Context: Recently, the Comptroller and Auditor General of India Girish Chandra Murmu has inaugurated the International Centre for Audit of Local Governance (iCAL), which will serve as a centre of excellence for capacity building of local government auditors.

• The institute, a first in the country as per the CAG office, will function out of the office of the Accountant General (account & entitlement and Audit-1) in Rajkot and aims to set global standards for auditing local governance bodies.

International Centre for Audit of Local Governance (iCAL)

• 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 center of excellence for capacity building of local government auditors.

Local governments 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. 

• Panchayati Raj Institutes (PRIs) like village panchayats, taluka (block) panchayats and district panchayats have been set up for self-governance in rural areas, with Urban Local Bodies (ULBs) such as municipal corporations and municipalities in urban areas.

How are local bodies audited in India?

• 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.

• The CAG 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. 

What is the need for iCAL ?

• 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.” 

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

• There must be institutionalized collaboration among SAIs and with international audit organizations to share best practices, exchange knowledge and experiences of glocal auditors.”

• A collaborative platform could aid the improvement of local government audit practices.

Conclusion

• To effectively navigate the complexities of auditing local governments, we need to build the capacity of the 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 foster cooperation in addressing audit findings.