Section 14 of The Comptroller and Auditor-General’s (Duties, Powers and Conditions of Service) Act, 1971
Audit of Substantially Financed Bodies
Original Text
(1) Where any body or authority is substantially financed by grants or loans from the Consolidated Fund of India or of any State or of any Union territory having a Legislative Assembly, the Comptroller and Auditor-General shall, subject to the provisions of any law for the time being in force applicable to the body or authority, as the case may be, audit all receipts and expenditure of that body or authority and to report on the receipts and expenditure audited by him.
Explanation.—Where the grant or loan to a body or authority from the Consolidated Fund of India or of any State or of any Union territory having a Legislative Assembly in a financial year is not less than rupees twenty-five lakhs and the amount of such grant or loan is not less than seventy-five per cent of the total expenditure of that body or authority, such body or authority shall be deemed, for the purposes of this sub-section to be substantially financed by such grants or loans, as the case may be.
(2) Notwithstanding anything contained in sub-section (1) the Comptroller and Auditor-General may, with the previous approval of the President or the Governor of a State or the Administrator of a Union territory having a Legislative Assembly, as the case may be, audit all receipts and expenditure of any body or authority where the grant or loan to such body or authority from the Consolidated Fund of India or of any State, or of any Union territory having a Legislative Assembly, as the case may be, in a financial year is not less than rupees one crore.
(3) Where the receipts and expenditure of any body or authority are, by virtue of the fulfilment of the conditions specified in sub-section (1) or sub-section (2), audited by the Comptroller and Auditor-General in a financial year, he shall continue to audit the receipts and expenditure of that body or authority for a further period of two years notwithstanding that the conditions specified in sub-section (1) or sub-section (2) are not fulfilled during any of the two subsequent years.
Visual Summary
Summary
Section 14 empowers the Comptroller and Auditor-General (CAG) to audit non-governmental bodies or authorities that receive significant financial assistance from the government. This ensures that public funds transferred to autonomous bodies, NGOs, or other institutions are utilized correctly. The section establishes specific monetary thresholds to determine when such an audit is mandatory versus when it is discretionary, and it includes a “continuity clause” to ensure consistent oversight once an audit is triggered.
Key Takeaways
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Substantial Financing Defined: A body is deemed substantially financed if the government grant/loan is at least ₹25 Lakhs AND constitutes at least 75% of its total expenditure. -
Large Grant Provision: Even if the 75% condition is not met, the CAG may audit a body receiving over ₹1 Crore in government aid, provided they get prior approval from the President or Governor. -
Two-Year Extension: If an audit is triggered in Year 1, the CAG retains the right to audit the entity for Year 2 and Year 3, regardless of whether the funding criteria are met in those subsequent years.
Key Analysis
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Scope Expansion: This section is crucial because it extends the CAG’s jurisdiction beyond standard government departments. It acknowledges that modern governance often involves outsourcing functions to autonomous bodies, societies, and NGOs. -
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Legislative Intent: The “75% expenditure” rule implies that if an entity is primarily surviving on public money, it is effectively a state agency for accounting purposes and must be accountable to Parliament/Legislature. -
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Safeguard against Evasion: The 2-year continuity clause (Sub-section 3) prevents organizations from manipulating their accounts or delaying grant receipts in a specific year just to escape the CAG’s scrutiny. Once caught in the net, they remain there for a reasonable period.
Key Ingredients
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Existence of a body or authority (not a foreign state/international org). -
Receipt of Grant or Loan from the Consolidated Fund (Union/State/UT). -
Condition A (Mandatory): Amount ≥ ₹25 Lakhs AND ≥ 75% of total expenditure. -
Condition B (Discretionary): Amount ≥ ₹1 Crore (regardless of %). -
Approval of President/Governor/Administrator (Required only for Condition B).
Related Provisions
Practical Illustrations
The “Green Earth Society” has a total annual expenditure of ₹40 Lakhs. They receive a government grant of ₹32 Lakhs. Since ₹32 Lakhs is > ₹25 Lakhs AND it constitutes 80% (which is >75%) of their total expenditure, the CAG must audit their accounts.
“Tech Institute X” spends ₹10 Crores annually. They receive a government grant of ₹2 Crores. This is only 20% of their expenditure (less than 75%), so mandatory audit doesn’t apply. However, since the grant is > ₹1 Crore, the CAG may audit them if the President/Governor approves.
Process Flowchart
Practice Questions
Q: According to the Explanation in Section 14, a body is deemed to be “substantially financed” if the grant/loan is not less than ₹25 Lakhs AND constitutes not less than what percentage of total expenditure?
- A. 50%
- B. 60%
- C. 75%
- D. 90%
View Correct Answer
Reasoning: The Explanation to Section 14(1) explicitly states the criteria as not less than ₹25 Lakhs and not less than 75% of total expenditure.
Q: Under Section 14(2), what is the minimum grant amount required for the CAG to audit a body with the approval of the President/Governor, even if the 75% expenditure condition is not met?
- A. ₹50 Lakhs
- B. ₹75 Lakhs
- C. ₹1 Crore
- D. ₹5 Crores
View Correct Answer
Reasoning: Section 14(2) allows for discretionary audit with approval if the grant/loan is not less than rupees one crore.
Q: If a body is audited under Section 14 in Year 1, for how many subsequent years does the audit continue even if the funding conditions are not met?
- A. One year
- B. Two years
- C. Three years
- D. Five years
View Correct Answer
Reasoning: Section 14(3) states the CAG shall continue to audit for a further period of two years.
Frequently Asked Questions
Does Section 14 apply to private companies?
What happens if the grant amount is reduced in the next year?
Who gives approval for the discretionary audit under Section 14(2)?
Conclusion
Section 14 serves as a critical financial watchdog mechanism, ensuring that the “shadow state” of NGOs, societies, and autonomous bodies remains accountable for the public funds they utilize. By setting clear monetary thresholds and ensuring continuity of audit, it prevents the misuse of grants and loans disbursed from the Consolidated Fund.