4.4 Auditing of Federal, Provincial, Local Governments, and Public Enterprises

0
Auditing of Federal, Provincial, Local Governments, and Public Enterprises in Nepal

Auditing of Federal, Provincial, Local Governments, and Public Enterprises in Nepal

Auditing of Federal, Provincial, and Local Governments

Constitutional Provisions

Under Article 241 of the Constitution of Nepal, the Auditor General is responsible for auditing all government entities at federal, provincial, and local levels, ensuring regularity, economy, efficiency, effectiveness, and propriety. Key provisions include:

  • Auditing of all government entities and offices by the Auditor General.
  • Appointment of auditors for organized entities with over 50% government ownership (federal or provincial) in consultation with the Auditor General, who provides guiding principles.
  • Authority to audit other entities as specified by federal law.
  • Access to financial documents and information at any time, with office heads obligated to provide requested materials.
  • Maintenance of accounts in formats prescribed by the Auditor General.
  • Financial procedures for federal, provincial, and local governments outlined in Parts 10, 16, and 19 of the Constitution.

Example: The Auditor General audits a provincial health ministry’s budget to ensure funds for medical supplies were used efficiently, checking compliance with procurement laws.

Legal Provisions

1. Audit Act, 2075 BS (2018)

Sections 3 and 20 outline:

  • Auditing of government offices, fully owned government entities, and other entities specified by federal law by the Auditor General.
  • Mandatory auditing of every rural municipality and municipality.
  • Issuance of separate audit reports for each rural/municipality, discussed in their respective assemblies.
  • Auditing beyond financial aspects, including IT, performance, gender, forensic, and environmental audits.
  • Submission of a consolidated audit report to the President, presented to Parliament via the Prime Minister.
  • Separate annual reports for each province submitted to the Provincial Chief and presented to the Provincial Assembly via the Chief Minister.
  • Mandatory action by entities on audit findings, with the Auditor General authorized to issue directives.

2. Local Government Operation Act, 2074 BS (2017)

Section 77 mandates:

  • Final audits of local government income and expenditure by the Auditor General.
  • Mandatory internal audits, with issues resolved before final audits.
  • Submission of internal audit reports to the Auditor General or designated auditors.

3. Financial Procedures and Fiscal Accountability Act, 2076 BS (2019) and Regulations, 2077 BS (2020)

Sections 33, 34, and Rules 81–93 outline:

  • Internal audits by government offices based on regularity, economy, efficiency, and effectiveness, conducted by the Financial Comptroller General Office (FCGO) or designated treasury offices.
  • Office heads responsible for internal audits.
  • Internal auditors’ duties: verifying numerical accuracy, legal compliance, adherence to accounting guidelines, resource utilization, risk analysis, and internal control effectiveness.
  • Quarterly internal audit reports submitted to office heads and supervising authorities.
  • Internal auditors must uphold integrity, objectivity, confidentiality, and competence.
  • Resolution of internal audit issues before final audits, with unresolved issues included in final reports.
  • FCGO submits a consolidated internal audit report to the Finance Minister by Kartik (October–November).
  • Provincial and local governments conduct internal audits, form audit committees to review reports, and submit progress to relevant authorities.

4. Internal Audit Procedure, 2079 BS (2022)

Section 23 allows:

  • Provincial/local governments, boards, or committees to request audits through the FCGO.
  • FCGO designates treasury offices to conduct audits and submit reports to relevant authorities.

5. Other Guidelines

  • Government Accounting Guidelines, 2073 BS (2016).
  • Internal Audit Procedure Guidelines, 2079 BS (2022).
  • Provincial Financial Procedures Acts and Regulations.
  • Audit Guidelines, Standards, and Local Government Audit Directives.

Institutional Arrangements

  • Public Accounts Committee (PAC): Oversees audit findings and issues directives.
  • Auditor General: Conducts final audits for federal, provincial, and local governments.
  • Beruju Settlement and Monitoring Committees: Address irregularities.
  • FCGO, Provincial/District Treasury Offices: Conduct internal audits.

Operational Practices

  • Annual final audits by the Auditor General for all government levels.
  • Quarterly internal audits as per legal requirements.
  • Challenges in consistent internal and final audits, especially at local levels.

Challenges in Auditing Federal, Provincial, and Local Governments

Internal Audit Challenges

  • Lack of regularity and effectiveness.
  • Weak integrity and ethics among auditors.
  • Delayed or incomplete internal audits.
  • Insufficient staffing in treasury offices.
  • Unfilled internal audit positions in local governments.
  • Inadequate focus on enhancing audit effectiveness.
  • Inconsistent and subjective audit reports.
  • Lack of seriousness in addressing audit findings.
  • Conflict of interest when accounting and auditing staff are the same.
  • Focus on compliance rather than performance audits.
  • Lack of timely action on audit findings.

Recommendations for Internal Audit Improvement

Recommendations:

  • Foster good governance and ethical behavior among auditors.
  • Ensure regular internal audits at local levels.
  • Increase staffing in treasury offices proportionate to responsibilities.
  • Implement continuous improvement with clear plans and commitment.
  • Ensure consistency and objectivity in audit reports through legal and governance measures.
  • Strengthen reward and punishment systems.
  • Enforce strict penalties for non-compliance with audit recommendations.
  • Promote specialization and autonomy for internal auditors.
  • Enhance coordination with final audits for greater impact.

Final Audit Challenges

  • Limited adoption of performance-based auditing.
  • Ineffectiveness as a tool for corruption control.
  • Weak integrity and ethics among auditors.
  • Inconsistent and subjective audit reports.
  • Insufficient staffing for comprehensive audits.
  • Ineffective use of sampling, monitoring, and control mechanisms.
  • Lack of transparency and stakeholder participation.
  • Weak governance in auditing processes.
  • Incomplete adherence to laws, standards, and guidelines.
  • Ineffective beruju settlement impacting audit credibility.
  • Overemphasis on financial audits.

Recommendations for Final Audit Improvement

Recommendations:

  • Prioritize performance-based auditing.
  • Strengthen audits as a tool for corruption control through robust reward and punishment systems.
  • Enhance auditors’ integrity and ethics.
  • Ensure consistency and objectivity in reports through disciplinary measures.
  • Provide adequate staffing for comprehensive audits.
  • Effectively use sampling, monitoring, and control mechanisms.
  • Promote transparency and stakeholder participation.
  • Enhance governance and anti-corruption measures in auditing.
  • Ensure full and honest adherence to laws, standards, and guidelines.
  • Improve beruju settlement effectiveness.

Financial Management Issues (Auditor General’s Report)

Federal Government

  • Exclusion of foreign aid from budgets and audits.
  • Year-end expenditure spikes.
  • Unauthorized multi-year contracts creating liabilities.
  • Lack of transparency in NGO-managed foreign aid.
  • Underutilized capital expenditure.
  • Staff shortages affecting service delivery.
  • Delays in public procurement processes.
  • Failure to complete contracts on time or recover penalties.
  • Incomplete adoption of e-procurement systems.
  • Unrealistic cost estimates and designs.
  • Poor quality in construction and procurement.
  • Inadequate project preparation and prioritization.
  • Lack of coordination and progress in projects.
  • Unplanned operation of national pride projects.
  • Low utilization of foreign aid.
  • Time and cost overruns in projects.

Provincial and Local Governments

  • Inconsistent official benefits across levels.
  • Dependence on grants, impacting sustainability.
  • Unproductive and distributive programs.
  • Shortages in staffing, capacity, and legal frameworks.
  • Lack of clear revenue collection standards.
  • High administrative costs relative to local revenue.
  • Poor coordination in planning and implementation.
  • Failure to submit income-expenditure reports to the federal government.
  • Ineffective internal audits.
  • Incomplete coverage of consolidated fund accounts.
  • Non-implementation of Nepal Financial Reporting Standards.
  • Weak record management.
  • Limited adoption of computerized accounting systems.

Auditing of Public Enterprises

Constitutional Provisions

Under Article 241:

  • Auditor appointments for enterprises with over 50% government ownership (federal or provincial) require consultation with the Auditor General, who provides guiding principles.
  • The Auditor General, as an independent constitutional body, oversees audits, consultations, and principles.

Legal Provisions

Fully Owned Government Enterprises

  • Audited by the Auditor General (Audit Act, 2075 BS, Section 3).
  • The Auditor General may appoint licensed auditors as assistants, working under their direction (Section 10).
  • Assistant auditors’ duties, rights, and procedures are governed by the Audit Act or Auditor General’s directives.

Partially Owned Government Enterprises (Less than 100%)

  • Enterprises appoint auditors following Auditor General’s principles and consultation (Section 11).
  • Audit reports are submitted to the Auditor General’s office.
  • The Auditor General may issue directives to address report deficiencies, which enterprises and auditors must follow.
  • Enterprises submit progress reports on audit findings within the specified period.
  • Internal audits are conducted by enterprises’ internal control units or auditors.

Example: A public enterprise like Nepal Electricity Authority, with majority government ownership, appoints an auditor in consultation with the Auditor General to ensure compliance with financial standards.

Challenges in Auditing Public Enterprises

  • Irregular or delayed audits.
  • Non-compliance with prescribed financial statement formats.
  • Failure to conduct timely audits or respond to audit findings.
  • Inadequate action on audit recommendations.
  • Weak adherence to consultation requirements with the Auditor General.
  • Lack of coordination with the Auditor General on audit principles.
  • Ineffective internal control systems and internal audits.
  • Limited use of performance-based auditing.

Recommendations for Public Enterprise Audit Improvement

Recommendations:

  • Ensure regular and timely audits.
  • Enforce strict legal action against officials failing to conduct timely audits.
  • Prepare financial statements as per prescribed formats.
  • Foster a culture of prompt action on audit findings using reward and punishment systems.
  • Strengthen institutional and legal compliance.
  • Enforce mandatory consultation with the Auditor General.
  • Enhance effectiveness of internal controls and audits.
  • Promote performance-based auditing.

Audit Framework Overview

The following table summarizes the audit framework for government and public enterprises:

Entity Type Audit Authority Key Responsibilities
Federal, Provincial, Local Governments Auditor General (Final), FCGO/Treasury (Internal) Final audits for compliance, efficiency; internal audits quarterly
Fully Owned Public Enterprises Auditor General or appointed assistants Conduct audits under Auditor General’s direction
Partially Owned Public Enterprises Appointed auditors with Auditor General’s consultation Follow Auditor General’s principles, submit reports

Conclusion

Nepal’s audit framework for federal, provincial, local governments, and public enterprises is robust, supported by constitutional and legal provisions. Addressing challenges like staffing shortages, ineffective internal audits, and weak beruju settlement can enhance transparency, accountability, and governance, aligning with global standards.

References

  • Constitution of Nepal, 2072 BS (2015)
  • Audit Act, 2075 BS (2018)
  • Local Government Operation Act, 2074 BS (2017)
  • Financial Procedures and Fiscal Accountability Act, 2076 BS (2019)
  • Financial Procedures and Fiscal Accountability Regulations, 2077 BS (2020)
  • Government Accounting Guidelines, 2073 BS (2016)
  • Internal Audit Procedure, 2079 BS (2022)
Tags:

Post a Comment

Dear Readers, thanks for choosing to Post a Comment. Please keep in mind that all comments are moderated according to our Comment Policy, and your email address will NOT be published. Let's have a meaningful conversation relevant to the post topic.

Previous Post Next Post