distinction between a bona fide business risk and malfeasance in such new business models is often obfuscated, either by unfamiliarity with such models or by application of dated govt. rules/regulations in an environment where the rules are completely different. Thus the evaluation of constantly shifting definitions of business risk itself requires the audit to move with the times, innovate and apply the brakes timely. In sum, the FIT model has two different connotations for the executive and the audit that converge at the new LPG model of governance as the diagrams on the following page show. The Audit bureaucracy too has not been an exception to the rule in reorienting its processes. The end result is that an adversarial relationship has come into being with govt. that charges CAG, CBI and CVC for being “anti-progress” and portrays the audit as a somewhat historical fault-finding oddity. The pace and variety of decision-making has increased manifold as have the risks. The trade-off between progress and accountability is often tenuous with the audit and the executive coming to loggerheads over key decisions such as perceptions of ‘business risk’ and ‘timeliness’. Audit’s relative unwillingness to break free from the past and its current debilitating structural limitations imposed by history are today threatening the country’s most highly-regarded oversight agency. Many welcome moves however, have been made by the IA&AD in recent years such as performance and taxation audit. The proposals contained in this paper are therefore designed to achieve the LPG-FIT model as follows: SHANTANU BASU Issued on August 9, 2010 4
  6. 6. 3. Limitations of Audit Reports However, not only are the reports incomprehensible to the citizen, they are more a historical chronicle of times gone by and viewed through the narrow audit prism and above all, unattractive to present. Neither do the reports contain scientifically validated statistical analysis and projections nor are government programs analyzed using modern tools and findings presented in a scientific manner. Presented to the legislature and executive for action, these reports are often trashed by a bureaucracy that is being trained abroad and developing a broader horizon than the audit while legislative indifference stymies the audit impact. The reports also suffer from a lack of identification of a target SHANTANU BASU Issued on August 9, 2010 5
  7. 7. audience. Are they for legislators, officers, NGOS or even the common citizen? If they are for legislators and officers the reports only invite greater disdain with their antediluvian approach. The common man, to whom the IAAD owes its first duty, finds the reports sheer gibberish. Presented to the media, they are susceptible of selective coverage. Neither is original data painstakingly collected by auditors available online for transparency and research, nor is the reports indexed with some sort of a ‘made-easy’ guide through the technicalities of a report. Perhaps the IAAD should have different versions for different audiences. The report–based structure of the IA&AD also ensures that important evaluations are hidden among innumerable layers of often routine and inane findings (included by virtue of their large money value) while the tendency to internalize every important function has ensured that external influences and fresh opinion seldom enter the IA&AD. How useful is a report on a multi-purpose project if it does not tie in with soil conservation, water resources management, environment, energy supply, agricultural production, danger to wildlife, rehabilitation efforts, human rights, etc? The present report and geography based organization of the IA&AD militates against timeliness, adequate coverage and specialized knowledge. Excessive bureaucratic centralization stifles innovation as it straitjackets everything into a standard format, oblivious of the special needs of a sector. 3.2 Executive & Legislative Indifference There is unlikely to be any major positive change in CAG’s mandate or response to his reports considering legislative and bureaucratic apathy in a generally corrupt environment. It is therefore imperative that IAAD works on issuing its performance audit reports as studies and thereby avoid classification as an audit report requiring report to the legislature. Written by professional script- writers, designed by outsourced agencies, published by major publishing houses (such as OUP and CUP akin to UN Reports) and backed by paid media publicity, these reports may indeed be the magic cure the IAAD is looking to enhance its audit impact. Longitudinal study reports on issues that impact the common man, such as growth in agricultural output or prices would be welcome additions and more comprehensible to the common citizen. The citizen may also be the most worthwhile investment the IAAD may make to bolster its sagging audit impact by inviting public opinion online, public presentations, etc. 4. The Need for Decentralization, Delayering & Differentiation The need for decentralization, timeliness and innovation is thus critical to the new LPG model of governance that imbues the executive with powers that were hitherto vested in a select few in the land. Unless a convergence of the three functions is created between the audit and the executive, an increasing redundancy of an adversarial relationship would strike at the core credibility of the audit. This is not to say that the credibility of audit is at an all-time low; just the need to ensure that audit matches the needs of the changing times. Thus there exists a strong case for vertical and horizontal differentiation in the IA&AS in tandem with the separation of the audit management and higher reporting streams of the IA&AD. SHANTANU BASU Issued on August 9, 2010 6
  8. 8. To achieve timeliness, decentralization of authority and delayering of the structure is essential; once both these are accepted, level differentiation would follow. Flexibility is determined by the span of control and the chain of command; the longer both are, flexibility and timeliness are adversely affected. Similarly, innovation is encouraged by a diverse product mix, one that emphasizes cross-sectional comparisons and throws up new leads. At the same time there emerge unique leads and findings that lead to product differentiation and widen the scope of operations of the organization. The following graphics illustrate the layers in the strate4gic and audit management streams: AUDIT MGT. STRATEGIC MGT. Thus principally there would be no difference in the framework of the audit and the executive decision-making process. If for the executive risks are inevitable in the decision-making process, it is equally incumbent upon the audit to check whether such risks were indeed real. For this purpose audit would need much higher levels of training, knowledge, skill sets and the audit function itself to become much more analytical, grounded in modern tools such as forensic audit, evaluation techniques, etc. rather than using tenability of most executive arguments to impose audit findings upon the executive. Needless to add, this adversarial approach reflects adversely upon the audit which is a static formation unlike the executive that has high personnel turnover rates to use as a bail-out weapon and evade accountability. SHANTANU BASU Issued on August 9, 2010 7
  9. 9. 5. The Need for Restructuring Why does the IAAD require restructuring to bring in an integrated audit structure? For a start let us consider the cause and effect of the IAAD’s present structure in the following table: Cause Effect Posts based on Audit Reports Generic antediluvian division of govt. function confines IA&AS growth and specialization Absence of seamless integration in audit Reports narrate incomplete sequence of events – effort & organization audit effort dissipated No functional distinction in grades other Emphasis shifts from routine to higher audit, than at STS and SAG affecting the source of routine audit Large spans of control IA&AS is less than 1% of the total HR 2-3 ADAI/DAIs get fed by an AG/PAG but only a Multiple chains of command single ADAI/DAI is the Reporting Officer – this dilutes accountability by prioritizing an AG’s output with reference to his/her APAR and career ambitions No distinction between routine audit and Higher audit specialists not available – HR taken specialized higher audit function off routine audit and deployed w/o training Low prescribed percentages of audit diluted for Inadequate audit coverage higher audit – quantum and thrust areas of audit are dated Inadequate skills for emerging areas of Officers not aware of policy evaluation tools, socio- governance economic policy, e-audit and financial management tools No in-house on-call technical expertise Leads to wide divergence between audit and government perceptions – not everything is “untenable” How does the IA&AD fit into the LPG-FIT model? The following diagram provides a scientific management basis. SHANTANU BASU Issued on August 9, 2010 8
  10. 10. 5.1 Inadequate HR and Coverage The Group ‘A’ cadre of the IA&AS comprised only 0.87% of IAAD’s total HR. Declining cost of audit from Rs. 53 per lakh in 2001-02 to Rs. 45 in 2004-05 is due to large-scale vacancies and preponderance of low-paid personnel and centralized audit and accounts offices and residential quarters rather than to any real economy of operations. Such low cost may also point to grossly inadequate audit coverage. Inadequate audit coverage is compounded by the fact of the IAAD’s staffing and audit standards being based on Audit Reports and standardized audit codes for large groups of similar government departments, instead of administrative Ministry/Department-based norms. Although the Activity Report 2005-06 of CAG attempts to portray the low cost of audit in a positive light, this may not be the case for reasons stated earlier. 5.2 The Audit Vision of Government The division of govt. into six functional sectors for audit purposes adds to the absence of any thematic differentiation between departments leading to anomalous situations in which a PSU gets away with an irregularity while its administrative Ministry is unfairly made to shoulder the blame. Give the fact of the IAAAD’s audit effort accounting for 81% of its annual budget, an impression of a disjointed audit effort takes shape in the public mind and sows the seeds for a gathering perception of the audit being party to several executive snafus. The expenditure is also dissipated when one considers that 41% of the budget is consumed by state audit offices, 19% by GOI audit offices and 9% by GOI commercial offices, et al. Thus while the IAAD may be spending upward of Rs. 2000 crore per annum, yet its quality and coverage of the IAAD remain shrouded in a haze of often contradictory and incomplete reports. It is almost impossible to state the quantum of audit effort expended for each sector of the economy of India/state from this diagram. The emphasis is solely on report-based functioning that does not do justice to the actual expenditure being incurred. Such a structure is also not conducive to optimal utilization of HR as it does not utilize slack, seasonal or otherwise, available in most charges. 5.3 The GAO’s Organization While a comparison between the US GAO and the IA&AD may not entirely be in order, it would suffice to say that the GAO also follows a functional divisional approach teamed with centralized supporting skill divisions such as the General Counsel and Chief Administrative Officer. The GAO also recruits professionals such as CPAs, economists, statisticians, I-T experts, engineers, doctors and lawyers. Such recruitment is done on what may be loosely termed in GOI, as deputation from other departments. The GAO employs 3120 personnel and had a budget of $488.6 million in 2007. Incidentally, the GAO had a change of name in 2004 and became the Government Accountability Office (from General Accounting Office) with the following differences flowing from such change: SHANTANU BASU Issued on August 9, 2010 9
  11. 11. 1. Decouples GAO from the federal employee pay system, 2. Establishes a compensation system that places greater emphasis on job performance while protecting the purchasing power of employees who are performing acceptably, 3. Gives GAO permanent authority to offer voluntary early retirement opportunities and voluntary separation payments (buy-outs), 4. Provides greater flexibility for reimbursing employees for relocation benefits, 5. Allows certain employees and officers with less than three years of federal service to earn increased amounts of annual leave, and 6. Authorizes an exchange program with private sector organizations. For evaluation and audit purposes GAO is divided into 13 functional areas as follows: Acquisition and Sourcing Management, Applied Research and Methods, Defense Capabilities and Management , Education, Workforce, and Income Security, Financial Management and Assurance, Financial Markets and Community Investment, Health Care, Homeland Security and Justice, Information Technology, International Affairs and Trade, Natural Resources and Environment, Physical Infrastructure and Strategic Issues. In the states there is a State Auditor who enjoys the rank of a Cabinet Minister and is an elected official. This is quite unlike the organization of the IAAD which is in an unenviable position of being neither executive nor independent in terms of finances and personnel. Therefore a thematic remapping of the IAAD’s structure is not a novel feature. 6. SWOT Analysis of IAAD Where do the strengths of restructuring the IA&AD lie? They lie in:  Qualitatively and quantitatively enhanced and integrated audit coverage and proportionate reduction of risk  Inter-level functional distinctions in the official hierarchy and sectoral specialization  Shorter spans of control with clearly defined reporting and appraisal systems and reduction of inter and intra-jurisdictional conflict  Pooling of HR to minimize wastage  On-call technical expertise and  Greater operational autonomy Among weaknesses would be perceived (within IAAS) ‘devaluation’ of HoD posts and higher operating costs but with perhaps large incremental benefit. Opportunities lie in the manifold expansion of Ministries, JVs & PPPs, privatization, non-govt. delivery of goods and services, increasing foreign collaborations, rising citizen demand for accountability, and wider choice of extracting information from govts. such as by the RTI Act, 2005. Threats would seem to lie in the universal executive distaste for ‘more’ audit and higher operating costs (both a boon and bane). Nonetheless, the strengths and opportunities far outweigh the threats and weaknesses. SHANTANU BASU Issued on August 9, 2010 10
  12. 12. 7. Levels of Reform in IAAS – Paradigm Shift to Hub & Spoke How should the IAAD proceed with its restructuring? The first level reform would be to segregate GOI and State Audit in tandem with a changeover from the present classification of combining large sectors of government into a single report. Instead of a limited six-fold generic division of govt. functions, these would now be on a broad thematic basis, re-dividing govt. into more contemporary sectors for closer and timely scrutiny. At the second level and also to provide operational flexibility theses sectors may be divided into zones. Instead of commercial, defense, civil, etc, the generic division of govt. would now be environment, transportation, then regionally for each such division, cutting across state and central governments. Attempts to continue with the present structure, albeit with cosmetic modifications, would reflect a severely myopic vision of the future and cause avoidable complications. The existing structure also militates against domain specialization that is essential in a rapidly changing operative environment. The hub and spoke principle used globally by the airline industry may be applied to the IAAD. In other words, a specialized domain of audit would vest in a HAG- level officer as the hub (covering cognate Ministries, PSU, AB HQs) with PDs forming the spokes regionally. More plainly put, the DsG Central Expenditure would be specialized in a particular domain only instead of clubbing diverse departments into a single HAG-level charge. At the apex level would be a domain- specific Audit Board headed by an ADAI with a permanent secretariat and all DsG and PDs in this domain as invitee members. This would be not only conducive to seamlessly integrating the audit function but also adding to IAAD’s existing domain knowledge over a span of time. While the structure only for the Transportation sector may appear to be vast and unwieldy, these activities could be distributed between two Boards, one for MoST and MoCAT and the other for Railways and Ports. Railway audit and commercial audit offices, wings of DGACR, etc would be reorganized to form composite offices that would fully utilize the slack presently available in all audit offices on account of the six-fold compartmentalization. The following graphic depicts the composite structure of a proposed office: SHANTANU BASU Issued on August 9, 2010 11
  13. 13. Specialized offices or those dedicated to a single dept. may not justify the workload available to them through the year. Rather composite offices would have the skills to undertake all types of audit tasks within a National Board’s jurisdiction. Portability of skills from one dept to another may be desirable too for professional and administrative efficiency. The inter-office and inter-division linkages within a field office would be substantially reduced in the new system as each group would have its own dedicated composite skill sets and would mainly therefore be self-sufficient. Slack in the system would also decline were output norms enhanced and composite offices introduced. The reports would move in line with the functional distribution of government departments with a key difference – the organization would centre on unifying themes such as Environment, Telecom, Police-Central, etc. This may have the effect of bringing 2-3 departments under one umbrella while providing scope for three separate audit offices for the same multi-function Ministry (Higher-Elementary Education, Technical Education and Others as three separate audit offices or sports from one ministry and family and youth welfare from two ministries). Given the span of control of a Ministry, PDs could be stationed regionally (if Mumbai is a problem area for office space, the PD – WR could be located in Pune). At the same time, the restructuring assumes substantially larger audit coverage than SHANTANU BASU Issued on August 9, 2010 12
  14. 14. presently. The last level would vertically differentiate senior management from the executive management and horizontally within the executive management between technical and generalists, audit managers and reporters, on the basis of the functional differentiation. Thus audit management would look after routine audit without compromising on the reporting function and vice-versa. Such restructuring would also be in line with DoPT’s requirements for cadre review. 7.2 Three Levels of Restructuring The IA&AD may be reorganized at three levels, viz. separation of GOI and State audit, second-tier function/sector-specific differentiation for GOI audit, and finally, a third-tier region-specific office setup for GOI audit. Each such tier would comprise twin levels of management as stated in Para 7.3 infra. All officers would be allotted to zonal cadres as they join NAAA that would continue throughout their careers. All IA&AS officers up to the Director level would be posted to a state Audit Board that, in turn, would post such officers to offices under that Board. However, CAG would continue to post officers of SAG and above directly to specific charges under each Board. Officers for GOI boards would be on deputation from the Functional Board. This would allow the Boards operational flexibility and reduce administrative workload of HQs. This suggestion is made on the analogy of the Indian Railways where GMs have the authority to transfer officers within their zones and without intervention from the Railway Board. The following graphic illustrates the levels of restructuring: SHANTANU BASU Issued on August 9, 2010 13
  15. 15. 7.3 Five Functional Reporting Levels & Two Streams of Management The proposed organization differentiates between grades as it creates five levels of Group ‘A’ management distributed among two streams, viz. strategic managers, senior managers, executive managers, strategic management support and technical manager streams distributed amongst audit and strategic management levels. Hitherto no vertical differentiation existed, except upon promotion to STS and SAG. The blend between the four grades is suggested at 20:20:40:15. Thus the median audit operations personnel would constitute 50% of the total HR. The technical group would be drawn entirely on deputation and be not less than the rank of Director to GOI. This would enable the IA&AD to attract officers from other organizations. Of this 6%, IA&AD could set aside 3% for contract employees at levels not less than that of Director to attract talent. Such provision exists in some organizations of the GOI where up to 50% of the posts can be diverted by the Secretary to ex-cadre appointees for a period of up to three years. Beyond this period, approval of a Committee of Secretaries is required. The base of the pyramid comprises the JTS at the induction level, STS & JAG at the intermediate levels and SAG and above at the senior management level. The new system also re-engineers the JAG (NFSG) and proposes it as a functional grade of Director to GOI assigned a strategic management role at the field and HQ levels. The STS-I is proposed to comprise of the present-day STS while STS-II would be the present-day JAG. An attempt has also been made to distinguish between senior management and strategic management levels by functionally differentiating between SAG and HAG levels. Further Group Officers in A&E offices could also be used for supervising parties or involved by the PAG(Audit) for audit report work. This would not only supplement the limited available strength of GOs but also ensure that A&E offices are not deprived of the service of GOs when required and particularly after the 20th of every month. In effect 3 layers/level of management each (one layer, i.e. technical support overlapping in each stream), functionally differentiated one from the other, and would come into being. 7.4 Separating GOI from State Audit Presently, most state AsG/PAsG discharge dual responsibilities for both State and GOI audit. Yet they have a single Reporting Officer, mostly ADAI/DAI in-charge of state audit. The GOI audit thus remains hostage to the priorities of the Reporting Officer with the AG/PAG being not always willing to contribute to the GOI audit effort at the expense of his/her APAR. While this trend may not be officially admitted, the actions of the AG/PAG amply bear this charge out. This is not conducive to the audit cover for GOI. If the shortage of officers and staff in field audit offices is taken into account, the effect on GOI audit becomes more pronounced. An anomalous situation also arises in that large chunks of GOI expenditure are often sacrificed to the relatively low-level finance State audit. In effect, the State AG/PAG is entrusted with the responsibility of GOI audit with very little accountability (other than the ADAI’s seniority) while the ADAI/DAI (GOI audit) has to prepare a Report with an AG/PAG over whom the DAI/ADAI has very little or no control, other than the AG’s courtesies. Such fragmented chain of command also detracts from sustaining a long-term consistency in audit findings that relate to the quantum of expenditure by governments. SHANTANU BASU Issued on August 9, 2010 14
  16. 16. It is therefore essential that GOI and State audit are physically separated. It may be mentioned that PDA, Central, Kolkata and Mumbai (composite audit offices for GOI) have been successfully running for the last several decades and have made stellar contributions to CAG’s Audit Reports. Replicating such offices in about 20 States by transferring IA&AS officers and staff from State Audit offices would provide for wider coverage and unity of command plus a more manageable span of control for GOI audit. Another alternative could be to carve out independent GOI Receipt and Expenditure offices for each of the 20 states and transferring the State AsG GOI audit responsibilities to such DsG. A third alternative could be to have, say a DG (Environment) in Mumbai with zonal branches in all metros headed by PDsA or a DG (Transportation) in Pune with a series of branch offices headed by PDsA. The following graphic illustrates the division of State from GOI audit: CAG CENTRAL STATE AUDIT STATE A&E HR TECHNICAL AUDIT BOARD BOARD BOARD ADVISORY SECRETARY – 1 REGL. REGL. SECRETARY – 1 I-T CONTRACTS ADDL. SECY. - 2 SECRETARY – 1 SECRETARY – 1 OTHER SECY - 2 10-15 5 BOARDS 5 BOARDS 1 BOARD PROCUR- ENGG. BOARDS EMENT AUDIT AUDIT PR. SECY JS -4 MGT MGT ACCOUNTS DIRECTOR - 4 STRG STRG SECY 4-8 BOARDS MGT MGT ENTT 7.5 IAAS: All-India Service Options This would also imply the creation of a zone and function-based cadre on par with all-India services. An alternative would be to have function-specific cadres and allow inter-cadre deputations whenever required by the Board. A third alternative could be to have zone-based cadres for IA&AS Group ‘A’ officers while the function-specific cadre could cover SAOs and below. If the zone-based cadre system grounded in the states is introduced for IA&AS Group ‘A’, such cadre affiliation could continue throughout an officer’s career although he/she would remain transferable between cadres on the analogy of inter-state deputations for AIS and for deputation to GOI audit offices on the analogy of the Central Staffing Scheme. In effect, these suggestions imply vesting the IA&AS with AIS status that may require enabling legislation like those of the AIS. Zone-based cadres would also have the added advantage of benefiting from add-ons to pay like other AIS officers. SHANTANU BASU Issued on August 9, 2010 15
  17. 17. 8. The Process of Restructuring While conceptually restructuring the IAAS as mentioned elsewhere in this approach paper, the IAAD would have to restructure its processes such as those relating to finances, Gr. ‘A’ personnel, legislative limitations, etc. Such restructuring would have to factor in knowledge, technology, skill sets, and recruitment and training processes, incentives (punishments alone do not run an organization), finances, et al, if the concept of an integrated audit is to yield tangible and widespread post-restructuring audit impact. Some suggestions, by no means exhaustive, are suggested in the following paragraphs. 8.1 Differentiation in Qualifications at Entry While there are some who may argue that creating an exclusive audit service may be a more desirable route, yet in the Indian context, it seems inconceivable that GOI will allow the civil service tag to be summarily jettisoned. Resistance from within the IAAS may also face resistance as officers may not be willing to lose the century-old kaulinya of the civil service. However, a separate examination by the UPSC, on the lines of the engineering and medical services, could be conceived that would allow the IA&AS to retain its civil service tag without being bracketed with other generalist services for recruitment. Like the RBI that prescribes minimum proficiency standards for writing the entrance examination for Gr. A and B (B having higher salary scale), the IA&AD could insist that candidates satisfy the minimum essential following criteria: For entry to JTS (100% of D/R posts): Upper second class graduate in the following disciplines with intermediate level of computer proficiency: Accountancy, Commerce, Economics, Public Administration/Public Policy, Environment Science, Political Science, Sociology, Statistics, Management, Engineering, Law, Medicine and I-T. Preference will be given to candidates who have successfully completed at least the first two years of a professional degree. Knowledge of computers is essential while knowledge of audit and financial management or statistical software is desirable. Confirmation in service would be subject to successful completion of professional degree and prescribed departmental examination. For direct entry to STS (100% D/R quota): Upper second class post-graduate in the following disciplines with high level of computer proficiency: Accountancy, Commerce, Economics, Public Administration/Public Policy, Environment Science, Political Science, Sociology, Statistics, Management, Engineering, Law, Medicine and I-T. Preference will be given to candidates who have successfully completed at least the first two years of a professional degree. Knowledge of computers is essential while knowledge of audit and financial management or statistical software is desirable. Confirmation in service would be subject to successful completion of such professional degree and prescribed departmental examination. 8.2 Separate Induction Examination A single examination followed by viva voce should suffice for direct recruitment. Separation from the civil services examination would speed up the process and ensure that candidates are not lost by the efflux of time between the first exam and final declaration of results. The new system would call for a large number of recruits at relatively short notice. The civil services examination that takes nearly two years for recruitment is not conducive in a system that requires fast filling of SHANTANU BASU Issued on August 9, 2010 16
  18. 18. vacancies with candidates who are more qualified. The lure of the private sector for more qualified candidates is another area of concern that the civil services exam is unable to address. Mixing natural and science skills with accounting also is not conducive to good governance as it does not match skills with job requirements and invariably leaves the door open to growing frustration, a continuing feeling of injustice to the candidate and a lifelong ‘cause for regret’. 8.3 Undergraduate & Graduate Entry However, in the proposed system 50% of the direct recruitment quota posts may therefore be filled with minimum undergraduate education level while post- graduates could be inducted in the remaining 50% of the direct recruitment vacancies at the STS grade. This would attract more qualified people since the starting salary level would be somewhat higher than that of the JTS level. The details are explained in the following slide. Given the subjectivity surrounding staffing by promotion from the Gr ‘B’ service, it is proposed to reduce the promotion quota by 2.333% while that for direct recruitment by 3.67%. The increase in the overall number of posts may somewhat mitigate resentment that may arise from reduction of percentage. With a view to having in-house technical experts, 10% of the savings from promotions from Gr. ‘B’ may be diverted to creating a deputationist cadre of specialists who could be rotated or changed as per the audit requirement. Of this technical cadre, 2-3% posts could be diverted to fixed-term contract experts that would enable the IA&AD to draft highly skilled experts from outside/private sector. In sum, recruitment to the IA&AS would be through five channels as follows: SHANTANU BASU Issued on August 9, 2010 17
  19. 19. In percentage terms, the complexion of the reconstituted IAAS would be as follows: 8.4 Lateral Entry Insofar as lateral entry is concerned, these posts may be thrown open to all Section Officers with 7 years of service, AAOs with 5 years and SAOs/AOs with 3 years’ service from the IA&AD. The upper age limit may also be relaxed to 55 years. However, the final ranking of such officers will be made after a viva voce exam and a system that grants extra credit for professional degrees acquired after entering the IA&AD. Promotions on the basis of fitness-cum-merit may be stopped since there is substantial degree of subjectivity involved and ACRs are not the best index of an officer’s actual performance. The reduction in the promotion quota may not be resisted strongly since the larger number of vacancies may mitigate such resistance. The following graphic depicts the post-restructured composition of each level in the IAAS: SHANTANU BASU Issued on August 9, 2010 18
  20. 20. 8.5 Modifying the NAAA Curriculum Simultaneously, the curriculum at the NAAA would have to be modified as illustrated below to train new recruits: Description Duration (months) Introduction to Statistics (+ software SPSS/SAS) 6 Contract Law 4 Administrative Law 4 Public Policy Making & Resource Economics 4 Policy Methods & Evaluation 4 Public Finance Reform & Budgeting 4 Economics, Environment & Infrastructure Development 4 Public Contracting, Outsourcing & Alternative Delivery Systems 4 for Public Services Research, Report Writing and Presentation 2 Alternative Infrastructure Development Models in India 2 TOTAL (assuming 5 concurrently running courses) 10 8.6 Foreign Training The Govt. of Punjab has instituted a S$132,000 scholarship at LKYSPP, NUS, Singapore has for a one-year programme that is held partly at Harvard/Columbia University, USA. This translates to about Rs. 40 lakh. Presumably, the usual DA is admissible to the officer nominated for this programme. Putting 365 days DA @ US$100 per diem would translate to another US$37000, i.e. about Rs. 15 lakh. In sum, the total outlay per scholarship would be about Rs. 55 lakh. The Kennedy School of Government at Harvard charges about US$75,000 for their 12-month MPA/MPP programme plus DA @ US$ 100 per diem making for a total of US$ 115,000 or Rs. 45 lakh plus return air fare. The Govt of UP and DoPT send officers for these programmes. Duke University similarly has a Masters’ in International Development Policy with specialization in International Taxation Policy for which DoPT has been sponsoring officers. This programme too would cost around Rs. 50 lakh plus return airfare. The Maxwell School’s EMPA too is in the same price range. IIM-A has a joint programme with Duke University that is substantially cheaper since part of the programme is held in India. However, if these universities are approached by CAG directly for training full batches, the prices may fall substantially depending on the number of officers per batch. It may be mentioned that nearly 150 UP PCS officers spent about 3 months at Duke University for a short-term training programme in 2007-08. DoPT too has been sponsoring several officers at the Maxwell School, Duke and Harvard and some Canadian universities like Manitoba. The Railways too have organized similar sponsorship for their officers. Attending such institutions would keep our officers abreast of international developments and impart them the requisite skills to enhance IAAD’s audit impact, only if the process of selection is transparent and free from any dispensation of patronage that is more the norm in govt. SHANTANU BASU Issued on August 9, 2010 19
  21. 21. 8.7 Incentives for Acquiring Professional Qualifications While a welcome beginning has been made by NAAA by sending IAAS probationers to South Africa recently, much more is needed to be done. In addition, some attractive incentives that rise above the penny-pinching Rs. 2500 honorarium per annum, are suggested in the following table: Qualification Obtained Proposed Incentive Terminal degree in subject approved by/study leave Lump sum cash award Rs. granted by CAG 1,00,000 plus three advance increments Foreign professional qualifications that require CAG may allow return air travel from India to take exam abroad fare by entitled class and DA on tour for upto 7 days every six months, subject to maximum of four round trips Post-graduate programme abroad sponsored by CAG may allow $125/diem CAG plus entitled hotel for entire duration of programme, in addition to cost of programme Domestic post-graduate programmes where officer CAG may allow payment of obtains admission in open competition all tuition and fees, study allowance of Rs. 500 per diem and full P&A up to two years MPA/MPP/MPM/MBA from foreign university Lump sum cash award Rs. where officer obtains admission and financial 25,000 plus two advance assistance on his own merit and CAG bears return increments air fare, study allowance and DA CPA/CA/CS/CISA/Cost Lump sum cash award Rs. Accountant/IIM/XLRI/JLBI/LLB/LLM post- 75,000 plus three advance graduate degree on his/her own merit increments Other domestic post-graduate programme e.g. Lump sum cash award Rs. environment science, education, etc. where officer 25,000 plus one advance has obtained prior approval of CAG increment 8.8 New Legal & Publicity Chiefs The IAAD should have a Chief Legal Adviser would not only attend to routine litigation but also essay a double role for examination of contracts and other legal documents for audit. The Dy. Legal Advisers should have powers to examine contracts upto Rs. 5 crore in value. Similarly, the DG (Communications) should ideally be a contract employee drawn from the private sector. Apart from being the principal spokesman for the IA&AD he would also be responsible for layout, printing, etc. of CAG’s reports and holding press conferences, giving out advertisements and press handouts. This is a job best handled by professionals whose creativity is not bound down by bureaucratic constraints and mindset as is wont with officers on deputation from govt.; this post may even be proposed at the SHANTANU BASU Issued on August 9, 2010 20
  22. 22. HAG level to provide a better pay packet for contract employees. The Public Grievances Manager would not only take over the A&E Complaints responsibility of the present DG (A, E & C) but also receive and forward complaints relating to financial impropriety in government agencies/depts. that may be received from citizens and from IA&AD employees, to the concerned wings/offices. It would be advisable to regionalize this function to reduce reaction time. 8.9 The Need for Rewards Writing nearly two centuries back, William Hazlitt (1778-1830), English essayist and literary critic said, “There is a secret pride in every human heart that revolts at tyranny. You may order and drive an individual, but you cannot make him respect you.” There are almost no incentives, other than vague expectations (most often belied) of a high grading in the ACR or a short foreign trip in the IAAD. No organization prospers and grows if there are no rewards for achievers. In fact, reward and punishment are two sides of the same coin, frequent repeats of the former birthing respect, the latter, open disdain. Many organizations such as the Cabinet Secretariat and Indian Railways have institutionalized reward schemes that provide for cash awards of up to Rs. one lakh per head plus a citation awarded by the President/Vice-President/Prime Minister of India at glittering ceremonies. The most the IAAD offers is a Rs. 5000 honorarium for which too several queries are raised for junior personnel. IAAS officers are seldom ever given any rewards for local outstanding effort. The tendency to typecast an officer arising from professional jealousies is best not institutionalized. It is important to remember that an officer performs in response to his internal and external environments. Thus an officer who may not have had the opportunity to perform well in at any given time in his/her career owing to his place or posting, duties of his post or any other reason should not be condemned into oblivion. It is therefore essential that a scheme is evolved that provides for annually rewarding outstanding IAAS officers, irrespective of their previous service record. Additionally, those with somewhat less than outstanding performance should be treated as runners-up rather than as being unworthy of their job. Such officers can always be awarded the bronze medal. Positive management rather than its negativism is a major pillar of the recommendations of this paper. SHANTANU BASU Issued on August 9, 2010 21
  23. 23. 8.10. Level Imbalance in IAAS & Lack of Promotions as Disincentives The imbalance in the IAAS cadre is shown in the following diagram: Shortages in the STS and JAG account for about 50% of the total sanctioned strength of the IAAS although the JAG and JAG (NFSG) are the backbone of all departments. The present ratio of 1:1.7:8.5:36 from DAI to SAG is in sharp contrast to what other services such as the IFS enjoy. Going by this ratio only one in about 36 SAG officers will ever become DAI while one in 21 will become ADAI. Even at the HAG level only one in four SAG officers will reach the HAG. In other words, a fourth of the total officers due to superannuate by 2025 may not eventually even attain the SAG. Even if ad hoc 15% deputations are factored, even then around 35 officers would yet not make it to the SAG after more than 32-35 years in the IA&AS. Surely this is not an attraction for new entrants who, by their Google and Yahoo-based knowledge, are much more aware than the present set of senior managers the IAAD has? 8.11 Basis of Comparison A good way of comparing the IA&AS would be the Indian Foreign Service that has numbers close to the IA&AS and is constituted as a Central Service. Their geographical divisions of the globe also correspond to the IAAD’s perspective of governments by way of numbers. Based on online data of DoPT, the following comparison emerges between the IA&AS and IFS: SHANTANU BASU Issued on August 9, 2010 22
  24. 24. 180 160 140 120 100 80 60 40 20 0 SAG & >: Time JAG:Time Scale JAG & >: Time Scale SAG& >:JAG SAG & >: Total Scale IFS 51.77 135.82 162.33 35.64 128.11 IA&AS 41.07 77.04 87.58 20.32 55.08 IFS IA&AS The IFS has three times more of Secretary level posts, a third more at HAG level and about 75% more at the SAG level when compared to the IA&AS. The IA&AS also has the highest reserves: total ratio among all central services that artificially inflates the overall strength of the IA&AS without any gain on posts, particularly at levels of SAG and higher. 8.11 Building Specialization in IA&AS While specialization in the IA&AS has been extensively debated, opinion remains divided on this issue. Even though the IAS projects itself as generalist managers (vis-a-vis PLUs who are disadvantaged professionals with blinkered vision), the fact remains that an IAS officer not only serves in state govt. and central departments in an executive capacity but often also as an implementing agency. As a District Magistrate/Collector the officer is the implementing agency while in the state secretariat he/she may be assigned to agriculture or industry where his/her field experience stands the officer in good stead. Further, an IAS officer who is, say Secretary Energy, in a state may latterly serve as Jt. Secy. MoP thus bringing his experience to bear upon all-India policy as well. However, unlike an IAS officer, the average IA&AS officer is shunted between A&E, various branches of audit and even SHANTANU BASU Issued on August 9, 2010 23
  25. 25. RTCs! This militates against the development of an officer’s professional knowledge in any field/sub-field of government. Therefore the fall back upon convent/SAO English becomes his/her sole weapon in his/her ‘battle’ against bad governance. Insufficient exposure to a field/set of related sub-fields handicaps the officer ever more as he points to every executive reply being “not tenable” and concludes with “revealing” remarks, that frequently reflect his revelation of depth of knowledge and experience of a field rather than “revealing” the seamy side of an executive decision. This, in turn, leads to the typecasting of audit as retrograde. As stated elsewhere in this paper, the LPF-FIT model of governance requires a convergence of the audit and executive’s views on the basics of an issue. If only the perspective differs, and not the context, that is a healthy development. The IAAD therefore needs to put in much greater effort in career planning so that an IAAS officer invariably covers at least three major fields of government in his career and two sub-fields in each of three fields during his career. Thus if an officer covers Surface Transport as a field, he may hold charge of the audit of a Port Trust or a State Transport Corporation too during his/her career. 9. Post-Restructuring Scenario Taking cues from the Indian Foreign Service that is similarly placed with the IAAS in many respects, the following expansion of posts in the IAAS may become possible: Grade Present New Less Total Apex 8 18 - 26 HAG 26 90 - 116 SAG 107 77 - 184 JAG (NFSG) 80 20 - 100 JAG (STS-II) 80 20 - 100 STS – I 256 8 - 264 JTS 136 - - 136 Reserve 141 - 49 92 Total (+45%) 834 221 49 1006 • Secy: 25-26 Boards = 26 posts • HAG: 1x26 states (audit) + 6UTs + separation of GOI audit from State audit (large states – 12 HAG + 37 in Boards + HAG (A&E) x 26 states = 116 posts • SAG: 0.5 x 85 GOI Ministries/Depts + 4 x 26 States + 1 x 6 UTs + 1 Board + GOI audit separated from State audit (smaller states) 30 = 184 posts • NFSG & JAG (STS-II): 3 x 26 States + 4 x 25 Boards + ICISA & NAAA 10 + GOI audit separated from State audit 62 = 200 posts • JAG: Computed at 50% of DIR (proposed STS-II scale) = 100 • STS: 5 x 26 States (audit) + 1.5 x 26 States (A&E) + 1 x 6 UTs (audit) + 9 for Boards + 60 (GOI audit) + Other audit 30= 264 • JTS: Computed at approx. 50% of STS-I SHANTANU BASU Issued on August 9, 2010 24
  26. 26. The preceding figures are, at best, a back of the envelope calculation and only a detailed review would bring out the actual requirement of posts. Nonetheless, even if there is margin of error of +/- 15%, the fact remains there is an urgent need to expand the extent of audit and the IA&AS cadre for more meaningful audit. Subsumed in the proposals above are some new SAG level posts that may have to be created such as those of a Chief Welfare Manager, Chief Estate & Works Manager, Chief Legal Adviser, Chief I-T Manager, Publicity & Public Relations Manager, Public Grievances Manager, etc. In addition, there may be a limited requirement of corresponding regional representatives for each of these officers at STS-I/II level, in addition to limited HR at HQs at the same and/or junior levels. In effect, the IA &AS would comprise a third of its officers as senior management while the middle will comprise about a quarter and junior management slightly less than half of the total complement of officers. The change in composition of the IA &AS would see an increase of 14% in senior management, against a 1% decline in middle management and a 13% decline in junior management. Thus audit planning and conduct would henceforth be done at senior levels with better skill sets; this would also have an impact on recruitment at Gr. C and other NGO levels. The following table shows the change in staffing ratios between levels: Equation** Present Ratio New Ratio Change Apex : AS/HAG* 1:4* 1: 4* No change HAG : SAG 1:4 1 : 1.75 + 56% JAG : SAG 1.8 : 1 1.09 : 1 + 40% JAG : STS 1 : 1.6 1 : 1.3 + 19% STS : JTS 1.9 : 1 1.9 : 1 No change Sr. Mgt : Other Mgt. 0.31 : 1 0.52 : 1 + 68% Sr. Mgt : Jr. Mgt. 0.26 : 1 0.52 : 1 + 100% Mid - Mgt. : Jr. Mgt. 0.41 : 1 0.67 : 1 + 63% Sr. :Mid : Jr. Mgt 0.88 : 1 : 2.45 1.57 : 1 : 2 +78% : 0%: -18% *All ratios are calculated without adding reserves ** Does not include non-IA&AS STS-I SHANTANU BASU Issued on August 9, 2010 25
  27. 27. Sr. Mgt: SAG & > Mid-Mgt: NFSG & JAG (STS-II) Exec. Mgt: STS-I Jr. Mgt.: JTS The following pie charts show the difference graphically: While the numbers in the preceding table may appear outrageous to many readers, the table also shows how understated and unrealistic the IA&AD’s figures of cost of audit are. The present generic division of govt. functions appeals to numbers of paras in reports, yet such coverage is woefully inadequate in terms of impact. Govt. has multiplied manifold, both in numbers and reach (even post-1991); audit should be commensurate with such increase. If executive decision-making and risk-taking has multiplied manifold, the audit risk too has multiplied manifold. It’s just that the present structure, numbers, skills and methods are woefully inadequate and thus strike at the credibility of CAG’s audit. If the IAAD expands its HR at the IAAS level the situation would dramatically change with JS and above level officers being involved in sophisticated forms of audit and reportage. While no change is proposed at the Apex: HAG level, the chances of promotion from SAG to HAG would increase by 56% (i.e. 2 SAG : 1 HAG against 4 SAG : 1 HAG now). Similarly, the promotion avenues for JAG to SAG would be substantially speeded up with the senior management posts having been doubled. For fresh recruits the IA&AS would become a more attractive proposition as promotions from junior management to mid-management would increase by 63% (of posts). For officers promoted from the ranks, this would be an equally welcome move as most of them would now superannuate at least in the JAG. If the non- IA&AS STS-I were to be introduced promotions from the ranks would be substantially faster. This would also attract talent to the service at the junior levels and assure consistently high quality of the IA&AD’s Reports. Thus audit planning and conduct would henceforth be done at senior levels with better skill sets; this would also have an impact on recruitment at Gr. C and other NGO levels. Faster track promotions, in tandem with other measure mentioned in this paper, are likely to attract talent to the IA&AS. Post-restructuring, the IA&AS would favorably compare with the IFS as the following chart shows: SHANTANU BASU Issued on August 9, 2010 26
  28. 28. 200 IFS IA&AS 180 160 140 120 100 80 60 40 20 0 JAG:STS JAG & >: STS SAG & >:JAG SAG & >: Total SAG & >: STS IFS 51.77 135.82 162.33 35.64 128.11 IA&AS 75 194.7 157 34.35 119 10. National Audit Boards There would be about 25 functional National Audit Boards at HQs for CAG’s GOI audit mandate. The Central Audit Boards would be organized on a unique sectoral/thematic pattern providing for about 5-6 Ministries/Depts. of GOI with all their allied units (there are about 85 Ministries/Depts). However, this may not be possible to implement for the States since the magnitude of their operations in each sector would be limited by reason of area or finances. Therefore a Regional Board may suffice by clubbing about 5-6 contiguous states together. The same logic would apply to the A&E Boards. The HR Services Board would oversee the personnel, administrative and financial policies of the IA&AD and include training and administration for the entire department. Other than for postings/transfers/assignments of Group ‘A’ officers when this Board would meet with 3 Secretary level officers, normal business would be transacted by the Secretary of this Board. Thus the Staff, Personnel, AC(P), Legal, Budget, Internal Audit & Inspection, Works, Training, ICisa, NAAA, RTI/RTCs, IS, Estate would be part of this system. One HAG officer could look after Groups ‘A’ and ‘B’ while another could do so for Groups ‘C’ and ‘D’. They may be assisted by a Director each. While the State Audit and A&E Boards would be located outside NCR, many of the central Boards may also have to be located in other metro cities considering the severe shortage of office space in Delhi/New Delhi. SHANTANU BASU Issued on August 9, 2010 27
  29. 29. The technical boards would be located in the four major metros and would provide support services to the audit offices whenever requested to do so. The permanent attachment of the technical expert cadre to audit offices may be a waste of HR since their services would not be available to other offices; this is more so since the technical personnel would be not be required throughout the audit or preparation of the report. The regional boards would assume the full responsibility of the reporting work, including that of appearing for PAC/COPU and all other meetings to defend the content of the report. The present system of leaving the onus of defense on the AG even when he has not proposed changes to a review/para is seemingly improper by imposing standards of debate that he or his officers may not subscribe to. Thus the new structure would not only decentralize the audit reporting function but also make for a single-window dealing with all reporting matters. The proposed system would be more accountable than the present diluted system that relies mainly on fault finding and often unrealistic projections and distortions of facts by personnel who have not done the audit themselves or have even been involved in the process and thus have no public responsibility for what they suggest or do not possess the technical knowledge required to examine executive proposals. A functional central audit services board could have ENERGY with fossil fuels, thermal, hydel, atomic and non-conventional as the five principal audit offices. These offices could then have regional level audit offices. These offices would not only cover the Ministry of PNG but its public sector companies, OIDB and other ABs in the energy sector. The offices would thus have to be staffed in a multi- disciplinary manner that would render the Commercial Audit and sundry other present office systems such as PDA (ESM) redundant. While the main/regional offices would carry out the in situ audit mandate, the HAG level principal audit officer (Energy) would provide the report mechanism in consultation with the Energy Board at HQs that, in turn, would coordinate the field audit in accordance with a central audit plan for the year. This arrangement would relieve the HAG principal audit officer for the sector of his administrative field responsibilities, provide a unified line of command with the Board and remove multiple levels of accountability for the field audit officers. Virtual seamless integration would therefore become possible. 10.1 Organizational Layout in States There would a Pr. AG (Audit) for each State and UT, irrespective of size and population, etc. on the analogy of there being a CS in each. In a State AG the Directors would be assisted by SAOs/AAOs redesignated as Sr. Audit Managers and Dy. Audit Managers respectively. The PAG would discharge the higher audit/strategic management function and be responsible for all audit report related work from post-IR stage till presentation and action taken stages. He would also be the prtincipal Audit Authority for the State. Careful thought would have to be given to making the annual audit plan so that the present descent into chaos within the first three months is minimized. Redundancy would have to be built into the staffing of AG’s offices to attend to special inquiries, etc. The PAG (Audit) would have only about 3-5 composite audit teams to collect non-Audit Plan information as required by other audit offices/HQ from time to time. The PAG (Audit) would not be organized on functional department basis and would be report-oriented. The PAG system at the GOI level would be required to run GOI audit offices in major states in addition as part of the 15 dedicated Boards for each cluster of functions of government. However, it may be useful to have a SHANTANU BASU Issued on August 9, 2010 28
  30. 30. HAG level officer in large offices >500 staff if such offices yet remain after functional reorganization. Unlike, the PAG (Audit), the AG (Audit) would be organized in clusters of departments like the central audit offices/Board. Thus typically an AG’s office would have a GO for environment, energy, forest, wildlife conservation and all their constituent units, including PSUs and ABs and another one for agriculture, irrigation, water supply, PHE, etc. Again, unlike the PAG (Audit), the AG will have composite wings with corresponding multi-disciplinary audit teams to carry out on-site inspection. However, their responsibility would be limited to IR issue and follow-up stage and forwarding likely report-value cases to the PAG (Audit) and providing whatever additional information the latter may require to finalize such cases. Given the linkages involved between the PAG and AG, it would be better to institutionalize a Coordination Meeting once every month between the PS and the AsG and a copy of the agenda and minutes is sent to the HQ Regional Board. The Regional/Central Board Head could also chair this meeting in stations by rotation. Applying the level differentiation norm, 100% AOs and 50% SAOs should serve in audit management while 50% of SAOs move to the strategic management level. By the same logic again, 25% AAOs should assist SAO while 75% should be deployed for field audit duties; the same would hold true for Sr. Auditors and Auditors. In practice however, this may not seem possible on account of the 80:20 rule. Nonetheless, the manifold rise in field audit and strategic management offices may be reasonably expected to absorb the current HR without prejudice to the proposed level and functional differentiation. In addition, one-time optional transfer of officers and staff from A&E offices to reconstituted GOI audit offices may be considered. The GO (Environment) would audit not only the forest, environment, irrigation, wildlife and archaeology departments, but also be responsible for Pollution Control Boards, multilateral environment aid certification, GOI projects (e.g. Project Tiger), flood control, rehabilitation, PSUs/ABs/Training/R&D Institutes, grants given for environmental conservation, etc. Since audit personnel at Group ‘B’ and below are already available, this may require some limited transfer of staff, perhaps on deputation basis from one office to another or till such time as sector- specific cadres can be created in the years to come. 11. Cost of Restructuring An approximate cost of restructuring of the IAAS is given in the following table: Item Avg recurring liability One-time Total in first Per post/annum five years (Rs. In Crore) (Rs. In Crore) (Rs. In Crore) P&A 0.60* - 80 Capital Works 0.05 100** 140 OE 0.12 40^ 64 Training 0.05 15^^ 55 Others 0.01 10# 18 Incentives 0.005 50$ 70 TOTAL 0.835 215 427 * All figures in table for 175 new posts at DG/PD level SHANTANU BASU Issued on August 9, 2010 29
  31. 31. ** For construction of 175 Type V/VI apartments ^ For computers, ACs, telephones, furniture, car hire, internet, etc. ^^ For external/foreign training # Margin for unforeseen expenses $ Lump sum to 10,000 A&E staff to migrate to audit DEPUTATION 15% STRENGTH REDUCED TO COMPUTE ABOVE FIGS. Revised working strength of IA &AS has been assumed to be 1000-150 (15%) = 850 The Appropriation Accounts published by the CGA for 2005-06 & 2006-07 show the IA&AD having surrendered Rs. 1.59 crore (Rs 1 crore in 2005-06 and Rs. 0.10 crore in 2004-05) under charged expenditure, Rs. 27.75 crore (Rs. 41.38 crore in 2005-06 & Rs. 56.57 crore in 2004-05) under voted revenue expenditure and Rs. 2.35 crore (Rs. 1.81 crore in 2005-06 & Rs. 4.72 crore in 2004-05) under capital expenditure making for total surrenders of about Rs. 32 crore in 2006-07, Rs. 43 crore in 2005-06 and Rs. 61 crore in 2004-05. The total budget of the IA&AD has ranged from Rs. 1000-1200 crore per annum from 2004-05 to 2006-07 and surrenders range from about 2-4% only, indicative of conservative budgeting that may not always be conducive to the functioning of the IA&AD. Even then since we already have buildings of our own in almost all stations, the maximum cost that may have to be incurred to accommodate the new offices would be due to large-scale modular furniture, office equipment, staff vehicles, outsourced services, communications, I-T, housing, etc. Finance being the key to the success of the entire exercise, it is imperative that this issue is carefully worked out with due regard being given to inflationary pressures. The recent acceptance of the VI Pay Commission recommendations by the GOI would certainly lead to an approx. 75% increase in the wage (all P&A heads) bill that by itself constitutes about ¾ of the IA&AD’s expenditure. Adding an overall increase of at least 25% in all goods and services bought by the IA&AD, including relatively high inflation, may easily add another 60-70% to the 2006-07 budget level of approx. Rs. 1200 crore raising the expenditure budget to around Rs. 1900-2100 crore. Adding 175 new Group A posts may cost approx. Rs 4-5 lakh per post per month on an average (incl. revised pension) leading to a recurring and enhancing annual outgo of approx Rs. 85 lakh per post in the first fiscal year of operation. Further, one-time capital expenditure to provide for office and other working amenities may be assumed at Rs. 60 lakh per new post making for a total of approx. Rs. 105 crore (including cost of a Type V apartment, office, etc.). Finally, non-P&A operating costs for a cadre strength of about 1000 Group A officers with enhanced quantum of audit and spread may be estimated at an average of Rs. 100000 per new post or an additional total of Rs. 175-200 crore in the first year and rising thereafter. In sum, the estimated operating cost for the new system (including the existing components) may be in the range of Rs. 2500-2700 crore per annum (approx. 30% above current levels). Even then, the cost of statutory audit may not exceed the present by any appreciable amount since GOI expenditure and those of the states (post-Pay Commission) too would increase proportionately. However, these back-of-the- envelope calculations would necessarily have to be recast by BRS Wing of HQ. However, part of these costs can be recouped by claiming the audit percentage of the audit & accounts percentage prescribed in all major capital SHANTANU BASU Issued on August 9, 2010 30
  32. 32. projects/schemes of the GOI. Given capital expenditure levels of Rs. 251415.61 crore in 2008-09 and assuming a 1% audit share, an amount of Rs. 2514 crore alone could be generated from this source alone that could be utilized for hiring contractual staff and officers on a large scale. It is also worthwhile to note that there are large surrenders of funds under Plan budget heads, mainly for capital expenditure every year. For expansion of the audit function (as distinct from mandate alone), Plan funds for creating new and renewing physical infrastructure (such as buildings, I-T, vehicles, etc.) may be contemplated. Similarly, another Plan scheme for upgrading human resources could take care of the IA&AD’s training needs, including foreign, incentives, hiring specialists, including foreign experts, if required, etc. For instance, a Rs. 2000 crore allocation over a span of five years for both the above schemes could cover many costs that the IA&AD would have to bear on these accounts alone. In terms of percentages, the IA&AD should, ideally, aim at running itself with 60% non-Plan and at least 40% Plan funds. At current levels of expenditure therefore approx. Rs. 1500 crore would be sourced from non-Plan and approx. Rs. 1000 crore from Plan funds per annum. 11.1 Audit Operations Fund The IAAD therefore needs to seriously consider whether an Audit Operations Fund should be created with the audit fees earned by the IAAD annually to partially cover operational costs of the department that are needed to beef up the audit effort and also provide incentives to officers. This Fund would be administered by a Board comprising CAG and 2 Dy. CAGs that would distribute the moneys to field offices at the beginning of the financial year. Separate rules for investment, banking, accounting, audit and expending moneys from this Fund would have to be devised so that operational flexibility is not impaired and the purpose defeated by applying GOI rules to it. Nor should GOI apply net accounting principles for this amount since this would presently be in the range of Rs. 100-125 crore per annum (to rise after VI Pay Commission). The IAAD should also consider reworking the manner in which fees are collected so as to recover at least 25-50% of the office expenses spent on the overall effort. Audit fees should also be charged in advance on an estimate as a lump sum with a post-audit adjustment bill being preferred at the end of every financial year, instead of a lump sum reimbursement. The IAAD therefore needs to explore supplementary sources of revenue that it could use per its own defined discretions and also provide additional benefits to IAAS officers such as attractive health and life insurance, larger reimbursement of telephone and car expenses, etc. 11.2 CAG & IAAD: Charged vs. Voted Expenditure The persisting historical anomaly of the CAG being treated on a different financial footing from the department he heads needs to be sorted out. The primary ingredient assuring the relative independence of the IA&AD is financial autonomy that can be assured only if the powers of a Cabinet Minister and a charged budget are vested in CAG. Even the one-time grant from GOI should be charged expenditure. However, the administrative powers of a Cabinet Minister should continue to vest in the Finance Minister that would allow us to retain the tag of the civil service and reduce the resistance that the IA&AD’s proposals may have to face as also to keep the deputations path open and not be typecast as auditors only. SHANTANU BASU Issued on August 9, 2010 31
  33. 33. 12. Perspective and Strategic Plans There is every need to draw up a systematic and detailed roadmap for the IA&AS in the shape of a decennial perspective plan akin to the GAO’s strategic plan 2007-12 may provide some ideas for the IA&AD in the shape of an internationally benchmarked plan. A sample of the GAO’s Plan follows: The following diagram shows the relationship between the different levels of the Plan: SHANTANU BASU Issued on August 9, 2010 32
  34. 34. 13. Shaping the Proposals Considering the expansive nature of the proposal and its numerous linkages, particularly financial, it may be advisable to create 4 working groups on full-time basis to work out detailed proposals on each of the four HQ Boards and their field offices. ICisA being located in the NCR, enjoys a locational advantage, apart from being readily accessible to all parts of the country and is perhaps the best venue. It is also provided with boarding and lodging facilities for the members of these groups and other visiting officers. The working groups may be provided independent budgets, authority to travel by air for all staff and officers, visit any office and interview officers, collect relevant data and submit their individual chapters within two months. Thereafter a Committee comprising of 3 DAIs may collate all the information and draft the final report for consideration of CAG and GOI in another month. These proposals would necessitate re-writing of all manuals in the long run, although in the interregnum, the existing manuals would, suo motu, apply to the respective work activity of the offices. The Groups should also draft a mid-term Strategic plan based on a decennial Perspective Plan. A sample of the US GAO’s Strategic Plan is shown on the following slide. Sparing 4 HAG, 9 SAG, 4 NFSG, 4 JAG (including 1 promoted) and 4 STS (including one promoted) officers for about three months to work on the restructuring and drawing up plans may not pose any major logistical problems either. The Working Group ADAI would mainly preside over periodic meetings of his/her working group and therefore would be available to attend to his/her regular work. 13.1 Implementing the Proposals While the three main planks of a cadre review would be decentralization, differentiation (product and level) and diversification (of products and services), these would necessarily involve the three corresponding elements of commitment and imagination and a vision of the future (say 20-30 years) on the part of the reviewer. Deliberations that take all six factors into account are most likely to succeed. The association of officers (not more than 5-6) who have service sufficient to oversee the restructuring would be beneficial. These officers could be granted official status in the shape of a Standing Committee that would submit its recommendations to CAG since HQ Staff branch alone is unlikely to be able to handle the additional work load on this account alone. Given the complexity of the restructuring exercise, it may be advisable to constitute this Committee as a separate and full-time entity with its own secretariat with tenure of five years for each member. However, care needs to be taken that the officers selected are neither sent on deputation nor any foreign assignment during this period. The selection of officers should however, not be Delhi-centric since the proposed VPN would cover all offices in the IAAD by 2010. In order to compensate such officers at the end of their tenure some incentives may be worked out by HQ such as lump sum cash awards of Rs. 5 lakh per head. 14. Conclusion Reform is never an easy process. Given the generally anti-audit disposition of the legislature and the executive in an era of rapidly declining ethics, the reform process needs to begin within and without compromising on the IAAD’s existing powers and mandate. Much of this is possible in-house and within our existing resources. IAAD could rewrite our own manuals, set up Audit Boards and redefine reporting patterns, et al, without much external help since it already has the bulk of the material infrastructure that SHANTANU BASU Issued on August 9, 2010 33
  35. 35. it requires. A scientific reordering of the IAAD would also control the anomalies in the structure as the following pre- and post-restructuring graphics respectively show vis-à-vis the IFS: 200 150 100 50 0 JAG:STS JAG & >: STS SAG & >:JAG SAG & >: Total SAG & >: STS IFS 51.77 135.82 162.33 35.64 128.11 IA&AS 75 194.7 157 34.35 119 IFS IA&AS What is required is a concrete plan of action for “the final test of a leader is that he leaves behind him in other men the conviction and will to carry on.” (Walter Lippmann). The ultimate impact of the audit therefore depends on the abilities and motivation of its officer corps, system design and implementation and logistical wherewithal. A convergence of these is a recipe for success. ________________________________________________________________________ The views expressed in this article are personal. SHANTANU BASU Issued on August 9, 2010 34
  36. 36. A. Illustrative List of New Posts as part of GOI Expenditure Audit in new organizational structure Level Nomenclature Station SAG PDs in all Command HQ Jammu, Kolkata, Lucknow, Pune, Meerut (Army) HAG DG (Air Force) Delhi SAG Command PD (AF) Bangalore, Mumbai, Dehradun & Shillong HAG DG (Navy, Coast Guard & Delhi DRDO) SAG Regional PD Mumbai, Chennai, Visakhapatnam HAG DG (Atomic Energy & Space) Delhi + NR SAG Regional PDs Mumbai, Hyderabad, Kolkata, Bangalore, Trivandrum HAG DG (S&T) Delhi + NR SAG Regional PD Kolkata, Hyderabad, Pune, Mumbai HAG DG (Economic Services)-I Delhi + NR HAG DG (Economic Services)-II Delhi + NR SAG Regional PD All State Capitals HAG DG (Social Services)-I Delhi + NR HAG DG (Social Services)-II Delhi + NR SAG Regional PD All State Capitals (except N-E States & NR) HAG DG (Infrastructure) Delhi + NR HAG Zonal DGs Mumbai, Kolkata, Chennai, Lucknow SAG Zonal PD All other State capitals (1 each except N-E States & NR) HAG DG (Central Autonomous Delhi + NR Bodies) HAG Zonal DG Mumbai, Kolkata, Pune, Bangalore SAG Zonal PD All other State capitals (1 each except NE States) HAG DG (Central Revenue)-I Delhi + NR HAG DG (Central Revenue)-II Delhi + NR HAG Zonal DG Mumbai (2), Kolkata (2), Chennai (2), Bangalore (2), Lucknow (2), Hyderabad (2), Ahmedabad (2), Chandigarh (1) SAG Zonal PD All other State capitals (1 each except NE States) SHANTANU BASU Issued on August 9, 2010 35
  37. 37. B. Illustrative List of New Posts at HQ in new Organizational structure Level Nomenclature Brief description of duties HAG DG & Spokesperson Spokesperson for CAG & IAAD, design and publication of reports, audio visual publicity, etc. – Media Adviser to report to DG HAG DG (Human Resources)-I All matters related to IA&AS officers in replacement of AC (P) HAG DG (Human Resources)-II All administrative matters related to Gr. ‘B’, ‘C’ and ‘D’ employees in part replacement of AC(N) HAG DG (Human Resources)-III All establishment matters in part replacement of AC (N) SAG PD (Financial Management & All issues relating to finances and Budget) budget of IAAD in upgrade/replacement of AC(N) HAG PD (Infrastructure) Upgrade of existing PD (HQ) + Chief Welfare Officer for IA&AD and Administrator of Benevolent Fund HAG DG (Inspection) Upgrade PD (Inspection) HAG DG (Report Central)-I Fix charge by DAI/ADAI HAG DG (Report Central)-II Fix charge by DAI/ADAI HAG DG (Report State) – I to VI 3 new posts + fix charge by corresponding DAI/ADAI HAG DG (Railways) To abolish PD (Railway Board) & remerge with DG (Railways) HAG DG (Commercial) –II Upgrade PD (Commercial) PD PD (Exam & Rajbhasha) Merge both charges (since SOGE load reduced with online exam) HAG DG (SRA) Redesignate dormant DG (Trg.) HAG DG (INDT) Upgrade of existing post HAG DG (DT) Upgrade of existing post SAG PD (Legal) Upgrade existing post – incumbent also to tender legal advise on contracts, agreements, etc. HAG DG (International Relations) Upgrade of existing post JAG Executive Officer to DAIs New posts/diversion of existing posts STS Executive Officer to ADAIs New posts/diversion of existing posts NFSG/SAG One for each individual branch New posts/diversion of existing posts under a DG/PD HAG DG (Public Grievances & Staff and public grievances in Accounts) replacement of DG (AE&C) SAG PD (Commercial-State) New post SHANTANU BASU Issued on August 9, 2010 36
  38. 38. C. List of New Designations/Posts for DAI/ADAI in new organizational structure Present Present Designation New Designation Grade Apex DAI No change Apex DAI (Commercial) No change Apex DAI (RA) DAI (Central Revenue) Apex DAI (LB&A) DAI (Infrastructure) – public works, projects, Railways, Defence, Posts) Apex DAI ( Central Expenditure)-I DAI (Economic & Social Services + subjects not covered by DAI (Infrastructure)) HAG+ ADAI (Central Expenditure) -II ADAI (Central Expenditure)-II for Central Autonomous Bodies – ADDITIONAL POST Apex ADAI (RS)-I ADAI (RS)-I for 6-7 major states HAG+ ADAI (RS)-II ADAI (RS)-II for 6-7 major states HAG+ ADAI (RS)-III ADAI (RS)-III for 4-5 major states + 2-3 small states HAG+ ADAI (RS)-IV ADAI (RS-III) for 4-5 major states + 2-3 small states HAG+ ADAI (State Revenue) – I ADAI (State Revenue)-I for 5-6 major states and 6-7 small states HAG+ ADAI (State Revenue) – II ADAI (State Revenue)-II for 5-6 major states and 6-7 small states – ADDITIONAL POST HAG + ADAI (Accounts & ADAI (Accounts & Entitlements, GASAB) Entitlements, GASAB) - ADDITIONAL POST HAG+ Director General NAAA DG, NAAA on analogy with Railway Staff College, NIDT, SVPA, etc. - ADDITIONAL POST D. Illustration for reorganization of MABs without adopting new organization structure HAG MAB-I, Delhi HAG MAB-II, Delhi HAG MAB-III, Delhi Most companies in these portfolios are HAG MAB-IV, Delhi Schedule ‘A’ headed by Apex level CMDs HAG MAB-I, Mumbai HAG MAB-II, Mumbai HAG MAB-II, Kolkata SAG MAB- Telecom –I, Delhi SAG MAB-Telecom – II, Mumbai For BSNL, MTNL, RAILTEL, TCIL, etc. – SAG MAB- Telecom – III, Kolkata transferred and upgraded from DGAP&T SAG MAB – Telecom – IV, Chennai SAG MAB – Telecom – V, Bhopal SHANTANU BASU Issued on August 9, 2010 37