Former, present army chiefs rapped in defence ministry audit

The generals complain about excessive financial oversight. They have only themselves to blame as it is set to become even more onerous

By Ajai Shukla

Business Standard, 24th Oct 12

A wide-ranging audit by the defence ministry’s official auditors, the Controller of Defence Accounts (CDA), has sharply criticised the mismanagement of funds by the army’s senior-most commanders. Former army chief (and now anti-corruption crusader) General VK Singh, and the current army chief, General Bikram Singh, are amongst those that the CDA incriminates in financial mismanagement.

Defence Minister AK Antony has responded by curbing the financial powers of army commanders. These generals must now clear proposed purchases from a Financial Advisor (FA), who will be a civilian official in the MoD. The army often complains about excessive financial oversight; now this is set to become even more onerous.

Business Standard has reviewed a copy of the CDA’s audit report, which has not been made public by the MoD. The MoD and the army both declined to comment on the report and its fallout.

The audit relates to special funds allocated to the army’s six theatre commanders, including money that they can expend under the Army Commander’s Special Financial Powers (ACSFP) for “urgent procurement in situations of operational urgency”. This is not the first time that mismanagement of these funds by senior generals has been flagged. In 2008, then army chief General Deepak Kapoor allegedly scuttled a probe into his expenditure of these funds during his tenure as northern army commander. Kapoor’s famously upright successor, Lt Gen HS Panag, who initiated the probe, was summarily shifted from northern command to central command.

The defence minister had backed General Kapoor in 2008, but this time Antony himself has ordered the CDA, the MoD’s apex accounting and audit body, to audit the expenditure of special funds by the army’s theatre commanders. The northern army commander, engaged in year-round operations, has the largest annual budget of Rs 125 crore. The eastern army commander gets Rs 50 crore per annum. The western, south-western, central and southern army commanders get Rs 10 crores each.

Operationally committed commands also get “General Service funds”, meant for generating military intelligence. These funds, which amount to tens of crores, are not subject to any audit.

General Bikram Singh, the current chief, and his predecessor General VK Singh, both commanded the eastern army during the period that the audit covers: 2009-2010 and 2010-2011.

The CDA audit, which covers 55 financial transactions, reports violations to the tune of Rs 103 crores. Worryingly, this might be just the tip of the iceberg. The audit report notes that, “None of the Army Commanders have furnished complete data on the total number of cases where delegated financial powers were exercised by them under various heads. They have forwarded data relating to those sanctions only which costed Rs 50 Lakh and above.”

The vast majority of irregularities relate to the Northern Command. Bizarrely, the purchase of milk forms a major component of the auditors’ objections. But the CDA has also pointed to the purchase of items from “trading firms/agents instead of directly from OEM vendors,” in violation of army regulations. The audit report also notes that the supply of these items is delayed “in practically all cases.” This, according to the report, “substantially defeated the objective for which these (financial) powers were delegated to command HQrs (headquarters).”

The CDA audit notes the fact that the failure of regular military procurement channels often forces army commanders to make emergency purchases under special financial powers. It states that, “If stores are made available in time, it would not be necessary for Army Commanders to exercise these powers.”

Defence experts point out that the army’s logistics system remains a relic of the 1950s and 1960s, when few supplies were available in remote border areas. The tradition of central, rather than local, logistics still continues, even though areas like Ladakh and Arunachal Pradesh now have significant local infrastructure.