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Insights into Editorial: Redactive pricing audit and the CAG’s duties


Insights into Editorial: Redactive pricing audit and the CAG’s duties


 

                         

Context:

The CAG is mandated to audit all receipts and expenditures of the three-tier governments in India and report to the legislature judiciously, independently, objectively in compliance with applicable laws, rules and regulations, without fear and favour.

The vision of Supreme Audit Institution of India (SAI) India represents what we aspire to become: We strive to be a global leader and initiator of national and international best practices in public sector auditing and accounting and recognised for independent, credible, balanced and timely reporting on public finance and governance.

In an audit report submitted by Comptroller & Auditor General of India (CAG) to the President under Article 151 of the Indian Constitution on pricing of Rafale jets, the CAG used the concept of “redactive pricing”.

In the preface of the audit report, the CAG stated that redactive pricing was unprecedented but had to be accepted due to the Ministry’s insistence citing security concerns.

 

About Redactive Pricing:

  • Redaction is the selection or adaption by removing sensitive information from a document before publication.
  • Under redactive pricing method, CAG withheld full commercial details and blackened the figures on the procurement deal on security concerns cited by Ministry of Defence.
  • Whether the Ministry’s insistence citing security concerns could have been accepted by the CAG can be examined only by the Supreme Court in the light of the constitutional provisions on the CAG’s duties and parliamentary privileges and prerogatives.

 

Submitting Reports to Parliament and there by Public Accounts Committee and Committee on Public Undertakings:

  • CAG conducts financial compliance and performance audits and submits his reports to the legislature to help people’s representatives in enforcing legislative oversight and public accountability of the executive.
  • Legislative committees such as the Public Accounts Committee and Committee on Public Undertakings examine the CAG’s selected reports.
  • The CAG’s audit is expected to highlight value for money in any purchase decisions of the government.
  • An audit by CAG is expected to analyse the facts and comparative pricing charts to highlight the financial propriety and prudence of the procurement decision.
  • Parliament is constitutionally privileged to know the details of any procurement deal made by the executive including the conditions and circumstances of such procurement.
  • Thus, any decision with respect to procurement by the executive needs to be audited independently by CAG.
  • It including non-compliance of essential procurement procedures, conditions and pricing errors which may have a negative financial impact and cause potential damage to the country’s interests.

 

Performance Audit & Purchase Audit done by SAI India

Audits done by SAI India can be classified into

  • Compliance Audit
  • Financial Audit
  • Performance Audit.

Performance Audits seek to establish at what cost and to what degree the policies, programmes and projects are working.

Performance audit, apart from asking whether things are being done in the right way, goes a step further and analyses whether the right things are being done.

In addition to all the financial audit checks, the Performance Audit seeks to assess whether a programme, scheme or activity deploys sound means to achieve its intended socio-economic objectives.

However, as per the author, CAG’s office lacks expertise, knowledge and skills to conduct a performance audit as it is a complex exercise requiring exceptional insight into such an audit.

 

Conclusion:

Given the dynamics of international competition in competitive products and pricing in today’s modern market scenario, pricing, delivery and post-delivery service and other conditions are essentially covered in a Supreme Audit Institution of India (SAI) audit.

It is a complex audit, demanding exceptional insight, expertise, knowledge and skills.

In case the CAG’s office lacks expertise to conduct a performance audit, expertise can be sought from the pool of resources or credible organisations to be co-opted in the audit team.

Pricing decisions must be subjected to detailed analysis, without resorting to redactive pricing.

Parliament is constitutionally privileged to know what the executive had done and how and under what conditions a procurement was decided.

The CAG’s audit is expected to highlight value for money in purchase decisions.

A performance audit is done to establish whether the procurement activity was executed keeping in mind economy, efficiency, effectiveness, ethics and equity.

Only a thorough pricing audit can bring out the credibility and integrity of a purchase decision, thereby achieving a Supreme Audit Institution of India (SAI’s) constitutionally mandated responsibilities.