ISLAMABAD: The Supreme Court ordered on Tuesday that all secret funds be audited by the Auditor General of Pakistan (AGP).

In its judgment in the media commission case, the court declared illegal and unconstitutional Rule 37 (5) of the General Financial Rules (GFR) which is currently being used to exempt secret services funds from independent audit by the AGP.

It said all expenditures from the public exchequer must be made in a transparent manner and each rupee must be audited by the AGP in order to ensure compliance with the law.

The secret funds allocated to about 27 ministries in the budget 2012-13 totalled over Rs3.57 billion.

The 20-page verdict was issued on petitions filed by journalists Hamid Mir and Absar Alam seeking abolition of secret funds maintained by the Ministry of Information.

Authored by Justice Jawwad S. Khawaja, the judgment said that after the 18th Amendment under Article 170 (2) of the constitution, the AGP enjoyed a strong constitutional mandate to audit all public expenditures 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,” it said.

The verdict said the AGP was allowed, in fact obliged, to exercise oversight of 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 will be obliged to substitute it with a more transparent one,” the verdict said.

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

Justice Khawaja said accountability of people holding high offices represented the very foundation for levy and legitimacy of taxes, etc. Citing the famous incident of Hazrat Umar who was held to account for his two pieces of cloth, he emphasised that “[i]t is through such levels of financial probity and public accountability that governments exercising authority in the name of the people derive legitimacy.”

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

It said there might be exceptional circumstances where certain audit information would need to be kept outside the public purview. “If such exceptions are to be claimed these must be through legislation and not in an arbitrary manner. Furthermore, such legislation should be subject to judicial review to ensure compliance with constitutional requirements.”

The verdict said that distinction between audit and secrecy had been made clear, adding that it would be for the AGP to ensure the audit of each rupee spent from the consolidated fund and the public accounts without exception. Parliament may make a law imposing “reasonable restrictions” on public disclosure of such parts of the AGP’s report as may be classified.

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