KIIFB’s new argument against CAG audit triggers fresh debate

Experts raise ‘conflict of interest’ issue as CM & FM hold key posts in KIIFB

THIRUVANANTHAPURAM: The long-drawn-out verbal duel for and against a comprehensive audit of the accounts of Kerala Infrastructure Investment Fund Board (KIIFB) has taken a new turn with KIIFB challenging the sheer applicability  of the Section 20 (2) of CAG-DPC Act, 1971 in this case.

While the government has been resisting a comprehensive audit under Section 20 (2), the Opposition led by its House leader Ramesh Chennithala has been advocating for a full audit as against an audit of receipts and expenditure provided by Section 14 (1) as the latter smells a rat in the running of KIIFB, especially in areas related to the issue of masala bond.

There is another strong view that since on the one hand a substantial funding is going to KIIFB from the state’s kitty in the form of petroleum tax and share of motor vehicle tax (MVT) and on the other, the rest of its funding, which is loans, is being fully guaranteed by the government, it is morally contingent upon the government to encourage, let alone allow, a thorough audit of the KIIFB accounts by CAG.

But on the contrary, KIIFB seems to be busy building new arguments to shoot down any possible claim for a CAG audit citing certain provisions of Section 20 (2) of CAG-DPC Act, 1971, the same section the Opposition has embraced to obligate KIIFB for a comprehensive audit of its accounts by CAG.

But willingness from government is a prerequisite to invoke Section 20, be it sub-section (1) or (2). Under 20 (1), it is the government that proposes the audit, whereas under 20 (2), the government needs to give approval to an audit request from CAG’s side.

The KIIFB chief executive, Dr KM Abraham (seen in the picture) argued through an open letter recently that since CAG enjoys ‘unfettered powers of audit’ under Section 14 (1) of CAG-DPC Act, Section 20 (2) can’t be invoked here, as ‘Section 20 (2) applies only to an institution where its audit has not been entrusted to the CAG by ‘Law’.

“Therefore, Section 20(2) would not, legally, apply to KIIFB. In fact, if we look at the wording of Section 20(2), even more closely, it may even be ultra vires of law to proceed under Section 20(2) for its audit, as the main Act itself empowers the CAG to audit KIIFB, and such an audit is in progress,” Dr Abraham further explained.

Talking to, audit experts asserted that the said Section 14 (1) never gives any ‘unfettered powers of audit’ to CAG as maintained by KIIFB chief, and hence there is absolutely no reason to conclude that the Section 20 (2) can’t be invoked in the case of KIIFB.

More importantly, the applicability of Section 14 (1), by definition, could face roadblocks in the event of a decline in the size of expenditure by government in relation to total expenditure during a given year, and this will in turn also limit the available length of audit periods.

“To be precise, the Section 14 (1), which KIIFB claims to be potent enough to provide the ‘unfettered powers of audit’, in reality, will cease to have any power to audit once the amount of ‘grant and loans’ falls below 75 per cent of the total expenditure of that body [here KIIFB],” experts explained.

Moreover, once the ‘grant & loans’ during a particular year fall below the 75 per cent threshold, CAG will be left with the choice to continue with the audit only for a further two years until a time when the ‘grant & loans’ once again rise to cross that threshold.

Ironically, in such an eventuality, KIIFB may be rendered without a CAG audit in any form as long as the government chooses to disallow a CAG audit under Section 20 (1) or (2), a state that the Government has been earnestly advocating all along.

Conflict of Interest?

There were doubts raised by certain quarters whether the need to take prior government approval for CAG audit under Sections 14 (2), 20 (1) and 20 (2) invite the question of Conflict of Interest as the state’s chief minister and finance minister hold key posts in KIIFB too.

The question the Opposition keeps raising is why the government is not game for a CAG audit that could only strengthen the credibility of KIIFB where substantial investments are being made by the government.

More than that, audit under Section 14 (1) is meant for bodies that receive grants and loans, whereas Section 20 seeks to cover the bodies that receive investments and loans and hence, experts are of the view that KIIFB, which also has an equity investment of Rs75 lakh from government should ideally be subject to audit under Section 20 (2).


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