ISLAMABAD - The Supreme Court on Tuesday declared Rule 37(5) of the General Financial Rules (GFR) as illegal and unconstitutional, which till now has been used to shelter secrete services funds from independent audit by the Auditor General of Pakistan.

The Secret Funds existed in the budget for financial years 2012-13 in about 27 ministries and amounted to more than Rs3.57 billion.

The 20 pages order, authored by Justice Jawwad S Khawaja, in constitutional petitions filed by two journalists said, “All expenditure from the public exchequer must be made in a transparent manner and each rupee of such expenditure must be audited by the auditor general of Pakistan (AGP), to ensure compliance with law. The journalists in their identical petitions had sought the abolition of Secret Service Funds, which have purportedly been used by the governments to buy the loyalty of journalists and other opinion-makers.

The court clarified that after the 18th Amendment, on account of Article 170(2), the AGP enjoys a strong constitutional mandate to audit all public spending without exception. The funds which have been declared as secret either by an executive order or ordinary legislation do not fall outside this purview. Furthermore, autonomous public bodies, which do not receive any government funding, but are established by the government or are under its control, are also not beyond the AGP’s duty and power to audit. The Court further clarified that the AGP is allowed, in fact obliged, to exercise oversight over accounting procedures adopted by the government. Article 170(1) of the Constitution and Section 5(1) of the Controller General of Accounts (Appointment, Functions and Powers) Ordinance, 2001 make this amply clear.

The AGP should therefore examine the adequacy of the accounting system prescribed for Secret Service Funds, under Rule 37(1) to (4) of the GFR. It may be mentioned by way of background that the method prescribed by these rules is extremely sketchy, relying entirely on the good faith of the users of these funds. This system is clearly open to abuse.

 If the AGP, after independent assessment, finds the mechanism below par, the government would be obliged to substitute it with a more transparent one.

The court has also clarified that under Article 171 the AGP’s reports must be shared with the president, governor, the parliament and the provincial assemblies.

The report said that the Auditor General shall prescribe procedures that permit audit of accounts labelled as “secret” but do not compromise the secrecy of such accounts. The Auditor General shall have [4] months to establish such procedures, says the verdict.

Justice Khawaja has highlighted that accountability of those who hold high office in government represents “the very foundation for the levy and legitimacy of taxes etc.” Citing the famous incident of Hazrat Umar being held to account for his two pieces of cloth, Justice Khawaja emphasises that “[it] is through such levels of financial probity and pubic accountability that governments exercising authority in the name of the People, derive legitimacy.”

The judgement also cited the example of countries all over the world, including the UK, France, Germany and even the security state of Israel, which have gradually moved towards more rigorous standards in public accounting and audit.

The verdict also acknowledged that there may be exceptional circumstances where certain audit information would need to be kept outside the public purview. If such exceptions are to be claimed, they must claim through legislation and not in an arbitrary manner. Furthermore, such legislation would be subject to judicial review to ensure compliance with constitutional requirements.

The court concluded that the distinction between audit and secrecy is made clear, ruling that it would be for the auditor general to ensure the audit of each rupee spent from the consolidated fund and the public accounts, without exception.

The parliament may make a law imposing “reasonable restrictions” on public disclosure of such parts of the Auditor General’s Report as may be classified. Such law, needless to say, will need to pass muster under the Constitution.

The court ruled that matter relating to 19 institutions, which had claimed that their finances/accounts are not subject to audit by the Auditor General would be taken up on July 22, 2013 for which notices have been issued to them.

The court appreciated Khawaja Haris advocate for assisting the court as amicus curie in the instant matter.