Utilization of Public Funds, Ethics and Morality in Public Administration: A Nepalese Perspective

Concept of Proper Utilization of Public Funds

The concept of proper utilization of public funds appears to have originated from the United Kingdom. The Magna Carta limited the king's rights to impose taxes and spend. The principles of "No Taxation Without Representation" and "No Spending Without Legislation" form its theoretical foundation.

In Nepal's Constitution, provisions are made that no taxes or loans can be imposed except in accordance with the law. The Constitution includes arrangements for financial procedures, such as the consolidated fund, withdrawals from the consolidated fund, burdens on the consolidated fund, estimates of revenues and expenditures, supplementary estimates, appropriation acts for expenditures, etc., to promote proper utilization.

Proper utilization of public funds means maintaining economy in expenditures, regularity and efficiency in procedures, effectiveness and appropriateness in results, and equality, equity, and justice in distribution.

Introduction to Public Funds

Public funds are the national treasury operated in accordance with the law for public interest and concern.

It is based on the principle that revenues can only be collected with the approval of people's representatives, and expenditures can only be made in accordance with laws made by representatives.

Public funds include government revenues, amounts from foreign aid, internal loans, proceeds from asset sales, returns from public investments, and all other amounts received in the name of the government.

Provisions Related to Public Funds in Nepal

According to Article 116 of Nepal's Constitution, the Federal Consolidated Fund; Article 204, the Provincial Consolidated Fund; and Article 229, the Local Consolidated Fund are public funds.

In addition to the consolidated fund, various funds in public bodies also fall within the scope of public funds.

According to Nepal's Constitution, the consolidated fund includes all types of revenues, all moneys received from loans secured by revenues, all moneys received from repayment of any loans made under the authority of the Act, and all other moneys received by the Government of Nepal.

Expenditures from this fund can only be made for burdens on the consolidated fund, under the Appropriation Act, Advance Expenditure Act, and Contingent Expenditure Act.

Proper Utilization

Expenditures must be effective in accordance with specified goals and objectives.
Expenditures should be for the enhancement of public welfare.
Economy must be maintained in the use of the fund.
Compliance with standards prescribed by public laws.
Assuming public accountability.
Clear procedures for fund mobilization.
Attention to maximum social benefits in fund mobilization.
Transparency and efficiency in fund mobilization.
Use of a robust and scientific accounting system.
Arrangement for auditing by an independent body.

Necessity/Importance of Proper Utilization of Public Funds

To maintain financial discipline and fiscal responsibility.
To achieve maximum returns from limited resources.
To make foreign aid mobilization effective.
To protect government funds and assets.
To maintain parliamentary control over resources.
To ensure social justice.
To maintain equality and equity in financial transactions.
To enhance regularity, economy, efficiency, effectiveness, appropriateness, transparency in transactions.
To develop a sense of tax payment among citizens.
To achieve inclusive, balanced, and sustainable economic development.
To achieve state-targeted objectives.

Efforts Made to Enhance Proper Utilization of Public Funds

The Constitution clearly states that all types of public revenues must be deposited into the consolidated fund.
Constitutional provision that no taxes can be imposed except in accordance with the law.
Annual revenue and expenditure details (budget) must be presented to the parliament, and no expenditures from public funds without approval from the representative body parliament.
Financial bills are kept as government bills that can only be presented by the government.
Institutional arrangements: Ministry of Finance and National Planning Commission for budget preparation, Office of the Comptroller General for central treasury accounts, and Treasury Comptroller Offices for public expenditures and internal audits.
Arrangements of various acts and regulations like Financial Procedures and Fiscal Accountability Act and Regulations, Procurement Act and Regulations for budget formulation, implementation, and monitoring.
Accounting system managed with prescribed forms, internal control arrangements, internal auditing provisions, and final auditing by the independent constitutional body Auditor General.
Constitutional provision that audits must be based on regularity, economy, efficiency, effectiveness, and appropriateness.
Arrangements of various headings and sub-headings for recording incomes and expenditures.
Provision to present ministry-wise progress reports of the previous FY when presenting the budget in parliament.
Special class officers (secretaries) designated as accountable officers in the Financial Procedures and Fiscal Accountability Act, 2076.
Provisions for submitting periodic progress reports: monthly, quarterly, annual, etc.
Provision to formulate periodic plans, set sectoral targets, and prepare budgets to achieve those targets.
Arrangement to formulate annual development programs by the National Planning Commission to ensure appropriated budgets are spent to achieve predetermined objectives. Prioritization of development programs.
Formulation and implementation of National Monitoring and Evaluation Guidelines.
Adoption of Medium-Term Expenditure Framework (MTEF) to make budget formulation realistic.
Provisions for citizen-centered programs like public audits, social audits, public hearings, third-party evaluations.

Facts Indicating Improper Utilization of Public Funds

According to the 62nd Annual Report of the Auditor General, the total irregularities reached NPR 91.59 billion in the fiscal year 2023/24, with NPR 30.12 billion classified as recoverable. 1 The government's unsettled accounts reached Rs 733.19 billion, and total unsettled accounts nearly 1.3 trillion. 0

Reasons for Ineffective Public Fund Management in Nepal

Expenditure bases not uniform across all bodies.
Ineffective accounting, internal control, and auditing.
Weak human resource management.
Work culture prioritizing procedures over results.
Narrow revenue bases.
Large portion of budget reliant on foreign aid.
Inability to prepare and implement expenditure standards in all areas.
Lack of coordination between periodic plans and budgets.
Budgets not allocated to areas targeted by plans, expenditures in non-prioritized areas.
Inability to control non-budgetary expenditures.
Ineffective role of civil society.
Excessive discretionary powers in public officials.
Lack of coordination among public bodies.
Inability to correctly identify needs.
Lack of practical implementation of bottom-up approach in budget formulation.
Inability to bring all transactions into formal mechanisms, large informal economy.
Illegal trade due to open border with India and inability to control it.
Projects not prioritized objectively or scientifically.
Ineffective regulatory bodies.
Some local levels not presenting budgets within constitutional/legal timelines.

Ethics and Morality

Good and proper behavior is ethics, and the characteristic of doing only what is permissible in a profession or business and not doing what is not is defined as morality.

Ethics and morality refer to a person's conduct and behavior.

These two terms do not mean different things but complement each other.

A moral person's character must also be ethical.

Personal ethics to be adopted individually, social ethics for maintaining social harmony and tolerance, and professional ethics and morality for developing professional and occupational culture are necessary.

Provisions like policies, rules, codes of conduct, institutional arrangements, or mechanisms to enhance accountability that help in complying with and promoting ethical principles are infrastructures for ethics and morality.

In the absence of these infrastructures, it is difficult to define and implement ethics and morality.

Various policy and institutional arrangements for budget formulation, implementation, monitoring, and evaluation; implementation only after budget approval by representatives; auditing by independent bodies and discussion of audit reports in parliament; codes of conduct for various classes and groups; independent constitutional bodies for investigating corruption and irregularities, prosecution, and filing cases; bodies under the executive, courts, etc., can be taken as arrangements to increase proper utilization of public funds.

Role of Ethics and Morality in Proper Utilization of Public Funds

Facilitates the arrangement and protection of public funds.
Helps focus public funds on government priority areas.
Makes government expenditures result-oriented.
Helps reduce corruption and irregularities.
Enhances public accountability.
Facilitates citizen-centered governance processes.
Helps maintain social tolerance.
Increases social harmony and reduces conflict.
Strengthens proportional and inclusive development processes.
Enhances effectiveness in the public sector.
Helps reduce the gap between haves and have-nots.
Makes civil service and other public services professional and effective in service delivery.

Arrangements Made to Promote Ethics and Morality

(A) Policy Arrangements

Nepal's Constitution 2072 defines the jurisdictions of executive, legislature, and judiciary.
Defines duties, responsibilities, and powers of constitutional bodies like Commission for Investigation of Abuse of Authority, Auditor General, National Human Rights Commission.
Good Governance Act, 2064 mentions conduct for public office holders and provisions for implementing code of conduct, public hearings.
Corruption Prevention Act, 2059 defines corruption-related matters and provisions for punishment. National Vigilance Center established under this Act.
Civil Service Act 2049 and Regulations 2050, and Civil Service Employees' Conduct Regulations, 2065 provide various conducts for civil servants and punishments for violations.
Audit Act, 2075 mentions matters Auditor General should consider during audits.
Financial Procedures and Fiscal Accountability Act, 2076 and Regulations 2077 provide various arrangements to manage financial transactions of public bodies.
Commission for Investigation of Abuse of Authority Act, 2048 and Regulations, 2059 clarify procedures for this body.
Public Procurement Act, 2063 and Regulations, 2064 provide procedural arrangements for various procurements by public bodies.
Right to Information Act, 2064 and Regulations, 2065 provide for publicizing information in public bodies, providing upon request, etc.
Good Governance Act, 2064 and Regulations, 2065 define jurisdictions of politics and administration, clarify duties, responsibilities, and powers of various officials.
Budget Formulation Guidelines determine bases and processes for annual budget formulation. Budget formulated annually in collaboration with Ministry of Finance, National Planning Commission, and sectoral ministries based on this.
Program budgeting system adopted. Bases for project prioritization formulated and implemented. Medium-term expenditure framework implemented.
Integrated Economic Codes and Classification and Explanation, 2074 provides for systematic accounting in federal, provincial, and local levels.

(B) Institutional Arrangements

Parliament and various parliamentary committees.
Supreme Court, Special Court, and subordinate courts and judicial bodies.
Commission for Investigation of Abuse of Authority.
Auditor General.
Ministry of Finance, Office of the Comptroller General, and Treasury Comptroller Offices.
National Human Rights Commission.
National Planning Commission.
Sectoral ministries and subordinate bodies.
National Vigilance Center.
Public Procurement Monitoring Office (PPMO).

Measures to Enhance Proper Utilization of Public Funds, Ethics, and Morality

Emphasize institutional development of Treasury Comptroller Offices, Office of the Comptroller General, and Auditor General's Office.
Arrange to deposit all receipts in public funds into a single fund.
Make single treasury account system effective.
Make internal control system effective.
Arrange all foreign aid receipts and expenditures only through the budget.
Effectively implement Nepal Public Sector Accounting Standards (NPSAS).
Clarify and implement bases for public expenditures.
Systematize career development of internal auditors.
Place internal and final audit reports in electronic systems.
Make system to reward officials who do good work and achieve zero irregularities effective.
Enhance capacity of Public Accounts Committee and its members to make role effective.
Make medium-term expenditure framework effective to link budget and planning processes.
Make trainings effective for human resource capacity development.
Make roles of regulatory bodies like CIAA, Auditor General effective for controlling irregularities and corruption.
Prepare and implement standards for administrative expenditures of public bodies.
Expand training and socialization programs for promoting ethics and morality.
Make compliance level of professional conducts of public officials a basis for performance evaluation.
Make programs like public hearings, social audits effective.
Conduct citizen empowerment programs for developing aware and active civil society.
Develop ethical administration through actions like being ready to sacrifice, rewarding ethical conduct, arranging ethics evaluation officers in public bodies, building ethical thinking in daily activities.

Some Important Questions

What arrangements have been made in Nepal for proper utilization of public funds? Mention and discuss the role of morality in proper utilization of public funds.
Discuss ethics and morality, and mention with examples the role they play in proper utilization of public funds in Nepal's public administration.
Mention legal and institutional bases made to promote ethics and morality, and discuss what should be done to make utilization of public funds effective in federalism.
Despite various efforts in Nepal, misuse of public funds has not stopped, and incidents of corruption and irregularities continue daily. Considering these issues, present an action plan to increase ethics and morality among employees.

3.4 Utilization of Public Funds, Ethics and Morality