Chapter 15: Audit of Public Sector Undertakings (PSUs)
1. Constitutional Role of C&AG (Articles 148 to 151)
The Comptroller and Auditor General of India (C&AG) is an independent constitutional authority appointed by the President of India.
| Constitutional Article | Mandate / Provision |
|---|---|
| Article 148 | Appointment, oath, and conditions of service of C&AG (tenure of 6 years or age 65; removal on same grounds as Supreme Court Judge). |
| Article 149 | Duties and powers of C&AG prescribed by Parliament under the CAG's (DPC) Act, 1971 (Duties, Powers and Conditions of Service). |
| Article 150 | Form of accounts of the Union and the States prescribed by President on advice of C&AG. |
| Article 151 | C&AG submits audit reports relating to Union to the President (placed before Parliament) and relating to States to Governors (placed before State Legislatures). |
2. Appointment of Auditor & C&AG Audit Mechanism
Any company in which not less than 51% of the paid-up share capital is held by the Central Govt, or by any State Govt(s), or partly by Central and partly by State Govt(s), and includes a subsidiary of a Government Company.
| Statutory Mechanism | Section & Specific Mandate |
|---|---|
| Appointment of Auditor | • Sec 139(7) First Auditor: Appointed by C&AG within 60 days of registration. If C&AG fails, Board appoints in next 30 days, else EGM in 60 days. • Sec 139(5) Subsequent Auditor: Appointed by C&AG within 180 days from commencement of financial year. |
| C&AG Directions (Sec 143(5)) | C&AG directs statutory auditor on the manner in which accounts shall be audited. Auditor submits report to C&AG including directions compliance. |
| Supplementary Audit (Sec 143(6)) | C&AG has the right to conduct a supplementary audit within 60 days from the date of receipt of statutory audit report. C&AG comments are placed before AGM. |
| Test Audit (Sec 143(7)) | C&AG may, by general or special order, cause a test audit to be conducted on company accounts. |
3. Comprehensive Audit & The 3Es Framework
Comprehensive audit evaluates the overall efficiency, operational performance, and public objectives achievement.
| Pillar of 3Es | Core Audit Question | Focus Area |
|---|---|---|
| Economy | Were inputs acquired at the lowest possible cost without compromising quality? | Procurement procedures, tender negotiations, minimizing input costs, timely acquisition. |
| Efficiency | Was the maximum possible output achieved with the minimum input resources? | Capacity utilization, plant productivity, reducing downtime, optimizing labor and material usage. |
| Effectiveness | Did the program/activity achieve its intended social and financial objectives? | Outcomes vs targets, delivery of public benefits, fulfillment of socio-economic objectives. |
4. Propriety Audit & Parliamentary Committees
Propriety audit goes beyond mere vouchers and legality to examine whether public expenditure was incurred with wisdom, faithfulness, and economy. It checks: (1) Expenditure is not prima facie more than the occasion demands; (2) Authority does not exercise power to pass an order directly or indirectly to its own advantage; (3) Public funds not utilized for the benefit of a particular person or community unless recognized by law.
| Parliamentary Committee | Role in Scrutinizing C&AG Reports |
|---|---|
| Public Accounts Committee (PAC) | Examines appropriation accounts and annual financial accounts of Union, and C&AG audit reports on civil/defense expenditures. |
| Committee on Public Undertakings (COPU) | Examines reports and accounts of Public Sector Undertakings (PSUs) and C&AG reports on PSUs to evaluate commercial soundness and efficiency. |