The
latest quote price of Rs 2 per month per panchayat at Madhya Pradesh has once
again shattered the profession heart & soul. Thank GOD this time, it’s
double to 2012 rates, where the lowest tender for primary school audits was Re
1 per school. . Tender system with quoted
price of Re 1 did havoc with the audit of the Sarva Shiksha Abhiyan scheme, the
National Rural Employment Guarantee Act (NREGA) and Jawaharlal Nehru National
Urban Renewal Mission (JNNURM) and is continuing the same
in the social sector area audits as regards panchayats, schemes, corporations,
etc
The
menace of tendering is known to all. You are absolutely wrong if you think that
the council is not aware of the professional collapse because of simple reason
of tendering. Each and every council member knows that this menace is killing
the spirit of professionalism and members of so called greedy firms are working
against the ethics of our noble profession, yet no decision is coming out from
the persons who are having the perfect knowledge of this infection effecting
the profession throughout the country. The slow menace of a tender is resulting
in depression. No one had any measure of its progress; no one had any plan for
stopping it. Everyone tried to get out of its way.
As per
Clause 6 of Part I of First Schedule of the Chartered Accountant Act as under:
“Clause
(6): solicits clients or professional work either
directly or indirectly by circular, advertisement, personal communication or
interview or by any other means: Provided that nothing herein contained shall
be construed as preventing or prohibiting-
(i)
Any chartered accountant from applying or requesting for or inviting or
securing professional work from another chartered accountant in practice.
(ii) A
member from responding to tenders or enquiries issued by various users of
professional services or organizations from time to time and securing
professional work as a consequence;”
This
clauses (i) & (ii) were not there till 2006. Those who are responsible for
these changes are the real culprit. The beginning of tendering from 2006 has
ended the brotherhood among the professionals and our fraternity has started
lobbying, fraudulent human ways and methods to secure the tenders. The lack of
will power to fight this menace is not getting any space in the council
working. In the last three years, they have failed to take any concrete policy
on the same.
Let’s
see how this problem cropped up and nurtured by our own leaders. As early as in
1984, a set of proposals for amendments in the Chartered Accountants Act, 1949,
was forwarded to the Central Government for its consideration and approval. The
same was returned by the Government in August, 1992 for making an overall
review of the said proposals, At the
relevant time, the Perspective Planning Group (PPG) constituted by the Council
.The PPG submitted its Report to the Council in December, 1992. Thereafter, the
Council in June, 1993, reviewed the proposals submitted to the Central
Government in 1984 along with submission of new proposals in October, 1993, The
discussion were still there till March, 2001.However, in October, 2001, the
Central Government requested the ICAI to reconsider the latter's proposal among
other things the changes being brought about by WTO related developments etc.
Again in
March, 2002 a Working Group constituted for review of amendments in the
Chartered Accountants Act, 1949 and the Regulations framed there under. The
Working Group was asked to make its recommendations .From 2003 onward the
process of amendment has started. It was led by the present Finance Minister
Arun Jaitely who was Law Minister at that time. The amendments were also carrying for dilution
of autonomy of ICAI and were having the hardest amendments. Thank GOD, The
final shape only came out when the UPA 1 came in to power which carried the
amendments with sympathetic approach. With these amendments, the undercutting
and tendering was allowed. With these amendments the Council also secured blind
powers to punish any member who in their opinion disrepute the profession. It
is being used against the whistle blowers of the institute but it was never
tried against those who quoted Re 1 or Rs 2 as audit fee per entity.
The
relaxation in responding the tenders was glorified as achievement for council.
While forwarding the Code of Ethics 11th edition the then President
CA Ved Jain wrote “Whether the notification imposing ceiling on non-audit fees,
norms relaxing the criteria in responding to tenders of government agency or
similar organizations or permitting the members to publish passport size
photograph in their website, the Council, at its own wisdom, appreciated the
changing scenario in the world order and the emerging opportunities of the
profession.’’
However
in practical, with the start up of legalize backing of council in tendering,
the problems started from day one. There were many representations from the CA
firms about the games being played by their own professional brothers. Our firms
started the cut throat competition and criminally cohobate the authorities to
put the abnormal conditions so that majority may go out for auditing the
institutions. Many representation from members forced PDC to take up the issue.
The 187th Meeting of the Professional Development Committee held on
14th July, 2009 has taken up the cause of tendering by way of
collecting the data and to make a policy on the matter. A pace was set to
analyze the kind of tenders which are being floated in the market and response
thereof, the office has sent survey letters to all those whose tenders have
been hosted in the PD Portal since 2008 requesting for following details:
1.
Application
Money, if any. If yes, please state the amount
2.
Security
Deposit, if any. If yes, please state the
amount
3.
No. of
applications received from the tender
4.
Range
of fees quoted by bidder
·
Lowest
Bid
·
Highest
Bid
5.
Whether
the assignment was allotted to lowest bidder (Yes/No). If No, reasons for non
allotment of assignment to lowest bidder
6.
In
case, not through tendering/ bidding process, the assignment fees paid to the
CA/ Firm appointed for the purpose.
However
the unwillingness at the part of PDC has resulted in ZERO response from the
firms and authorities. No further action was seen in the matter. Though the
president desired again and again that Ethical Standard Board should develop
suitable guidelines to curb all the ills of this practice and while framing guidelines, the following may
be considered:
a.
Wherever
any tender violates or compels a chartered accountants to violate the Code of
Ethics, chartered accountant should not only abstain from doing so but should
also report the same to the Institute for taking further necessary action.
b.
Some
way may be devised to ensure implementation of engagement and Standard on
Quality Control and Code of Ethics in conduct of various assignments.
c.
While
formulating the approved guidelines, the recommendatory scale of fees may also
be kept in view and it should be emphasized that the chartered accountants and
firms thereof may be motivated / inspired to follow the recommendatory scale of
fees while quoting for various tenders, advertisements and circulars, etc.
d.
The
President had also directed that Ethical Standards Board may propose guidelines
with a view to streamline the prevalent practice while responding to tenders
etc. and enhance the image of the profession. Nothing came out from the
assurances of the council.
A
legal opinion from the office of the Solicitor General clearly mentioned that
ICAI can formulate the guidelines to control the tenders for chartered
accountant services. As per the office note No. 29-CA/Law/NDM-663 dated 20th
August, 2009 received from Legal Section containing opinion received from Shri
Parag P. Tripathi, Additional Solicitor General of India there is no bar at the
part of ICAI to make such guidelines. The recommendations of PDC Requirement of
earnest or deposit money while responding to tenders or enquiries issued by
various users of professional services or organisation from time to time have
been taken up by the Council in its 291st Meeting on December, 2009
decided to refer the matter to the Ethical Standards Board.
However
Ethical Standard Board vide its office note no. 29-CA/ESB-337/2009 dated 27th
January, 2010 mentioned that the matter was placed before the 109th
meeting of Ethical Standards Board held on 5th January,2010. The
Board decided that the responding to tenders, advertisements, circulars and
other enquiries by chartered accountants and firms is purely a contractual
matter and as such there is no need to draft any guidelines in this
regard.
The
professional Development Committee was looking after the overall development of
this menace. The 189th Meeting of the Professional Development
Committee held on 11th March, 2010 at New Delhi
considered the matter and declare that :-
A chartered
accountant is a professional rendering specialized services (not dealing in a
commodity which can be treated as per its quality/quantity) and not quoting or
bidding for any property/asset etc. which require him to pay anything at the
end of the day. The PD Portal of the Committee regularly host various
tenders/opportunities available for chartered accountants/firms thereof on its
own website and the same are also mailed to all the members through daily
knowledge capsule. The Committee authorized the Chairman to do the
needful. The Chairman has opined that if there is a huge (abnormal) difference between
the lowest quote received for a tender (on which the tender is ultimately
allotted) and the next lowest quote, then peer review of the said assignment
and/or concerned chartered accountants/firm thereof can be ordered. The
committee later on forwarded the note to peer review board. Thus a decision was
made and directed the office to frame guidelines to be followed by firms while
responding to tenders subsequently to be forwarded to ESB and then to Council
for approval.
A
delegation from Institute met Shri
P. C. Chaturvedi, Secretary, Ministry of Labour and Employment on July 8, 2010
and presented an approach paper dealing with the major schemes run by the
Ministry and the role CA’s can play in areas like accrual accounting, internal
audit, etc. Shri Chaturvedi , the then secretary expressed his
grave concern on the tendering process for utilizing the services of Chartered
Accountants and emphasized that L-1, i.e. lowest bidder, cannot be the sole
criteria of selecting a professional for a qualitative job. He urged the
Institute to look into the matter and ensure that tendering process, which is
gradually becoming an exploitation tool in the hands of allotting authorities,
should not become an obstacle for the qualitative performance of the chartered
accountants. It was in perfect tune with the Planning Commission note that CA
services are not products hence no tender can be invited.
In view
of the legal opinion that the Institute can formulate guidelines under
Clause(6) of Part I of First Schedule to the Chartered Accountants Act, a office
note was sent to ESB to include ethical considerations while preparing the
Draft Guidelines to streamline the process of response to various tenders,
advertisement, circulars, or enquiries by chartered accountants and firms.
1.
A clause requiring members to respond to “tenders” only in case there is no
condition of depositing earnest money/security etc. for making application.
Many tenders require applicant to pay along with the application (request for
proposal), earnest money or security deposit. A chartered
accountant is a professional rendering specialized services (not dealing in a
commodity which can be treated as per its quality/quantity) and not quoting or
bidding for any property/asset etc. which require him to pay anything at the
end of the day.
2.
A clause requiring that members should respond only in case the scope of work
is indicated clearly because it has been observed that most of the tenders are
not clear as to the scope of work to be performed in the proposed engagement
which at times is a potential source of dispute between the parties involved.
3.
A clause requiring that a member may respond to “tenders” only in case of
conditions specified in the tender are generic in nature. Many a times,
authorities do have restrictive clauses like turnover of the firm, number of
partners, number of chartered accountants in the firm, etc. in their tenders
which allow only certain specified firms to apply for such tenders.
4.
Whenever any tender invites chartered accountants to respond which may involves
violation of the Code of Ethics, a member should not respond but also report
the same to the Institute for taking further necessary action.
5.
The re-commendatory scale of fees to be used as a benchmark by member while
quoting for tenders be incorporated in the guidelines.
6.
A clause may be incorporated to ensure implementation of Quality Control and
Engagement Standards and Code of Ethics in conduct of various
assignments. The inclusion of such a clause is required only in case the
same is not covered elsewhere including Code of Ethics.
For years, no council
member has tried to explore any possibility to get rid of this menace. No one
has tried to put a responsibility clause to all such deals where the capability
of the bidder in all respect to perform fully the contract requirements and the
integrity and reliability to assure performance of the contract obligation. None
has tried to put some restriction to such practice for inadequate tenders
bearing prices too low. No one has tried to put some restrictions where bidders
appear to have no resources to complete the work.
The only work on this menace
surfaced during the tenure of CA Amarjeet Chopra as president .Meeting held
with the respective departments, authorities and it was taking a final shape
that this menace shall be dealt finally. But as always happen, our leaders
don’t follow their predecessor’s foot step and took their own step forward. The
movement against tendering died with the demitting of office of president by
Amarjeet Chopra.
As a President, CA Amarjeet Chopra has taken a
lead to curb this malpractice. Interesting news has appeared in the year 2010
which suggested that the government is likely to ask all departmental
enterprises and agencies, such as the National Highways Authority of India
(NHAI), to dispense with the system of tender-based appointment of internal
auditors. Instead, the Comptroller and Auditor General of India (CAG) and the
Institute of Chartered Accountants of India (ICAI) will jointly finalise a
panel of eligible audit firms for different categories of projects and
entities, based on the project size, number of locations and turnover. For each
category, there will be a fixed fee and the agencies will be free to select any
auditor from the panel.
For
instance, the CAG-ICAI team will formulate eligibility criteria for audit firms
to participate in auditing projects that come under various categories such as:
up to Rs 100 crore, Rs 100-200 crore and Rs 200-500 crore, and empanel firms
for each sector. The minimum fee for each sector will also be fixed by the
joint mechanism that will be set up by CAG and ICAI. This, government officials
said, will help reduce instance of unhealthy auditing practices. ICAI has been
complaining that many of its members are quoting unrealistically low amounts
and this opens up the possibility of them colluding with the agency whose
projects are being audited. Hence some agreed points surfaced.
a.
Government agencies like NHAI may be asked to
stop tender-based appointment of auditors
b.
CAG, ICAI to prepare a panel of eligible
auditing firms
c.
ICAI
says many of its members were quoting unrealistically low fees to win auditing
assignments
d.
Agencies to select auditors from panel at
pre-determined fees
Thus
the institute had raised the issue with CAG and other government agencies, such
as the Planning Commission, seeking a change in norms. It had pointed out that
agencies such as NHAI and the Organizing Committee for Commonwealth Games were
following the system of awarding audit work to firms that quoted the lowest
fees, known as L1 in official parlance.
CA
Amarjeet Chopra, the then president of ICAI quoted in the National Daily that “
“We have raised our concerns about issues such as deposit of earnest money and
the system of L1 tenders, as chartered accountants’ are professionals whose
services cannot be sought in that manner acceptance of lowest tender is not
desirable in all the cases, as there could be compromise on (auditing)
quality”.
CAG,
officials had in turn discussed the matter with the Planning Commission, which
has said that it is not averse to the proposal. The new mechanism is expected
to be in place over the next six months but unfortunately years passed ,
nothing came out from a 32 member ICAI council.
After a gap of three years , tender again appeared in The Chartered Accountant,
an official mouth piece of ICAI in JULY
2013, through CA Subodh Agarwal , President message which talked about the
inappropriate response to tenders and mention that It has been observed that some members quote
abnormally low fee while responding to tenders, which gives birth to a
suspicion over the seriousness and quality of their delivery. We had decided in
2010 that if there is a huge (abnormal) difference between the lowest quote
received against a tender (on which the tender is ultimately allotted) and the
next lowest quote, then peer review of the said assignment and/ or concerned
chartered accountants/CA firm thereof can be ordered. The Council later had
decided in December 2010 that a cost-sheet be maintained by members of the
Institute responding to tenders and accepting professional work, incorporating
the details of cost, personnel, hours, etc., which the Institute may call for
and refer to for various purposes. I will urge our members to keep these
decisions in mind while responding to a tender.
But
nothing has resulted in any concrete guidelines or instruction to deal this menace.
The Ethical Standard Board prescribed requirement about tendering and gave firm
opinion that Interference with the practices prevailing for requirement of
requirement of EMD/ Deposit is not required. However on having received
complaint /instance of exorbitant EMD/DEPOSIT, the ethical Standard Board may
look into the matter on case to case basis, Further, a cost sheet be maintained
by members of the Institute responding to tenders, incorporating details of the
costs being incurred therein having regard to number of persons involved, hours
to be spent, etc, so that the same may be called for by the Institute for perusal.
It
still very far to see a clause restricting members to respond to “tenders” only
in case there is no condition of depositing earnest money/security etc. for
making application. Still tenders require applicant to pay along with the
application earnest money or security deposit. Abnormal conditions are day by
day getting strength and more and more firms are being kicked out of the
auditing.
ICAI suggestion
many years ago that the CAG could fix
the fees scheme wise and choose auditors for these schemes district wise and
has also provided the Planning Commission and the official auditor with a list
of chartered accountant firms across the country. The institute has also
suggested that audit work be made subject to peer review by a designated
reviewer, with a view to controlling the quality of audit of social schemes and
government projects.
It is
based on the concept that a larger and more diverse group of people will
usually find more weaknesses and errors in a work or performance and will be
able to make a more impartial evaluation of it rather than just the person or
group responsible for creating the work or reviewing the performance.
CA AMRESH VASHISHT
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