Audit finds lapses in defence canteen operations

NEW DELHI - India’s audit watchdog has found lapses in financial and business operations and the pricing and quality of goods of the Canteen Stores Department (CSD) that sells household products at cheaper than market rates to armed forces personnel and their families.

The report of the Comptroller and Auditor General (CAG) of India, tabled in the Lok Sabha Friday, says the 3,600 unit-run canteens (URCs), or retail outlets, of the CSD across the country have been kept out of the “purview of parliamentary financial oversight as they are considered to be regimental institutions”.

This despite the fact that these URCs get soft loans and quantitative discounts through the CSD from the Consolidated Fund of India, it says.

“Neither the budget documents nor the proforma accounts of CSD reflect the operations of the (URCs) that are also not subject to the accountability regime for operations funded by the Consolidated Fund of India,” the report says.

The CAG said it was denied access to the URC records by the Army Headquarters in Delhi “in spite of repeated requests”.

The matter was taken up at the level of the defence minister too but to no avail.

In the interest of transparency, the operational results of the units should be disclosed in the proforma accounts of CSD after ensuring that the units follow uniform accounting principles, the CAG has recommended.

This would enable the financial statements of CSD to provide a “true and fair view of the complete operations of the organisation”.

Praising the CSD for its 55 percent increase in gross turnover (Rs. 6,955 crore in 2008-09 from Rs. 4,481 crore in 2003-04), the report says the gross and net profit however had not shown commensurate increase during this period.

“This was mainly due to increase in cost of goods purchased for sale as also increase in quantitative discount given to the units.”

It says that evidence indicated that grants given to various organisations of the armed forces out of CSD profits did not follow the provisions of General Financial Rules (GFR) of the government.

“Grants were given to organisations without even insisting on application for funds. Statement of accounts was never sought before sanctioning the grants. Receipt of utilisation certificates was not watched, as required under GFR. Utilisation certificates were never insisted from major recipients namely the army, navy or air force for the grants provided.”

The proforma accounts prepared by the CSD did not follow the generally accepted regimen of financial reporting, it said.

During the six years from 2002-2003 to 2007-08, Rs. 883.46 crore was transferred in the form of quantitative discount from the Consolidated Fund of India to the URCs.

Evidence also indicated that benefit of quantitative discount (QD) has never been passed to the consumer.

“Such discount could not be viewed as a trade discount as units operated 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 provisions of the GFR,” the report says.