An agenda for MCA

Why is it that in India bad news hogs the headlines, whereas we tend to gloss over all the good things that we achieve? People would have read ad nauseam about the so-called “Satyam Scam” but I am yet to see any major newspaper highlighting the fact that while in the comparable ‘Enron scandal’ the company was liquidated, shareholders lost their money, old retired pensioners were impoverished, employees were driven out on the street and one of the world’s largest accounting firms collapsed rendering many more people jobless.

In India due to the efficient manner in which our Ministry of Corporate Affairs (MCA) functioned, not a single stakeholder suffered, and in quite an understated way, in a public-private partnership initiative which had few parallels, the company was rescued. How many of us know that with the MCA 21 e-initiative, India is among a few leading countries in the world to have computerised and e-enabled its corporate law administration data and processes. It is all the more astounding when we ralise that, in spite, of the sheer number of corporates and the number of permissions, exemptions, etc., that have to be filed and processed regularly, this system works efficiently.

Given its track record and professionalism, naturally, the expectations from the ministry in the coming months are very high. What would a citizen, like myself, want to see on the agenda of the ministry?

First and foremost, the ministry must steer through the Companies Bill. This bill has been in the works literally for decades and a quick and fast overhaul of the Companies Act is required to enable corporates concentrate on their core business and not get bogged down in the intricacies of procedural compliances.

The MCA must enable investors’ protection and class actions through legislative and judicial reforms.

As against developed economies which have an average of one chartered accountant (CA) for every 800 people in its population, India has an extremely low ratio of one CA for every 9,000 persons. With the emergence India on the global economic scene and the inclusiveness and deepening of reforms which would energise and stimulate entities functioning of the grassroot level in the villages, we would have to have more efficient accounting systems, control systems, systems for correlating outcomes with inputs and ensuring that every additional rupee is spent for the optimum effect. This would not be possible without ensuring that there is an efficient audit and accounting system at the smallest unit level and the present strength of CAs in the country is highly inadequate for that.

CAs, cost accountants and company secretaries have a huge overlap on syllabi and basic professional education. It is difficult to see why the three institutes cannot be merged into one while still retaining the specialism of its existig members (CAs to do audits, cost accountants to do cost audits and company secretaries to act as company law experts), while enabling each class of members to appear for a minimal “top up exam” and, thereby, acquire membership of the other class as well. This will significantly cut down administrative costs, consolidate hard and soft assets of the Institutes as well as lead to making the brightest and most competent in the profession available for serving the combined profession.

It will also minimise regulatory duplication of efforts by MCA and its nominees on various boards and sub-committees of the various Institutes. This proposal was first mooted by the joint committee on the future of the accountancy profession in 1967-68. While the council of Institute of Chartered accountant of India (ICAI) had unanimously accepted the amalgamation recommendation in 1967-68, Institute of cost & works accountants of India (ICWAI) went back and rejected this proposition. Again in 1970, the Government of India tried to unify the profession but could not succeed. The last attempt to my knowledge was in 1998-99.

As in the practice in all other developed economies, the MCA should actively aid the development and empowerment of an independent regulator with oversight over the profession. The Quality Review Board may be empowered to take on this responsibility.

The MCA should give a fillip to practicing the profession of accounting in the limited liability partnership by advising all the Institutes under its remit to speed up enabling amendments to their regulations.

The MCA must above all ensure delivery of quality assurance by audit professionals to the investors in the country. That will only be possible by raising the bar on quality and expediting all disciplinary cases which are pure-play quality matters. This can only be done if other relative immaterial provisions of the Act which are all treated at par with issues of quality are eliminated.

The MCA must ensure that India with its 2nd largest profession in the world (largest if all Institutes converge) should be strongly represented on the Global Regulatory Bodies of the Accounting Professions, the International Federation of Accountants, International Accounting Standards Board and International Forum of Independent Audit Regulators, Such representation must be by the best, must ensure continuity and should not be looked upon as “spoils of the office” by members of the Institute.

A tall order, but the MCA has inspired confidence and there is no reason why they would not be able to deliver on this.

This article appeared in the 20 July 2009 edition of Business Standard, which is available at this link.

The other auditor: It's CAG

Supposing I tell you about an audit organisation with more than 100 offices in India and nearly 50,000 people on its rolls; an organisation which is the external auditor of the World Health Organisation (WHO), World Trade Organisation (WTO) and was the external auditor of the United Nations and Food and Agriculture Organisation. This organisation represents a group of auditors who in the last year issued 63,000 reports and could manage to earn an actual recovery of Rs 14,887 crore for its clients — you would say, I am day dreaming!

However, all of these and more is true. The audit organisation I am referring to is the office of the Comptroller and Auditor General of India (CAG). In the run up to the Union Budget 2009, I feel we must pause and think in terms of accountability and effectiveness of governance and this is where the CAG comes in. Contrary to popular perception and perhaps because of the low key manner in which the CAG functions, in addition to the traditional audits there are a large number of specialised studies like IT audits, environment audits, studies on performance audits (examples being on cleanliness and sanitation in Indian Railways; on rural water supply programmes; on the National Rural Employment Guarantee Act (NREGA) that are routinely under-taken by the CAG.

Returning to the question of accountability, do we realise that in 2007-08, the Union government made a provision for transferring more than Rs 50,000 crores directly to autonomous bodies, societies and NGOs who keep these accounts in banks outside the government system and unspent amounts whereof are not auditable, thereby inflating government expenditure to such extent. The CAG report talks about more than Rs 20,000 crore incurred in the major functions of the government, representing over 50 per cent of the total expenditure under these heads which is classified under “Other Expenditure” leading to opaqueness in government accounts.

The Department of Telecommunication (DoT) receives levy towards Universal Service Obligation (USO) for increasing teledensity in rural and remote areas. Though, the fund had disbur-sed only a part of the collections to eligible service providers, it showed a nil balance, whereas, the balance should have been more than Rs 14,000 crore. This matter has been repeatedly highlighted by the CAG. The practice of netting off suspense accounts results in understating the real magnitude of un-reconciled outstandings in the annual accounts of the government. Many of these suspense account entries have been pending for over 20 years and CAG reports have repeatedly harped on this. Unspent budgetary provisions (which clearly indicate either poor budgeting or shortfall in performance, or a combination of both) was in excess of Rs 1,00,000 crores which included unspent provisions for defence services, financial institutions, education, police, panchayati raj, telecommunication, health and family welfare. All of them thrust areas of the government!!

Though, the National Rural Employment Guarantee Act (NREGA) was one of the flagship programmes of the previous government and largely instrumental in the subsequent mandate it got, do we know that when CAG audited it, as many as 13 state governments had not formulated rules for carrying out the provisions of NREGA; dedicated programme officers had not been appointed in 102 out of a sample 141 blocks and documented annual plans had not been prepared in 175 out of a sample of 558 panchayats? However, on most grounds, the state of Andhra Pradesh seemed to have been setting benchmarks in best practices. An audit of the rural water supply programme reveals that during the period 2003-07, more than 150,000 habitations which had been fully covered with safe sou-rce of drinking water, a few years earlier, had slipped into the partly covered/non-covered (where there is no drinking water source, within 1.6 km) category.

All of these and much more is available on the public website of CAG and routinely tabled in Parliament and state legislatures. But how much public debate or awareness have we seen around these? In this era of transparency and inclusive growth, it is really amazing that no NGO or TV channel or pressure group of young dynamic parliamentarians cutting across party lines have come up to highlight such issues, encourage public debate and push for action as well as fixing responsibility. It is an irony that in a few days when all the Chambers of Commerce will be debating direct and indirect tax proposals which peripherally impact the multitude in hinterland India, there will be no debate on the findings of the Other Auditor on the inefficiencies in governance, outlays and outcomes, affecting the ‘Other India’.

This article appeared in the 6 July 2009 edition of Business Standard, which is available at this link.