4. Goal 2 : PROMOTING PROFESSIONALISM IN PUBLIC SECTOR

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Goal 2 : Promoting Professionalism in Public Sector Auditing

4.1     Sector­      specific knowledge centres and resource persons

This strategy is about:

2A.         Creating an institutional mechanism of Knowledge Centres (KCs) for knowledge capture and maintenance on a sector‐specific basis

2B.         Creating sector‐specific pools of Knowledge Resource Persons (KRPs) at two levels 

(IAAS and supervisory officials) and providing suitable remuneration for this continuing, additional responsibility

Need for Knowledge Centres

The issue of constituting knowledge centres and pools of resource persons with sector‐specific domain knowledge in areas has been engaging the attention of top management at several forums. Our current work in different sectors (whether performance or thematic audits) is structured on an assignment‐by‐ assignment basis, and there is little long‐term continuity in maintaining and tracking developments in a specific sector. While instructions have been issued by Headquarters from time to time for preparing auditee profiles in the form of permanent audit files etc., these are prepared routinely in most field audit offices and cover only individual ground level units, without providing an overall sect oral perspective.

Consequently, as and when a performance audit (especially an All India Performance Audit) is undertaken, literature and information have to be collected and assimilated ab initio, and there is no institutional structure or mechanism for maintaining an organizational “memory” on a sect oral basis. In the absence of such sector‐specific knowledge gathering mechanisms, the audit guidelines often place undue emphasis either on generic issues which cut across all sectors (e.g. planning, financial management, monitoring and evaluation) or go down to very highly entity/ unit‐specific issues arising out of past audit reports/ IR findings. There is thus a pressing need for institutional arrangements for knowledge capture and maintenance on a sector‐specific basis.

	Illustrative Sample of Sectors for Knowledge Centres
·	Petroleum	·	Agriculture and ·			Irrigation;	·	Internal Security
·	Power		food security;		·	Telecommunications	·	Defence
	generation and	·	Rural		·	Railways		Preparedness
	transmission		employment
					·	Roads	·	Financial
·	Power		and	poverty				markets
					·	Shipping
	distribution		alleviation;				·	State Finances

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·	Steel and	·  Women	and	·	Civil Aviation
	Coal (including mining)	Child		·	Atomic Energy and
·	Environment	Development			Space

·                               Scientific  ^{·  Health}

Institutions                           ·      Education

We are proposing two arrangements for sector‐specific knowledge building:

·       Offices to be designated as “Knowledge Centres” (KCs) for specific sectors;

·       Individual officials to be designated as “Knowledge Resource Persons” (KRPs).

Knowledge Centres (KCs)

With the proposed re‐organisation of GoI audit offices, generally the officedealing with a specific sector (or a State PAG/ AG office with rich experience and competence in a specific sector) will act as the knowledge centre for that sector, and will also cater to the needs of State PAGs/ AGs. The responsibilities of the knowledgecenters will include the following:

·      Preparing periodic comprehensive sector‐specific papers as well as status updates (with the assistance of Knowledge Resource Persons);

·      Preparing electronic compendiums of sector‐specific data relating to (a) auditees (b) audit findings (both audit reports and IRs) (c) accounting and other statistical information of a sector‐specific nature (d) other policy and related documentation (both national and international) for use by IAAD offices;

·      Providing assistance to individual field offices in preparing guidelines for performance/ thematic audits of specific sectors – including drawing up of audit objectives, audit criteria, and audit issues;

·      Providing assistance in hiring of external experts (for providing second‐level sector‐specific knowledge which cannot be provided from within the Department).

Knowledge Resource Persons (KRPs)

 Given the wide variation in competencies and skills of officials within the Department (and  indeed Government as a whole), we cannot rely exclusively on institutional mechanisms such  as knowledge centres for sector‐specific knowledge building.

In addition to such knowledge centres, we also need to create sector‐specific pools of Knowledge Resource Persons (KRPs) at two levels:

·      IAAS Knowledge Resource Persons (KRPs) – who could be a mix of DGs, PDs, and Directors so as to ensure continuity in the event of retirement, deputations etc. (ideally three persons

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for each sector); these IAAS KRPs will continue to act as resource persons for that sector, irrespective of their current place of posting or function. These KRPs will have to prepare a draft comprehensive paper for the specified sector (typically once every three years) along with half‐yearly status updates; these will be routed through the concerned offices acting as Knowledge Centers. They will also need to take training sessions on these topics at NAAA, iCISA etc. For this continuing item of work, suitable remuneration in the form of honorarium (e.g. one month’s basic plus grade pay per annum) could be provided as an incentive

·      Supervisory Knowledge Resource Persons (KRPs) – these would be at the level of SAO/AO/AAO who would be posted to the Knowledge Centres in the specified offices; they would be responsible for collecting background information (both from the Ministries/ Departments/ units, as well as websites, newspapers etc.) and would be feeding this information to the IAAS KRPs. In addition, these supervisory KRPs would be responsible for ensuring that sector‐specific electronic databases / compendiums are kept upto date and also for internal circulation (hard copy/ IAAD website) of these documents within IAAD offices and officials. They will also need to take training sessions on these topics at the RTIs etc. For this continuing item of work, suitable remuneration in the form of honorarium (e.g. one month’s basic plus grade pay per annum) could be provided as an incentive

4.2 Encourage central and state governments to build and strengthen institutional arrangements for internal audit and risk management

This strategy is about:

2C.         Encouraging Central and State Governments to build and strengthen institutional arrangements for internal audit and risk management.

Encouraging Internal Audit systems

A strong internal audit system in any organisation aids in evaluating the adherence of the organisation to the policies laid down by management. Effective response to issues flagged by the internal audit mechanism coupled with timely intervention by the management improves the governance levels in the organisation. A weak internalaudit leads to an additional burden on external audit as the external auditors are forced to examine the basic issues of compliance rather than concentrating on critical policy, performance and system related issues.

In the Government of India internal audit mechanisms have largely been non starters. Most of the ministries barely have a few internal audits being conducted every year. Rarely do the internal audit teams flag criticalissues, which can be relied upon by the external audit teams in the assurance process. Even after the strengthening of the role of Financial Advisors by the Government of India, the situation does not seem to be improving significantly. Though the Financial Advisors of the Ministries have been given independence to act in a fair manner without pressure from the line ministries in which they

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serve, they have really not been able to deliver the goods. The situation in the States is even worse, and but fora few exceptions, in most of the states, internal audit is a very low priority.

It is, therefore, in the interest of the CAG of India to promote robust internal audit mechanisms within the Central/State Governments, so that the CAG could concentrate on more critical issues that require evaluation by an external auditor. The CAG of India would need to aid the Central/State governments in capacity building in audit skills through training programmes. The proposal for creation and setting up a separate institute for training (CIPAAI), which could aid the Central and State Governments in building capacity for internal audit, has been discussed separately in this strategy document. The inclusion of a section on internal audit in the Management Responsibility Statement and a comment on the adequacy of internal audit systems has been discussed further in paragraph 6.2.2.

Encourage better risk managementby Central and State Governments

Audit of risk management focuses on how wellthe executive has managed risksassociated with itskey activities. As auditors,we are equally interested in promoting adoption of good risk management frameworks/practices in Ministries/ Departments; as such management practices would facilitate better governance and implementation ofpublic sector schemes, programmes and activities. However, risk management is, and should be, the responsibility of the Executive (and not audit)and it will be the endeavor of the CAG to promote better risk management by supporting theInternal Control and Risk Management (ICRM) framework initiatives of the Government of India. Better management of risk and better internal controls will go a long way in aiding the assurance that is to be given by the CAG on the accounts of the Government.

4.3 Establishing a Chartered Institute of Public Accountants and Auditors of India(CIPAAI)

This strategy is about:

2D.         Establishing a Chartered Institute for Public Accountants and Auditors of India (CIPAAI) on the lines of ICAI and ICWAI, under the aegis of the CAG of India.

2E.         CIPAAI would tackle issues of day‐to‐day accounting problems and professional upgradation of

the skills of the vast pool of finance, accounts and audit personnel at the grass roots level, and

address deficiencies in the accounting processes and financial controls across organisation like  huge arrears in accounts finalisation and weaknesses in internal audit.

2F.  CIPAAI would provide professional certification to the Group A professionals of the CAG  organisation entering into the Government of India through Civil Service Examinations.

2G.         CIPAAI would provide professional certification to the Group B and C professionals from the

CAG by subsuming the SOGE currently being conducted by the CAG and also to other finance, accounting and audit professionalsin State/Central government departments on demand.

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The Rationale forestablishinga separate Institute

Current Background

Finance, Accounts and Audit Management in India is currently being carried out in the Government by constituted Accounts and Audit Services and by Chartered Accountants, Cost and Works Accountants and MBAs in the Public Undertakings and Private Sector. These professionals undertake financial, accounts and audit management functions mostly at the top levels. Further,there are a multitude of other layers(at the supervisory and clerical cadres)in the Government and Non Government Sectors also involved in managing and improving finance, accounts and audit administration in this country. Most of these institutions only address and tackle the higher level of financial policymaking, accounting and standards,instead of day‐to‐day accounting problems and the need forprofessional upgradation at the grass roots level.

While the certificationsby the Institute of Chartered Accountants of India, Institute of Cost and Works Accountants of India etc,areprofessionally recognised, the skills acquired by the Government auditing and accounting services/ specialistsare without any professional recognition. Though someof these functionaries have a formal background in finance, accounts and audit,a majority of them do not possess professional qualifications. Even those possessing professional qualifications haveacquired themonly at the entry point and do notgo in for upgradation/ continuing professional education in the course of their long career spanning 30 to 40 years. In the past, clearing the ‘SAS’ (Subordinate Accounts Services) examination (currently known as the Section Officer Grade Examination) conducted by the CAG was considered as a suitable qualification for recruitment in other Public Sector Organisations. However, this practice has disappeared now.

The problem

Currently, there is lack of professionalism amongst the lower and the middle level functionaries in the area of finance, accounts and auditing. This has led to deficiencies in the accounting processes and financial controls acrossorganizations e.g.

·       Huge arrears in finalization of accounts of many institutions both Governmental and Commercial, with even routine functions like reconciliation within offices are being neglected.

·       Internal Audit, which is required to flag accounting, control and other related issues to the management, is most often nonexistent or ineffective.

Finally the burden of this falls on the External Auditors, who have been pointing out numerous

shortcomingsyear after year. The problem has acquired acute dimensionsand is widely recognized. There is also a huge shortage of properly trained and skilled accounting/auditing personnel at the lower

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and middle levels. Without any professional qualification (apartfrom their experience), the lower/middle level accounts/audit functionariesdo not have a sophisticated understanding of the principles of accounting or their implementation. In the absence of any growth prospects linked to qualifications,they are notadequately motivated enough to upgrade themselves in line with best practices. There is, therefore, a kind of vicious cycle that operates, leading to a lower level of efficiency and effectiveness in the finance, accounting and auditing processes in State Governments, State/Central Government undertakings, Cooperatives, Autonomous Organisations, Urban & RuralLocal Bodies, Universities, Public utilities etc.

With the advent ofglobalization, policy makers, state/central governments, the CAG, end usersand the World Bank and other multilateral funding agencies have highlighted the need for upgrading and professionalizing the skills of the finance, accounts and audit staff at the lower and middle levels. Further, the need for such up gradation is also validated by the fact that India is emerging globally as a leading service provider in business process outsourcing in the Financial Sector.

InternationalScenario

This problem has already been addressed in many countries by setting up professional bodies likethe Government Finance Officers Association (GFOA), Association of Government Accountants (AGA) and Certified Government Auditing Professionals (CGAP) in the United States of America (USA), Chartered Institute of Public Finance and Accountancy (CIPFA) in the United Kingdom, Association of Accounting Technicians (AAT) in South Africa, Australia, Sri Lanka and the U.K. In Canada, certification in the form of “Certified General Accountant” (CGA) addresses this need. These Institutions/ certificationshave helped in bridging the gap of skill and knowledge requirements at the grass roots level.

Why the need for a separate Chartered Institute

It could be argued that the already existing institutionslike the ICAI, ICWAIetc. could address the issue of skill upgradation at the middle and lower levels of accounts professionals. However, the mandate and culture of these institutions do not easily facilitate them to undertake this task, as they have well‐ established procedures, which cater to a predetermined select target group, which forms a miniscule elite. It would be difficult anddisadvantageous for them to expand their processes to cater to a lower target group. Further, the existing Institutes have maintained their standards,mainly due to the homogeneity of the background of their members. Hence it is essential that a separate nationalbody establish a specialised institution for creatinga professional layer of lower/middle accountants/auditors with individualaspirations and qualifications, especially since massive numbers across the country are involved. In such a scenario,it would be essential for a well‐established organisation like theCAG to take the lead and address the various issues detailed in the proposal.

What the institute would do

The establishment of a Chartered Institute is likely to be a major step in:

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·     Overcoming the deficiencies in the available knowledge and skill of the lower and middle level of finance, accounts and audit functionaries, and acting as a major provider, motivator and facilitator for upgrading their skills, and also bringing about a quantum change in the quality of finance, accounts and audit in the country and serving as a model for developing countries.

·     Providing professional certification to the Group A Audit and Accounts professional entering into the Government of India and State Governments through Civil Service Examinations.

·     Providing professional certification to the Group B and C Audit and Accounts professionals.

·     Establishing a programme for Continuing Professional Education (CPE) for certified professionals.

Statutory Recognition for CIPAAI

The certification being issued by the CIPAAIwould require to be recognized by the government so that the certification beingoffered has value in the market. In order to operationalise CIPAAIas a separate chartered or national institute on the lines of ICAI or ICWAI,it would, therefore, be necessary to obtain parliamentary approval through passing of an Act. Thereafter, CIPAAI degree/certification could strive to have the same kind of recognition in the public auditing and accounting space that the CA certification enjoys in the commercial accountancy space.

The detailed proposalis given in Annexe‐ 5.

4.4 Setting upan International Consultancy wing

This strategy is about:

2H.         The need in SAI India to set up an International Consultancy wing, as there is a great demand

for SAI India’s expertise in areas of Public Audit and Financial Management amongst many  SAIs who are in the process of developing the public audit systems in their countries.

With 150 years of history in auditing and accounting, the CAG of India has been able to emergeas one of the most developed and matured SAIs in the world. In the last 3 decades, SAI India has been also showcasing its strength by taking up many prestigious international audit assignments. Further there also been a very great demand for SAI India’s expertise in many other SAIs who are in the process of developing the public audit systems in their countries, especially because of the similarity of the auditee environment and challenges (unlike SAIs in developed countries). Further, in many emerging areas of audit like IT audit, social sector audit and environment audit, the CAG has been able to make a mark internationally and emerge as world leaders.

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In the years to come there is need to build a wing in SAI India which would project itself as serious player involved in taking up International Public Audit and Finance consultancies. The specialized wing could be initially headed by a Director General of Audit/Principal Director of Audit and have a young team of 3 to 4 Director level officers who could specialise in areas like accounts, Performance Audit, Compliance Audit, Certification Audit etc. In addition, a panel of experts (both IAAS and supervisory officers) with sector‐specific domain expertise could also be maintained. The identity of this wing could, perhaps, be separate from the International Relations Wing though the two wings would require working together while soliciting and undertaking international assignments.

The International Consultancy wing could also associate itself with some of themultilateral funding agencies like World Bank and the Asian Development Bank who could also fund such consultancy initiatives in SAIs who feel the need for upgrading their Public Audit and Financial systems.

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