The decision of the Supreme Court allowing CAG audit of private companies is most welcome. It will expose the role of the private telecom companies which have been cheating the government of its revenue share by manipulating its accounts by showing less revenue to avoid payment of revenue share to Government. The earlier audit of a few companies have shown the cheating and penalties were imposed on them.This process was stopped after the private telcos went to the court and obtained stay. Now the stay is removed and CAG has been allowed to audit.

A detailed report on the matter published in Times of India is reproduced below:

NEW DELHI: Special teams of the Comptroller and Auditor General of India could soon be fanning out across the country to begin audit of private telecom companies in the wake of Supreme Court’s landmark order of Thursday.

While upholding CAG’s right to audit private telecom companies on Thursday, the apex court said : “When nation’s wealth, like spectrum, is being dealt with either by the Union, state or its instrumentalities or even the private parties, like service providers, they are accountable to the people and to Parliament.”

According to sources, the first results of CAG’s audit could be available within a year, since the audit body had been ready since 2010 to audit private telecom companies that give a part of their revenue to the Centre.

The audit could open up not only significant revenue for the government, but also raise questions over accounting and reporting standards of some private telecom firms. CAG had started auditing telecoms a few years ago, but the exercise got stalled when the private companies moved court.

The Delhi High Court allowed the audit in an order in January this year, but the telcos moved apex court challenging the order.

Private auditors appointed by the department of telecommunications had audited five telecom companies in the financial years 2006-07 and 2007-08. The five leading operators together understated their revenues by Rs 10,268 crore during these two years, the audit found. Based on the findings of the audit in mid-2012, DoT had slapped penalties totaling Rs 1,594 crore on the five companies.

Under the contract between DoT and telecom companies, the private entities pay 6%-10% of annual revenue as licence fee and 2%-6% as spectrum usage charges. Under-reporting of revenues would have significant adverse impact on the revenues accrued to the government.

It was at the request of telecom companies that the then NDA government, headed by Atal Bihari Vajpayee, allowed telecoms to migrate from a fixed licence fee regime to a revenue sharing one in 1999. This was provided through the New Telecom Policy of 1999.

However, when the government discovered variation in the gross revenue of certain operators as reported to the DoT, the Securities and Exchange Board of India (Sebi) and the Telecom Regulatory Authority of India (Trai), it ordered special CAG audit into books of their accounts.

Starting October 2009, the CAG began efforts to audit the private telecom companies. And, for the past three years it has also been asking DoT to nominate CAG as its auditor under the agreement between the government and the companies. However, the DoT has been reluctant about nominating CAG, while private telecom firms went to court.