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Context:

• Comptroller and Auditor General (CAG) of India inaugurated the International Centre for Audit of Local Governance (iCAL) in Rajkot.

International Centre for Audit of Local Governance (iCAL)

• The institute is the first in the country.
• Principal accountant general (Audit-I), Gujarat, has been given the additional charge of director general of iCAL.
• It will function out of the office building of the Accountant General (account & entitlement and Audit-1) in Rajkot.

Aims:

• It aims to set global standards for auditing local governance bodies.
• Its primary aim is to empower auditors, executives, and elected representatives of local governments to effectively fulfil their roles through training and leadership development initiatives.

How will iCAL work?

• iCAL will be a collaborative platform for policymakers, administrators and auditors linked with local governments.
• It will enhance the local government auditors’ independence to ensure improved financial performance assessment, service delivery, and data reporting.
• It will also serve as a centre of excellence for capacity building of local government auditors.
• Its primary aim is to empower auditors, executives, and elected representatives of local governments to effectively fulfil their roles through training and leadership development initiatives.
• iCAL will also act as a knowledge centre and thinktank for addressing governance issues at grassroot levels across nations through interactive workshops, knowledge sharing sessions, peer exchanges etc.

How are local bodies audited in India?

• India has a three-tier governance structure comprising the Union or Central government, state governments, and local bodies at urban and rural levels.

Examiner of Local Fund Accounts (ELFA)

• While keeping accounts is the responsibility of the concerned local body, many state governments have an Examiner of Local Fund Accounts (ELFA) or Director of Local Fund Accounts (DLFA) for auditing their accounts.
• In Gujarat, for instance, the ELFA is an autonomous office functioning under the aegis of the finance department.
• They audits the utilisation of funds granted by the state government to local bodies.

Other auditors

• Other institutions, such as universities, also audit their performance.

CAG

• The CAG, on the other hand, conducts audits of all funds (including the state and Central governments).
• It also exercises control and supervision over the proper maintenance of accounts and auditing for all three levels of PRIs/ULBs.
• Under its technical guidance and support initiative, CAG also advises and supports ELFA or DLFA and thereby supplements the latter’s work.

Panchayati Raj System in India ●Panchayati Raj in India is a system of local self-government that aims to promote rural development, social justice and democratic participation. ●It was formally established by the 73rd Amendment Act of 1992, which added a new part IX to the Constitution of India and gave constitutional status to the Panchayati Raj Institutions (PRIs). Three-tier Structure ●The Act provides for the establishment of the three-tier system of Panchayati Raj in the states (village, intermediate and district level). ●States with a population of less than 20 lakhs may not constitute the intermediate level. Committees and Commissions related to PRI in India Balwant Rai Mehta Committee (1957): ●The committee submitted its report on 24 November 1957 and recommended the establishment of the scheme of 'democratic decentralisation' which finally came to be known as Panchayati Raj. ●Three-tier Panchayati Raj system: Gram Panchayat, Panchayat Samiti and Zila Parishad. Ashok Mehta Committee (1978): ●The three-tier system should be replaced with a two-tier system: Zila Parishad (district level) and the Mandal Panchayat (a group of villages). GVK Rao Committee (1985): ●It emphasized the need for effective administrative support and training for the PRIs. ●Post of District Development Commissioner to be created. He will be the chief executive officer of the Zila Parishad. ●Elections to the levels of Panchayati Raj systems should be held regularly. LM Singhvi Committee (1986): ●It advocated for constitutional recognition and protection of PRIs and their role in national development. ●It recommended that village panchayats should have more finances for their activities. For more details refer: https://www.iasgyan.in/daily-current-affairs/national-panchayati-raj-day

Need for Supreme audit institutions (SAIs)

Large number of ULBs:

• There are around 2.5 lakh panchayats and 8,000 urban local bodies (ULBs) in India.

Adopting global best practices :

• 40 countries have their respective supreme audit institutions (SAIs) conducting audits of local bodies and there is a need to promote global good practices.

Fund utilisation:

• Huge funds are flowing to local bodies now and there have long been concerns about the lack of funding available to local bodies, and its utilisation. There is a need for proper auditing of these institutions.
• A 2022 report from the Reserve Bank of India (RBI) found, “Most municipalities only prepare budgets and review actuals against budget plans but do not use their audited financial statements for balance sheet and cash flow management, resulting in significant inefficiencies.”

Collaboration

• There must be institutionalised collaboration among SAIs and with international audit organisations to share best practices, exchange knowledge and experiences of glocal auditors.
• A collaborative platform could aid the improvement of local government audit practices.

Building capacity of auditors:

• To effectively navigate the complexities of auditing local governments, we need to build the capacity of our auditors as well as the local government employees to enhance their understanding of financial management practices and internal controls.
• Open communication channels with local government officials can facilitate the audit process, improve data accessibility, and enhance cooperation in addressing audit findings.

Must read articles:

Empowering local bodies

SDGs in PRI

CAG

Sources

https://indianexpress.com/article/explained/centre-audit-local-governance-gujarat-9460978/

https://knowindia.india.gov.in/profile/local-government.php

PRACTICE QUESTION Q) With reference to the International Centre for Audit of Local Governance (iCAL), consider the following statements: iCAL is the first institute of its kind in the country and will operate from the from Comprtoller and Auditor General of India office. The primary aim of iCAL is to set global standards for auditing local governance bodies through training and leadership development initiatives. iCAL will only focus on local governance issues within the country and will not engage in international knowledge sharing or peer exchanges. Which of the statements given above are incorrect? (a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3 Answer: c Explanation Statement 1 is incorrect: iCAL is the first institute of its kind in the country and will operate from the Accountant General’s office building in Rajkot. Statement 2 is correct The primary aim of iCAL is to set global standards for auditing local governance bodies, and it will achieve this through training and leadership development initiatives. Statement 3 is incorrect iCAL is described as a collaborative platform and knowledge centre that will engage in international knowledge sharing, workshops, and peer exchanges to address governance issues at the grassroots level.