Reinventing the Indian Audit & Accounts Service

Reinventing the IA&AS

Shantanu Basu
Pr. Director of Audit
North Eastern Railway
Gorakhpur 273 012
SHANTANU BASU Issued on August 9, 2010 0

Table of Contents

Table of Contents ............................................................................................................................. 1

Highlights .......................................................................................................................................... 3

Introduction ...................................................................................................................................... 4

2. LPG-FIT Model of Governance ................................................................................................. 4

3. Limitations of Audit Reports .................................................................................................... 5

3.2 Executive & Legislative Indifference ............................................................................... 6

4. The Need for Decentralization, Delayering & Differentiation ................................................. 6

5. The Need for Restructuring ..................................................................................................... 8

5.1 Inadequate HR and Coverage ......................................................................................... 9

5.2 The Audit Vision of Government..................................................................................... 9

5.3 The GAO’s Organization .................................................................................................. 9

6. SWOT Analysis of IAAD .......................................................................................................... 10

7. Levels of Reform in IAAS – Paradigm Shift to Hub & Spoke .................................................. 11

7.2 Three Levels of Restructuring ....................................................................................... 13

7.3 Five Functional Reporting Levels & Two Streams of Management .............................. 14

7.4 Separating GOI from State Audit .................................................................................. 14

7.5 IAAS: All-India Service Options...................................................................................... 15

8. The Process of Restructuring............................................................................................. 16

8.1 Differentiation in Qualifications at Entry ...................................................................... 16

8.2 Separate Induction Examination ................................................................................... 16

8.3 Undergraduate & Graduate Entry................................................................................. 17

8.4 Lateral Entry .................................................................................................................. 18

8.5 Modifying the NAAA Curriculum................................................................................... 19

8.6 Foreign Training ............................................................................................................ 19

8.7 Incentives for Acquiring Professional Qualifications .................................................... 20


8.8 New Legal & Publicity Chiefs ........................................................................................ 20

8.9 The Need for Rewards .................................................................................................. 21

8.10. Level Imbalance in IAAS & Lack of Promotions as Disincentives .................................. 22

8.11 Basis of Comparison ..................................................................................................... 22

8.11 Building Specialization in IA&AS ................................................................................... 23

9. Post-Restructuring Scenario .................................................................................................. 24

10. National Audit Boards ....................................................................................................... 27

10.1 Organizational Layout in States .................................................................................... 28

11. Cost of Restructuring ........................................................................................................ 29

11.1 Audit Operations Fund ................................................................................................. 31

11.2 CAG & IAAD: Charged vs. Voted Expenditure............................................................... 31

12. Perspective and Strategic Plans .................................................................................... 32

13. Shaping the Proposals ....................................................................................................... 33

13.1 Implementing the Proposals ........................................................................................ 33

14. Conclusion ......................................................................................................................... 33

A. Illustrative List of New Posts as part of GOI Expenditure Audit ....................................... 35

B. Illustrative List of New Posts at HQ in new structure ............................................................ 36

C. List of New Designations for DAI/ADAI in new structure ...................................................... 37

D. Illustration for reorganization of MABs ................................................................................. 37


Highlights

Vertically differentiates IA&AD into State and GOI audit
components
Horizontally differentiates GOI audit by clusters of executive
functions /themes
Horizontal and vertical differentiation extended to different tiers of
HR Group ‘A’ level creating distinct audit and strategic management
entities with five distinct operative levels
Creates two audit streams, viz. strategic management and audit
management each for GOI and State audit
Limits layers of accountability to three in each audit stream
Assures autonomy of operation -> speeds audit process
Unifies chain of command -> Ends intra-jurisdictional conflict
Shortens span of control -> encourages innovation and timeliness
Shifts operating paradigm of IAAD from geographical to functional
theme-based hub and spoke audit divisions -> PARADIGM SHIFT
Extends audit coverage -> Encourages flexibility and innovation in
specialized sectors
Promotes wider skill sets and raises level of planning and execution
of audit above SAO/AO level
Inducts fixed numbers of professionals into IA&AS Group ‘A’ cadre
-> provides in-house and on-call availability of technical expertise
Creates promotional avenues for SAOs/AOs and makes them a part
of the restructuring process
Creates two entry points to IA&AS, viz. undergraduate and graduate
Proposes separate induction examination scheme akin to specialized
services
Proposes 45% increase in sanctioned strength of IA&AS
Shifts audit planning and implementation to JAG and above ->
improves quality of audit


Introduction

The phenomenal growth of the private sector, the unshackling of the public sector,
dereservation of areas of operation by the private sector, and foreign collaboration since
1991 has been felt everywhere in government. While flexibility to the private sector has
been allowed by government even in sensitive areas, yet govt. rules and regulations most
invariably are tied to their colonial origins. Even when a new policy is declared with the
best of intentions by the govt., it mainly remains a slave to dated rules and regulations.
Thus govt. rules come onto collision course with new initiatives, wrecking even the
simplest models of public-private partnership. The Dabhol Power Company deal is a grim
reminder of such conflict. Yet the model of governance is rapidly changing, e.g. DIAL for
airports, NHAI for highways, private airports and toll roads, SEZs with regulatory
government becoming facilitator for governance.

2. LPG-FIT Model of Governance

(L)iberalization, (P)rivatization and (G)lobalization require (F)lexibility,
(I)nnovation and (T)imeliness of business decision-making by government as the
facilitator and regulator. The fine line of distinction between a bona fide business risk and
malfeasance in such new business models is often obfuscated, either by unfamiliarity with
such models or by application of dated govt. rules/regulations in an environment where
the rules are completely different. Thus the evaluation of constantly shifting definitions of
business risk itself requires the audit to move with the times, innovate and apply the
brakes timely. In sum, the FIT model has two different connotations for the executive and
the audit that converge at the new LPG model of governance as the diagrams on the
following page show.

The Audit bureaucracy too has not been an exception to the rule in reorienting its
processes. The end result is that an adversarial relationship has come into being with govt.
that charges CAG, CBI and CVC for being “anti-progress” and portrays the audit as a
somewhat historical fault-finding oddity. The pace and variety of decision-making has
increased manifold as have the risks. The trade-off between progress and accountability is
often tenuous with the audit and the executive coming to loggerheads over key decisions
such as perceptions of ‘business risk’ and ‘timeliness’. Audit’s relative unwillingness to
break free from the past and its current debilitating structural limitations imposed by
history are today threatening the country’s most highly-regarded oversight agency. Many
welcome moves however, have been made by the IA&AD in recent years such as
performance and taxation audit. The proposals contained in this paper are therefore
designed to achieve the LPG-FIT model as follows:


3. Limitations of Audit Reports

However, not only are the reports incomprehensible to the citizen, they are more a
historical chronicle of times gone by and viewed through the narrow audit prism and
above all, unattractive to present. Neither do the reports contain scientifically validated
statistical analysis and projections nor are government programs analyzed using modern
tools and findings presented in a scientific manner. Presented to the legislature and
executive for action, these reports are often trashed by a bureaucracy that is being trained
abroad and developing a broader horizon than the audit while legislative indifference
stymies the audit impact. The reports also suffer from a lack of identification of a target


audience. Are they for legislators, officers, NGOS or even the common citizen? If they
are for legislators and officers the reports only invite greater disdain with their
antediluvian approach. The common man, to whom the IAAD owes its first duty, finds
the reports sheer gibberish. Presented to the media, they are susceptible of selective
coverage. Neither is original data painstakingly collected by auditors available online for
transparency and research, nor is the reports indexed with some sort of a ‘made-easy’
guide through the technicalities of a report. Perhaps the IAAD should have different
versions for different audiences.

The report–based structure of the IA&AD also ensures that important
evaluations are hidden among innumerable layers of often routine and inane
findings (included by virtue of their large money value) while the tendency to
internalize every important function has ensured that external influences and fresh
opinion seldom enter the IA&AD. How useful is a report on a multi-purpose project
if it does not tie in with soil conservation, water resources management,
environment, energy supply, agricultural production, danger to wildlife,
rehabilitation efforts, human rights, etc? The present report and geography based
organization of the IA&AD militates against timeliness, adequate coverage and
specialized knowledge. Excessive bureaucratic centralization stifles innovation as it
straitjackets everything into a standard format, oblivious of the special needs of a
sector.

3.2 Executive & Legislative Indifference

There is unlikely to be any major positive change in CAG’s mandate or
response to his reports considering legislative and bureaucratic apathy in a
generally corrupt environment. It is therefore imperative that IAAD works on
issuing its performance audit reports as studies and thereby avoid classification as
an audit report requiring report to the legislature. Written by professional script-
writers, designed by outsourced agencies, published by major publishing houses
(such as OUP and CUP akin to UN Reports) and backed by paid media publicity,
these reports may indeed be the magic cure the IAAD is looking to enhance its audit
impact. Longitudinal study reports on issues that impact the common man, such as
growth in agricultural output or prices would be welcome additions and more
comprehensible to the common citizen. The citizen may also be the most worthwhile
investment the IAAD may make to bolster its sagging audit impact by inviting
public opinion online, public presentations, etc.

4. The Need for Decentralization, Delayering & Differentiation

The need for decentralization, timeliness and innovation is thus critical to the new
LPG model of governance that imbues the executive with powers that were hitherto
vested in a select few in the land. Unless a convergence of the three functions is created
between the audit and the executive, an increasing redundancy of an adversarial
relationship would strike at the core credibility of the audit. This is not to say that the
credibility of audit is at an all-time low; just the need to ensure that audit matches the
needs of the changing times. Thus there exists a strong case for vertical and horizontal
differentiation in the IA&AS in tandem with the separation of the audit management and
higher reporting streams of the IA&AD.


To achieve timeliness, decentralization of authority and delayering of the structure
is essential; once both these are accepted, level differentiation would follow. Flexibility is
determined by the span of control and the chain of command; the longer both are,
flexibility and timeliness are adversely affected. Similarly, innovation is encouraged by a
diverse product mix, one that emphasizes cross-sectional comparisons and throws up new
leads. At the same time there emerge unique leads and findings that lead to product
differentiation and widen the scope of operations of the organization. The following
graphics illustrate the layers in the strate4gic and audit management streams:

AUDIT MGT. STRATEGIC MGT.

Thus principally there would be no difference in the framework of the audit
and the executive decision-making process. If for the executive risks are inevitable in
the decision-making process, it is equally incumbent upon the audit to check
whether such risks were indeed real. For this purpose audit would need much higher
levels of training, knowledge, skill sets and the audit function itself to become much more
analytical, grounded in modern tools such as forensic audit, evaluation techniques, etc.
rather than using tenability of most executive arguments to impose audit findings upon
the executive. Needless to add, this adversarial approach reflects adversely upon the
audit which is a static formation unlike the executive that has high personnel
turnover rates to use as a bail-out weapon and evade accountability.


5. The Need for Restructuring

Why does the IAAD require restructuring to bring in an integrated audit structure?
For a start let us consider the cause and effect of the IAAD’s present structure in the
following table:

Cause Effect

Posts based on Audit Reports Generic antediluvian division of govt. function
confines IA&AS growth and specialization
Absence of seamless integration in audit Reports narrate incomplete sequence of events –
effort & organization audit effort dissipated
No functional distinction in grades other Emphasis shifts from routine to higher audit,
than at STS and SAG affecting the source of routine audit
Large spans of control IA&AS is less than 1% of the total HR
2-3 ADAI/DAIs get fed by an AG/PAG but only a
Multiple chains of command single ADAI/DAI is the Reporting Officer – this
dilutes accountability by prioritizing an AG’s
output with reference to his/her APAR and career
ambitions
No distinction between routine audit and Higher audit specialists not available – HR taken
specialized higher audit function off routine audit and deployed w/o training

Low prescribed percentages of audit diluted for
Inadequate audit coverage higher audit – quantum and thrust areas of audit are
dated
Inadequate skills for emerging areas of Officers not aware of policy evaluation tools, socio-
governance economic policy, e-audit and financial management
tools
No in-house on-call technical expertise Leads to wide divergence between audit and
government perceptions – not everything is
“untenable”

How does the IA&AD fit into the LPG-FIT model? The following diagram
provides a scientific management basis.


5.1 Inadequate HR and Coverage

The Group ‘A’ cadre of the IA&AS comprised only 0.87% of IAAD’s total
HR. Declining cost of audit from Rs. 53 per lakh in 2001-02 to Rs. 45 in 2004-05 is due
to large-scale vacancies and preponderance of low-paid personnel and centralized audit
and accounts offices and residential quarters rather than to any real economy of
operations. Such low cost may also point to grossly inadequate audit coverage.
Inadequate audit coverage is compounded by the fact of the IAAD’s staffing and
audit standards being based on Audit Reports and standardized audit codes for
large groups of similar government departments, instead of administrative
Ministry/Department-based norms. Although the Activity Report 2005-06 of CAG
attempts to portray the low cost of audit in a positive light, this may not be the case for
reasons stated earlier.

5.2 The Audit Vision of Government

The division of govt. into six functional sectors for audit purposes adds to the
absence of any thematic differentiation between departments leading to anomalous
situations in which a PSU gets away with an irregularity while its administrative
Ministry is unfairly made to shoulder the blame. Give the fact of the IAAAD’s audit
effort accounting for 81% of its annual budget, an impression of a disjointed audit
effort takes shape in the public mind and sows the seeds for a gathering perception
of the audit being party to several executive snafus.
The expenditure is also dissipated when one considers that 41% of the budget
is consumed by state audit offices, 19% by GOI audit offices and 9% by GOI
commercial offices, et al. Thus while the IAAD may be spending upward of Rs. 2000
crore per annum, yet its quality and coverage of the IAAD remain shrouded in a
haze of often contradictory and incomplete reports. It is almost impossible to state
the quantum of audit effort expended for each sector of the economy of India/state
from this diagram. The emphasis is solely on report-based functioning that does not do
justice to the actual expenditure being incurred. Such a structure is also not conducive to
optimal utilization of HR as it does not utilize slack, seasonal or otherwise, available in
most charges.

5.3 The GAO’s Organization

While a comparison between the US GAO and the IA&AD may not entirely be in
order, it would suffice to say that the GAO also follows a functional divisional approach
teamed with centralized supporting skill divisions such as the General Counsel and Chief
Administrative Officer. The GAO also recruits professionals such as CPAs, economists,
statisticians, I-T experts, engineers, doctors and lawyers. Such recruitment is done on
what may be loosely termed in GOI, as deputation from other departments. The GAO
employs 3120 personnel and had a budget of $488.6 million in 2007. Incidentally, the
GAO had a change of name in 2004 and became the Government Accountability Office
(from General Accounting Office) with the following differences flowing from such
change:


1. Decouples GAO from the federal employee pay system,
2. Establishes a compensation system that places greater emphasis on job performance
while protecting the purchasing power of employees who are performing acceptably,
3. Gives GAO permanent authority to offer voluntary early retirement opportunities and
voluntary separation payments (buy-outs),
4. Provides greater flexibility for reimbursing employees for relocation benefits,
5. Allows certain employees and officers with less than three years of federal service to
earn increased amounts of annual leave, and
6. Authorizes an exchange program with private sector organizations.
For evaluation and audit purposes GAO is divided into 13 functional areas as follows:

Acquisition and Sourcing Management, Applied Research and Methods, Defense
Capabilities and Management , Education, Workforce, and Income Security, Financial
Management and Assurance, Financial Markets and Community Investment, Health Care,
Homeland Security and Justice, Information Technology, International Affairs and Trade,
Natural Resources and Environment, Physical Infrastructure and Strategic Issues. In the
states there is a State Auditor who enjoys the rank of a Cabinet Minister and is an elected
official. This is quite unlike the organization of the IAAD which is in an unenviable
position of being neither executive nor independent in terms of finances and
personnel. Therefore a thematic remapping of the IAAD’s structure is not a novel
feature.

6. SWOT Analysis of IAAD

Where do the strengths of restructuring the IA&AD lie? They lie in:

 Qualitatively and quantitatively enhanced and integrated audit coverage
and proportionate reduction of risk
 Inter-level functional distinctions in the official hierarchy and sectoral
specialization
 Shorter spans of control with clearly defined reporting and appraisal
systems and reduction of inter and intra-jurisdictional conflict
 Pooling of HR to minimize wastage
 On-call technical expertise and
 Greater operational autonomy

Among weaknesses would be perceived (within IAAS) ‘devaluation’ of HoD posts
and higher operating costs but with perhaps large incremental benefit. Opportunities lie in
the manifold expansion of Ministries, JVs & PPPs, privatization, non-govt. delivery of
goods and services, increasing foreign collaborations, rising citizen demand for
accountability, and wider choice of extracting information from govts. such as by the RTI
Act, 2005. Threats would seem to lie in the universal executive distaste for ‘more’ audit
and higher operating costs (both a boon and bane). Nonetheless, the strengths and
opportunities far outweigh the threats and weaknesses.


7. Levels of Reform in IAAS – Paradigm Shift to Hub & Spoke

How should the IAAD proceed with its restructuring? The first level reform would be
to segregate GOI and State Audit in tandem with a changeover from the present
classification of combining large sectors of government into a single report. Instead of a
limited six-fold generic division of govt. functions, these would now be on a broad
thematic basis, re-dividing govt. into more contemporary sectors for closer and timely
scrutiny. At the second level and also to provide operational flexibility theses sectors may
be divided into zones. Instead of commercial, defense, civil, etc, the generic division of
govt. would now be environment, transportation, then regionally for each such division,
cutting across state and central governments.
Attempts to continue with the present structure, albeit with cosmetic modifications,
would reflect a severely myopic vision of the future and cause avoidable complications.
The existing structure also militates against domain specialization that is essential in a
rapidly changing operative environment.
The hub and spoke principle used globally by the airline industry may be applied
to the IAAD. In other words, a specialized domain of audit would vest in a HAG-
level officer as the hub (covering cognate Ministries, PSU, AB HQs) with PDs
forming the spokes regionally. More plainly put, the DsG Central Expenditure
would be specialized in a particular domain only instead of clubbing diverse
departments into a single HAG-level charge. At the apex level would be a domain-
specific Audit Board headed by an ADAI with a permanent secretariat and all DsG
and PDs in this domain as invitee members. This would be not only conducive to
seamlessly integrating the audit function but also adding to IAAD’s existing domain
knowledge over a span of time.
While the structure only for the Transportation sector may appear to be vast and
unwieldy, these activities could be distributed between two Boards, one for MoST and
MoCAT and the other for Railways and Ports. Railway audit and commercial audit
offices, wings of DGACR, etc would be reorganized to form composite offices that would
fully utilize the slack presently available in all audit offices on account of the six-fold
compartmentalization. The following graphic depicts the composite structure of a
proposed office:


Specialized offices or those dedicated to a single dept. may not justify the workload
available to them through the year. Rather composite offices would have the skills to
undertake all types of audit tasks within a National Board’s jurisdiction. Portability of
skills from one dept to another may be desirable too for professional and administrative
efficiency. The inter-office and inter-division linkages within a field office would be
substantially reduced in the new system as each group would have its own dedicated
composite skill sets and would mainly therefore be self-sufficient. Slack in the system
would also decline were output norms enhanced and composite offices introduced.

The reports would move in line with the functional distribution of government
departments with a key difference – the organization would centre on unifying
themes such as Environment, Telecom, Police-Central, etc. This may have the effect
of bringing 2-3 departments under one umbrella while providing scope for three separate
audit offices for the same multi-function Ministry (Higher-Elementary Education,
Technical Education and Others as three separate audit offices or sports from one
ministry and family and youth welfare from two ministries).
Given the span of control of a Ministry, PDs could be stationed regionally (if
Mumbai is a problem area for office space, the PD – WR could be located in Pune).
At the same time, the restructuring assumes substantially larger audit coverage than


presently. The last level would vertically differentiate senior management from the
executive management and horizontally within the executive management between
technical and generalists, audit managers and reporters, on the basis of the
functional differentiation. Thus audit management would look after routine audit
without compromising on the reporting function and vice-versa. Such restructuring
would also be in line with DoPT’s requirements for cadre review.

7.2 Three Levels of Restructuring

The IA&AD may be reorganized at three levels, viz. separation of GOI and State
audit, second-tier function/sector-specific differentiation for GOI audit, and finally,
a third-tier region-specific office setup for GOI audit. Each such tier would
comprise twin levels of management as stated in Para 7.3 infra. All officers would be
allotted to zonal cadres as they join NAAA that would continue throughout their
careers. All IA&AS officers up to the Director level would be posted to a state Audit
Board that, in turn, would post such officers to offices under that Board. However,
CAG would continue to post officers of SAG and above directly to specific charges
under each Board. Officers for GOI boards would be on deputation from the
Functional Board. This would allow the Boards operational flexibility and reduce
administrative workload of HQs. This suggestion is made on the analogy of the
Indian Railways where GMs have the authority to transfer officers within their
zones and without intervention from the Railway Board. The following graphic
illustrates the levels of restructuring:


7.3 Five Functional Reporting Levels & Two Streams of Management

The proposed organization differentiates between grades as it creates five levels
of Group ‘A’ management distributed among two streams, viz. strategic managers,
senior managers, executive managers, strategic management support and technical
manager streams distributed amongst audit and strategic management levels.
Hitherto no vertical differentiation existed, except upon promotion to STS and SAG. The
blend between the four grades is suggested at 20:20:40:15. Thus the median audit
operations personnel would constitute 50% of the total HR. The technical group
would be drawn entirely on deputation and be not less than the rank of Director to GOI.
This would enable the IA&AD to attract officers from other organizations. Of this 6%,
IA&AD could set aside 3% for contract employees at levels not less than that of Director
to attract talent. Such provision exists in some organizations of the GOI where up to 50%
of the posts can be diverted by the Secretary to ex-cadre appointees for a period of up to
three years. Beyond this period, approval of a Committee of Secretaries is required.
The base of the pyramid comprises the JTS at the induction level, STS & JAG at
the intermediate levels and SAG and above at the senior management level. The new
system also re-engineers the JAG (NFSG) and proposes it as a functional grade of
Director to GOI assigned a strategic management role at the field and HQ levels.
The STS-I is proposed to comprise of the present-day STS while STS-II would be
the present-day JAG. An attempt has also been made to distinguish between senior
management and strategic management levels by functionally differentiating
between SAG and HAG levels. Further Group Officers in A&E offices could also be
used for supervising parties or involved by the PAG(Audit) for audit report work.
This would not only supplement the limited available strength of GOs but also ensure that
A&E offices are not deprived of the service of GOs when required and particularly after
the 20th of every month. In effect 3 layers/level of management each (one layer, i.e.
technical support overlapping in each stream), functionally differentiated one from the
other, and would come into being.

7.4 Separating GOI from State Audit

Presently, most state AsG/PAsG discharge dual responsibilities for both State and
GOI audit. Yet they have a single Reporting Officer, mostly ADAI/DAI in-charge of state
audit. The GOI audit thus remains hostage to the priorities of the Reporting Officer
with the AG/PAG being not always willing to contribute to the GOI audit effort at
the expense of his/her APAR. While this trend may not be officially admitted, the
actions of the AG/PAG amply bear this charge out. This is not conducive to the audit
cover for GOI. If the shortage of officers and staff in field audit offices is taken into
account, the effect on GOI audit becomes more pronounced. An anomalous situation
also arises in that large chunks of GOI expenditure are often sacrificed to the
relatively low-level finance State audit. In effect, the State AG/PAG is entrusted with
the responsibility of GOI audit with very little accountability (other than the ADAI’s
seniority) while the ADAI/DAI (GOI audit) has to prepare a Report with an
AG/PAG over whom the DAI/ADAI has very little or no control, other than the
AG’s courtesies. Such fragmented chain of command also detracts from sustaining a
long-term consistency in audit findings that relate to the quantum of expenditure by
governments.


It is therefore essential that GOI and State audit are physically separated. It
may be mentioned that PDA, Central, Kolkata and Mumbai (composite audit offices
for GOI) have been successfully running for the last several decades and have made
stellar contributions to CAG’s Audit Reports. Replicating such offices in about 20
States by transferring IA&AS officers and staff from State Audit offices would
provide for wider coverage and unity of command plus a more manageable span of
control for GOI audit. Another alternative could be to carve out independent GOI
Receipt and Expenditure offices for each of the 20 states and transferring the State AsG
GOI audit responsibilities to such DsG. A third alternative could be to have, say a DG
(Environment) in Mumbai with zonal branches in all metros headed by PDsA or a DG
(Transportation) in Pune with a series of branch offices headed by PDsA. The following
graphic illustrates the division of State from GOI audit:
CAG

CENTRAL STATE AUDIT STATE A&E HR TECHNICAL

AUDIT BOARD BOARD BOARD ADVISORY

SECRETARY – 1 REGL. REGL. SECRETARY – 1 I-T CONTRACTS

ADDL. SECY. - 2 SECRETARY – 1 SECRETARY – 1 OTHER SECY - 2

10-15 5 BOARDS 5 BOARDS 1 BOARD PROCUR- ENGG.
BOARDS
EMENT

AUDIT AUDIT PR. SECY JS -4

MGT MGT ACCOUNTS DIRECTOR - 4

STRG STRG SECY 4-8 BOARDS

MGT MGT ENTT

7.5 IAAS: All-India Service Options

This would also imply the creation of a zone and function-based cadre on par
with all-India services. An alternative would be to have function-specific cadres and
allow inter-cadre deputations whenever required by the Board. A third alternative
could be to have zone-based cadres for IA&AS Group ‘A’ officers while the
function-specific cadre could cover SAOs and below. If the zone-based cadre system
grounded in the states is introduced for IA&AS Group ‘A’, such cadre affiliation
could continue throughout an officer’s career although he/she would remain
transferable between cadres on the analogy of inter-state deputations for AIS and
for deputation to GOI audit offices on the analogy of the Central Staffing Scheme. In
effect, these suggestions imply vesting the IA&AS with AIS status that may require
enabling legislation like those of the AIS. Zone-based cadres would also have the added
advantage of benefiting from add-ons to pay like other AIS officers.


8. The Process of Restructuring

While conceptually restructuring the IAAS as mentioned elsewhere in this
approach paper, the IAAD would have to restructure its processes such as those relating
to finances, Gr. ‘A’ personnel, legislative limitations, etc. Such restructuring would have
to factor in knowledge, technology, skill sets, and recruitment and training processes,
incentives (punishments alone do not run an organization), finances, et al, if the concept
of an integrated audit is to yield tangible and widespread post-restructuring audit impact.
Some suggestions, by no means exhaustive, are suggested in the following paragraphs.

8.1 Differentiation in Qualifications at Entry

While there are some who may argue that creating an exclusive audit service may
be a more desirable route, yet in the Indian context, it seems inconceivable that GOI will
allow the civil service tag to be summarily jettisoned. Resistance from within the IAAS
may also face resistance as officers may not be willing to lose the century-old kaulinya of
the civil service. However, a separate examination by the UPSC, on the lines of the
engineering and medical services, could be conceived that would allow the IA&AS to
retain its civil service tag without being bracketed with other generalist services for
recruitment. Like the RBI that prescribes minimum proficiency standards for writing
the entrance examination for Gr. A and B (B having higher salary scale), the
IA&AD could insist that candidates satisfy the minimum essential following criteria:
For entry to JTS (100% of D/R posts): Upper second class graduate in the following
disciplines with intermediate level of computer proficiency: Accountancy, Commerce,
Economics, Public Administration/Public Policy, Environment Science, Political Science,
Sociology, Statistics, Management, Engineering, Law, Medicine and I-T. Preference will
be given to candidates who have successfully completed at least the first two years of a
professional degree. Knowledge of computers is essential while knowledge of audit and
financial management or statistical software is desirable. Confirmation in service would
be subject to successful completion of professional degree and prescribed departmental
examination.
For direct entry to STS (100% D/R quota): Upper second class post-graduate in the
following disciplines with high level of computer proficiency: Accountancy, Commerce,
Economics, Public Administration/Public Policy, Environment Science, Political Science,
Sociology, Statistics, Management, Engineering, Law, Medicine and I-T. Preference will
be given to candidates who have successfully completed at least the first two years of a
professional degree. Knowledge of computers is essential while knowledge of audit and
financial management or statistical software is desirable. Confirmation in service would
be subject to successful completion of such professional degree and prescribed
departmental examination.

8.2 Separate Induction Examination

A single examination followed by viva voce should suffice for direct
recruitment. Separation from the civil services examination would speed up the
process and ensure that candidates are not lost by the efflux of time between the first
exam and final declaration of results. The new system would call for a large number
of recruits at relatively short notice. The civil services examination that takes nearly
two years for recruitment is not conducive in a system that requires fast filling of


vacancies with candidates who are more qualified. The lure of the private sector for
more qualified candidates is another area of concern that the civil services exam is unable
to address. Mixing natural and science skills with accounting also is not conducive to
good governance as it does not match skills with job requirements and invariably
leaves the door open to growing frustration, a continuing feeling of injustice to the
candidate and a lifelong ‘cause for regret’.

8.3 Undergraduate & Graduate Entry

However, in the proposed system 50% of the direct recruitment quota posts
may therefore be filled with minimum undergraduate education level while post-
graduates could be inducted in the remaining 50% of the direct recruitment
vacancies at the STS grade. This would attract more qualified people since the starting
salary level would be somewhat higher than that of the JTS level. The details are
explained in the following slide. Given the subjectivity surrounding staffing by promotion
from the Gr ‘B’ service, it is proposed to reduce the promotion quota by 2.333% while
that for direct recruitment by 3.67%. The increase in the overall number of posts may
somewhat mitigate resentment that may arise from reduction of percentage. With a view
to having in-house technical experts, 10% of the savings from promotions from Gr. ‘B’
may be diverted to creating a deputationist cadre of specialists who could be rotated or
changed as per the audit requirement. Of this technical cadre, 2-3% posts could be
diverted to fixed-term contract experts that would enable the IA&AD to draft highly
skilled experts from outside/private sector. In sum, recruitment to the IA&AS would be
through five channels as follows:


In percentage terms, the complexion of the reconstituted IAAS would be as follows:

8.4 Lateral Entry

Insofar as lateral entry is concerned, these posts may be thrown open to all
Section Officers with 7 years of service, AAOs with 5 years and SAOs/AOs with 3
years’ service from the IA&AD. The upper age limit may also be relaxed to 55 years.
However, the final ranking of such officers will be made after a viva voce exam and
a system that grants extra credit for professional degrees acquired after entering the
IA&AD. Promotions on the basis of fitness-cum-merit may be stopped since there is
substantial degree of subjectivity involved and ACRs are not the best index of an
officer’s actual performance. The reduction in the promotion quota may not be resisted
strongly since the larger number of vacancies may mitigate such resistance.
The following graphic depicts the post-restructured composition of each level in
the IAAS:


8.5 Modifying the NAAA Curriculum
Simultaneously, the curriculum at the NAAA would have to be modified as
illustrated below to train new recruits:

Description Duration
(months)
Introduction to Statistics (+ software SPSS/SAS) 6
Contract Law 4
Administrative Law 4
Public Policy Making & Resource Economics 4
Policy Methods & Evaluation 4
Public Finance Reform & Budgeting 4
Economics, Environment & Infrastructure Development 4
Public Contracting, Outsourcing & Alternative Delivery Systems 4
for Public Services
Research, Report Writing and Presentation 2
Alternative Infrastructure Development Models in India 2
TOTAL (assuming 5 concurrently running courses) 10

8.6 Foreign Training

The Govt. of Punjab has instituted a S$132,000 scholarship at LKYSPP, NUS,
Singapore has for a one-year programme that is held partly at Harvard/Columbia
University, USA. This translates to about Rs. 40 lakh. Presumably, the usual DA is
admissible to the officer nominated for this programme. Putting 365 days DA @ US$100
per diem would translate to another US$37000, i.e. about Rs. 15 lakh. In sum, the total
outlay per scholarship would be about Rs. 55 lakh. The Kennedy School of Government
at Harvard charges about US$75,000 for their 12-month MPA/MPP programme plus DA
@ US$ 100 per diem making for a total of US$ 115,000 or Rs. 45 lakh plus return air
fare. The Govt of UP and DoPT send officers for these programmes. Duke University
similarly has a Masters’ in International Development Policy with specialization in
International Taxation Policy for which DoPT has been sponsoring officers. This
programme too would cost around Rs. 50 lakh plus return airfare. The Maxwell School’s
EMPA too is in the same price range. IIM-A has a joint programme with Duke University
that is substantially cheaper since part of the programme is held in India. However, if
these universities are approached by CAG directly for training full batches, the prices
may fall substantially depending on the number of officers per batch. It may be
mentioned that nearly 150 UP PCS officers spent about 3 months at Duke University for a
short-term training programme in 2007-08. DoPT too has been sponsoring several
officers at the Maxwell School, Duke and Harvard and some Canadian universities like
Manitoba. The Railways too have organized similar sponsorship for their officers.
Attending such institutions would keep our officers abreast of international
developments and impart them the requisite skills to enhance IAAD’s audit impact,
only if the process of selection is transparent and free from any dispensation of
patronage that is more the norm in govt.


8.7 Incentives for Acquiring Professional Qualifications

While a welcome beginning has been made by NAAA by sending IAAS probationers to
South Africa recently, much more is needed to be done. In addition, some attractive
incentives that rise above the penny-pinching Rs. 2500 honorarium per annum, are
suggested in the following table:

Qualification Obtained Proposed Incentive
Terminal degree in subject approved by/study leave Lump sum cash award Rs.
granted by CAG 1,00,000 plus three advance
increments
Foreign professional qualifications that require CAG may allow return air
travel from India to take exam abroad fare by entitled class and DA
on tour for upto 7 days every
six months, subject to
maximum of four round trips
Post-graduate programme abroad sponsored by CAG may allow $125/diem
CAG plus entitled hotel for entire
duration of programme, in
addition to cost of programme
Domestic post-graduate programmes where officer CAG may allow payment of
obtains admission in open competition all tuition and fees, study
allowance of Rs. 500 per diem
and full P&A up to two years
MPA/MPP/MPM/MBA from foreign university Lump sum cash award Rs.
where officer obtains admission and financial 25,000 plus two advance
assistance on his own merit and CAG bears return increments
air fare, study allowance and DA
CPA/CA/CS/CISA/Cost Lump sum cash award Rs.
Accountant/IIM/XLRI/JLBI/LLB/LLM post- 75,000 plus three advance
graduate degree on his/her own merit increments

Other domestic post-graduate programme e.g. Lump sum cash award Rs.
environment science, education, etc. where officer 25,000 plus one advance
has obtained prior approval of CAG increment

8.8 New Legal & Publicity Chiefs

The IAAD should have a Chief Legal Adviser would not only attend to
routine litigation but also essay a double role for examination of contracts and other
legal documents for audit. The Dy. Legal Advisers should have powers to examine
contracts upto Rs. 5 crore in value. Similarly, the DG (Communications) should
ideally be a contract employee drawn from the private sector. Apart from being the
principal spokesman for the IA&AD he would also be responsible for layout,
printing, etc. of CAG’s reports and holding press conferences, giving out
advertisements and press handouts. This is a job best handled by professionals
whose creativity is not bound down by bureaucratic constraints and mindset as is
wont with officers on deputation from govt.; this post may even be proposed at the


HAG level to provide a better pay packet for contract employees. The Public
Grievances Manager would not only take over the A&E Complaints responsibility of
the present DG (A, E & C) but also receive and forward complaints relating to
financial impropriety in government agencies/depts. that may be received from
citizens and from IA&AD employees, to the concerned wings/offices. It would be
advisable to regionalize this function to reduce reaction time.

8.9 The Need for Rewards

Writing nearly two centuries back, William Hazlitt (1778-1830), English essayist
and literary critic said, “There is a secret pride in every human heart that revolts at
tyranny. You may order and drive an individual, but you cannot make him respect you.”
There are almost no incentives, other than vague expectations (most often belied) of
a high grading in the ACR or a short foreign trip in the IAAD. No organization
prospers and grows if there are no rewards for achievers. In fact, reward and
punishment are two sides of the same coin, frequent repeats of the former birthing
respect, the latter, open disdain. Many organizations such as the Cabinet Secretariat and
Indian Railways have institutionalized reward schemes that provide for cash awards of up
to Rs. one lakh per head plus a citation awarded by the President/Vice-President/Prime
Minister of India at glittering ceremonies. The most the IAAD offers is a Rs. 5000
honorarium for which too several queries are raised for junior personnel. IAAS officers
are seldom ever given any rewards for local outstanding effort.
The tendency to typecast an officer arising from professional jealousies is best not
institutionalized. It is important to remember that an officer performs in response to his
internal and external environments. Thus an officer who may not have had the
opportunity to perform well in at any given time in his/her career owing to his place or
posting, duties of his post or any other reason should not be condemned into oblivion. It
is therefore essential that a scheme is evolved that provides for annually rewarding
outstanding IAAS officers, irrespective of their previous service record.
Additionally, those with somewhat less than outstanding performance should be
treated as runners-up rather than as being unworthy of their job. Such officers can
always be awarded the bronze medal. Positive management rather than its
negativism is a major pillar of the recommendations of this paper.


8.10. Level Imbalance in IAAS & Lack of Promotions as Disincentives

The imbalance in the IAAS cadre is shown in the following diagram:

Shortages in the STS and JAG account for about 50% of the total sanctioned
strength of the IAAS although the JAG and JAG (NFSG) are the backbone of all
departments. The present ratio of 1:1.7:8.5:36 from DAI to SAG is in sharp contrast to
what other services such as the IFS enjoy. Going by this ratio only one in about 36 SAG
officers will ever become DAI while one in 21 will become ADAI. Even at the HAG
level only one in four SAG officers will reach the HAG. In other words, a fourth of the
total officers due to superannuate by 2025 may not eventually even attain the SAG. Even
if ad hoc 15% deputations are factored, even then around 35 officers would yet not make
it to the SAG after more than 32-35 years in the IA&AS. Surely this is not an attraction
for new entrants who, by their Google and Yahoo-based knowledge, are much more
aware than the present set of senior managers the IAAD has?

8.11 Basis of Comparison

A good way of comparing the IA&AS would be the Indian Foreign Service
that has numbers close to the IA&AS and is constituted as a Central Service. Their
geographical divisions of the globe also correspond to the IAAD’s perspective of
governments by way of numbers. Based on online data of DoPT, the following
comparison emerges between the IA&AS and IFS:


180

160

140

120

100

80

60

40

20

0
SAG & >: Time
JAG:Time Scale JAG & >: Time Scale SAG& >:JAG SAG & >: Total
Scale
IFS 51.77 135.82 162.33 35.64 128.11
IA&AS 41.07 77.04 87.58 20.32 55.08

IFS IA&AS

The IFS has three times more of Secretary level posts, a third more at HAG
level and about 75% more at the SAG level when compared to the IA&AS. The
IA&AS also has the highest reserves: total ratio among all central services that
artificially inflates the overall strength of the IA&AS without any gain on posts,
particularly at levels of SAG and higher.

8.11 Building Specialization in IA&AS

While specialization in the IA&AS has been extensively debated, opinion
remains divided on this issue. Even though the IAS projects itself as generalist
managers (vis-a-vis PLUs who are disadvantaged professionals with blinkered
vision), the fact remains that an IAS officer not only serves in state govt. and central
departments in an executive capacity but often also as an implementing agency. As a
District Magistrate/Collector the officer is the implementing agency while in the
state secretariat he/she may be assigned to agriculture or industry where his/her
field experience stands the officer in good stead. Further, an IAS officer who is, say
Secretary Energy, in a state may latterly serve as Jt. Secy. MoP thus bringing his
experience to bear upon all-India policy as well. However, unlike an IAS officer, the
average IA&AS officer is shunted between A&E, various branches of audit and even


RTCs! This militates against the development of an officer’s professional knowledge
in any field/sub-field of government. Therefore the fall back upon convent/SAO
English becomes his/her sole weapon in his/her ‘battle’ against bad governance.
Insufficient exposure to a field/set of related sub-fields handicaps the officer ever
more as he points to every executive reply being “not tenable” and concludes with
“revealing” remarks, that frequently reflect his revelation of depth of knowledge
and experience of a field rather than “revealing” the seamy side of an executive
decision. This, in turn, leads to the typecasting of audit as retrograde.
As stated elsewhere in this paper, the LPF-FIT model of governance requires a
convergence of the audit and executive’s views on the basics of an issue. If only the
perspective differs, and not the context, that is a healthy development. The IAAD
therefore needs to put in much greater effort in career planning so that an IAAS
officer invariably covers at least three major fields of government in his career and
two sub-fields in each of three fields during his career. Thus if an officer covers
Surface Transport as a field, he may hold charge of the audit of a Port Trust or a
State Transport Corporation too during his/her career.

9. Post-Restructuring Scenario

Taking cues from the Indian Foreign Service that is similarly placed with the
IAAS in many respects, the following expansion of posts in the IAAS may become
possible:

Grade Present New Less Total
Apex 8 18 - 26
HAG 26 90 - 116
SAG 107 77 - 184
JAG (NFSG) 80 20 - 100
JAG (STS-II) 80 20 - 100
STS – I 256 8 - 264
JTS 136 - - 136
Reserve 141 - 49 92
Total (+45%) 834 221 49 1006

• Secy: 25-26 Boards = 26 posts
• HAG: 1x26 states (audit) + 6UTs + separation of GOI audit from State audit
(large states – 12 HAG + 37 in Boards + HAG (A&E) x 26 states = 116 posts
• SAG: 0.5 x 85 GOI Ministries/Depts + 4 x 26 States + 1 x 6 UTs + 1 Board + GOI
audit separated from State audit (smaller states) 30 = 184 posts
• NFSG & JAG (STS-II): 3 x 26 States + 4 x 25 Boards + ICISA & NAAA 10 +
GOI audit separated from State audit 62 = 200 posts
• JAG: Computed at 50% of DIR (proposed STS-II scale) = 100
• STS: 5 x 26 States (audit) + 1.5 x 26 States (A&E) + 1 x 6 UTs (audit) + 9 for
Boards + 60 (GOI audit) + Other audit 30= 264
• JTS: Computed at approx. 50% of STS-I


The preceding figures are, at best, a back of the envelope calculation and only a
detailed review would bring out the actual requirement of posts. Nonetheless, even if
there is margin of error of +/- 15%, the fact remains there is an urgent need to
expand the extent of audit and the IA&AS cadre for more meaningful audit.
Subsumed in the proposals above are some new SAG level posts that may have to be
created such as those of a Chief Welfare Manager, Chief Estate & Works Manager,
Chief Legal Adviser, Chief I-T Manager, Publicity & Public Relations Manager,
Public Grievances Manager, etc. In addition, there may be a limited requirement of
corresponding regional representatives for each of these officers at STS-I/II level, in
addition to limited HR at HQs at the same and/or junior levels.

In effect, the IA &AS would comprise a third of its officers as senior
management while the middle will comprise about a quarter and junior
management slightly less than half of the total complement of officers. The change in
composition of the IA &AS would see an increase of 14% in senior management,
against a 1% decline in middle management and a 13% decline in junior
management. Thus audit planning and conduct would henceforth be done at senior levels
with better skill sets; this would also have an impact on recruitment at Gr. C and other
NGO levels. The following table shows the change in staffing ratios between levels:

Equation** Present Ratio New Ratio Change
Apex : AS/HAG* 1:4* 1: 4* No change
HAG : SAG 1:4 1 : 1.75 + 56%
JAG : SAG 1.8 : 1 1.09 : 1 + 40%
JAG : STS 1 : 1.6 1 : 1.3 + 19%
STS : JTS 1.9 : 1 1.9 : 1 No change
Sr. Mgt : Other Mgt. 0.31 : 1 0.52 : 1 + 68%
Sr. Mgt : Jr. Mgt. 0.26 : 1 0.52 : 1 + 100%
Mid - Mgt. : Jr. Mgt. 0.41 : 1 0.67 : 1 + 63%
Sr. :Mid : Jr. Mgt 0.88 : 1 : 2.45 1.57 : 1 : 2 +78% : 0%: -18%
*All ratios are calculated without adding reserves
** Does not include non-IA&AS STS-I


Sr. Mgt: SAG & > Mid-Mgt: NFSG & JAG (STS-II)
Exec. Mgt: STS-I Jr. Mgt.: JTS

The following pie charts show the difference graphically:

While the numbers in the preceding table may appear outrageous to many readers,
the table also shows how understated and unrealistic the IA&AD’s figures of cost of audit
are. The present generic division of govt. functions appeals to numbers of paras in
reports, yet such coverage is woefully inadequate in terms of impact. Govt. has
multiplied manifold, both in numbers and reach (even post-1991); audit should be
commensurate with such increase. If executive decision-making and risk-taking has
multiplied manifold, the audit risk too has multiplied manifold. It’s just that the
present structure, numbers, skills and methods are woefully inadequate and thus strike at
the credibility of CAG’s audit. If the IAAD expands its HR at the IAAS level the
situation would dramatically change with JS and above level officers being involved in
sophisticated forms of audit and reportage.
While no change is proposed at the Apex: HAG level, the chances of
promotion from SAG to HAG would increase by 56% (i.e. 2 SAG : 1 HAG against 4
SAG : 1 HAG now). Similarly, the promotion avenues for JAG to SAG would be
substantially speeded up with the senior management posts having been doubled.
For fresh recruits the IA&AS would become a more attractive proposition as
promotions from junior management to mid-management would increase by 63%
(of posts). For officers promoted from the ranks, this would be an equally welcome
move as most of them would now superannuate at least in the JAG. If the non-
IA&AS STS-I were to be introduced promotions from the ranks would be
substantially faster. This would also attract talent to the service at the junior levels
and assure consistently high quality of the IA&AD’s Reports.
Thus audit planning and conduct would henceforth be done at senior levels with
better skill sets; this would also have an impact on recruitment at Gr. C and other NGO
levels. Faster track promotions, in tandem with other measure mentioned in this paper, are
likely to attract talent to the IA&AS. Post-restructuring, the IA&AS would favorably
compare with the IFS as the following chart shows:


200 IFS IA&AS

180

160

140

120

100

80

60

40

20

0
JAG:STS JAG & >: STS SAG & >:JAG SAG & >: Total SAG & >: STS
IFS 51.77 135.82 162.33 35.64 128.11
IA&AS 75 194.7 157 34.35 119

10. National Audit Boards
There would be about 25 functional National Audit Boards at HQs for
CAG’s GOI audit mandate. The Central Audit Boards would be organized on a
unique sectoral/thematic pattern providing for about 5-6 Ministries/Depts. of GOI
with all their allied units (there are about 85 Ministries/Depts). However, this may
not be possible to implement for the States since the magnitude of their operations in
each sector would be limited by reason of area or finances. Therefore a Regional
Board may suffice by clubbing about 5-6 contiguous states together. The same logic
would apply to the A&E Boards.
The HR Services Board would oversee the personnel, administrative and
financial policies of the IA&AD and include training and administration for the
entire department. Other than for postings/transfers/assignments of Group ‘A’ officers
when this Board would meet with 3 Secretary level officers, normal business would be
transacted by the Secretary of this Board. Thus the Staff, Personnel, AC(P), Legal,
Budget, Internal Audit & Inspection, Works, Training, ICisa, NAAA, RTI/RTCs, IS,
Estate would be part of this system. One HAG officer could look after Groups ‘A’ and
‘B’ while another could do so for Groups ‘C’ and ‘D’. They may be assisted by a Director
each. While the State Audit and A&E Boards would be located outside NCR, many of the
central Boards may also have to be located in other metro cities considering the severe
shortage of office space in Delhi/New Delhi.


The technical boards would be located in the four major metros and would
provide support services to the audit offices whenever requested to do so. The
permanent attachment of the technical expert cadre to audit offices may be a waste
of HR since their services would not be available to other offices; this is more so
since the technical personnel would be not be required throughout the audit or
preparation of the report. The regional boards would assume the full responsibility
of the reporting work, including that of appearing for PAC/COPU and all other
meetings to defend the content of the report. The present system of leaving the onus of
defense on the AG even when he has not proposed changes to a review/para is seemingly
improper by imposing standards of debate that he or his officers may not subscribe to.
Thus the new structure would not only decentralize the audit reporting function but also
make for a single-window dealing with all reporting matters. The proposed system would
be more accountable than the present diluted system that relies mainly on fault finding
and often unrealistic projections and distortions of facts by personnel who have not done
the audit themselves or have even been involved in the process and thus have no public
responsibility for what they suggest or do not possess the technical knowledge required to
examine executive proposals.
A functional central audit services board could have ENERGY with fossil
fuels, thermal, hydel, atomic and non-conventional as the five principal audit offices.
These offices could then have regional level audit offices. These offices would not
only cover the Ministry of PNG but its public sector companies, OIDB and other
ABs in the energy sector. The offices would thus have to be staffed in a multi-
disciplinary manner that would render the Commercial Audit and sundry other
present office systems such as PDA (ESM) redundant. While the main/regional offices
would carry out the in situ audit mandate, the HAG level principal audit officer (Energy)
would provide the report mechanism in consultation with the Energy Board at HQs that,
in turn, would coordinate the field audit in accordance with a central audit plan for the
year. This arrangement would relieve the HAG principal audit officer for the sector of his
administrative field responsibilities, provide a unified line of command with the Board
and remove multiple levels of accountability for the field audit officers. Virtual seamless
integration would therefore become possible.

10.1 Organizational Layout in States
There would a Pr. AG (Audit) for each State and UT, irrespective of size and
population, etc. on the analogy of there being a CS in each. In a State AG the
Directors would be assisted by SAOs/AAOs redesignated as Sr. Audit Managers and Dy.
Audit Managers respectively. The PAG would discharge the higher audit/strategic
management function and be responsible for all audit report related work from post-IR
stage till presentation and action taken stages. He would also be the prtincipal Audit
Authority for the State. Careful thought would have to be given to making the annual
audit plan so that the present descent into chaos within the first three months is
minimized. Redundancy would have to be built into the staffing of AG’s offices to attend
to special inquiries, etc. The PAG (Audit) would have only about 3-5 composite audit
teams to collect non-Audit Plan information as required by other audit offices/HQ from
time to time. The PAG (Audit) would not be organized on functional department basis
and would be report-oriented. The PAG system at the GOI level would be required to
run GOI audit offices in major states in addition as part of the 15 dedicated Boards
for each cluster of functions of government. However, it may be useful to have a


HAG level officer in large offices >500 staff if such offices yet remain after
functional reorganization.
Unlike, the PAG (Audit), the AG (Audit) would be organized in clusters of
departments like the central audit offices/Board. Thus typically an AG’s office would
have a GO for environment, energy, forest, wildlife conservation and all their constituent
units, including PSUs and ABs and another one for agriculture, irrigation, water supply,
PHE, etc. Again, unlike the PAG (Audit), the AG will have composite wings with
corresponding multi-disciplinary audit teams to carry out on-site inspection. However,
their responsibility would be limited to IR issue and follow-up stage and forwarding
likely report-value cases to the PAG (Audit) and providing whatever additional
information the latter may require to finalize such cases. Given the linkages involved
between the PAG and AG, it would be better to institutionalize a Coordination Meeting
once every month between the PS and the AsG and a copy of the agenda and minutes is
sent to the HQ Regional Board. The Regional/Central Board Head could also chair this
meeting in stations by rotation.
Applying the level differentiation norm, 100% AOs and 50% SAOs should
serve in audit management while 50% of SAOs move to the strategic management
level. By the same logic again, 25% AAOs should assist SAO while 75% should be
deployed for field audit duties; the same would hold true for Sr. Auditors and
Auditors. In practice however, this may not seem possible on account of the 80:20
rule. Nonetheless, the manifold rise in field audit and strategic management offices
may be reasonably expected to absorb the current HR without prejudice to the
proposed level and functional differentiation. In addition, one-time optional transfer
of officers and staff from A&E offices to reconstituted GOI audit offices may be
considered.
The GO (Environment) would audit not only the forest, environment,
irrigation, wildlife and archaeology departments, but also be responsible for
Pollution Control Boards, multilateral environment aid certification, GOI projects
(e.g. Project Tiger), flood control, rehabilitation, PSUs/ABs/Training/R&D
Institutes, grants given for environmental conservation, etc. Since audit personnel at
Group ‘B’ and below are already available, this may require some limited transfer of
staff, perhaps on deputation basis from one office to another or till such time as sector-
specific cadres can be created in the years to come.
11. Cost of Restructuring
An approximate cost of restructuring of the IAAS is given in the following table:

Item Avg recurring liability One-time Total in first
Per post/annum five years
(Rs. In Crore) (Rs. In Crore) (Rs. In Crore)
P&A 0.60* - 80
Capital Works 0.05 100** 140
OE 0.12 40^ 64
Training 0.05 15^^ 55
Others 0.01 10# 18
Incentives 0.005 50$ 70
TOTAL 0.835 215 427
* All figures in table for 175 new posts at DG/PD level


** For construction of 175 Type V/VI apartments
^ For computers, ACs, telephones, furniture, car hire, internet, etc.
^^ For external/foreign training
#
Margin for unforeseen expenses
$
Lump sum to 10,000 A&E staff to migrate to audit
DEPUTATION 15% STRENGTH REDUCED TO COMPUTE ABOVE FIGS.
Revised working strength of IA &AS has been assumed to be 1000-150 (15%) = 850

The Appropriation Accounts published by the CGA for 2005-06 & 2006-07 show
the IA&AD having surrendered Rs. 1.59 crore (Rs 1 crore in 2005-06 and Rs. 0.10 crore
in 2004-05) under charged expenditure, Rs. 27.75 crore (Rs. 41.38 crore in 2005-06 & Rs.
56.57 crore in 2004-05) under voted revenue expenditure and Rs. 2.35 crore (Rs. 1.81
crore in 2005-06 & Rs. 4.72 crore in 2004-05) under capital expenditure making for total
surrenders of about Rs. 32 crore in 2006-07, Rs. 43 crore in 2005-06 and Rs. 61 crore in
2004-05. The total budget of the IA&AD has ranged from Rs. 1000-1200 crore per
annum from 2004-05 to 2006-07 and surrenders range from about 2-4% only,
indicative of conservative budgeting that may not always be conducive to the
functioning of the IA&AD. Even then since we already have buildings of our own in
almost all stations, the maximum cost that may have to be incurred to accommodate
the new offices would be due to large-scale modular furniture, office equipment,
staff vehicles, outsourced services, communications, I-T, housing, etc. Finance being
the key to the success of the entire exercise, it is imperative that this issue is carefully
worked out with due regard being given to inflationary pressures.
The recent acceptance of the VI Pay Commission recommendations by the GOI
would certainly lead to an approx. 75% increase in the wage (all P&A heads) bill that by
itself constitutes about ¾ of the IA&AD’s expenditure. Adding an overall increase of at
least 25% in all goods and services bought by the IA&AD, including relatively high
inflation, may easily add another 60-70% to the 2006-07 budget level of approx. Rs. 1200
crore raising the expenditure budget to around Rs. 1900-2100 crore. Adding 175 new
Group A posts may cost approx. Rs 4-5 lakh per post per month on an average (incl.
revised pension) leading to a recurring and enhancing annual outgo of approx Rs. 85 lakh
per post in the first fiscal year of operation.
Further, one-time capital expenditure to provide for office and other working
amenities may be assumed at Rs. 60 lakh per new post making for a total of approx. Rs.
105 crore (including cost of a Type V apartment, office, etc.). Finally, non-P&A
operating costs for a cadre strength of about 1000 Group A officers with enhanced
quantum of audit and spread may be estimated at an average of Rs. 100000 per new post
or an additional total of Rs. 175-200 crore in the first year and rising thereafter. In sum,
the estimated operating cost for the new system (including the existing components)
may be in the range of Rs. 2500-2700 crore per annum (approx. 30% above current
levels). Even then, the cost of statutory audit may not exceed the present by any
appreciable amount since GOI expenditure and those of the states (post-Pay
Commission) too would increase proportionately. However, these back-of-the-
envelope calculations would necessarily have to be recast by BRS Wing of HQ.
However, part of these costs can be recouped by claiming the audit
percentage of the audit & accounts percentage prescribed in all major capital


projects/schemes of the GOI. Given capital expenditure levels of Rs. 251415.61 crore
in 2008-09 and assuming a 1% audit share, an amount of Rs. 2514 crore alone could
be generated from this source alone that could be utilized for hiring contractual staff
and officers on a large scale.
It is also worthwhile to note that there are large surrenders of funds under
Plan budget heads, mainly for capital expenditure every year. For expansion of the
audit function (as distinct from mandate alone), Plan funds for creating new and
renewing physical infrastructure (such as buildings, I-T, vehicles, etc.) may be
contemplated. Similarly, another Plan scheme for upgrading human resources could
take care of the IA&AD’s training needs, including foreign, incentives, hiring
specialists, including foreign experts, if required, etc. For instance, a Rs. 2000 crore
allocation over a span of five years for both the above schemes could cover many
costs that the IA&AD would have to bear on these accounts alone. In terms of
percentages, the IA&AD should, ideally, aim at running itself with 60% non-Plan
and at least 40% Plan funds. At current levels of expenditure therefore approx. Rs.
1500 crore would be sourced from non-Plan and approx. Rs. 1000 crore from Plan
funds per annum.

11.1 Audit Operations Fund
The IAAD therefore needs to seriously consider whether an Audit Operations
Fund should be created with the audit fees earned by the IAAD annually to partially
cover operational costs of the department that are needed to beef up the audit effort
and also provide incentives to officers. This Fund would be administered by a Board
comprising CAG and 2 Dy. CAGs that would distribute the moneys to field offices at
the beginning of the financial year. Separate rules for investment, banking,
accounting, audit and expending moneys from this Fund would have to be devised so
that operational flexibility is not impaired and the purpose defeated by applying
GOI rules to it. Nor should GOI apply net accounting principles for this amount
since this would presently be in the range of Rs. 100-125 crore per annum (to rise
after VI Pay Commission). The IAAD should also consider reworking the manner in
which fees are collected so as to recover at least 25-50% of the office expenses spent
on the overall effort. Audit fees should also be charged in advance on an estimate as
a lump sum with a post-audit adjustment bill being preferred at the end of every
financial year, instead of a lump sum reimbursement. The IAAD therefore needs to
explore supplementary sources of revenue that it could use per its own defined
discretions and also provide additional benefits to IAAS officers such as attractive
health and life insurance, larger reimbursement of telephone and car expenses, etc.

11.2 CAG & IAAD: Charged vs. Voted Expenditure
The persisting historical anomaly of the CAG being treated on a different financial
footing from the department he heads needs to be sorted out. The primary ingredient
assuring the relative independence of the IA&AD is financial autonomy that can be
assured only if the powers of a Cabinet Minister and a charged budget are vested in CAG.
Even the one-time grant from GOI should be charged expenditure. However, the
administrative powers of a Cabinet Minister should continue to vest in the Finance
Minister that would allow us to retain the tag of the civil service and reduce the resistance
that the IA&AD’s proposals may have to face as also to keep the deputations path open
and not be typecast as auditors only.


12. Perspective and Strategic Plans
There is every need to draw up a systematic and detailed roadmap for the
IA&AS in the shape of a decennial perspective plan akin to the GAO’s strategic plan
2007-12 may provide some ideas for the IA&AD in the shape of an internationally
benchmarked plan. A sample of the GAO’s Plan follows:

The following diagram shows the relationship between the different levels of the Plan:


13. Shaping the Proposals
Considering the expansive nature of the proposal and its numerous linkages,
particularly financial, it may be advisable to create 4 working groups on full-time
basis to work out detailed proposals on each of the four HQ Boards and their field
offices. ICisA being located in the NCR, enjoys a locational advantage, apart from being
readily accessible to all parts of the country and is perhaps the best venue. It is also
provided with boarding and lodging facilities for the members of these groups and other
visiting officers. The working groups may be provided independent budgets, authority to
travel by air for all staff and officers, visit any office and interview officers, collect
relevant data and submit their individual chapters within two months. Thereafter a
Committee comprising of 3 DAIs may collate all the information and draft the final report
for consideration of CAG and GOI in another month. These proposals would necessitate
re-writing of all manuals in the long run, although in the interregnum, the existing
manuals would, suo motu, apply to the respective work activity of the offices. The Groups
should also draft a mid-term Strategic plan based on a decennial Perspective Plan. A
sample of the US GAO’s Strategic Plan is shown on the following slide. Sparing 4 HAG,
9 SAG, 4 NFSG, 4 JAG (including 1 promoted) and 4 STS (including one promoted)
officers for about three months to work on the restructuring and drawing up plans may
not pose any major logistical problems either. The Working Group ADAI would mainly
preside over periodic meetings of his/her working group and therefore would be available
to attend to his/her regular work.

13.1 Implementing the Proposals
While the three main planks of a cadre review would be decentralization,
differentiation (product and level) and diversification (of products and services), these
would necessarily involve the three corresponding elements of commitment and
imagination and a vision of the future (say 20-30 years) on the part of the reviewer.
Deliberations that take all six factors into account are most likely to succeed. The
association of officers (not more than 5-6) who have service sufficient to oversee the
restructuring would be beneficial. These officers could be granted official status in the
shape of a Standing Committee that would submit its recommendations to CAG since HQ
Staff branch alone is unlikely to be able to handle the additional work load on this
account alone. Given the complexity of the restructuring exercise, it may be advisable to
constitute this Committee as a separate and full-time entity with its own secretariat with
tenure of five years for each member. However, care needs to be taken that the officers
selected are neither sent on deputation nor any foreign assignment during this period. The
selection of officers should however, not be Delhi-centric since the proposed VPN would
cover all offices in the IAAD by 2010. In order to compensate such officers at the end of
their tenure some incentives may be worked out by HQ such as lump sum cash awards of
Rs. 5 lakh per head.

14. Conclusion
Reform is never an easy process. Given the generally anti-audit disposition of the
legislature and the executive in an era of rapidly declining ethics, the reform process
needs to begin within and without compromising on the IAAD’s existing powers and
mandate. Much of this is possible in-house and within our existing resources. IAAD
could rewrite our own manuals, set up Audit Boards and redefine reporting patterns, et al,
without much external help since it already has the bulk of the material infrastructure that


it requires. A scientific reordering of the IAAD would also control the anomalies in the
structure as the following pre- and post-restructuring graphics respectively show vis-à-vis
the IFS:

200

150

100

50

0
JAG:STS JAG & >: STS SAG & >:JAG SAG & >: Total SAG & >: STS
IFS 51.77 135.82 162.33 35.64 128.11
IA&AS 75 194.7 157 34.35 119

IFS IA&AS

What is required is a concrete plan of action for “the final test of a leader is that he leaves
behind him in other men the conviction and will to carry on.” (Walter Lippmann). The ultimate
impact of the audit therefore depends on the abilities and motivation of its officer corps,
system design and implementation and logistical wherewithal. A convergence of these is
a recipe for success.
________________________________________________________________________
The views expressed in this article are personal.


A. Illustrative List of New Posts as part of GOI
Expenditure Audit in new organizational structure

Level Nomenclature Station
SAG PDs in all Command HQ Jammu, Kolkata, Lucknow, Pune, Meerut
(Army)
HAG DG (Air Force) Delhi
SAG Command PD (AF) Bangalore, Mumbai, Dehradun & Shillong
HAG DG (Navy, Coast Guard & Delhi
DRDO)
SAG Regional PD Mumbai, Chennai, Visakhapatnam
HAG DG (Atomic Energy & Space) Delhi + NR
SAG Regional PDs Mumbai, Hyderabad, Kolkata, Bangalore,
Trivandrum
HAG DG (S&T) Delhi + NR
SAG Regional PD Kolkata, Hyderabad, Pune, Mumbai
HAG DG (Economic Services)-I Delhi + NR
HAG DG (Economic Services)-II Delhi + NR
SAG Regional PD All State Capitals
HAG DG (Social Services)-I Delhi + NR
HAG DG (Social Services)-II Delhi + NR
SAG Regional PD All State Capitals (except N-E States & NR)
HAG DG (Infrastructure) Delhi + NR
HAG Zonal DGs Mumbai, Kolkata, Chennai, Lucknow
SAG Zonal PD All other State capitals (1 each except N-E
States & NR)
HAG DG (Central Autonomous Delhi + NR
Bodies)
HAG Zonal DG Mumbai, Kolkata, Pune, Bangalore
SAG Zonal PD All other State capitals (1 each except NE
States)
HAG DG (Central Revenue)-I Delhi + NR
HAG DG (Central Revenue)-II Delhi + NR
HAG Zonal DG Mumbai (2), Kolkata (2), Chennai (2),
Bangalore (2), Lucknow (2), Hyderabad (2),
Ahmedabad (2), Chandigarh (1)
SAG Zonal PD All other State capitals (1 each except NE
States)


B. Illustrative List of New Posts at HQ in new
Organizational structure

Level Nomenclature Brief description of duties
HAG DG & Spokesperson Spokesperson for CAG & IAAD,
design and publication of reports, audio
visual publicity, etc. – Media Adviser
to report to DG
HAG DG (Human Resources)-I All matters related to IA&AS officers
in replacement of AC (P)
HAG DG (Human Resources)-II All administrative matters related to
Gr. ‘B’, ‘C’ and ‘D’ employees in part
replacement of AC(N)
HAG DG (Human Resources)-III All establishment matters in part
replacement of AC (N)
SAG PD (Financial Management & All issues relating to finances and
Budget) budget of IAAD in
upgrade/replacement of AC(N)
HAG PD (Infrastructure) Upgrade of existing PD (HQ) + Chief
Welfare Officer for IA&AD and
Administrator of Benevolent Fund
HAG DG (Inspection) Upgrade PD (Inspection)
HAG DG (Report Central)-I Fix charge by DAI/ADAI
HAG DG (Report Central)-II Fix charge by DAI/ADAI
HAG DG (Report State) – I to VI 3 new posts + fix charge by
corresponding DAI/ADAI
HAG DG (Railways) To abolish PD (Railway Board) &
remerge with DG (Railways)
HAG DG (Commercial) –II Upgrade PD (Commercial)
PD PD (Exam & Rajbhasha) Merge both charges (since SOGE load
reduced with online exam)
HAG DG (SRA) Redesignate dormant DG (Trg.)
HAG DG (INDT) Upgrade of existing post
HAG DG (DT) Upgrade of existing post
SAG PD (Legal) Upgrade existing post – incumbent also
to tender legal advise on contracts,
agreements, etc.
HAG DG (International Relations) Upgrade of existing post
JAG Executive Officer to DAIs New posts/diversion of existing posts
STS Executive Officer to ADAIs New posts/diversion of existing posts
NFSG/SAG One for each individual branch New posts/diversion of existing posts
under a DG/PD
HAG DG (Public Grievances & Staff and public grievances in
Accounts) replacement of DG (AE&C)
SAG PD (Commercial-State) New post


C. List of New Designations/Posts for DAI/ADAI
in new organizational structure

Present Present Designation New Designation
Grade
Apex DAI No change
Apex DAI (Commercial) No change
Apex DAI (RA) DAI (Central Revenue)
Apex DAI (LB&A) DAI (Infrastructure) – public works,
projects, Railways, Defence, Posts)
Apex DAI ( Central Expenditure)-I DAI (Economic & Social Services + subjects
not covered by DAI (Infrastructure))
HAG+ ADAI (Central Expenditure) -II ADAI (Central Expenditure)-II for Central
Autonomous Bodies – ADDITIONAL
POST
Apex ADAI (RS)-I ADAI (RS)-I for 6-7 major states
HAG+ ADAI (RS)-II ADAI (RS)-II for 6-7 major states
HAG+ ADAI (RS)-III ADAI (RS)-III for 4-5 major states + 2-3
small states
HAG+ ADAI (RS)-IV ADAI (RS-III) for 4-5 major states + 2-3
small states
HAG+ ADAI (State Revenue) – I ADAI (State Revenue)-I for 5-6 major states
and 6-7 small states
HAG+ ADAI (State Revenue) – II ADAI (State Revenue)-II for 5-6 major
states and 6-7 small states –
ADDITIONAL POST
HAG + ADAI (Accounts & ADAI (Accounts & Entitlements, GASAB)
Entitlements, GASAB) - ADDITIONAL POST
HAG+ Director General NAAA DG, NAAA on analogy with Railway Staff
College, NIDT, SVPA, etc. -
ADDITIONAL POST
D. Illustration for reorganization of MABs without
adopting new organization structure

HAG MAB-I, Delhi
HAG MAB-II, Delhi
HAG MAB-III, Delhi Most companies in these portfolios are
HAG MAB-IV, Delhi Schedule ‘A’ headed by Apex level CMDs
HAG MAB-I, Mumbai
HAG MAB-II, Mumbai
HAG MAB-II, Kolkata
SAG MAB- Telecom –I, Delhi
SAG MAB-Telecom – II, Mumbai For BSNL, MTNL, RAILTEL, TCIL, etc. –
SAG MAB- Telecom – III, Kolkata transferred and upgraded from DGAP&T
SAG MAB – Telecom – IV, Chennai
SAG MAB – Telecom – V, Bhopal


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