Adequate Empowerment of the Services and Financial Oversight Yet to be Achieved

With effect from 1 May 2015, the Ministry of Defence (MoD) has instituted a set of enhanced delegated financial powers to the three Services, Integrated Defence Staff and its attached establishments, Coast Guard and the Armed Forces` Medical Services. In addition, the MoD has issued guidelines for the exercise of these powers, inter alia specifying an internal audit structure, to apparently enable the judicious exercise of the delegated powers and in a quicker time-frame. The internal finance mechanism is also proposed to be made more involved with planning and resource management, i.e. budgeting. An internal financial advisory system [though the nomenclature used in the Indian defenceset-up is of Integrated Financial Advisers (IFAs)], starting from principal integrated financial advisers with the Services` Headquarters and similar advisers at lower echelons of the Services, is supposed to be a key element to assist the executive authorities, i.e., the competent financial authorities, in resource deployment and expenditure management related to the national defence effort.

Since 2006, there has been a substantial enhancement of delegated powers to the Services. Broadly, the enhanced power varies from two to two-and-a-half times for stores/equipment procurement for the Army along with escalation for similar transactions of the Navy and Air Force. There are, however, a few variations. For the victualling stores of the Navy, the present powers delegated at the highest threshold to the Chief of Logistics (COL) is Rs. 100 crore and up to Rs. 3 crore per transaction to the Vice Chief of Naval Staff, respectively, to procure such stores with IFA concurrence. A change effected is that in case of some transactions, the functionaries responsible for provisioning have been empowered as against the earlier pattern wherein officers performing staff functions or in the policy formulation domain were primarily the higher expenditure sanctioning authorities. This change is welcome to the extent that those involved with programme execution and service or maintenance functions would also be responsible for the budgets and expenditure sanctions, albeit in consultation with their IFAs. (One exception is the power of sanctioning works, i.e., for accepting necessity and according administrative approval, which is vested with Service Chiefs for Rs. 50 crore per project/work.)

The framework of the delegation now formalised through the relevant government letters issued on 20 April 2015 is a shade different from those which obtained in previous years. The emphasis on internal audit through an Audit Advisory Committee (AAC) under the financial adviser of MoD, as part of an oversight mechanism for risk management, etc., conveyed through the government letters of delegation, may appear to be a new phenomenon. This is, however, not so. Internal audit always had an inherent sanctified role in defence transactions. For various reasons and circumstances, this role could not be effectively exercised by the designated internal audit authority, i.e., controller general of defence accounts. There has been inhibition on the part of the Services towards allowing the entire gamut of their transactions being made susceptible to internal audit. The reasons cited were: sensitivity of the transactions, wherewithal not being available with the Services` executives to facilitate the audit as for instance in border areas, etc. A glaring instance of defence transactions put beyond the pale of audit is the prevailing “war system of accounting”, wherein audit cannot verify the correctness of consumption of stores of a large number of units and formations in THE northern and eastern sectors. The new delegation of financial powers does not address this shortcoming. In fact, the Comptroller & Auditor General of India (C&AG) has refused to statutorily certify from the audit angle the accounts related to Defence Services Estimates on the premise that internal audit by the controller general of defence accounts has not been exercised vis-à-vis such Service units and formations.

Furthermore, it is not clear as to why it should be necessary to have annual audit plans, review by an AAC, etc. Internal audit is inherently built into the role of integrated finance of MoD and its connected set-up, i.e., the set-up of financial adviser of defence services and its attached arm – the office of controller general of Defence Accounts, and the latter`s subordinate offices spread throughout the country. The statutory rules of Government of India are clear on the ambit of internal audit in all spheres of governance – civil or military, and it should not have been necessary to put in place a structured mechanism such as AAC, etc. Experience shows that, in the Indian context, more structures only lead to more bureaucratisation and delays in decisive action. MoD should have ensured that the internal audit reports of the controller general of defence accounts, with concomitant appraisal notes, on functional areas of high financial risk, regulatory violation, transactions which failed to achieve desired outcomes and also areas where internal audit was constricted or not allowed by circumstances or deliberate design, are mandated to be placed before Parliament and the Standing Committee on Defence along with the detailed demand for grants of the Ministry, instead of being considered only as an input to the finance division of MoD as appears to be the case at present.

Another fundamental issue, the financial empowerment of the Services by making them responsible for the policies and programmes they formulate, working out the resources they need, and their implementation in the most judicious and economic manner, does not seem to have been addressed. The Services, therefore, are not de facto responsible for the budget provisions allocated to them, object and programme-wise. Apart from budget-related decisions, the major extent of both Revenue and Capital expenditure powers continue to remain vested in the MoD. While this legacy situation prevails, the Services also are not enthusiastic about involving their internal finance, i.e., their IFAs, in the budget formulation process. It is only in budget monitoring to an extent, and too limitedly without having any role in re-adjustment and re-appropriation of funds at budgetary landmark stages like `Revised Estimates` and `Final Estimates`, that these advisers are associated by the Services. To compound the situation, MoD Finance, i.e., the integrated finance division of this Ministry – which works out the final budget requirement and obtains the Defence Secretary`s/Raksha Mantri`s approval before referring to the Union Finance Ministry for subsuming the Defence Ministry`s requirement in the Union Budget – does not obtain any significant institutionalized input from the Services` HQs` integrated financial advisers in the matter.

In the light of the above-indicated arrangements and institutional framework, responsibility will continue to remain diffuse in finance matters between the MoD and the Services` HQs. Comprehensive Parliamentary oversight of the Services` resource management is also likely to be affected. The institution of the C&AG and their audit mechanism, the audit reports they generate, for Parliamentary scrutiny in general and in detail through the Public Accounts Committee, remain consequently the only effective means of financial oversight. The Union Government may seriously consider comprehensive and effective empowerment of the Services, with internal finance involved at all stages, on par with the system prevailing in the Civil realm and within the ambit of existing statutory rules, without any special dispensation for the Services. Though the creation of Chief of Defence Staff institution may facilitate single-point coordination of advice on operational matters to the political executive, this by itself will not be sufficient for optimization of the national defence effort. Instead, a move towards converting the Services` HQs as departments of the government within the scope of Allocation of Business Rules, and with responsibility to Parliament for obtaining Defence appropriations, etc., may be in the long-term interests of the country. Within such a structure, the Services will be measurably empowered, Parliamentary oversight will be more effective, and internal audit by the controller general of defence accounts and statutory audit of C&AG can function as part of a continuum.

Gautam Sen is an ex- Additional Controller General of Defence Accounts of Government of India, former Adviser to Government of Nagaland, and is presently Adviser to a former Chief Minister of Nagaland & sitting Member of the Lok Sabha.

Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.

This article has been corrected for spelling errors.