CALM | Central Archival Library of Indian Audit & Accounts Department

Indian Audit & Accounts Department

Audit is a rational and intellectual process, and the Indian Audit and Accounts Department (IA&AD) embodies a tradition of intellectual rigor aimed at promoting good governance and accountability as mandated by the Constitution.

Until the mid-eighteenth century, the Company had established footholds in Calcutta, Bombay, and Madras, known as the 'Presidencies.' These Presidencies operated independently of each other, reporting separately to the Board of Directors in England. The Acts of 1813 and 1833 eventually exposed the Company of its commercial role, transforming it into a purely administrative body managing India's territories on behalf of the King of England.

Over time, the country was divided into districts for administrative purposes, each headed by a Collector responsible for all financial receipts and expenditures, and required to account for these transactions. During this period, accounts were maintained using the commercial system, with each department keeping separate Profit and Loss Accounts, and conducting annual inventories of money and government assets. These accounts were not regularly published, and any audits performed were primarily for internal verification.

In 1857, just before the Indian Mutiny, Lord Canning's Government, with the approval of the Court of Directors and the Board of Control, established a General Department of Accounts under the Government of India. This replaced the separate independent Accounts Offices for each Presidency, marking the evolution of audit practices. Over time, audit extended to various governance aspects, including revenue audits, audits of Public Sector Undertakings and Statutory Corporations, local self-government institutions, and the development of new audit techniques such as performance audits and audits of information technology.

Genesis of the Institution (1857-1935)

The Institution started surfacing way back on 4th December 1857, when the Court of Directors, Government of India issued orders for formation of General Department of Account including the offices of Audit, Pay and Account in the several presidencies as well as in the Punjab under the Government of India, to which all nominations was to be made by the Government General in Council.

The Governor General in Council was of opinion that it was necessary that the prospect of remuneration would be somewhat better than in the general line of the service, and that the salaries would be so graduated as to give a fair average of promotion, so as to ensure as far as possible that those entering the Department would continue in it. His Lordship in Council resolves that no officer would be permitted to enter the General Department of Account under five years’ standing, when a young officer may be expected to have gained sufficient experience for the purposes of the Institution, to have gained sufficient experience for the purposes of the Institution.

Junior Civil Servants would be allowed to register their application for employment in General Department of Account, after the above mentioned period of service as vacancies occur, when the applicants would be subjected to an examination in book-keeping, working of the revenue system of the Presidency to which they belong, management of District Treasuries and examination papers together with reports from the Local Governments on the general aptitude for business of the several candidates, would be forwarded for consideration of the Governor General in Council, on the understanding that the officer who appears best qualified for the duties of the Institution would, as a rule, be selected.

Promotions would be regulated with due regard to seniority and merit, with mere seniority not guaranteeing promotion (Resolution dated March 26, 1858).

The Financial Resolutions issued on March 26, 1858, detailed the salary scale for the Department as follows:

Post Designated	Proposed Salaries
Accountant General to the Government of India	Rs.3500
Accountant General to the Government of Bombay	Rs.3000
Accountant General to the Government of Madras	Rs.3000

His Lordship in Council attached the highest salary to the position of Accountant General to the Government of India due to its significant importance. These arrangements took effect from May 1, 1858.

The Audit Board in India was constituted in 1860, consisting of two members: the Auditor General of India (formerly the Accountant General to the Government of India) and the Chief of the Military Finance Department, who served as Controller of Military Finance at each presidency and Examiner of Military Accounts. In November 1860, the Accountant General to the Government of India was re-designated as the Auditor General of India, with local accountants placed under him for the preliminary detailed audit of local accounts.

Sir Edmund Drummond was appointed as the first Auditor General to the Government of India on November 16, 1860, by an executive order.

Kapurthala House in New Delhi from where the C&AG of India operated from, before the office shifted to its own building at 10, Bahadur Shah Zafar Marg, New Delhi.

The foundation for a comprehensive imperial audit was established with the introduction of the Annual Budget of Imperial Income and Expenditure, partially adopted from 1860-61 and fully from 1861-62. However, in 1862, the Department underwent reorganization. The Financial Secretary became the head of the Financial Department, which included the Departments of Account and Audit. The Auditor and Accountant General to the Government of India became the head of these Departments. In 1866, the titles of Auditor General of India and Accountant General to the Government of India were re-designated as Comptroller General of Accounts.

The Department's scope expanded further in 1881 when the offices and accounts of the Controllers of Military Accounts, Examiners of Public Works Accounts, and the Comptroller of the Post Office were opened to inspection by the Comptroller General of Accounts and his Inspecting Officers. In 1884, the Governor General in Council appointed the Comptroller General, re-designating the position as Comptroller and Auditor General (CAG). It was also directed that each Accountant General, including Military and Public Works Accountants General and each head of a Separate Audit Department, prepare an annual appropriation audit report for their respective provinces or departments. These reports were to be forwarded to the Comptroller and Auditor General. In addition to inspecting accounts and offices, the CAG was empowered to conduct a test audit of any office's accounts as deemed necessary.

Growth of the Institution in pre-independence era (1919–1946)

The Montagu-Chelmsford Reforms of 1919 envisioned an 'Independent' Auditor General established on a statutory basis. The Government of India Act 1919 marked a significant milestone in the history of the Audit Department, as it formally recognized the Auditor General statutorily. This reform significantly enhanced the independence and stature of the office, leading to the change in title to Auditor General in India.

According to Clause 96(D) of the Government of India Act 1919, "An Auditor General in India shall be appointed by the Secretary of State in Council, and shall hold office during His Majesty’s pleasure. The Secretary of State in Council shall, by rules, make provision for his pay, powers, duties, conditions of employment, or for the discharge of his duties in case of a temporary vacancy or absence from duty."

On the other side, the Government of India Act of 1919, which implemented the Montagu-Chelmsford Reforms, introduced a bicameral Legislature at the Centre. The Indian Legislature comprised the Governor-General and two Houses: the Council of State and the Legislative Assembly. The Legislative Assembly was inaugurated on February 9, 1921, and within the Indian Parliament System, the Public Accounts Committee (PAC) was also constituted.

The first Appropriation Accounts and Audit Report for the year 1921-22 were examined by the PAC, marking a significant milestone. The Auditor General presented two sets of reports to the PAC: Audit Reports and Appropriation Reports. Each set included reports from three Accountants General (Central Revenues, Railways, and P&T) responsible for overseeing the revenue and expenditure of the Government of India.

The initial Auditor General Rules were established by the Secretary of State in Council on January 4, 1921. These rules outlined the Auditor General's conditions of employment, duties, powers related to audit and accounts, and administrative authorities. They were later replaced by a revised set of rules issued on April 13, 1926.

In 1925, the separation of accounts from audit commenced in the Indian Railways for the first time. Following a resolution passed by the assembly, the Auditor General's responsibility was solely focused on audit, no longer including the maintenance of railway accounts. An experimental system was introduced in the East Indian Railway starting from December 1, 1925, and was formally implemented on a permanent basis from April 1, 1929, by order of the Secretary of State in Council. The position of Accountant General, Railways, was abolished effective from April 1, 1929, and the audit functions were transferred to the Director of Railway Audit.

The Government of India Act 1935 (Sections 166 to 171) significantly elevated the status of the Auditor General of India. According to this Act, the Auditor General would be appointed by His Majesty and could only be removed from office in a manner similar to that of a judge of the Federal Court. The Act also ensured the independence of the Auditor General, stipulating that neither his salary nor his rights concerning leave, pension, or retirement age could be altered to his disadvantage after his appointment. The salary, allowances, and pension payable to the Auditor General would be charged to the revenue of the Federation.

Under Section 166(2) of the Government of India Act 1935, provisions from the Auditor General Rules 1926 were incorporated, prohibiting the Auditor General upon vacating office from holding any other post under the Crown in India. Additionally, the title of the office was changed to Auditor General of India.

In 1936, the Government of India (Audit and Accounts) Order was issued, followed by rules made by His Majesty in Council on December 18, 1936. These rules defined the conditions of service for the Auditor General and outlined his duties and powers concerning the accounts of the Federation.

Augmentation of the Institution in post-independence era (after 1947)

The Comptroller and Auditor General (CAG) was granted constitutional status in the Constitution of India. Recognizing the importance of this office, Dr. B. R. Ambedkar, while addressing proposed amendments in the Constituent Assembly on May 30, 1949, stated, "I am of the opinion that this dignitary or officer is probably the most important officer in the Constitution of India." He emphasized that the CAG ensures parliamentary expenses do not exceed what has been authorized in the Appropriation Act. Dr. Ambedkar underscored the necessity for the CAG to be as independent as the judiciary, though he noted that the Constitution did not grant the CAG the same level of independence as the judiciary.

Following the partition of India, significant changes occurred in the Audit department. Approximately 30 officers from the Indian Audit and Accounts Service opted to join Pakistan out of a total strength of 140.

In 1947, there were 11 Civil Audit Offices, including nine offices of the AG and two controllers. The CAG became the authority for accounting and audit after the Federal Financial Integration, which extended to 27 states. Post the reorganization of states in 1956, the number was reduced to 20 states and 6 union territories. The total manpower of the Department in 1948 was 15,600. The Auditor General oversaw the accounting and audit functions of the federal government and eleven provincial governments.

In 1947, the Auditor General presented 28 Finance Accounts, Appropriation Accounts, and Audit Reports. This included six Audit Reports to the Governor General of India for presentation before the Central Legislative Assembly, and 22 reports to the Governors of Provinces for presentation before the Provincial Legislature.

Shri V Narahari Rao

Shri V. Narahari Rao, who served as Secretary to the Government of India in the Finance Department, became the first Indian Auditor General of independent India on August 15, 1948.

The constitutional status for the Comptroller and Auditor General (CAG) was established with the promulgation of the Indian Constitution in 1950. According to this provision, the CAG would be appointed by the President of India through a warrant under his hand and seal, and could only be removed from office in a manner similar to that of a judge of the Supreme Court. Rules pertaining to the conditions of service for personnel in the Indian Audit and Accounts Department and administrative powers of the CAG would be formulated by the President after consulting with the CAG.

In 1953, the Parliament passed the Comptroller and Auditor General (Conditions of Service) Act, fixing the tenure of the CAG at six years. Consequently, the tenure of Shri V. Narhari Rao was extended until August 14, 1954.

Dr. Rajendra Prasad

While laying down the foundation stone of the CAG office building, the Honorable President of India, Dr. Rajendra Prasad, emphasized the critical role of the Comptroller and Auditor General (CAG). He stated, "At the present moment, when the Government is incurring a huge expenditure on so many welfare projects, it is essential that every rupee that we spend is properly accounted for. This important task, I am afraid, a task not always very pleasant – devolves upon the Comptroller and Auditor General and his office. In accordance with the powers vested in him, he has to carry on these functions without fear or favor in the larger interest of the nation."

Shri Sarvepalli Radhakrishnan

At a function in Madras in 1954, the Honorable Vice President Shri Sarvepalli Radhakrishnan emphasized the crucial role of the Audit and Accounts Department in a country like ours, stating, "Ours is a poor country, its resources are limited, and we cannot afford to risk any kind of waste. The Audit and Accounts Department will have to view their functions as the functions of the greatest public utility." He further asserted, "If I have one piece of advice to give, and if I am presumptuous enough to give any advice to the officers of the audit and accounts, it is this: Do not shrink from the truth for fear of offending those in high places."

In 1958, the jurisdiction of the Comptroller and Auditor General (CAG) was extended to include Jammu & Kashmir.

A significant development occurred with the promulgation of The Indian Companies Act 1956, which empowered the CAG with the authority for supplementary audit of Government Companies. This Act also authorized the CAG to advise the Government on the appointment of auditors for Government Companies, marking a new phase in the commercial audit of Government Companies and Corporations. Additionally, a system of Appraisal by the Audit Board was introduced in 1969 based on recommendations from the Administrative Reforms Commission, further enhancing the dimension of commercial audit.

During his tenure from 1960 to 1966, Shri A.K. Roy, C&AG of India, introduced the concept of top-level evaluation of Government operations. He recommended to the Accountant General to conduct efficiency audits of significant government schemes, describing performance audit as an extension of discretionary audits previously conducted by the Department.

In 1962, the CAG issued the MSO (Technical) in two volumes, integrating audit principles and instructions. The CAG also initiated the audit of revenue receipts of the Government of India, aligning with a Memorandum of Understanding reached during his tenure as Finance Secretary and in consultation with his predecessor CAG. The Director of Revenue Audit was appointed at the Headquarters office the same year. Additionally, the CAG introduced a quarterly Audit Bulletin containing updates on common interest matters, technical decisions, and administrative orders issued by the Government of India and State Governments.

The Comptroller & Auditor General’s (Duties, Powers and Conditions of Service) Act 1971 brought significant changes to the audit framework, especially concerning autonomous bodies and institutions receiving substantial grants-in-aid. It provided statutory backing to the audit of receipts initiated by the CAG since 1960, aligning with Article 151 of the Constitution. This Act also incorporated duties and powers vested by the Companies Act 1956, allowing the CAG to delegate powers and make regulations related to audit scope and extent. Effective from December 15, 1971, this legislation expanded the CAG's authority and operational framework.

Voices in Parliament advocating for departmentalization of accounts led to recommendations by a group of Ministers on Administration in August 1973, and approval by the Cabinet Committee on Administration in June 1975. The subsequent amendment in 1976 relieved the CAG from maintaining accounts of the Government of India, a responsibility historically held by the IA&AD. This transition involved over 12,000 personnel moving to various government departments, facilitated by the establishment of the Controller General of Accounts under the Ministry of Finance.

Despite the separation of accounts, the CAG retained the responsibility for preparing the Combined Finance and Revenue Accounts, a consolidated financial statement for the Union and states since 1936. The CAG was empowered to frame rules and provide audit directions for expenditure and transactions.

In another notable event, revised instructions issued by the Ministry of Finance in September 1976 restricted audit access to confidential files and Cabinet notes. Following vigorous pursuit by the then CAG of India, Shri A. Baksi, the government withdrew these restrictions in September 1978.

Further reorganization occurred in March 1984, establishing separate offices for accounting and entitlement functions, effectively bifurcating audit and accounting roles. This led to the formation of 22 A&E (Accounting and Entitlement) offices, each managed by separate Accountants General responsible for their respective functions.

The foundation stone of the new office complex of the Comptroller and Auditor General (C&AG) of India was laid by the President of India, Dr. A.P.J. Abdul Kalam, on October 19, 2006. The new complex was inaugurated by Smt. Pratibha Devi Singh Patil, President of India, on October 14, 2008.

Shri Girish Chandra Murmu assumed office as the Comptroller and Auditor General of India on August 8, 2020.