An audit of canteen stores department (CSD) by the Comptroller and Auditor General (CAG) was carried out over a period of five months during June 2008 and the report was updated in November 2009 covering transaction of six years. The aim of the audit was to examine if financial operation of the CSD was as per rules and principles applicable to the government organisations, whether consumer goods of high-quality were being provided to service personnel at prices cheaper than market rates and that consumer demand satisfaction was maintained at a desired level.
The CSD, with its motto “Service to the Services”, reaches out to consumers through over 3,600 unit-run canteens (URCs), which indent stores from the base depots under the CSD. The CSD also assists the URCs through soft loans and quantitative discounts. Despite such assistance through CSD from Consolidated Fund of India (CFI), the URCs continue to remain outside the purview of the parliamentary financial oversight as they are considered to be a regimental institution. Neither the budget documents nor the performa accounts of the CSD reflect the operations of URCs. Auditors were denied records of the URCs by the Army headquarters despite repeated requests.
Defence ministry had been reflecting approximately 50 per cent of the profits in the demand for grant-in-aid to the services and other bodies. These were transferred to non-public funds by the services for welfare activities of service personnel and their families. Instead of grant-in-aid in 2005-06, the defence ministry created a new head “contribution” to disburse these profits. Thus, further diluting financial control as under General Financial Rules (GFRs), utilisation certification could be initiated only for grant-in-aid. This change in the accounting procedures took away the audit jurisdictions of the CAG over utilisation of these disbursements by the recipients. After the anomaly was pointed out in the audit, Board of Control Canteen Services (BOCCS) replied in February 2010 that requisite certificates were obtained before sanction of grants-in-aid for the year 2008-09.
During the last six years, from 2002-03 to 2007-08, `883.46 crores was transferred in the form of quantitative discount (QD) from CFI to the URCs, but could not be trade discounts as the URCs operate in a captive market with pricing determined in accordance with the existing policies. QD was, in fact, another way of transferring money from CFI to non-public fund without conforming to the provision of general financial rules.
Out of a total of 16 recommendations given by the CAG, while 13 related to matters pertaining to the CSD head office were generally agreed to, three recommendations on URCs became a bone of contention. These are: (a) URCs should be recognised as retail outlets of the CSD. The operational results of the URCs should be disclosed in the performa account of the CSD to provide a true and complete view of operations of the organisation. Defence ministry should also take immediate steps to bring the URCs under the accountability regime that is applicable to all operations funded by the CFI.
(b) The Chief Accounting Authority should ensure that no change in accounting policy is made without consulting the CAG as required under the Article 150 of the Constitution of India. Disbursement of profits to eligible organisation should be made as grant-in-aid within ambit of GFR and further use of the term “contribution” should be discontinued forthwith.
(c) QD should not be an instrument to transfer funds from public fund to non-public fund without accountability. Such transfer should be carried out in a transparent manner within the ambit of GFR.
Important clarifications sought by Public Accounts Committee (PAC) on the issues raised by the CAG were elaborated in a tri-services presentation on January 12, 2011.
The CSD came into being as a department under the defence ministry on December 19, 1947. The capital to fund the CSD was partly out of liquidation of the predecessor organisation and partly from a government loan, which has since been returned with full with interest. BOCCS under the chairmanship of defence minister regulates the functioning of the CSD, now chaired by minister of state for defence. The CSD, which procures and sells consumer/household use goods to entitled categories at lower than market price through its chain of one base depot and 34 area depots, is as such a wholesaler. The URCs, which are retailers in business terms, draw the stores from the area depots and sell them to the beneficiaries. The CSD has a three-tier structure, i.e. BOCCS in the defence ministry assisted by an executive committee (EC), which periodically reviews the functioning of the CSD, while the day-to-day functioning of the CSD is carried out by the general manager, CSD, who is also the chairman of Board of Administration.
Rules and procedure for establishing an URC and its day-to-day management is governed by an Army Order issued by the quarter master general (QMG), wherein the URC is given an independent registration number, which facilitates it to draw stores from the dependent depot directly with the following salient guidelines:
(a) A unit’s posted strength should be not below 100 personnel. In fact, a proposal to increase it to 500 personnel so as to reduce number of URCs is under consideration.
(b) No free transport is to be used in running canteens.
(c) Day-to-day functioning is supervised by a deputed canteen officer.
(d) Sale should be strictly as per prices laid down in the CSD retail price list.
(e) No goods other than those supplied by the CSD are sold by URC.
(f) Proper book transaction of daily sale is kept and audited monthly, quarterly and yearly at various levels, including a charted accountant.
(g) The URCs being primarily a non-public venture are under the functional and administration control of station commanders/commanding officers. The URCs finances are managed through its own non-public funds (NPF). To start operations finance is provided from the other NPFs. Further operations are from its own funds or bank over draft and at times from soft loans (`2,00,000) availed from the CSD. The main source of funds for the URC operation is the bank over draft. The civilian staff of the URCs are locally recruited through a board of officers and are governed by the terms & conditions issued by the QMG’s branch.
The tri-service response also clarified that the relation between the URCs and the CSD is that of buyer and seller and not of principal and the agent.
The records of regimental funds were denied to the CAG because these funds are purely private ventures. As such URC/regimental funds do not fall within the ambit of the general provisions related to audit by the CAG. Accordingly, URC/regimental funds are audited by charted accountants/board of officers as authorised by the rules and regulations of three services.
In response to the CAG observations on QD, it was brought out that QD is similar to discount incentive given to the retailers by the wholesalers or manufacturers in the open market. This does not mean that the wholesaler or manufacturer audits the book of accounts of the retailer. Hence, it would be inappropriate to term payment of QD as revenue loss to the government and there is no flow of government funds in these transactions. Hence, there is no attempt to convert public fund into non-public fund. The QD is disbursed to the URCs to mitigate their overheads, breakages, shortages and other trading losses incurred during the year.
Profits, including those on account of the QD, are utilised for provisioning of additional amenities and promoting welfare activities of troops and their families as per laid down policy by the Army headquarters. Utilisation certificate from all URCs for the QD of the previous year is obtained prior to the release of the QD of the current year. Further, the QD is given to a URC in the form of stores from the CSD and, hence, no transfer of any fund is involved.
QD is invaluable as a resource utilised for the welfare of troops, their families and ex-serviceman. Some important welfare schemes are scholarships to children, grants for purchase of medical aids e.g. hearing aids, wheelchairs, prosthesis etc., grants to schools and hospitals, support to unit medical clinics and senior citizens homes and grants to widows and families of armed forces and defence civilians who die in harness.
One of the most crucial problems that are often forgotten by decisionmakers is that for over three decades that the Army has been combating terrorism, while many died, more got seriously injured and permanently disabled. This is one fund which is used for their welfare too.
On March 14, 2011, a consolidated reply to the issues raised by the CAG was forwarded by defence ministry to the PAC, whose response is awaited.
Anil Bhat, a retired
Army officer, is a defence and security analyst based in New Delhi