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CAG highlights the flaws in government’s accounting procedure

Comptroller and Auditor General of India highlighted the flaws in union government’s accounting procedure which led to under-estimation of revenue and fiscal deficit for 2015-16. Accordingly government failed to oblige fiscal targets as set by FRBM Act, 2003.

Point to point flaws as highlighted by CAG are

  1. Mis-classification of revenue expenditure as capital expenditure and vice-versa.
  2. Rs. 20,911 crore collected under levies and cess were not transferred to relevant funds which led to understatement of revenue and fiscal deficit.
  3. Subsidy claim of Rs. 1,62,530 crore relating to food, fertilizer and petroleum were pending. This again reduced actual expenditure and hence understatement of revenue and fiscal deficit.
  4. No disclosure of refund from Gross Direct Tax collection was made, which could have reduced revenue receipt and hence have increased revenue and fiscal deficit.
  5. Devolution of taxes to states was short by Rs. 24,972 crore, which otherwise have increased revenue and fiscal deficit.

However. these mainly happened due the Cash Accounting  System (CAS) now followed by India, where transaction are entered only when it is paid. As against this in the Accrual Accounting System (AAS), entry is made with the execution of deal or exchange of goods/ orders and not the actual payment made. If payment is made at later period, then under CAS, no entry will be made in the account while under AAS, it will get entry into the account.

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