The 56th annual report of the Office of the Auditor General has shown that arrears of the government rose significantly by 36.7 per cent in fiscal 2017-18, reflecting the government’s inability to resolve unsettled dues and failure of state agencies to justify spending. The report has questioned the internal control mechanism among government entities, internal accounting and budget spending. Sujan Dhungana of The Himalayan Times talked to Auditor General Tanka Mani Sharma (Dangal) to know the details, including the deteriorating public finance management system in the country. Excerpts:
Office of the Auditor General has prepared its audit report of all three tiers of government for the first time after the country adopted the new federal system. How challenging was the auditing process?
It was quite challenging. It took more than nine months for OAG to complete the auditing process of all governments and public offices. Every year, OAG audits the government and its agencies for the first nine months of a fiscal year while the office plans the auditing process for the following fiscal in the last three months. In the last three months of the fiscal, OAG primarily looks into a number of entities to be audited in the next year, possible risks in the auditing process and auditing areas to be focused, among others. This year, OAG prepared a unified audit report of all governments (federal, provincial and 753 local governments) and other public entities for the first time. OAG basically prepares audit report of governments and public entities on the basis of five parameters — regulatory aspects, economy, efficiency, effectiveness and propriety. Moreover, the Constitution itself has highlighted broader principle on whose basis auditing should be done. Along with the Constitution, OAG auditing is also guided by the Auditing Act. As OAG lacks enough human resources for auditing, we often hire chartered accountants, especially while preparing audit reports of public enterprises owned by the government. Talking about the audit report of the last fiscal, we audited 6,644 government offices across the country, while the total audited amount was Rs 5.16 trillion, which is around five times more than the country’s annual budget. Thus, carrying out auditing of such a large number of offices and amount is certainly not that simple. The total arrears among federal government agencies in 2017-18 stood at Rs 106 billion, which is 5.29 per cent of the audited amount of the federal government agencies. Similarly, such unsettled amount among provincial government agencies amounted to Rs 190 million, which is 7.25 per cent of the total audited amount of provincial government agencies while the unsettled amount among local government agencies stands at Rs 24 billion, which is 4.22 per cent of the total audited amount among local government agencies. The primary challenge was to visit each of the 6,644 agencies whose audit was carried out. As we had only 400 staff deployed for the purpose, we were under immense pressure to collect data from these government agencies. Moreover, we completed auditing among government offices in the Himalayan, Hilly and Tarai regions in three different phases owing to lack of resources with OAG. OAG estimates that if such auditing among all government offices were to be simultaneously done within one month, we need around 100,000 employees.
So, what other options do we have to undertake hassle-free auditing process of public offices?
One measure could be doing auditing on risk-based approach, meaning that we can skip intense auditing of those entities whose accounting system does not seem questionable and suspicious. The other way is to make public entities more responsible towards internal controlling mechanism and financial management. Likewise, if a public entity makes its internal audit system effective, that will ease the entire auditing process for OAG. If the internal audit report of a firm is proper and accountable, the OAG will prepare the audit report based on the internal accounting report prepared by the entity. However, OAG has found that the internal control mechanism in public entities, especially at the local level, is very weak and their internal audit reports are suspicious. In some cases, public entities were found to have started preparing the internal audit report after they found out that OAG officials were visiting their offices. Such complications need to be addressed. From next fiscal year, OAG plans to focus more on ‘control and controlling mechanism’ among public entities, which means that OAG will focus on making public offices more responsible towards the internal audit and accounting system.
Arrears of government agencies are increasing every year, as highlighted in the OAG report. Yet, government agencies are showing no sign of improving their financial management system. Why is it so?
We have the provision of treasury single account and line ministry budgetary system in the public finance management system that keeps record of everyday transactions of government entities. However, the accounting system among public offices in Nepal is comparatively old, in the sense that our accounting system is cash-based. Our accounting system does not record the liability and income of the government until the cash transaction has been made, which means there is no record of pledges made. Here, it is to be noted that the government’s expenditure in Nepal shoots up only towards the end of a fiscal year. So, public entities have to be more responsible and accountable. I must say that budget discipline has not been maintained by the government and public entities, which is a crucial aspect of public finance management system. Though our budget is prepared with much hard work, it incorporates projects and programmes which are unrealistic and impractical.
This results in frequent changes in the pre-announced projects along with changes in budget requirements. Similarly, a number of projects are announced without resource assurance. All these things are against the discipline of the budget. Likewise, government expenditure has to be well-planned. The government had launched different periodic plans for development and is preparing to launch 15th five-year plan. All policies and programmes of government, including the budget should be guided by the spirit of such long-term development vision.
Rise in government arrears also reflects deepening corruption in the country. What is your take on this?
Definitely. The OAG report has highlighted irregularities among government offices and irregularity leads to corruption. OAG highlights ‘on record’ irregularities while there are also ‘off the record’ irregularities among government entities. If budgetary discipline is maintained, the ‘on record’ irregularity can be controlled to some extent.
So, where is our public finance management system lagging?
We are currently running an integrated programme to improve country’s public finance management system. I see a problem in the entire cycle of public financial management in Nepal. We need to work on entire budgeting, programming, accounting, reporting and auditing process in the public financial management. The country has already adopted federal system of governance from unitary system of governance. We have independent consolidated funds of all three tiers of government while all 753 local governments and seven provincial governments have such funds. Thus, we need to rearrange the entire public financial system and transform them accordingly with the new system of governance. Along with this, we also need to improve the governance mechanism.
Written by Sandeep Sen
This news first appeared on https://thehimalayantimes.com/business/maintaining-budgetary-discipline-is-crucial-to-control-rising-govt-arrears/ under the title “Maintaining budgetary discipline is crucial to control rising govt arrears”. Bolchha Nepal is not responsible or affiliated towards the opinion expressed in this news article.