Accounting and accountability

The Comptroller and Auditor General (CAG)'s report No. 38 of 2010-11, on the accounts of Autonomous Bodies (AB) to Parliament, points out some serious inadequacies in preparation of accounts, and internal control deficiencies of some of the non-profit government organizations.

ABs include bodies established under laws made by Parliament, and societies registered under the Societies Registration Act, covering IIMs, IITs, NITs, central universities, regulatory authorities, port trusts and various other non-commercial entities such as UGC, and Indian Council of Cultural Relations, who are substantially financed by public funds in the form of grants and loans by the union government.

DELAY IN PREPARATION

As per the CAG's report, administrative ministries released grants and loans aggregating Rs 40,465.71 crore from the public exchequer to 487 ABs. Of them, the CAG is the only auditor in the case of 262 of those that received Rs 35,073 crore in 2009-10.

As per the recommendation of the Parliamentary committee, the government had mandated even in 1975-76, that ABs should complete preparation of their accounts in the prescribed format, adhering to the accrual-based accounting system, within a period of three months, submit it to the CAG for audit, and place the audited accounts in the Parliament within nine months of the close of the accounting year. Out of the 292 ABs, whose accounts were to be audited by the CAG for 2008-09, 181 of them could not submit their accounts within the due dates; 53 of them delayed beyond three months and 92 ABs did not submit their accounts to Parliament even at the end of the year.

GRANT OF FUNDS

The administrative Ministries have been granting funds to these institutions in spite of the fact that they have been failing to submit even utilisation certificates for 24 -27 years continuously. Many of the accounts are neither prepared on accrual basis, as specified, nor in the prescribed format, in spite of yearly reporting by the CAG, and recommendations by the Parliamentary committees.

More than 164 ‘Action Taken Notes' are outstanding from the ministries governing these bodies. There is no internal audit in 58 ABs, including regulatory authorities like Central Electrical Regulatory Authority. No physical verification of assets was conducted by 83 of them and no physical verification of inventories was done by 62 of them. 28 ABs do not invest the provident fund balance as specified by the Ministry of Finance; 18 of them prepare only cash balance accounting of grants, though accrual-based accounting is mandated; 22 of them do not provide for depreciation; 41 of them do not account for gratuity and other retirement benefits on actuarial basis calculation. Most of them don't even have adequate internal controls. However, they continue to get grants and loans for pursuing their activities.

Accounting is an inescapable fundamental prerequisite to ensure accountability. Preparation of annual accounts in compliance with applicable regulations, rules, standards and generally-accepted accounting principles, within the stipulated timeframe, and approved by the governing council or Board of Directors, as the case may be, and submitting the audited annual financial statements to the regulatory authorities, as well as making it available to the stakeholders, constitute the irreducible bare minimum expected of any well-managed entity to ensure accountability.

This becomes all the more important when the organisations are fully or substantially financed by public funds.

There is urgency in ensuring adequate internal controls, internal audit, checks and balances to ensure accountability in these organisations.

To make these important organizations accountable, it may require to link allocation of grants and loans with proper accounting, with utilisation certificates and submission of financial statements, and reporting to the Parliament in the prescribed format within the stipulated timeframe.