What the CAG audits and how Parliament uses it

Detail

1. Four types of audit

Audit means an independent check of how the government collected and spent public money. The Comptroller and Auditor General (CAG) does four kinds:

Audit type	What it checks	Key question
Financial attestation	Certifies (formally confirms) the Finance Accounts and the Appropriation Accounts	Are the yearly accounts true and complete?
Compliance audit (also called regularity audit)	Whether spending followed the law, the rules and the approval given, and whether the accounts are correct	Was the money spent by the rules?
Performance audit	Whether a programme met its goals with economy, efficiency and effectiveness (the "3Es")	Did the money achieve anything?
Propriety audit	Whether spending was wise and economical. This audit is discretionary (the CAG chooses when to do it)	Was the spending sensible, even if it was legal?

• Finance Accounts: the government's yearly accounts of all money received and spent.
• Appropriation Accounts: the yearly accounts comparing what Parliament approved for each grant with what was actually spent.
• The 3Es, in simple words:
• Economy: getting the right inputs at the lowest cost.
• Efficiency: getting the most output from those inputs.

• Effectiveness: actually reaching the goal the programme set out to reach.

• The canons of financial propriety (the standards a propriety audit uses):

• No officer should spend more than the occasion really needs. An officer should spend public money as carefully as a careful person spends their own.
• No officer should use their power to approve spending that benefits them personally.

• Public money should not be spent for the benefit of one person or one section of people, unless the law allows it.

• Duty under s. 13: the CAG must check that money paid out was "legally available for and applicable to" the purpose it was spent on, and that the spending conforms to the authority which governs it [2]. This is the legal root of compliance audit.

2. What the CAG (DPC) Act 1971 covers

The CAG (Duties, Powers and Conditions of Service) Act 1971, often called the DPC Act, was made under Art. 149. It sets out what the CAG audits.

Section	What the CAG audits
s. 13	All Union and state spending from the Consolidated Fund, the Contingency Fund and the Public Account. It also covers trading and manufacturing accounts, profit-and-loss accounts and balance sheets kept by any department [2]
s. 14	Bodies substantially financed (mostly funded) by government
s. 15	Checks whether the authorities that give grants and loans make sure their conditions are met [2]
s. 16	Receipts paid into the Consolidated Fund, such as taxes. The CAG checks that the rules give an effective check on how revenue is assessed, collected and allocated [2]
s. 17	Stores and stock (goods and materials held by government offices) [2]
s. 19	Government companies and corporations
s. 19A	Reports on companies and corporations go to the government, which lays them before Parliament or the state legislature [2]
s. 20	Audits handed over (entrusted) by the President or Governor

• s. 14 in detail ("substantially financed" bodies):
• s. 14(1): the CAG must audit a body if, in a year, its government grants or loans are ₹25 lakh or more AND equal at least 75% of its total spending. Both conditions must be met [2].
• A 1984 amendment raised this limit from ₹5 lakh to ₹25 lakh [2].
• s. 14(2): the CAG may also audit a body that gets ₹1 crore or more a year, but only with prior approval from the President or Governor [2].

• s. 14(3): once the CAG starts auditing a body, it continues for two more years, even if the body no longer meets the conditions [2].

• s. 18, the CAG's powers during audit: the CAG can inspect any accounts office, including treasuries. It can demand accounts, books and documents, and it can ask questions and call for information [2].

• s. 19 and the Companies Act 2013:
• s. 139: the CAG appoints the statutory auditors (outside chartered accountants who do the main audit required by law) of government companies.
• s. 143: the CAG can do a supplementary audit (a second, follow-up audit) and comment on the statutory auditor's report.

• Statutory corporations, which are set up by an Act of Parliament, are audited as their own Act lays down (s. 19(2)) [2].

• s. 20, entrusted audit: the President or Governor can ask the CAG to audit a body that no law otherwise places under the CAG. The terms are agreed with the government. Under s. 20(3), the CAG takes up such an audit only when it serves the public interest, and only after the body has had a chance to give its views [2].

• s. 23: the CAG can make regulations on the scope and extent of audit [2]. The Regulations on Audit and Accounts 2007 were made under this power.

3. Private companies: the AUTSP case

• Association of Unified Telecom Service Providers v. Union of India (2014): the Supreme Court held that the CAG can audit the revenue-share accounts of private telecom companies.
• Why: these companies use spectrum, which is a public natural resource.
• What they pay: a share of their revenue goes to the government under their licence.

• Result: that money is public money, so the CAG can check whether the government received its correct share.

• The grey zone: for public-private partnerships (PPPs) and other private users of public resources, it is still unclear how far CAG audit reaches. In a PPP, a private firm builds or runs a public project, such as a highway or an airport.

4. Local bodies: panchayats and municipalities

• Arts. 243J (panchayats) and 243Z (municipalities): the state legislature makes the law on how these bodies keep and audit their accounts.
• The CAG has no direct constitutional duty here.

• Usually a state Local Fund Audit department does the audit.

• Technical Guidance and Supervision (TGS):

• Meaning: the CAG does not do the main audit of local bodies. It guides and checks the state auditors who do it.
• Origin: the 11th Finance Commission recommended it.

• Legal basis: the state government entrusts the role to the CAG under s. 20 of the 1971 Act.

• Money tied to audit: later Finance Commissions made audited accounts a condition for local bodies to receive their grants.

5. How a CAG report reaches Parliament

Steps in order:

1. CAG submits the report to the President (Union accounts) or the Governor (state accounts) under Art. 151.
2. The report is laid before the legislature. The President or Governor has it placed before each House of Parliament or before the state legislature.

3. Committees examine it: - The Public Accounts Committee (PAC) examines the Appropriation Accounts, the Finance Accounts and the CAG's audit reports. - The Committee on Public Undertakings (COPU) examines reports on public sector undertakings (PSUs) [3].

4. The PAC reports to the House with its findings and recommendations.

5. The government sends action-taken notes, which explain what it has done on each recommendation.

Public Accounts Committee (PAC):

• Size: not more than 22 members. Up to 15 come from the Lok Sabha and up to 7 from the Rajya Sabha [4].
• Term: one year. It is set up again every year [4].
• Legal basis: it is formed under Rule 308 of the Lok Sabha Rules of Procedure and Conduct of Business [3].
• No ministers can be members [4].
• Chairperson: appointed by the Lok Sabha Speaker [4]. Since 1967, the chair has been an opposition MP, so the government is not judging its own spending.
• What the PAC checks [3]:
• The money spent was legally available for that purpose.
• The spending followed the authority that governs it.

• Every re-appropriation (moving money from one item to another within a grant) followed the rules.

• Beyond legality: its work extends "beyond the formality of expenditure, to its wisdom, faithfulness and economy". So it looks at losses, nugatory expenditure (spending that produced nothing useful) and irregularities [3].

• Excess spending:
• If a ministry spends more than Parliament granted, the PAC examines why.
• The government must then get the excess approved by Parliament under Art. 115 [3].
• The PAC treats over-estimates (asking for more than needed) as just as faulty as excesses [3].

Committee on Public Undertakings (COPU):

• It is formed every year under Rule 312A [3].
• What it does [3]:
• Examines the reports and accounts of PSUs.

• Checks whether PSUs run on sound business principles.

• What it cannot examine [3]:

• Major government policy.

• Day-to-day administration of PSUs.

• In a state with no separate COPU, the PAC examines PSU reports as well [3].

• With the Estimates Committee, the PAC and the COPU make up Parliament's three financial committees [3].

The CAG as "friend, philosopher and guide" of the PAC:

• Starting point: the CAG's reports usually form the basis of the committees' work. The committees may still examine other issues too [3].
• Checking ministries: the CAG examines the notes that ministries send to the committees [3].
• Checking the committee's own draft: the CAG helps the committee check that the facts and figures in its draft reports are correct [3].
• Accountability chain:
• CAG detects a problem → PAC questions the ministry → government replies through action-taken notes.
• This is how the CAG works as an accountability mechanism for Parliament.

6. International role

• INTOSAI (International Organization of Supreme Audit Institutions) is the global body of national public auditors. The CAG is a member of its Governing Board [5].
• CAG chairs within INTOSAI [5]:
• The Knowledge Sharing Committee (KSC), since it was set up.
• The Working Group on IT Audit (WGITA), since it was created in 1989. It had 58 members and 7 observers in 2025, and held its 34th meeting on 10 September 2025.

• The Compliance Audit Subcommittee, since 2017.

• ASOSAI (Asian Organization of Supreme Audit Institutions) is INTOSAI's Asian regional group. The CAG is a member, and it was ASOSAI's chair in November 2020 [6].

• External auditor of UN and other international bodies [6]:
• UN Board of Auditors: member in 1993–1999 and 2014–2020.
• External auditor in 2020: the WHO (Geneva) and the FAO (Rome).
• Earlier bodies audited: WFP, WIPO, IAEA, UN World Tourism Organization, IOM, IMO and OPCW.
• Inter-Parliamentary Union (IPU), Geneva: the CAG was elected its external auditor in November 2020, for a three-year term.
• UN Panel of External Auditors: the CAG was its chair in 2020.

Prelims Hooks

• Art. 151: CAG reports on Union accounts go to the President. Reports on state accounts go to the Governor. The CAG does not send them directly to Parliament.
• s. 14, DPC Act 1971: a body is "substantially financed" when its government grants or loans are ₹25 lakh or more AND at least 75% of its spending. The ₹5 lakh limit was raised to ₹25 lakh in 1984 [2].
• s. 14(3): CAG audit continues for 2 more years after a body stops meeting the funding test [2].
• Propriety audit is discretionary. Compliance (regularity) audit is a duty under the law. Do not mix them up.
• The "3Es" = economy, efficiency, effectiveness. They are the test used in performance audit, not compliance audit.
• Companies Act 2013, ss. 139 and 143: the CAG appoints the statutory auditors of government companies and does a supplementary audit. The CAG is not the main auditor of those companies.
• AUTSP v. Union of India (2014): the CAG can audit private telecom companies' revenue-share accounts because they use spectrum, a public natural resource.
• Arts. 243J and 243Z: state law decides the audit of panchayats and municipalities. The CAG's role there is TGS, which began after the 11th Finance Commission.
• PAC: up to 15 Lok Sabha and 7 Rajya Sabha members, a one-year term, no ministers, formed under Rule 308 [3][4]. COPU is formed under Rule 312A [3]. Trap: the PAC examines spending after it happens. The Estimates Committee examines the budget estimates.
• Excess spending found by the PAC must be approved by Parliament under Art. 115 [3].

Mains Points

• Strong audit, weak follow-up:
• The CAG only reports. Action depends on the PAC and on the government's action-taken notes.
• Many reports wait years before the PAC takes them up.

• Reform idea: fixed time limits for action-taken notes, and a debate in the House on major PAC reports.

• Who follows public money into private hands?

• AUTSP (2014) opened private revenue-share accounts to CAG audit, because natural resources are involved.
• PPPs and other private users of public resources are still a grey zone.

• Reform idea: amend the DPC Act 1971 so that it clearly covers PPP and concession accounts.

• Weak link at the local level:

• Arts. 243J and 243Z leave local audit to under-staffed state Local Fund Audit departments.
• The CAG only guides them through TGS.

• Tying Finance Commission grants to audited accounts is a money-based push for better local accountability.

• Legal audit vs performance audit:

• Performance and propriety audits let the CAG judge whether spending was wise, not only whether it was legal.
• Critics' view: this moves the CAG into policy choices.
• Supporters' view: this "wisdom, faithfulness and economy" test is exactly what Parliament needs for real control of public money [3].