Saturday January 29, 2022

Not the auditor’s job

January 30, 2020

The Public Accounts Committee of Parliament (‘PAC’) has of late adopted the view that every public institution in Pakistan must get its accounts audited by the auditor general of Pakistan (‘AGP), regardless of whether it gets budget from parliament or not.

Any public institution which tries to contest this expansionist view of the AGP’s jurisdiction is treated as though it were an enemy of accountability. While this is proving to be an immensely populist stance, it goes against both law and public policy. Here’s why.

First, this expansionist view of the AGP’s jurisdiction goes against the text of the constitution. The jurisdiction of the AGP is defined in Article 170(2) which covers only three kinds of entities: (i) government departments; (ii) public bodies established through executive orders; and (iii) public bodies under the direct control of government.

While this includes a lot, it still leaves out a good number of public bodies which have been directly established by parliament through statutes and which don’t get their budget approved from parliament. This category of exempted public bodies would include, for instance, professional regulatory bodies such as the College of Surgeons and Physicians and the Pakistan Engineering Council which finance themselves through charging fees, and those universities which are running on a self-finance basis.

Second, the expansionist view of the AGP’s jurisdiction reflects a lack of appreciation for the role of auditors in public administration. The only role of public auditors is to ensure that the government is not cleverly by-passing the parliamentary approvals process by fudging its books. That’s all.

Believe it or not, under the constitution, it is not the role of the AGP (and by extension of the PAC) to investigate corruption, fraud and misprocurement; that role rightfully belongs to the criminal investigation agencies such as NAB and FIA. Nor is it the job of AGP or PAC to comment on whether a government department is performing its functions efficiently because that role belongs to the federal cabinet and to the relevant standing committees of parliament.

An example should make it clearer. If, in the annual budget statement for a certain year, the police department gets Rs20 billion approved from parliament for buying weapons, the auditor’s only job is to examine whether the allocated amount was actually used for buying weapons and not for paying salaries. And a report on this narrow issue must be submitted to the PAC. Whether the weapons were needed to begin with, whether they were procured in the best possible manner and whether they were used in the most efficient way, should be of no concern to the AGP or the PAC.

It logically follows from this scheme of things that if a public body is not getting any budget allocated from parliament, it would not be liable to audit by the parliament’s auditor, the AGP. Such an audit would serve no useful purpose. The point is, if there is no mention at of an institution in the annual budget statement, what would be the point of reference for the AGP?

The view that all public bodies – even those who don’t get budget from parliament – must get their accounts audited by AGP implies that all forms of external audit in Pakistan other than AGP are deemed to be ‘suspect’. This is a most unjustified denigration of the entire profession of chartered accountants which is regulated under the Chartered Accountants Ordinance, 1961.

As regulated professionals, CAs have a statutory duty to remain fiercely independence of their clients. Just like public-sector auditors, if CAs find out that a client’s books are doctored, they must point it out in their report. While not every CA may be able to live up to duty, this cannot be used as a pretext for mistrusting the entire profession of CAs and handing over their share of work to the AGP.

If parliament does not trust CAs with auditing of public money, it might as well abolish this profession. But, for so long as this profession exists under the lawful cover of the Chartered Accountants Ordinance, 1961, its reputation should not be openly sullied.

Finally, there is also a somewhat technical reasons reason why it would be unwise to entrust the audit of self-financing public bodies to the AGP. Government departments generally use single-entry accounts because they only incur ‘expenses’; revenues are generated centrally through taxation and borrowing.

Auditors of the AGP department are primarily trained in auditing this kind of single-entry accounts. Self-financing public bodies, on the other hand, use double-entry accounts which allow for balancing income and expenses. The expertise for auditing such double-entry accounts belongs primarily to chartered accountants. This is why most acts of parliament related to self-financing autonomous public bodies assign the job of auditing to CAs. There is much wisdom in this arrangement.

The “universal jurisdiction” conferred by the PAC upon the AGP in recent years might well be a result of a genuine and heartfelt desire for greater efficiency and accountability in the use of public funds. But we must bear in mind that the road to hell is paved with good intentions. As an institution of accountability, the AGP must take the question of its own jurisdiction with utmost seriousness.

The writer is a partner at The Law and Policy Chamber.