4.5 The Auditor General and Auditing-Related Legal Provisions

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The Auditor General and Auditing-Related Legal Provisions in Nepal

Overview of the Auditor General

The Auditor General of Nepal is an independent constitutional body responsible for auditing all government entities and public enterprises, established to promote financial discipline, accountability, and good governance. First instituted in 2016 BS (1959), it serves as Nepal’s supreme audit institution. Its establishment, roles, and responsibilities are enshrined in Part 22, Articles 240 and 241 of the Constitution of Nepal, with further clarity provided by the Audit Act, 2075 BS (2018) and other laws.

The Constitution outlines the Auditor General’s qualifications, appointment process, tenure, and conditions for removal, ensuring independence and impartiality.

Example: The Auditor General audits the financial transactions of a federal ministry to ensure compliance with budgetary allocations, identifying any irregularities like unauthorized expenditures.

Constitutional Provisions (Article 240)

• Appointment: Appointed by the President on the recommendation of the Constitutional Council for a six-year term.
• Removal: Can only be removed through impeachment by a two-thirds majority in the federal Parliament, voluntary resignation, reaching 65 years of age, physical/mental incapacity certified by the Constitutional Council, or death.
• Qualifications: Bachelor’s degree in management, commerce, or accounting, or Chartered Accountancy certification; at least 20 years of auditing experience or service in a special-class government position; not a member of any political party; at least 45 years old; and high moral character.
• Other Provisions: Cannot be reappointed; remuneration and service conditions cannot be altered to their disadvantage during tenure (except during a state of emergency due to economic distress); ineligible for other government posts post-tenure, except for political, investigative, or advisory roles.

Vision, Mission, and Core Values

Vision: To be a credible institution promoting accountability, transparency, and integrity for public welfare.

Mission: Provide independent, high-quality audit services to assure stakeholders of efficient public fund utilization.

Core Values (IIPTA):

• Integrity
• Independence
• Professionalism
• Transparency
• Accountability

Objectives and Policies

• Enhance public accountability and transparency.
• Ensure economy and efficiency in public resource utilization.
• Improve effectiveness of public entities.
• Ensure integrity in administrative, financial, and managerial systems.
• Promote legal compliance.
• Discourage discretionary actions.
• Identify and suggest practical improvements to laws, procedures, and systems.
• Encourage rewarding good performance and penalizing misconduct.

Roles and Responsibilities of the Auditor General (Article 241)

The Auditor General audits all federal and provincial government offices, including:

• Offices of the President, Vice-President, Supreme Court, federal and provincial parliaments, constitutional bodies, courts, Attorney General, Nepal Army, Nepal Police, and Armed Police Force.
• All local governments, including District Coordination Committees.
• Fully government-owned public enterprises.
• Entities specified by federal law (e.g., universities, authorities, funds, development committees).
• Entities under treaties involving Nepal.

Additional responsibilities include:

• Providing consultation for auditor appointments in entities with majority government ownership.
• Issuing guidelines for auditing such entities.
• Directing government entities to maintain financial discipline.
• Prescribing standardized accounting formats.
• Guiding the Institute of Chartered Accountants of Nepal on accounting profession development.
• Submitting annual reports to the President and provincial reports to Provincial Chiefs.
• Conducting audits based on regularity, economy, efficiency, effectiveness, and propriety.

Example: The Auditor General directs a local government to standardize its accounting format to ensure consistency in financial reporting across municipalities.

Legal Framework for Auditing

• Constitution of Nepal (Articles 240, 241): Establishes the Auditor General’s formation, duties, and powers.
• Audit Act, 2075 BS (2018): Provides detailed auditing provisions.
• Financial Procedures and Fiscal Accountability Act, 2076 BS (2019) and Regulations, 2077 BS (2020): Mandates standardized accounting and final audits by the Auditor General post-internal audits.
• Local Government Operation Act, 2074 BS (2017): Requires internal audits before final audits by the Auditor General.
• Provincial Financial Procedures Acts and Regulations: Govern provincial auditing.
• Nepal Chartered Accountants Act, 2053 BS (1997): Regulates accounting standards.
• Nepal Public Sector Accounting Standards (NPSAS): Sets accounting and auditing norms.
• Government Accounting Guidelines, 2073 BS (2016): Details accounting procedures.
• Internal Audit Procedure, 2079 BS (2022): Guides internal auditing processes.

Institutional Arrangements

Internal Auditing

• Financial Comptroller General Office (FCGO)
• Provincial Treasury Offices
• District Treasury Offices
• Internal Audit Units of Local Governments and Public Enterprises

Final Auditing

• Auditor General and Office of the Auditor General
• Independent Auditors (appointed with Auditor General’s consultation for majority-owned enterprises)

Entities Audited by the Auditor General

• All government offices (federal, provincial, local).
• Fully government-owned public enterprises.
• Entities specified by federal law (Audit Act, Section 3).

Audit Scope and Criteria

The Auditor General audits based on regularity, economy, efficiency, effectiveness, and propriety, examining (Audit Act, Section 8):

• Expenditure within approved budgets and purposes.
• Compliance with prescribed accounting formats and timely reporting.
• Accuracy of consolidated financial statements.
• Reliability of government fund accounts.
• Timely budget disbursements.
• Accuracy of financial statements.
• Adequacy of supporting evidence for transactions.
• Physical progress corresponding to reported expenditures.
• Approval by authorized officials.
• Proper recording and maintenance of government assets.
• Protection and maintenance of assets to prevent loss.
• Accurate accounting of revenues and dues.
• Effectiveness of internal control systems.
• Satisfactory internal audits and implementation of their recommendations.
• Compliance with revenue collection and deposit laws.
• Timely and quality project progress.
• Clear objectives, policies, and implementation alignment.
• Cost-benefit analysis and achievement of outcomes.
• Effective monitoring and report implementation.
• Efficient use of allocated revenues, grants, and royalties.
• Updated beruju records and settlement efforts.

Propriety Audits (Section 9): Examining unreasonable expenditures, asset transfers, contracts, service delivery, and financial accountability lapses.

Access to Documents and Systems

The Auditor General has authority to (Audit Act, Section 12):

• Request financial documents and information from responsible officials.
• Examine documents of programs/projects funded by government grants.
• Demand additional evidence from contractors, suppliers, or entities handling government contracts.
• Access documents of partially owned government entities and NGOs.
• Access IT systems used for transactions, accounting, record management, or information flow.

Audit Reports

The Auditor General submits annual reports to the President, presented to Parliament via the Prime Minister (Audit Act, Section 19), covering:

• Annual audit activities.
• Summary of key findings.
• Implementation status and future improvements.
• Other relevant matters.

Additional provisions:

• Issuance of audit reports with opinions for audited entities.
• Reports on financial, performance, IT, forensic, gender, environmental, and topical audits.
• Separate provincial reports submitted to Provincial Chiefs and presented to Provincial Assemblies.
• Special reports on significant asset losses or urgent issues to the President or Provincial Chiefs.
• Mandatory public disclosure of reports.

Audit Methodology

The Auditor General may (Audit Act, Section 4):

• Select entities or units for auditing.
• Conduct comprehensive, random, or sample-based audits.
• Define audit scope, methodology, and duration.
• Issue reports with facts, analysis, critiques, and opinions.

Additional audits (Section 5) include IT, performance, gender, forensic, and environmental audits, with methods specified by the Auditor General.

Internal Auditing Provisions

Under the Financial Procedures and Fiscal Accountability Act, Section 33:

• Internal audits by FCGO or designated treasury offices based on regularity, economy, efficiency, and effectiveness.
• Office heads responsible for internal audits.
• Quarterly reports submitted within one month, with findings and recommendations.
• Auditors uphold integrity, objectivity, confidentiality, and competence.
• Confidentiality of audit information, except for reporting purposes.
• Protection from legal action unless misconduct is proven.
• Resolution of internal audit findings before final audits.
• Inclusion of unresolved internal audit recommendations in final reports.
• FCGO ensures independent and effective internal audits, avoiding conflicts of interest.
• FCGO submits a consolidated internal audit report to the Finance Minister by Kartik (October–November).

Internal Auditors’ Duties

• Verify numerical accuracy, legal compliance, and adherence to guidelines.
• Assess resource utilization, risk analysis, and internal controls.
• Promote financial accountability and transparency.
• Inspect transactions, documents, records, and decisions.

Provincial and Local Internal Audits

• Mandatory internal audits based on regularity, economy, efficiency, and effectiveness.
• Resolution of audit findings by provincial and local governments.
• Formation of audit committees to review and act on reports.
• Submission of reports and actions to relevant ministers or local chiefs.

Strengths of the Auditor General Framework

• Clear constitutional provisions for qualifications, removal, and responsibilities.
• Removal only through parliamentary impeachment, ensuring independence.
• Financial autonomy through the Consolidated Fund.
• Unrestricted access to financial documents.
• Robust legal framework for auditing standards and procedures.
• Inclusion of all government entities and enterprises in audit scope.
• Mandatory parliamentary presentation and public disclosure of reports.
• Standardized accounting formats enforced by law.

Weaknesses of the Auditor General Framework

• Lack of specialized staff selection for internal audits.
• Insufficient staffing relative to responsibilities.
• Low motivation, morale, and commitment among staff.
• Ineffective use of performance-based auditing.
• Weak monitoring, evaluation, and control of audit activities.
• Limited autonomy and predictability in appointments and budgeting.
• Insufficient citizen and stakeholder participation.
• Lack of transparency in operations.
• Absence of an oversight body for the Auditor General’s activities.
• Lack of grievance redressal mechanisms.
• Deficiencies in auditors’ professionalism, ethics, and integrity.
• Inconsistent beruju classification by auditors.
• Limited citizen trust and collaboration in auditing.

Recommendations for Improvement

Recommendations:

• Enhance specialization in staff selection for auditing roles.
• Increase staffing to match responsibilities.
• Strengthen motivation, morale, and commitment through incentives, ethics, and integrity programs.
• Prioritize performance-based auditing.
• Improve monitoring, evaluation, and control mechanisms.
• Maximize citizen and stakeholder participation in audit processes.
• Develop auditing as a robust anti-corruption tool to build citizen trust.

Audit Framework Summary

Aspect	Details
Constitutional Role	Independent body auditing all government entities and public enterprises
Audit Scope	Regularity, economy, efficiency, effectiveness, propriety
Key Responsibilities	Audit government offices, enterprises, and specified entities; issue guidelines; submit reports
Legal Framework	Constitution, Audit Act, Financial Procedures Act, and others

Conclusion

Nepal’s Auditor General framework is a cornerstone of financial accountability and governance, supported by robust constitutional and legal provisions. Addressing weaknesses like staffing shortages, ineffective performance audits, and limited citizen engagement can further strengthen its role in promoting transparency and combating corruption.

References

• Constitution of Nepal, 2072 BS (2015)
• Audit Act, 2075 BS (2018)
• Financial Procedures and Fiscal Accountability Act, 2076 BS (2019)
• Financial Procedures and Fiscal Accountability Regulations, 2077 BS (2020)
• Local Government Operation Act, 2074 BS (2017)
• Nepal Chartered Accountants Act, 2053 BS (1997)
• Government Accounting Guidelines, 2073 BS (2016)
• Internal Audit Procedure, 2079 BS (2022)