Two major categories of government commercial concerns, the accounts of which are subject to audit by the Comptroller and Auditor General are:
As on 31st March 1982, there were 215 government companies (including subsidiaries) and 8 statutory corporations in the Central sector. These oprate in the areas of engineering, chemicals and fertilisers, mining and metals, shipping and transport, ship building and repairing, steel, petroleum and oil, heavy electricals, aeronautics, thermal and hydro projects, construction, coal, textile, trading and services, consultancy, financial, promotional and development activities, general insurance, aviation and tourism, food procurement and distribution, warehousing etc.
In the case of government companies audit is conducted by firms of chartered accountants appointed on the advice of the Comptroller and Auditor General but he is authorised to conduct a supplementary or test audit. He is also empowered to comment upon or supplement the report submitted by the professional auditors. The Companies Act further empowers the Comptroller and Auditor General to issue directives to the auditors in regard to the performance of their functions.
In respect of Air India, Indian Airlines, Oil and Natural Gas Commission, Damodar Valley Corporation, International Airports Authority of India and Delhi Transport Corporation which are statutory organisations, the Comptroller and Auditor General is the sole Auditor. In the case of Central Warehousing Corporation and the Food Corporation of India, he has the right to conduct audit independently of the audit conducted by the firms of chartered accountants appointed under the Acts constituting these corporations.
Audit of public enterprises in India is not confined to financial and compliance audits. It extends also to the efficiency, economy and effectiveness with which these operate and fulfill their objectives and goals.
A big step towards the latter audits was taken in April 1969 when, after considering the recommendations of the Administrative Reforms Commission, an Audit Board was set up under the supervision and control of the Comptroller and Auditor General for undertaking comprehensive appraisals of the working of the government companies and corporations. Depending upon the requirements for appraisal of performance of selected undertakings, the Audit Board meets in groups. Each group consists of the chairman, two whole-time members and two part-time members. The chairman and two whole-time members are officers of the Indian Audit and Accounts Department and are appointed by the Comptroller and Auditor General. One of them has primary responsibility for the audit and preparation of appraisal. The commercial audit wing of the Department for Central government enterprises is organised mainly on functional lines and this has helped in building up expertise. The two part-time members of each group are appointed by Government of India after consultation with and the concurrence of the Comptroller and Auditor General.
The starting point of a comprehensive appraisal of government company or corporation, which covers the economy, efficiency and effectiveness aspects, is the preparation of an audit programme based on the study of decisions relating to the setting up of the enterprise, its objectives and organisation, financial and operational details available in the annual reports and accounts, capital and operational budgets and deliberations of the board of directors. The audit programme identifies the areas/ aspects which require detailed audit analysis, criteria for assessment of performance, data required for audit analysis and the sources of such data and extent of audit analysis including test check to be applied. Guidelines for the audit parties assigned to the appraisal are laid down.
While the appraisals do sometime contain significant individual cases of wastages and infructuous expenditure, these are, by and large, aimed at identification of areas of weaknesses and deficiencies through audit analysis so that the working and operations could be improved. These appraisals by the Audit Board are comprehensive and cover investment decisions, formulation, implementation and control of projects, organisational effectiveness, corporate plans and achievement of objectives, capacity utilisation, production performance including usage of materials, yields, wastages and quality of products, selection and use of technologies, research and development, process and product improvement, maintenance systems, management of materials, equipments and manpower, import substitution and development of ancillaries, costing and pricing, cost control and cost reduction, marketing and credit control, profitability and generation of internal resources, financial management and internal control and audit systems. The areas/aspects covered in comprehensive audit naturally vary from enterprise to enterprise depending on the nature of the enterprise, its objectives and operations.
The efficiency and effectiveness audit of public enterprises is conducted on the basis of certain standards and criteria. Profit is not the key criterion of performance; management's performance in the economical and efficient use of public funds and achievement of objectives is more relevant. The objectives vary from enterprise to enterprise. The appraisal analyses the performance of an enterprise to bring out the extent to which the objectives for which the enterprise was set up, have been served. This, admittedly, is a complex task but basic to effectiveness appraisal. One of the first task of the Audit Board is to identify the criteria for assessing the performance of an enterprise. In the case of a manufacturing enterprise, for example, the feasibility/detailed project report gives the basis of investment, capacity, costs and time schedules, gestation period and built up of capacity, norms of consumption, yields, productivity, costs, rate of return, etc; These provide yardsticks by which the performance is measured. Some of the parameters may change due to external or even internal factors subsequent to the setting up of the enterprise. Due account is taken of the changes effected by valid studies. The enterprises have their long and short term capital and operational plans and these provide another set of reference points for assessment of the performance. Where appropriate, rated capacity of the unit provides an acceptable bench mark against which physical performance is evaluated. Utilisation of the rated capacity is, however, assessed, alongwith norms for consumption of raw materials and utilities, yields and rejections as well as requirements for proper maintenance and servicing of equipment. Cost efficiency is another important basis for appraising performance. Standard or target costs are determined on the basis of norms of capacity utilisation, consumptions, productivity, yields etc. given in the detailed project reports moderated in many cases by expert studies to take care of later constraints and changes. Government has issued guidelines to be followed by the public sector enterprises in respect of general management, financial management, materials management, production management, construction management and these guidelines provide another basis for appraising enterprise performance and its systems. Another source of criteria are industrial engineering and other technical studies by internal and external experts and the standards given in these. Then, there are standards of financial propriety.
Audit is an instrument of accountability. But an equally important purpose of public enterprises audit in India is to help the government and the enterprise managements to improve their efficiency and effectiveness. This is achieved by bringing out the financial and operational deficiencies, inadequacies or ineffectiveness of systems, shortfalls in performances, etc. and by analysing causes of non-attainement of acceptable standards of performance. Financial performance is linked with physical performance and issues of efficient and economic operations and management of resources are highlighted. During its meeting with the management and administrative ministry, Audit Board discusses the needed systems and operational improvements.
The Audit Board finalised appraisals of government companies (or units thereof) and corporations during the years 1982 and 1983. Finalisation of appraisals is planned for the year 1984. After approval, the Comptroller and Auditor General submits the audit reports containing the appraisals to the Parliament and these are examined by its Committee on Public Undertakings.
The system of appraisal by the Audit Board has two distinct advantages. Firstly, the Audit Board has on it expert members who are closely associated with the development of the appraisal and enable the Board to examine the operational and technological aspects. Secondly, the appraisal is finalised only after it has been discussed with the management of the enterprise under appraisal and with the administrative ministry. During these discussions, the management and the ministry give their views on the various issues highlighted in the draft appraisals, explain the problems and circumstances under which certain decisions were taken, operational and other constraints, and policies, plans and programmes. Thus, the appraisal that is finally presented to the Parliament becomes an objective, balanced and constructive appraisal of the performance of the enterprise. Considering the value of the Audit Board system, the Comptroller and Auditor General has proposed that the same be adopted for the companies and corporations of the State governments. This has received a good response and Committees on Public Undertakings in some States have recommended the system to the State governments.