KIIFB battle rages, government, opposition favour different CAG audits

KIIFB battle rages, government, opposition favour different CAG audits
Ramesh Chennithala (L), Thomas Issac (R)

The Opposition disrupted Assembly proceedings on Tuesday after Speaker P Sreeramakrishnan refused permission to take up an adjournment motion to discuss Kerala government's refusal to allow a comprehensive CAG audit of Kerala Infrastructure Investment Fund Board (KIIFB).

The Speaker said the finance minister had already said the government was not against a CAG audit. “The issue was raised in the Assembly more than once before, and the minister had given detailed replies, even answering supplementary questions. There is nothing new, or anything urgent, in the notice given by Congress legislator V D Satheesan,” the Speaker said, giving his reason for the refusal.

The battleground was then shifted outside the Assembly hall, in the media room of the Legislative Complex.

The UDF demand is not for what it calls a routine CAG audit under section 14(1) of the C&AG (Duties, Powers and Conditions of Service) Act (DPC Act) but a “comprehensive” audit under section 20 (2) of the Act.

Section 14 (1) empowers the CAG to audit any body or authority “substantially financed by grants or loans from the Consolidated Fund of India or of any State.”

Section 20(2) gives the CAG the right to “propose” the audit of a body or authority substantially funded by the government but whose accounts are not entrusted to it by law. Whether to grant the CAG this right is, however, left to the governor's discretion.

Audit variety

Opposition leader Ramesh Chennithala: It is not just government funds that should be audited. There are funds that come to the KIIFB from non-government sources, like for instance the 'masala bonds'. To audit these accounts, a CAG audit under section 20 (2) is necessary.

Finance minister Thomas Isaac: A CAG audit under section 14 (1) is both absolute and comprehensive. The DPC Act itself states that the CAG has to mandatorily take up the audit of such bodies like KIIFB that have substantial government funding. There is no choice. The Act also lays down that all receipts and expenditure of the body should be subjected to audit scrutiny by the CAG. So under 14 (1), the audit is comprehensive.

The Delhi High Court, in the National Dairy Development Board vs CAG case, too had ruled that audit under Section 14(1) was absolute and comprehensive. The court further said that the audit under Section 14 (1) was far more comprehensive than the one under Section 20.

Certificate scare

V D Satheesan: The government is afraid of an audit under Section 20 (2) because an audit certificate (a document that will have the results of the audit) will be handed out by the CAG. They are not interested in it. There is no audit certificate under Section 14(1).

Thomas Isaac: If they are trying to say that we should have the CAG as the KIIFB's statutory auditor, then it is a firm no. The KIIFB needs to provide timely audited reports to investors and for this an in-house expert audit arrangement, as passed by the Legislature, is the ideal. Further, the CAG itself, in a commentary on its official website, has said an independent and legal statutory audit as per law will not stand in the way of a CAG audit under section 14(1). The CAG audit will coexist with and complement KIIFB's audit arrangements.

Three-year audit limit

V D Satheesan: It was very cunning of the government to have agreed to a CAG audit under Section 14 (1). The law (DPC Act) states that if the government grant is less than 75 per cent of the total expenditure of the body, it has to be kept out of the ambit of the 14(1) audit of the CAG. The annual government grants to KIIFB now works out to around Rs 1700 crore. Now, even if the expenditure is Rs 3000 crore, the grants will be far less than 75 per cent. We are speaking about a massive expenditure of Rs 50,000 crore in the coming years.

The government knows that the CAG will cease to audit KIIFB after three years when the government grants will look paltry in comparison to the mammoth expenditure. (Under the Act, the CAG has to audit the accounts for three years even if the grants are less than 75 per cent.)

Thomas Isaac: When 14 (1) ceases to apply, then we can invoke Section 20 (1). It is a contingency clause. (This section says that the government can ask the CAG to undertake the accounts of any government-funded body.)

Communication failure

Ramesh Chennithala: The CAG had sent three letters to the state government seeking the audit of KIIFB accounts under Section 20 (2). They were not answered.

Thomas Isaac: The moment we had received the letter we had given our opinion on the issue to the government. I am told that a second letter from the CAG came two weeks later with the same demand. I will check whether there was any official failure in passing our opinion to the CAG. But then we had written a long five-page letter to the CAG detailing why the audit under Section 14 (1) allows the CAG to audit all the expenditure and receipts of the KIIFB. We are yet to receive a reply.