TIOL-DDT 123 · the untouched capture
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <b><font color="#6633CC" size="3">TIOL-DDT
123</font><br>
27 05 2005<br>
Friday</b></font></p>
<p align="center"><font color="#006633" size="2" face="Verdana, Arial, Helvetica, sans-serif">
<b>Audit Alteram Parten</b></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">At the G-22 summit
in Evian, France in June 2003, President Bush asked a question, “How
many countries even audited their accounts?” India’s irrepressible
Prime Minister Vajpayee retorted, <b>“My problem is that I am tired
with the number of audit objections that I receive.’’ <br>
</b><br>
Audit is no doubt an essential requirement but when Audit goes berserk and
raises patently ridiculous objections, that throw overboard established systems
and when babus refuse to take decisions for fear of Audit, it’s time
we have a relook at the whole concept and process of Audit itself. Let us
look at the scenario in Central Excise. <br>
<br>
The long history of trouble starts with picking up the auditors for the great
audit work. Once this preliminary courtesy is extended, neither the assessee
nor the Central Excise officer can rest. After a few days of continuous audit,
the Audit party issues half margin memos to the Superintendent of Central
Excise in charge of the factory listing out their objections and the Superintendent
is required to give his replies. Whatever be his reply, the objection is not
closed. The Audit party goes and in due course the Audit report arrives and
this time the AC/DC of the Division is expected to answer which means the
paras will be sent to the ranges and the Superintendent will be required to
answer, which means the paras will be sent to the assessees and he will be
asked to answer the Audit paras. Some assessees take the help of consultants
in replying to Audit paras for the department. Even before the AC/DC sends
his reply, in most cases the objection is converted into an SOF( Statement
of Facts) and now the Commissioner is involved and before you can say AG,
it becomes a DAP ( Draft Audit Para) and now the Board is involved, which
means, the Commissioner, DC, Superintendent and assessee are involved. By
this time the files become bulky in all offices and with frequent transfers
of officers within the department, nobody has any idea as to what the original
objection was and then it is converted into a PAC matter and a group of Hon’ble
Members of Parliament will summon the Commissioner and other officers to discuss
the issue and things will revert to stage 1. In the mean time whether the
department agrees with the audit objection or not, Show Cause Notices will
be issued and they will be in different stages of adjudication, appeal or
hibernation. <b>Mountains of papers are created and thousands of man hours
engaged in the great audit chase – finally nothing may happen and usually
nothing does. </b><br>
<br>
Of late, Audit has raised objections on the rules, notifications and Board
circulars and auditors often remark, “we are a constitutional authority”
and so believe they are not bound by ‘law’ created by the executive.
Some of the objections raised by Audit have created comical situations. Immediately
on receipt of an audit objection, the department is required to issue protective
Show Cause Notices. Audit had raised objections that the abatement allowed
from MRP for aerated waters is more than the permissible limit; 12% credit
allowed for purchases from re rolling mills is too much; certain exemptions
given to textiles are not correct and many more, some of which we chronicled
in these columns recently.<br>
<br>
Government issues notifications in exercise of powers conferred under the
Act and the Audit’s audacity to question this power is logically fallacious.
Can the AG ever know better than the Board as to how notifications are to
be given? . But when Audit raised an objection, the field officers are required
to give a notice and the notice would have to be to explain why duty cannot
be demanded for the offence of following Government notifications! And Board
directs that Show Cause Notice has to be given even when Audit attacks the
law.<br>
<br>
It will be a worthwhile exercise for the CAG to conduct an audit of his own
offices to find out how much his objections have cost the exchequer and the
assessees and how many of the objections were sustained in Tribunal and above.
Above all the CAG should realise that an overdose of Audit will lead to a
stage when Audit will have to face total non-cooperation from the <b>audited</b>,
as the Income Tax Department seems to have already done as reported in these
columns yesterday. What will the Audit do if records are not made available
to them? Does the Audit have the machinery to prosecute for non-production
of records? And should Audit be more loyal than the King? <br>
<br>
<font color="#006633"><b>Vajpayee on Audit</b></font><br>
<br>
<i>Addressing the conference of AGs on 7th April 1999, Mr. Vajpayee, remarked
:</i><br>
<br>
And audit is always a post-mortem in that it is undertaken after the expenditure
has been incurred. Yet, it enables the Government and also the public to learn
from how the money was spent, assess the outcome against the targets and fix
responsibility for those who misused taxpayers’ money. Therefore, after
the Audit Report is prepared, it is placed before Parliament or State Legislatures.
It is followed by an Action Taken Note by the concerned Government. However,
experience shows that in India this does not achieve the desired results.
<b>Governments do not always place all the records before the Auditors, despite
the relevant law stating that the auditors shall have the access to whatever
they want.</b> The Public Accounts Committee often finds it difficult to go
through in detail, all the Reports that it gets. The Public Accounts Committee
can only recommend remedial action to the Government. Acceptance and implementation
of the recommendation is the prerogative of the Government. Consequentially
the financial control that the Legislature is supposed to exercise over the
executive is weak. This results in an increasing number of scams and other
examples of misuse of Government machinery. Those who perpetrate them know
that first they are not likely to be caught and even if they are, unless it
is a large amount, it will simply be buried in one of the paragraphs of a
report that is not always read and acted upon. The serious flaws of omission
and commission in the use of Public resources are the main reason why developmental
projects especially those in the social sector have failed to deliver the
expected results. This has to change. <br>
<br>
Yes, indeed it has to, but Audit too has to change! <br>
<br>
<font color="#006633"><b>Audit Sparks</b></font><br>
<br>
1. In the early days of independence, some bright officers in the Finance
Ministry devised a method to keep the CAG busy. Before taking a decision,
they would send the file to the CAG with the remark, ‘CAG may kindly
see in the first instance’. The CAG and his office will slog to make
a reply and finally on getting back the file, the Finance Ministry officer
would write on the file, ‘we may do as suggested by CAG’. And
no objections from CAG! But the very first CAG of free India saw through this
and wrote on the file, ‘only in the second instance’. <br>
<br>
2. An officer detected a major fraud in an office, of signing bills for illegal
amounts. To detect the fraud, this officer also signed a few bills. Later
all the culprits were booked including this officer who detected this fraud
for he had also signed some bills and he had not detected the fraud earlier.
The rattled officer’s boss wrote to the CAG, “: "Newton discovered
the law of gravity by seeing an apple fall. But the apples have been falling
right from the time of Adam and Eve. It is like charge sheeting Newton for
not discovering the law earlier." It seems the CAG had a hearty laugh
and dropped the objection.<br>
<br>
<font color="#6600FF"><b>During a Law course class, the 'Audi Alteram Parten'
rule was explained. Translated it means "To hear the other party".
After discussing the subject at great length, the lecturer asked if there
was anyone who didn't understand the rule. "Yes," exclaimed a voice
from the back, "my wife!" </b></font><br>
<br>
<font color="#FF6666"><b>Until Monday with more DDT<br>
<br>
Have a Nice weekend. <br>
<br>
Mail your comments to</b></font> <b>vijaywrite@taxindiaonline.com </b></font>
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