Bihar CAG Report Flags Deeper Institutional Failure in Finances

“Missing Papers, Missing Accountability: Why CAG’s Routine Chorus on Utilisation Certificates Must Evolve”

By P SESH KUMAR

NEW DELHI, July 28, 2025 — As Bihar’s political heat rises ahead of its Assembly elections, a new controversy threatens to scald the long-serving Chief Minister Nitish Kumar. A recent report by the Comptroller and Auditor General (CAG) of India has flagged a staggering ₹70,877.61 crore worth of government expenditure as unsupported by Utilisation Certificates (UCs), casting serious aspersions on the state’s financial governance.

With Opposition parties drawing parallels to the notorious fodder scam of the 1990s, the revelation has turned into a political slugfest. But beyond the immediate optics and the electoral implications, lies a deeper, more systemic issue — the recurring, almost mechanical, commentary in CAG reports across states regarding the non-submission of UCs, with no real follow-through to uncover whether such deviations translate into actual financial frauds or systemic inefficiencies.

It is high time for the national auditor to move beyond ritualistic observation to solution-oriented auditing — by identifying institutional bottlenecks, recommending enforceable accountability frameworks, and using analytical tools to discern genuine implementation challenges from potential embezzlement, thereby ensuring the audit process contributes meaningfully to governance reform.

When the CAG of India tabled its State Finances Audit Report for Bihar in the Assembly on July 24, 2025, it set off a political storm of considerable magnitude. The Opposition, already gearing up for the impending electoral battle, found in the report a potent weapon: ₹70,877.61 crore worth of schemes and expenditures were, according to the CAG, floating in an audit vacuum — no supporting Utilisation Certificates, no assurance of proper end-use, no answers.

In sheer numbers, the report stated that 49,649 UCs were pending as of March 2024, making it perhaps one of the largest instances of UC pendency in any state this year. Departments like Panchayati Raj, Education, and Urban Development alone accounted for more than ₹50,000 crore of the total figure. The implications, as flagged by the CAG itself, are grave — a terrain vulnerable to “embezzlement, misappropriation and diversion of funds.”

Yet, while the media spotlighted the Bihar numbers and the Opposition cried corruption, seasoned observers of CAG reports would find little that is new in this spectacle.

The problem of unsubmitted UCs is not Bihar’s alone — it is a chronic and pan-Indian malaise. And perhaps more critically, the CAG’s treatment of the issue is formulaic and predictable.

Year after year, state after state, report after report — the same language is employed, the same alarm raised, the same non-specific blame cast. There is rarely any progress towards pinpointing the causal breakdowns in accountability or offering tailored, actionable reforms.

For instance, the CAG’s 2023-24 report on Uttar Pradesh noted that UCs for ₹42,703.55 crore remained pending as of March 2023. The largest defaulters were the Basic Education and Rural Development departments, yet the report stopped short of explaining whether the lacunae resulted in any concrete cases of financial fraud or if they were due to systemic issues like staff shortages, lack of digital tracking tools, or bureaucratic lethargy.

Similarly, the 2023-24 CAG report on West Bengal revealed ₹28,361.44 crore worth of grants pending for UC submission, even as the state had been transitioning to the Integrated Financial Management System (IFMS).

Yet again, the CAG made no effort to distinguish between mere administrative delay and more sinister motivations, such as ghost beneficiaries or fabricated expenditures.

The 2023 Karnataka state report cited pendency of ₹23,187 crore in UCs, much of it linked to flagship rural schemes. While it noted repeated audit observations over years, it offered no deeper audit sampling to see whether and how such financial obscurity may have enabled irregularities or asset inflation on paper. Nor did it ask why the concerned Drawing and Disbursing Officers (DDOs) faced no penal consequences.

This static, unimaginative approach to a dynamic governance failure has diminished the transformative potential of audit. Repeatedly flagging non-submission of UCs as a risk is necessary, but clearly insufficient.

In fact, by doing this without deeper investigation, the CAG may be unintentionally normalising it. Why not go further? Why not examine, even in a random sample, whether schemes without UCs delivered the promised outcomes? Were roads actually built, classrooms furnished, or rural water tanks constructed?

Do expenditure patterns correlate with infrastructure on the ground or improvements in outcome indicators? Why is there no audit chapter specifically analysing the impact of pending UCs on the quality of governance or delivery of citizen services?

The CAG is well-positioned to do this. Its constitutional mandate gives it access to departments, records, and data that no other entity enjoys. Yet, it has often chosen to limit itself to the role of a ledger clerk — checking columns, finding blanks, and passing remarks.

That is not what the framers of the Constitution had in mind. Nor is it what the current moment demands. Particularly in a data-rich governance ecosystem where PFMS, DBT, and digital fund flows offer audit trails in real time, the CAG must modernise its methodology and shift from static compliance checking to dynamic financial analytics.

It must draw correlations, identify failure points in fund release and UC processing cycles, and suggest solutions based on evidence, not repetition.

One fundamental question that the CAG never addresses is: why are UCs not being submitted in time? Are they being wilfully avoided to conceal misappropriation, or is it a legacy procedural hangover in a post-digital world?

Field-level functionaries often cite the absence of trained personnel to compile UCs, delays in third-party inspections, and unclear guidelines as reasons for non-compliance.

If so, then the solution must involve capacity-building, simplified digital UC modules, and enforceable escalation matrices. Moreover, the CAG could advocate for a centralised national dashboard — much like the Aspirational Districts dashboard — that tracks UC submissions department-wise and district-wise in real-time. That would give visibility, transparency, and nudge accountability.

It is also high time for the CAG to recommend a policy framework of incentives and penalties. Why should departments with 100% UC compliance not receive additional fund flexibility or performance bonuses?

Why should repeat defaulters not face fund curtailments, administrative warnings, or even naming and shaming in the audit reports? Merely stating that non-submission “increases risk” is not enough. The real deterrent is consequence — and the CAG must push for its institutionalisation.

And when non-submission becomes habitual, the CAG must treat it not merely as a financial irregularity, but as a symptom of deeper dysfunction. Just as the performance audits of the past looked at outcomes rather than inputs, the CAG must now evolve a hybrid approach — combining compliance audit with outcome tracking — to see whether these missing UCs are paper glitches or fiscal black holes.

The Bihar controversy, therefore, must not be seen in isolation. It is but one head of a hydra — a symptomatic eruption of a far deeper institutional failure in India’s public financial management. The real question is whether the CAG, the ultimate guardian of public purse, can rise beyond formula and rhetoric to address the ailment, not just flag the symptom.

Way Forward:

The Comptroller and Auditor General must reinvent its approach to Utilisation Certificates. A dedicated cross-state thematic audit on UC pendency must be undertaken with sampling of schemes to check for ground-level delivery and fund leakage.

The audit methodology must be revised to incorporate root cause analysis, including consultations with implementing departments and frontline workers. The CAG must push governments to adopt digital UC systems and publish department-wise compliance dashboards.

A policy brief recommending legislative or administrative provisions for incentives to compliant departments and penalties for chronic defaulters must accompany every CAG State Finances Audit Report.

Most importantly, the CAG must break the monotony of mechanical observation and reimagine its function as a reform driver in India’s fiscal ecosystem. Until then, the annual chorus of “missing UCs” will continue to echo in legislative chambers, generating headlines but yielding no accountability.

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