Finance minister T M Thomas Isaac has said that it was not practical to have the Comptroller and Auditor General (CAG) function as the 'statutory auditor' of Kerala Infrastructure Investment Fund Board (KIIFB).
This is mainly because, in Isaac's words, KIIFB already has the most elaborate audit mechanism for any institution in the country. If the CAG is also roped in as a statutory in-house auditor, there could be a dilemma. “We can have a situation where we would have two statutory auditors. From whom do we get the reports now,” he told Onmanorama during an exclusive chat.
As it stands, the KIIFB has a multi-tiered audit structure. There is a company auditor and also an internal auditor. “And three, there is an international peer review auditor to see that the norms adopted by the statutory auditor is of international standard,” Isaac said.
This report is then submitted to Fund Trustee Advisory Committee (FTAC) headed by none other than former CAG Vinod Rai. The FTAC does its rigorous vetting of the KIIFB accounts and its report (called a Fidelity Certificate) is placed in the Assembly and discussed in the Assembly subject committee.
“Which other institution in Kerala or outside has such an elaborate mechanism of checks and balances in auditing,” Isaac asked.
There is a more practical reason why Isaac does not want the CAG as KIIFB's statutory auditor. “Given the kind of complicated financial loans and bonds issued by KIIFB you need audited accounts at frequent intervals,” Isaac said.
“For example, we have issued 'masala bonds'. We need to submit half-yearly reports to the Reserve Bank of India to get the deployment of funds. To get regular reports, it will be much more easier to have a statutory auditor outside the CAG,” he said.
The minister was clearly implying that the speed of the CAG's audit process would not be able to keep pace with the exigencies of modern financial markets. This was also why Isaac had argued that a CAG audit would scare away prospective investors.
Isaac makes a clear distinction. He said the CAG should audit KIIFB accounts under section 14(1) of the CAG (Duties, Powers and Conditions of Service) Act. “It's a must,” he emphasises. At the same time, he is stoutly opposed to the CAG taking over as the 'statutory auditor' of KIIFB under section 20 (2) of the Act.
The CAG but has not taken kindly to this. Last year, the CAG had written to the government saying that the existing audit provisions in KIIFB cannot ensure that the board’s activities and financial transactions are in accordance with principles governing sound public sector financial management and official conduct.
The letter further states: “Neither the constitution of FTAC nor the certification of audited accounts by CEO of KIIFB preclude the CAG audit.”
The CAG then goes on to state that the KIIFB audit should be handed over under section 20 (2) of CAG (Duties, Powers and Conditions of Service) Act, “in view of a substantial investment made by government and the government’s guarantee to meet the shortfall in repayment of debt.”
Section 20(2) allows the CAG to propose to the governor to authorise him to undertake the audit of the accounts of any body or authority if he is of the opinion that such an audit is necessary because a substantial amount has been invested in, or advanced to, such body or authority by the government.
The finance minister said the state government had written to the CAG detailing its position on the issue. “They are yet to reply. I am certain they will understand. Like in the case of any other PSU in Kerala, the CAG must audit KIIFB accounts. We are committed to removing any hindrances, if there are any. The CAG has only to tell us and we will comply,” he said.
The government is also not overly worried about the CAG's demand because clause 3 of Section 20 makes it clear that the audit needs to be handed over to the CAG only if the Governor is satisfied that it is expedient to do so in public interest.