Comptroller and Auditor General of India (CAG)

The Idea Behind CAG

Imagine the entire government — both at the Centre and in the States — as a large organization that spends public money collected through taxes and duties.
Now, someone must ensure that this money is spent properly, legally, and efficiently — not misused or wasted.

That watchdog of public finance is the Comptroller and Auditor General of India (CAG).

Article 148 of the Constitution establishes this independent office.
The CAG heads the Indian Audit and Accounts Department.
Dr. B.R. Ambedkar called the CAG “the most important officer under the Constitution”, because he guards the public purse — meaning the money belonging to the people.

So, if the Supreme Court protects the rule of law,
the Election Commission protects democracy through fair elections,
then the CAG protects financial accountability.

That’s why he’s called one of the pillars (bulwarks) of Indian democracy.

👑 Appointment and Term

Who appoints?

The President of India appoints the CAG by a warrant under his hand and seal — a formal phrase meaning the appointment is made with the President’s official signature and seal.

The Oath

Before taking charge, the CAG takes an oath or affirmation before the President, pledging:

To bear true faith and allegiance to the Constitution,
To uphold the sovereignty and integrity of India,
To perform duties faithfully and without fear or favour, and
To uphold the Constitution and the laws.

This shows that the CAG’s loyalty is not to the government but to the Constitution.

Tenure

Term: 6 years or until the age of 65 years, whichever comes earlier.
Resignation: Can resign by writing to the President.
Removal: Can be removed only like a Judge of the Supreme Court —
that is, by the President after a special majority resolution by both Houses of Parliament on grounds of:
- Proved misbehaviour or
- Incapacity.

So, the government cannot remove him at will — ensuring independence.

🛡️ Independence of CAG

The Constitution gives multiple safeguards to ensure that the CAG works fearlessly and independently:

1️⃣ Security of Tenure

The CAG cannot be removed except by the procedure specified above.
He doesn’t hold office “during the pleasure of the President” like ordinary officials do.

2️⃣ Ineligibility for Further Office

After retirement, the CAG cannot hold any office under the Union or any State Government.
This avoids temptation or political influence.

3️⃣ Service Conditions decided by Parliament

His salary, leave, pension, etc., are fixed by Parliament, not the Executive.
By law, his salary equals that of a Supreme Court judge.

4️⃣ No Disadvantage after Appointment

Once appointed, his salary and conditions cannot be changed to his disadvantage.

5️⃣ Control over Staff

The conditions of service of persons working under him in the Indian Audit and Accounts Department are decided by the President, but after consulting the CAG.

6️⃣ Charged Expenditure

The entire expenditure of the CAG’s office (salaries, pensions, allowances, etc.) is charged upon the Consolidated Fund of India.
Hence, Parliament cannot vote to reduce it — it must be paid.

✅ All these safeguards ensure that the CAG functions independently, not as a subordinate of the executive.

📜 Duties and Powers of CAG

Under Article 149, the Constitution authorizes Parliament to define the duties and powers of the CAG.
Parliament did so through the CAG’s (Duties, Powers and Conditions of Service) Act, 1971.

Let’s understand these duties step by step.

A. Audit Functions

1️⃣ Audit of Expenditure

CAG audits all expenditure from the:
- Consolidated Fund of India,
- Consolidated Fund of each State, and
- Consolidated Fund of Union Territories having a Legislature.

→ Basically, no rupee can be spent without his audit.

2️⃣ Audit of Contingency Fund and Public Account

He audits all transactions from the Contingency Fund and Public Account of both Centre and States.

3️⃣ Audit of Departmental Accounts

For departments that maintain trading, manufacturing, or profit and loss accounts (like Railways or Ordnance Factories), CAG audits their balance sheets and subsidiary accounts.

4️⃣ Audit of Bodies/Authorities financed by Govt.

If any body or authority is substantially financed by the Central or State Government, its receipts and expenditure come under CAG’s audit.

5️⃣ Audit of Grants and Loans

CAG audits accounts of any body that receives grants or loans from government funds for specific purposes.

6️⃣ Audit of Receipts (Revenue Audit)

He audits how the government collects revenue — ensuring that rules and procedures are designed for effective assessment, collection, and allocation.

7️⃣ Audit of Stores and Stock

He checks accounts of stores and inventories maintained by various departments.

8️⃣ Audit of Government Companies

CAG audits all Government Companies as per the Companies Act.

9️⃣ Audit of Statutory Corporations

He audits all statutory corporations whose founding laws specify audit by the CAG — e.g., LIC, RBI (partial), etc.

🔟 Audit on Request

The President or Governor can request CAG to audit any other body — e.g., local bodies, panchayats, etc.

B. Advisory Functions

Form of Accounts (Article 150)

CAG advises the President on the format in which Union and State accounts shall be kept.

C. Reporting Functions

1️⃣ At the Centre (Article 151)

CAG submits his audit reports to the President, who lays them before both Houses of Parliament.

2️⃣ At the State Level (Article 151)

Similarly, he submits reports to the Governor, who places them before the State Legislature.

3️⃣ Net Proceeds of Taxes (Article 279)

CAG certifies the net proceeds of any tax or duty (after deducting cost of collection).
His certificate is final.

D. Relationship with Parliament

CAG is called the “guide, friend and philosopher” of the Public Accounts Committee (PAC) of Parliament.
The PAC scrutinizes government expenditure based on the CAG’s reports.

E. Accounting Functions

Earlier, CAG used to compile and maintain the accounts of both Centre and States.
But after 1976, due to departmentalisation of accounts, this work was taken over by the Central Government, and the CAG now maintains accounts only for State Governments.

F. Powers

While performing his audit duties, the CAG has authority to:

Inspect any office or department under audit.
Examine transactions and question responsible officers.
Call for records, papers, and documents from any audited entity.
Decide the scope and extent of audit — he decides how deep to go.

These powers ensure that no file, no data, and no department can hide information from the CAG.

🏛️ Role of the Comptroller and Auditor General (CAG)

Let’s start with the big picture:

👉 The CAG is not just a bookkeeper; he’s the constitutional conscience of India’s financial system.
His job is to uphold the Constitution and laws of Parliament in the realm of financial administration.

This means — while the executive (Council of Ministers) spends public money, the CAG ensures accountability to Parliament for every rupee spent.

The Accountability Chain

1️⃣ CAG prepares audit reports
2️⃣ President lays them before Parliament
3️⃣ Public Accounts Committee (PAC) examines them
4️⃣ PAC submits its report back to Parliament

➡️ Through this mechanism, the executive (government) becomes accountable to the legislature.

📚 Three Audit Reports Submitted by CAG

Every year, the CAG submits three main reports to the President:

Audit Report on Appropriation Accounts –
checks whether money granted by Parliament for a particular purpose was spent only for that purpose.
Audit Report on Finance Accounts –
gives a comprehensive picture of the government’s financial position — like a balance sheet of the nation.
Audit Report on Public Undertakings –
reviews the working and performance of government-owned companies and corporations.

All these reports are tabled in both Houses of Parliament by the President.

⚖️ Types of Audits Conducted by the CAG

Let’s understand the various types of audits — from the traditional ones to the more modern, performance-oriented ones.

1️⃣ Legal and Regulatory Audit

This is the core and mandatory audit.

According to the CAG’s (Duties, Powers and Conditions of Service) Act, 1971, CAG must examine:

whether the money shown in accounts was legally available for the purpose it was used,
and whether the expenditure was in accordance with the authority under which it was incurred.

✅ This ensures legality and propriety — that is, every rupee spent must have Parliament’s approval and must be spent for the correct purpose.

2️⃣ Propriety Audit

This goes beyond legality.

Here, the CAG asks deeper questions:

Was the expenditure wise and economical?
Was it faithful to the intent of Parliament?
Was there wastefulness or extravagance?

🟡 Unlike the legal audit (which is obligatory), propriety audit is discretionary — the CAG can choose to do it where necessary.

3️⃣ Performance Audit

A more modern and evaluative form of audit, formally recognized by the Finance Ministry in 2006.

It focuses on the 3 Es:

Economy – were resources acquired at the lowest cost?
Efficiency – were they used optimally?
Effectiveness – were the intended objectives actually achieved?

In short, performance audit checks not just how money was spent, but what was achieved.

It tries to answer:

Were the social and economic objectives of a programme achieved, and at what cost?
Were departments fulfilling their financial responsibilities effectively?
Were schemes being implemented economically and efficiently?

🧠 Think of this audit as evaluating results, not just records.

⚙️ Scope and Limitations

Freedom in Expenditure Audit

CAG has full freedom in deciding how to audit expenditure — he frames his own codes and manuals.

Limited Freedom in Receipts & Stores Audit

However, for receipts, stores, and stock audits, he must act in consultation with the executive.
This slightly restricts his autonomy in these areas.

Limitation – Secret Service Expenditure

Some government departments (like Defence, Intelligence, etc.) have secret service funds.
CAG cannot demand details of how this money was spent.
He has to accept a certificate from the concerned authority stating that the expenditure was incurred under proper authorization.

👉 This is a constitutional limitation on his powers — justified by national security concerns.

⚖️ “Comptroller” vs “Auditor” – A Conceptual Clarification

The Constitution calls him the Comptroller and Auditor General.
But in practice, he functions only as the Auditor General.

Why?

Because the CAG in India does not control the issue of money from the Consolidated Fund.
Departments can draw funds directly by issuing cheques — CAG audits after the money is spent.

So, his role is post-facto (after the event), not preventive (before spending).

In contrast, in Britain, the CAG is both:

Comptroller → authorizes withdrawal from public funds, and
Auditor General → audits expenditure later.

Hence, the Indian CAG is an auditor, not a comptroller in practice.

🏢 CAG and Public Corporations

The CAG’s role here is limited and variable, depending on the statute of each corporation.
There are three categories:

Type	Audit By	Role of CAG
1️⃣ Fully audited by CAG	CAG directly conducts audit	Full control
2️⃣ Audited by private auditors (appointed by Govt. in consultation with CAG)	CAG can conduct supplementary audit	Partial role
3️⃣ Fully private audit (no role of CAG)	Private auditors only	No role – reports go directly to Parliament

Government Companies

Audited by private auditors, appointed on the advice of CAG.
CAG may also perform a supplementary or test audit.

Thus, his power here is supervisory, not absolute.

⚔️ Appleby’s Criticism

Now, this is interesting — a foreign scholar, Paul H. Appleby (an American expert on Public Administration), strongly criticized the CAG’s role in India.

In his reports on Indian Administration, he argued that:

“The CAG should be relieved of the audit function itself — the office should be abolished.”

Let’s see his main criticisms:

1️⃣ CAG’s system is a colonial inheritance, outdated in a democratic setup.
2️⃣ The audit process discourages decision-making — officers fear being criticized.
3️⃣ Parliament overestimates the importance of audit.
4️⃣ Auditors don’t understand administration — they only check papers, not real governance.
5️⃣ Audit is a narrow, mechanical function with little usefulness.
6️⃣ A deputy secretary knows his department better than the CAG’s distant team.

In short — Appleby believed that CAG’s audit was negative, rigid, and outdated for a developing democracy like India.

(However, India rejected this view — audit was seen as essential for public accountability.)

⚠️ Challenges Identified by the Second ARC

The 2nd ARC (2005–09) acknowledged that CAG’s audits have greatly helped financial discipline,
but it also highlighted major challenges and gaps that limit their effectiveness.

Let’s categorize them systematically 👇

1. Limited Follow-up by PAC

Only 15–20 out of 1000+ audit paragraphs are actually examined by the Public Accounts Committee.
Ministries only act seriously on those that are discussed.

2. Weak “Action Taken Notes”

Departments submit formal, not substantive, replies.
Real corrective action is often missing.

3. Huge Pendency at State Level

State PACs have audit paras pending for 10–20 years.
Old issues lose relevance with time.

4. Neglect of Inspection Reports

Thousands of reports remain unattended, even when they involve revenue losses.

5. Delay and Irrelevance

By the time CAG reports an irregularity, the issue is often years old.
Findings become too late for action.

6. Over-Reliance on Paper Records

Audit is based on documents, not ground verification.
The reality in the field may differ.

7. Overly Negative Tone

Reports focus on faults, not improvements.
No distinction between bona fide and mala fide mistakes.
This discourages innovation and risk-taking in administration.

8. Lack of Constructive Approach

Reports often repeat known problems without suggesting systemic solutions.
Findings are scattered, not strategic.
Rarely highlight good performance.

9. Poor Relationship with Audited Departments

Interaction is limited to lower levels.
Audit is seen as policing, not as supportive oversight.
There’s often indifference or hostility from officials.

10. Ineffective Audit Committees

Committees meant to monitor audit follow-up exist, but function poorly.

11. Weak Media Coverage

CAG reports are not widely discussed in media or public domain.
Public awareness is low.

12. Poor Coordination with Internal Audit

External (CAG) and internal audits don’t collaborate, leading to duplication.

13. No Certification Audit

CAG doesn’t certify whether government financial statements reflect a true and fair view (like corporate audits do).

14. Limited Audit of NGOs

Grants and loans given to NGOs are often not audited, despite large sums involved.

🧭 Conclusion

If we look at it holistically —

The CAG of India stands as one of the most crucial sentinels of our democracy —
a constitutional authority ensuring that public money is used for public good.

But while his independence and mandate are strong, his effectiveness depends on:

how promptly his reports are acted upon,
how constructively the findings are used, and
how well audit is integrated with governance reform.

“CAG is not just a fault-finder. He is the conscience of financial discipline — the bridge between public money and public accountability.”