What is good corporate governance?

Good corporate governance is characterized by a firm commitment and adoption of ethical practices by an organization across its entire value chain and in all of its dealings with a wide group of stakeholders encompassing employees, customers, vendors, regulators and shareholders (including the minority shareholders), in both good and bad times. To achieve this, certain checks and practices need to be wholeheartedly embraced. Some considerations in this respect are outlined below: Codes of conduct and whistle blower policies are important, but more important is how they are communicated and practiced. It is vital for board members and senior management to lead by example The concept of having independent directors is a good one in theory but more important is the process underlying selection of independent directors is this process rigorous, transparent and objective and is it aligned to the companys needs? It is important to focus on not just earnings but on the sustainability of business models. Focus on not just How much? but on How?, At what cost? and At whose expense? Rating agencies need to develop criteria that focus on substance rather than the form of governance Compensation of executive directors should flow from an objective performance evalution process conducted by the board Greater transparency and disclosure of executive performance criteria are required which should include financial and non-financial measures Regulators should send clear signals that they shall be proactive in imposing substantial penalties for non-compliance, so that compliance is strictly adhered to.

ROLE of Comptroller & Auditor General : - To enhance accountability of the executive to the Parliament and State Legislatures by carrying out audits in the public sector and providing accounting services in the states in accordance with the Constitution of India and Laws as well as best international practices. - Where entrusted, to provide technical guidance and support to local bodies including Panchayati Raj Institution to enhance their accountability. The term comptroller evolved in the 15th century through a blend of the Middle English countreroller (someone who checks a copy of a scroll, from the French contreroule "counter-roll, scroll copy") and the French compte ("an account"), thus creating a title for a compteroller who specializes in checking financial ledgers. This etymology explains why the name is pronounced identically to "controller" despite the unique spelling. 149. Duties and Powers of the Comptroller and Auditor-General - The Comptroller and Auditor-General shall perform such duties and exercise such powers in relation

to the accounts of the Union and of the States and of any other authority or body as may be prescribed by or under any law made by Parliament and, until provision in that behalf is so made, shall perform such duties and exercise such powers in relation to the accounts of the Union and of the States as were conferred on or exercisable by the Auditor-General of India immediately before the commencement of this Constitution in relation to the accounts of the Dominion of India and of the provinces respectively.

The organisations subject to the audit of the Comptroller and Auditor General of India are: All the Union and State Government departments and offices including the Indian Railways and Posts and Telecommunications. About 1500 public commercial enterprises controlled by the Union and State governments, i.e. government companies and corporations. Around 400 non-commercial autonomous bodies and authorities owned or controlled by the Union or the States. Over 4400 authorities and bodies substantially financed from Union or State revenues Audit of Government Companies (Commercial Audit) There is a special arrangement for the audit of companies where the equity participation by Government is 51 percent or more. The primary auditors of these companies are Chartered Accountants, appointed by the Comptroller and Auditor General of India, who gives the directions to the auditors on the manner in which the audit should be conducted by them. The Comptroller and Auditor General of India is also empowered to comment upon the audit reports of the primary auditors. In addition, the Comptroller and Auditor General of India conducts a test audit of the accounts of such companies and reports the results of his audit to Parliament and State Legislatures. Audit Board Setup in Commercial Audit A unique feature of the audit conducted by the Indian Audit and Accounts Department is the constitution of Audit Boards for conducting comprehensive audit appraisals of the working of Public Sector Enterprises engaged in diverse sectors of the economy. These Audit Boards associate with them experts in disciplines relevant to the appraisals. They discuss their findings and conclusions with the managements of the enterprises and their controlling ministries and departments of government to ascertain their view points before finalisation. The results of such comprehensive appraisals are incorporated by the Comptroller and Auditor General in his reports Nature of Audit While fulfilling his Constitutional obligations, the Comptroller & Auditor General examines various aspects of Government expenditure. The audit done by C&A G is broadly classified into Regularity Audit and Performance Audit. Regularity Audit (Compliance)

 Audit against provision of funds to ascertain whether the moneys shown as expenditure in the Accounts were authorised for the purpose for which they were spent. Audit against rules and regulation to see that the expenditure incurred was in conformity with the laws, rules and regulations framed to regulate the procedure for expending public money. Audit of sanctions to expenditure to see that every item of expenditure was done with the approval of the competent authority in the Government for expending the public money. Propriety Audit which extends beyond scrutinising the mere formality of expenditure to it wisdom and economy and to bring to light cases of improper expenditure or waste of public money. While conducting the audit of receipts of the Central and State Governments, the Comptroller & Auditor General satisfies himself that the rules and procedures ensure that assessment, collection and allocation of revenue are done in accordance with the law and there is no leakage of revenue which legally should come to Government. Performance Audit Performance audit to see that Government programmes have achieved the desired objectives at lowest cost and given the intended benefits. For a complete list of Performance Appraisals since 1983 Regularity Audit (Financial) In regularity (financial) audit and in other types of audit when applicable, auditors should analyse the financial statements to establish whether acceptable accounting standards for financial reporting and disclosure are complied with. Analysis of financial statements should be performed to such a degree that a rational basis is obtained to express an opinion on financial statements. Action on Audit Reports The scrutiny of the Annual Accounts and the Audit Reports thereon by the Parliament as a whole would be an arduous task, considering their diverse and specialised nature, besides imposing excessive demands on the limited time available to the Parliament for discussion of issues of national importance. Therefore the Parliament and the State Legislatures have, for this purpose, constituted specialized Committees like the Public Accounts Committee (PAC) and the Committee on Public Undertakings (COPU), to which these audit Reports and Annual Accounts automatically stand referred. Public Accounts Committee The Public Accounts Committee satisfies itself:a.that the moneys (shown in the accounts) were disbursed legally on the service or purpose to which they were applied. b.that the expenditure was authorised. c.that re-appropriation (i.e. distribution of funds. It is also the duty of the PAC to examine the statement of accounts of autonomous and semi-autonomous bodies, the audit of which is conducted by the Comptroller & Auditor General either under the directions of the President or by a Statute of Parliament. Committee on Public Undertakings The Committee on Public Undertakings exercises the same financial control on the public sector undertakings as the Public Accounts Committee exercises over the

functioning of the Government Departments. The functions of the Committee are:a.to examine the reports and accounts of public undertakings. b.to examine the reports of the Comptroller & Auditor General on public undertakings. c.to examine the efficiency of public undertakings and to see whether they are being managed in accordance with sound business principles and prudent commercial practices. The examination of public enterprises by the Committee takes the form of comprehensive appraisal or evaluation of performance of the undertaking. It involves a thorough examination,including evaluation of the policies, programmes and financial working of the undertaking. The objective of the Financial Committees, in doing so, is not to focus only on the individual irregularity, but on the defects in the system which led to such irregularity, and the need for correction of such systems and procedures. CAG's Role The Comptroller & Auditor General of India plays a key role in the functioning of the financial committees of Parliament and the State Legislatures. He has come to be recognised as a 'friend, philosopher and guide' of the Committee. His Reports generally form the basis of the Committees' working, although they are not precluded from examining issues not brought out in his Reports. He scrutinises the notes which the Ministries submit to the Committees and helps the Committees to check the correctness submit to the Committees and helps the Committees to check the correctness of facts and figures in their draft reports. The Financial Committees present their Report to the Parliament/ State Legislature with their observations and recommendations. The various Ministries / Department of the Government are required to inform the Committees of the action taken by them on the recommendations of the Committees (which are generally accepted) and the Committees present Action Taken Reports to Parliament / Legislature. In respect of those cases in Audit Reports, which could not be discussed in detail by the Committees, written answers are obtained from the Department / Ministry concerned and are sometimes incorporated in the Reports presented to the Parliament / State Legislature. This ensures that the audit Reports are not taken lightly by the Government, even if the entire report is not deliberated upon by the Committee. UNION AUDIT REPORTS The Union Audit Reports of the Comptroller and Auditor General of India, contain the findings of transaction audit and performance audit in the areas of: Civil Audit Audit of Autonomous Bodies Defense Services Railways Receipts of the Government Central Commercial The Audit of the CAG is bifurcated into two streams namely Performance Audit and Regularity (Compliance) Audit. While audit of the Civil Departments, Railways and Defense are conducted as per the direct mandate in the constitution and relevant provisions of the DPC Act, the Commercial Audit is conducted under the provisions of Company Act. Autonomous

Bodies are audited as per the mandate in the act establishing the body. The reports of the CAG are deliberated upon by the Public Accounts Committee (PAC) of the parliament, save the commercial reports which are examined by the Committee on Public Undertakings (COPU). @@@@@@@@@@@@@@@@@@@@@@@@@@@@@ Responsibility of the Board Public Sector Companies Most of the provisions in the Companies Act regarding role/responsibility of the Board also apply to the Government companies. The only exception being Section 297, which states that the Boards sanction is required for certain contracts in which particular directors are interested. In addition, the Department of Public Enterprises (DPE) has specified the following: 1. Board of Directors of all non-financial PSUs should ensure that decisions regarding investment of funds are transparent and taken only by the delegated authority, and that the proper exercise of such authority is monitored by the Board. Boards of all PSUs are directed to lay down clear policies on investment of surplus funds, establish transparent procedures, review delegation of authority and prescribe regular reporting of investments to the Board. The Administrative Ministry gives guidance to the Board in laying down policies and procedures. The Administrative Ministry in turn is guided by the DPE and the Ministry of Finance. The latter closely follow up the implementation of the policies on investment laid down by these Ministries. 2. Wherever the company is headed by a part time chairman the parttime Chairman should guide the board of directors in the discharge of the role entrusted to them in respect of formulating corporate policy and the corporate plan, their implementation and evaluation with a view to improving the enterprises performance. The parttime Chairman, however, cannot issue directives as the management of public enterprises is vested under the Companies Act with its Board of Directors. 3. As Chairman of the Board of Directors, the part-time Chairman will also evaluate the work of the Chief Executive in implementing the policies laid down by the Board for improving the enterprises performance -------------------------------------Accountability To Shareholders/ Stakeholders Public Sector Companies The board should be accountable to the ultimate owners of the Government company, which is essentially public and conduct the affairs of the company in such way that the overall social and not sectional interests receive the highest priority. The company should remain viable and meet the objectives for which it has been set up.

Similarly, the interests of the main stakeholders, such as, employees, creditors, suppliers, customers, environmental impact of the operations of the company, etc receive due attention -------------------------------------------Access to Information Public Sector Companies Often all the required information is not given especially to the nongovernment directors. As per DPE guidelines, the part-time Chairman can call for information, but this should be appropriately done through the MD and not directly from the officers. The agenda papers for the Board meeting are provided to all the Directors. Public Sector Companies In order to fulfil their responsibilities, board members should have access to accurate, relevant and timely information. Information currently volunteered by the management to the board members is often quite inadequate. This needs to be improved considerably. Whenever necessary the directors should be free to acquire, at the expense of the company, independent professional advice in regard to the matters of the company. The board meeting should be conducted properly with clearly laid down agenda for discussion, which should be circulated well in advance and supported by substantive information. The minutes of the board meeting should be circulated well in advance of the next board meeting. This should be a mandatory recommendation for all companies Election Public Sector Companies Section 255, 256, 257 and 269 of the Companies Act do not apply to a Government company in which entire paid-up share capital is held by Central/State Government or subsidiary of a Government company in which entire paid-up capital is held by that Government company. These Sections stipulate: At least 2/3rd of total directors should retire by rotation at AGM. Remaining 1/3rd may be appointed for life-term or for a fixed duration in the general meeting. At every AGM, 1/3 rd of those liable to retire by rotation shall retire from office. A retiring director may be reappointed at AGM. (S.255,256) The appointment of managing director or whole-time director or manager requires Central Government approval only in certain cases. (S.269) The DPE guidelines stipulate the following: All part-time non-official directors are appointed for a term of three years at a time with rotational retirement. The retiring directors are eligible for re-appointment. Rotational retirement is necessary to ensure a degree of continuity of the Board. For the purpose of rotational retirement the public

enterprises fall in two categories, namely, (i) enterprises where the entire paid up share capital is held by the Government (including State Governments), and (ii) the entire paid up capital is not held by the Government. Ideally in both cases rotational retirement system should be adopted in both cases. --------------------------------------------------------Selection Process All proposals relating to creation/redesignation/upgradation of board level posts, including MD, Chairman, CMD, etc. in PSEs require the approval of the Financial Adviser and Minister-in-Charge of the Administrative Ministry. The proposals are then processed by the DPE in consultation with the Public enterprises Services Board (PESB) for approval of the Ministry of Heavy and Public Enterprises and the Ministry of Finance.

ISSUES / RECOMMENDATIONS Public Sector Companies The concept of nomination committee of the Board does not exist in the Government companies at present. The selection for all Boardlevel posts in PSEs is done through a complicated process. The role of Public Enterprises Services Board (PESB) set up by the Board comes close to that of the nomination committee. It advises Government on the appointments to all top-level posts in PSEs. As the entire process is very complicated and involves different levels of recommendations, interviewing and final decision-making, there are considerable delays in appointment to various top-level posts. An independent high powered Selection Board of eminent persons on the lines of the Union Public Service Commission to select full time directors for the PSUs should be set up. Its decisions should be final and not subject to approval of the concerned administrative ministry. The selection board should also prepare a panel of experts for nomination as independent or professional directors on the boards of PSUs. The induction of non-executive directors should be done by a nomination committee. The criteria for choosing independent non-executive directors should be disclosed in the Annual Report

Size Public Sector Companies Sections 252, 253, 258 of the Companies Act regarding size of the board apply to Government companies also. Section 259 of the Companies Act, which stipulates that any increase in the number of directors beyond 12 requires Central Government approval, does not apply to Government companies.

ISSUES / RECOMMENDATIONS Public Sector Companies The Articles/Memorandum of Association of different PSEs specify the size of the board, which varies from company to company. Normally, the size of the Board ranges between 3 and 15. Some PSUs have even bigger boards. The recommendation that all listed companies should have minimum of 10 board members should apply to PSEs as well.

Composition Public Sector Companies The Members of the Board of PSEs generally consist of the following three categories: Functional Directors: These are full time operational Directors responsible for day to day functioning of the enterprise. The enterprises could have representation at Board level for disciplines, such as, finance, personnel, production, marketing, project, planning etc. The number of such should not exceed 50% of the actual strength of the board. Government Directors: They are appointed by the Administrative Ministries and are generally the officers dealing with the concerned enterprise. In most cases there are two such Directors on a Board; the Joint Secretary or Additional Secretary dealing with particular enterprise and the Financial Adviser of the Ministry. The number of government directors should not exceed one-sixth of the actual strength of the board with a limit of two. Non-Official Directors: The induction of non-official Directors on the Boards of PSEs is considered essential in order to make the Boards more professional. They are drawn from the public men, technocrats, management experts and consultants, and professional managers in industry and trade with a high degree of proven ability. The number of Non-Official Part-time Directors on a Board should be at least one-third of its actual strength. ISSUES / RECOMMENDATIONS Public Sector Companies The boards of PSEs should have core group of well qualified/experienced professional non-executive directors who are truly independen ---------------------------------------------Independence Public Sector Companies The concept of independence of directors does not appear to have found its place in the existing Government guidelines.

Public Sector Companies The definition of independence to be followed by all companies, including banks and public sector companies, should be the definition recommended by the Blue Ribbon Committee in the context of the audit committees, which is as follows: Members shall be considered independent if they have no relationship to the corporation that may interfere with the exercise of their independence from management and the corporation. Examples of such relationships include: A director being employed by the corporation or any of its affiliates for the current year or any of the past five years; A director accepting any compensation from the corporation or any of its affiliates other than compensation for board service or benefits under a tax-qualified retirement plan; A director being a member of the immediate family of an individual who is, or has been in any of the past five years, employed by the corporation or any of its affiliates as an executive officer; A director being a partner in, or a controlling shareholder or an executive officer of, any for-profit business organisation to which the corporation made, or from which the corporation received, payments that are or have been significant to the corporation or business organisation in any of the past five years; A director being employed as an executive of another company where any of the corporations executives serves that companys compensation committee. In the Indian context the directors nominated by the government on the boards of PSUs and PSBs and all nominees of the regulators should not be considered as independent. A majority of non-executive directors should be independent of management and free from any business or other relationship that could interfere with their independent judgement; they should be identified in the annual report.

Multiple Board Seats Public Sector Companies As per the Companies Act, Directors are required to disclose other directorships, the total number of which should not be more than 15 companies. (S. 275) Section 316 of the Companies Act, which stipulates that the Board may appoint a person Managing Director in more than one company, subject to passing of unanimous resolution, does not apply to a Government company where entire paid-up capital is held by Central/State Government. A full-time Director can hold post in only one PSE. -----------------------------------------------------------

Chairman and CEO Public Sector Companies As per DPE Guidelines, the Board of PSE should normally be headed by a single Chairman-cum-Managing Director. This post should not be kept vacant for very long. The temporary vacancies of Chairman and Managing Directors of PSEs can be filled in by giving officiating charge to the senior most Functional Director on the Board of the concerned enterprise. ---------------------------------------------------------------------------Public Sector Companies Section 619 of the Companies Act lays down the procedure for the audit of accounts of govt. companies. Sec. 224 to 233 of the Cos. Act, which deal with appointment and remuneration of auditors, resolution for appointing/removing auditors, qualification/ disqualification of auditors, powers/duties of auditors and signing of audit report, etc., do not apply to govt. companies. The auditor of a govt. company is appointed by the Central Government on the advice of the Comptroller and Auditor General of India (CAG), who directs the manner in which the accounts of government companies shall be audited. The audit report is submitted to the CAG, who comments upon or supplements the auditors report. The comments of the CAG along with the audit report are placed before the AGM of the company. In particular, the following points must be incorporated: Audit Committees play an important role in the larger governance process through oversight of financial reporting. A proper and well functioning system exists when the three main groups responsible for financial reportingthe full board including the audit committee, financial management including the internal auditors, and the outside auditorsform a three-legged stool that supports responsible financial disclosure and active and participatory oversight. The audit committee is an extension of the full board and hence the ultimate monitor of the process. The following definition of independence for purposes of service on the audit committee of listed companies must be adopted. Members of the audit committee shall be considered independent if they have no relationship to the corporation that may interfere with the exercise of their independence from management and the corporation. The audit committees to be comprised solely of independent directors. The audit committees to be comprised of a minimum of three directors, each of whom is financially literate or becomes financially literate within a reasonable period of time. Further, at least one member of the audit committee should have accounting or related financial management expertise. The audit committee of the company should (i) adopt a formal written charter that is approved by the full board of directors and that specifies

the scope of the committees responsibilities, and how it carries out those responsibilities, including structure, processes, and membership requirements, and (ii) review and reassess the adequacy of the audit committee charter on an annual basis. The audit committee to disclose in the companys proxy statement for its annual meeting of shareholders whether it has adopted a formal written charter, and, if so, whether the audit committee satisfied its responsibilities during the prior year in compliance with its charter. The audit committee charter should specify that the audit committee is responsible for ensuring its receipt from the outside auditors of a formal written statement delineating all relationships between the auditor and the company. Generally Accepted Accounting Standards (GAAS) require that a companys outside auditor discuss with the audit committee the auditors judgements about the quality, not just the acceptability, of the companys accounting principles as applied in its financial reporting. All reporting companies to include a letter from the audit committee in the companys annual report disclosing whether or not (I) management has reviewed the audited financial statements with the audit committee, (ii) the outside auditors have discussed with the audit committee the outside auditors judgements of the quality of accounting principles, (iii) the members of the audit committee have discussed among themselves the information disclosed to the audit committee, and (iv) the audit committee believes that the companys financial statements are fairly presented in conformity with GAAP in all material respects. The audit committees should not function merely as super inspection departments of banks as they are doing currently. They should basically provide oversight of the banks internal and external auditors, approving their appointment and dismissal, reviewing and approving audit scope and frequency, receiving their reports and ensuring that management is taking appropriate corrective actions in a timely manner to address control weaknesses, non-compliance with policies, laws and regulations, and other problems identified by auditors. The Government companies follow a very different procedure for audit at present. The audit is conducted as per the procedure laid down by the Comptroller and Auditor General of India (CAG). It is desirable that the audit committees should be formed in Government companies as per the recommendations of the Blue Ribbon Committee to perform a distinct role. The role of CAG and audit committees should not be mixed up as CAG looks at audit from propriety angle ------------------------------------------------Public Sector Companies Regarding nominee Directors, the DPE Guidelines stipulate the following: The prime duties of a Government nominee on the Board of Directors of a PSU are to safeguard the interest of the shareholders, contribute to the efficient functioning of the PSUs and report back the same

regularly to the Government. The concerned Administrative Ministry is required to ensure that the nominee Directors comply with the responsibility cast on them. ----------------------------------------------------------------Remuneration Level and Composition of Remuneration Public Sector Companies Sections 198 and 309 of the Companies Act, which deal with remuneration payable by a company, do not apply to Government companies. The remuneration for all board level posts in PSEs is fixed by the Government at a gap of every five years. The part-time Chairman is paid either a fixed monthly honorarium or sitting fee and incidentals subject to a maximum of Rs. 1000/-p.m. They are also entitled to travelling allowance, accommodation, medical benefits, company car, telephone and secretariat assistance as admissible to highest grade officer of the company. This is not applicable to a serving Government officer functioning as part-time Chairman. --------------------------------------------------------------------------Evaluation of Governance Disclosures Public Sector Companies Shareholders have a right to receive copies of balance sheet and auditors' report. (S.219) The balance sheet and profit and loss account should give true and fair view of the state of affairs of the company.(S.211) Under the provisions of the Listing Agreement, all listed companies are required to make detailed disclosures. The companies are legally bound to make timely disclosure of material and price sensitive information including material events having a bearing on the performance of the company to every stock exchange where they are listed and to the regulators.

Role of CAG in Meeting Challenges of Good Governance :To understand the role of CAG in good governmance ,firstly we have to understand what is CAG and which type of work carried by the CAG:Finance, Accounts and Audit are as old as history itself. History bqars out that a good accounts and audit organisation existed in ancient India. Kaut...ilya in his famous Arthasastra gives an elaborate account of the accounting system that existed in the Mauryan period. According to the Arthasastra, "In the Mauryan policy, the final authority, in the matter of Finance, was the King; one of whose daily duties was to attend to the accounts of receipts and expenditure. Each Minister was responsible for the finance of his department and each department had its own accountant, treasurer and others. The Collector General was the head of the Finance Department. Below him was the special commissioner (Pradeshtara), who was a kind of Government Auditor checking District and Village group account, in addition to being in charge of collecting certain kinds of revenue. The accounting and financial, year closed on the last day of Ashadha". Similarly, Gupta rulers introduced more elaborate and orderly system of accounts and audit during their rule. According to Ramachandra Dikshitar "The accounts were maintained, as during the days of their predecessors, the Mauryas, and were submitted periodically for audit and approval. This is made clear to us by th'e term PATYUPARIKA. This may be translated broadly as corresponding to the modern Accountant General. The Accountant General who presided over the accounts department was responsible to the Council of Minister for his acts. It is evident that there was an elaborate Department of Accounts in the Gupta time." Likewise, the medieval rulers, viz. Sultans and Moghuls, laid proper stress on collection of revenue and conduct of audit. The Moghuls vested greater authority in their financial chief. by naming him as the Vnrir or Dewan. Although the ancient and medieal administrations estahlishcd a coherent accountand audit organisations, it vent illlo decay, during the period of later Moghuls. Subsequently, it was the British. Who introduced a proper system of accounting and auditing. In 1858. when the East lndia Company's administration was taken over by the Crown, a comptementary post ol Accountant-General at the India office was created \ to prepare the accounts of the expenditure incurred in England. Simultaneously, an independent Auditor was appointed by the Crown for the audit of these accounts.This arrangement was, however, shortlived. In 1860, both accounting and auditing funaons were amalga.mated and placed in charge of the AccountantGeneral to the Government of India. who was designated as'Auditor General'. The statutory recognition of the Auditor General came, however, only in 1919, with the introduction of Constitutional Reforms. He was made independent of the Government af lndia and was appointed by the Secretary of State and held office as the administrative head of the Indian Audit Department. during his Majesty's pleasure. The Government of lndia Act 1935 gave further recognition to the

importance and status of this office. Thereafter, his appointment was made by His Britannic Majesty and the conditions of his service were also determined by His Majesty-in-Council. His duties and powers were prescribed by rules made under the order of His Majesty-in-Council. His salary, allowances. and pension were made chargeable on the revenues of the Federation. He could be removed from office only in the same manner and on the same grounds, as a Judge of the Federal Court. The Comptroller and Auditor General (CAG) of India is called in hindi,CAG is an authority, established by the Constitution of India, who audits all receipts and expenditure of the Government of India and the state governments, including those of bodies and authorities substantially financed by the government. The CAG is also the external auditor of government-owned companies. The reports of the CAG are taken into consideration by the Public Accounts Committees, which are special committees in the Parliament of India and the state legislatures . The CAG of India is also the head of the Indian Audits and Accounts Service, which has over 58,000 employees across the country. CAG is head of Indian Audit and Accountant Service. He is appointed by President. He can hold his office for 6 years or up to age of 65 years. He can give resignation at any time or can be impeached by President through Parliament resolution with special majority. The importance of CAG is easily understand by the following words of BABA SAHEB AMBEDAKAR: I am of the opinion that this dignitary or officer (C&AG) is probably the most important officer of the Constitution of India. He is the one man who is going to see that the expenses voted by parliament are not exceeded, or varied from what has been laid down by Parliament in what is called appropriation Act. If this functionary is to carry out the duties- and his duties, I submit are far more important than the duties than the duties of the Judiciary. -: Working system of CAG in indian government:Accourding to article 151 , CAG represent audit report to the president or governer before put reports on parliment or state legislatures respectively. To, begain with ,when the audit take place ,during the course of inspection of various organation, INSPECTION REPORTof each unit are prepared and sent to them, about 72000 reports sent every year.and their progress also watch. The report submitted to parliament of president contain two parts: 1.Audit report on appropriation accounts this show that the money granted by the loegislaturre for various grants or purpose is properly use or not.\ 2.Audit report on the financial report m annual receipts and expenditure during the year. The audit report in brfief contain a narriation of cases involving financial inreggularities,losses,frauds,waste ful expenditure and saving etc. the high profile cases like 2G spectrum , CWG and AADARSH is come on light with the help of these CAG reports. Role of CAG in Indian governance :-:Major function of CAG:1.To prescribe,with the approval of president,the form in wich the accounts of unioun and states are to be kept 2.To perfom such duties and excerice such powers in relations to accounts of unioun

or states or anyother body , as many percribed by any law made by parlient. 3.To report the president or governer of the state on the account of country or state. -:The CAG as Auditor General;The primary purpose of audit to ensure that the money has been applied to the purpose for which the mgrand made by parliament were intended to provide and that the expenditure conform to the authority which governance it,thus this audit is important instrunment in the control of public expenditure. It play double role,firstly it check the extend of application by the government servents ,of rules and regulations issuied on behalf of the administration and secondly it insure ,on behalf of the legislature,that the actions of the government have been in accordance with the views and the requirnments of the legislature The purpose of audit is to offer financial criticism and its valu lie in its report poimting out thee some impropriety of certain transaction and so the suitable action rectify it. According to Herbert Britain What one department is publicaly pilloried for today all other departments will try to avoid tomorrow. -: Audit of Revenue :C&AG after some initial resistance on the part of revenue department was able to extend its dimension to audit of revenues which includes audit of tax assessment such as Income tax, Central Excise and Customs, Sales tax etc. The audit of receipts has helped bringing considerable revenue for the government by pointing out cases of under assessment of tax, and also assisted in better functioning of tax administration machinery by pointing out lacunae or loopholes in the Act/ Rules and deficiencies in the functioning of tax administration. -:Audit of Commercial Enterprises:The audit of government companies was brought within the purview of C&AGs audit at the insistence of then CAG by introducing a suitable provision in the Companies Act 1956, although there were initial attempts to exclude his jurisdiction. Thus, while Chartered Accountants are required to certify Annual Accounts of government companies, C&AG has been granted right to conduct supplementary audit. -:Audit of Public Sector Undertakings:Under Section 619 of the Companies Act, 1956, the auditor (statutory auditor) of a government company including deemed government company, appointed by the CAG conducts the audit of accounts of the companies. On the basis of supplementary audit conducted thereafter, the CAG issues comments upon or supplements the Audit Report of the statutory auditor. -:Auditt of AUTONOMOUS BODIES:A large numbers of body setup , specialy in field of education and development like IIMs ,these bodies are audit by CAG. -:Statutory corporations :Audit of six statutory corporations is conducted by the CAG. Of the five statutory corporations in whose case CAG is the sole auditor, four viz. Airports Authority of India, Inland Waterways Authority of India, Damodar Valley Corporation and National Highways Authority of India presented their accounts for the year 2009-10 for audit in

time. The accounts of Food Corporation of India for the year 2009-10 were awaited as on 30 September 2010. In case of Central Warehousing Corporation, CAG conducts supplementary audit and the accounts were received in time. The C&AG of India as the Government auditor plays an important role in effective public sector governance. The significant findings and recommendations as conveyed in the Audit Reports represent critical inputs to good governance that can lead organisations to take prompt and appropriate corrective actions to remedy identified] weakness and deficiencies. The principles of accountability, transparency, probity, equity and fairness are reviewed, examined and audit observations thereon are reported by C&AG of India in the various Audit Reports including Reports on the performance ofselected critical activities The amendments to Sections 217 and 292 of the Companies Act, 1956 (made applicablefrom December 13, 2000) set the tone for Corporate Governance in the country. Keeping in view the important role of the Audit Committee in good Governance of an entity audit reviewed the functioning of Audit Committee of listed central government companies to assess its effectiveness. During review, it is noticed that some of the Audit Committee of listed Government Companies contributed considerably towards improvement in financial reporting, accounting policies, internal control system, analysis of non moving inventories etc and ensured credibility of financial statements. While Audit Committee of Indian Oil Corporation Limited significantly contributed in the areas of significant Audit Findings of Internal Audit, review of Idle assets, monitoring the award of work on nomination/single tender basis, implementation of SAP system. On the suggestion of the Audit Committee, Steel Authority of India Limited has planned a special study on Safety Management and Major Raw Material Stock Accounting. -: Social Audit:During the last five years, CAG has conducted performance audits of most of the key socioeconomic programmes of the Government of India e.g. National Rural Employment Guarantee Scheme (NREGS), National Rural Health Mission(NRHM), Sarva Shiksha Abhiyan (SSA), Midday Meals Scheme, Accelerated Rural Water Supply Programme (ARWSP), and Pradhan Mantri Gram Sadak Yojana (PMGSY). CAGs audits have also covered several niche areas of public interest like Consumer Protection Act, Waste Management, Police Modernization Scheme etc. CAGs audit of Government departments, offices, and agencies in the States, dealing with implementation of Government schemes, also touches upon the performance of schemes or their components at various levels of the audit process. CAGs audit is an external audit on behalf of the tax payers. The Union and State Legislatures, through their respective legislative committees on public accounts and public undertakings, discuss the matters brought out in CAGs audit reports and make recommendations to the executive for appropriate management action. In a broad theoretical sense, therefore, CAGs audit itself is a social audit. Yet, in its commonly perceived sense, CAG audit remains a Government process largely confined to Government officials and Government auditors. Social audit, on the other hand, in its current connotation, seeks to make the audit process more transparent and seeks to take audit findings to a wider public domain of stakeholders, i.e. users of the Government schemes, services and utilities ,The demand for social audit has grown in recent

years due to the steady shift in devolution of Central funds and functions relating to socioeconomic schemes to the local tiers of Government Panchayati Raj Institutions (PRIs), Urban Local Bodies (ULBs) and other special purpose agencies set up by the Government for implementation of -:Relations with Public Accounts Committee :The Comptroller & Auditor General audits the accounts and submits his Report to Parliament / State Legislature which are automatically remitted to the Public Accounts Committee(PAC) / Committee on Public Undertakings( COPU). Parliament has constituted PAC and COPU under Rule 308(1) and Rule 312 A of the Rule of Procedure and Conduct of Business of Lok Sabha. -:Limitations :Inspite of the various safeguards provided by the Constitution to maintain the independence of Comptroller and Auditor General from the Executive and Parliament, his/ her independence appears to be limited by four factors viz., (a) restraint of the Executive on his/ her budgetary autonomy (b) block of control overstaff (c) indirect accountability to the Finance Ministry of the Union and the Finance Department of the State Government for handling accounting duties (d) absence of direct access to Parliament (unlike the Attorney General) in defence of his/ her official conduct, if and when questioned on the floors of Parliament. To conclude, notwithstanding these limitations, the Comptroller and Auditor General plays a unique role in rndian democracy, by upholding the Constitution and the laws in the field of financial administration. He/She is neither an officer of Parliament nor a functionary of Government. He/ She is one of the most important officers of the Constitution and his/ her functions