Adequate Empowerment of the Services and Financial Oversight Yet to be Achieved( IDSA ,Defence organisation , GS paper 3 )

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
 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.

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