'The 11th hour spending spree encouraging financial crime'

Government expenditure that remains sluggish till the 11th month of the fiscal year, gains momentum in the final month of the fiscal years, according to the historical trend of budget expenditure.
The last month of the fiscal year – from mid-June to mid-July – generally sees spending of more than a quarter of the total annual budget, figures compiled by the Financial Comptroller General’s Office shows. The trend has not only encouraged financial indiscipline but also exposed lack of accountability and gross violation of basic fundamentals of public financial management, let alone the quality of last minute expenditure.
"Last minute spending is a financial crime,” says former senior adviser to Finance Ministry Keshav Acharya.
In Fiscal Year 2010-11, the Finance Ministry had issued a directive to line ministries advising them not to spend more than 40 per cent of the total budget in the last three months from mid-April to mid-July, Acharya reminded, adding that the ministry had also asked all the government agencies not to spend more than 20 per cent in the 12th month of the fiscal year. “However, the government has failed to implement this rule.”
According to former Auditor General Bhanu Prasad Acharya, last minute spending is not only financial indiscipline but also misuse of public purse. "We cannot be assured on quality of last minute spending as it is intended to ‘just spend’ the budget,” he added.
Successive governments have been spending almost a quarter of the total budget in the last month of the fiscal year, according to the Financial Comptroller General’s Office (FCGO) data.
In 2014-15, the government had spent a total of Rs 142.5 billion in the 12th month of the fiscal year, whereas the total annual budget for the last fiscal year was Rs 618 billion. A fiscal year earlier, the government had spent Rs 117.16 billion in the last month out of the total annual budget of Rs 517.24 billion.
Likewise, the government has managed to spend only half of the total budget by the end of the 11 months of the current fiscal year.
"As of June 25, the government has been able to spend only 53.94 per cent (Rs 442.01 billion) of the total budget of Rs 819.46 billion for the current fiscal year,” the FCGO data revealed, adding that the government has been able to spent 62.25 per cent (Rs 301.42 billion) in recurrent expenditure, and 31.24 per cent (Rs 65.25 billion) in capital expenditures.
The government had allocated Rs 484.26 billion for recurrent expenditure, whereas Rs 208.9 billion was allocated for capital expenditure for the current fiscal year 2015-16.
Though the low level of capital expenditure is attributed to budgeting system as it incorporates half-baked projects and projects of political interest often not implementable, the government has been not able to spend the recurrent expenditure too.
However, finance ministry officials say that the trend of last-minute spending will continue this fiscal year as well and the remaining 20 days will see surge in overall budget spending.
Former finance secretary Rameshwor Khanal attributes last minute expenditures to some valid technical reasons but more to the systemic and governance problem.
Generally, a contractor will prepare bill after 28 days of the completion of the work, he said, adding that the engineers will then verify and evaluate the work, and the contractor will make claim for payment in another 28 days. "They should ideally get payment within 2 months of the completion of the work."
However, the paying authority will start bargaining before making payment and keeps the payment pending till they get their cut, Khanal added. “At the end of the fiscal year, either one has to give the cut to get paid or the budget will be frozen.”
The current government record system also cannot show when the work has been completed, he said.
“Thus, the bill paid at the last minute could be the payment of the work completed in January or June,” he said, adding that the paying authority takes the advantage of the lack of tracking system and bargains for the cut.
Most of the 'Payment Ministries' like the Ministry of Physical Infrastructure and Transportation and Ministry of Energy has the culture of making payment in the last hour, pushing last month’s spending figures up.
Development partners also send the record of the projects completed through their direct payment at the last month of the fiscal year. Likewise, the government schedules the debt payment in the last month of the fiscal year also pushing the spending up in the last month.
However, Khanal attributed the last hour surge in budget spending to the lack of governance, financial indiscipline, eroding capacity of bureaucracy and lack of political willpower.

'The 11th hour spending spree encouraging financial crime'

Government expenditure that remains sluggish till the 11th month of the fiscal year, gains momentum in the final month of the fiscal years, according to the historical trend of budget expenditure.
The last month of the fiscal year – from mid-June to mid-July – generally sees spending of more than a quarter of the total annual budget, figures compiled by the Financial Comptroller General’s Office shows. The trend has not only encouraged financial indiscipline but also exposed lack of accountability and gross violation of basic fundamentals of public financial management, let alone the quality of last minute expenditure.
"Last minute spending is a financial crime,” says former senior adviser to Finance Ministry Keshav Acharya.
In Fiscal Year 2010-11, the Finance Ministry had issued a directive to line ministries advising them not to spend more than 40 per cent of the total budget in the last three months from mid-April to mid-July, Acharya reminded, adding that the ministry had also asked all the government agencies not to spend more than 20 per cent in the 12th month of the fiscal year. “However, the government has failed to implement this rule.”
According to former Auditor General Bhanu Prasad Acharya, last minute spending is not only financial indiscipline but also misuse of public purse. "We cannot be assured on quality of last minute spending as it is intended to ‘just spend’ the budget,” he added.
Successive governments have been spending almost a quarter of the total budget in the last month of the fiscal year, according to the Financial Comptroller General’s Office (FCGO) data.
In 2014-15, the government had spent a total of Rs 142.5 billion in the 12th month of the fiscal year, whereas the total annual budget for the last fiscal year was Rs 618 billion. A fiscal year earlier, the government had spent Rs 117.16 billion in the last month out of the total annual budget of Rs 517.24 billion.
Likewise, the government has managed to spend only half of the total budget by the end of the 11 months of the current fiscal year.
"As of June 25, the government has been able to spend only 53.94 per cent (Rs 442.01 billion) of the total budget of Rs 819.46 billion for the current fiscal year,” the FCGO data revealed, adding that the government has been able to spent 62.25 per cent (Rs 301.42 billion) in recurrent expenditure, and 31.24 per cent (Rs 65.25 billion) in capital expenditures.
The government had allocated Rs 484.26 billion for recurrent expenditure, whereas Rs 208.9 billion was allocated for capital expenditure for the current fiscal year 2015-16.
Though the low level of capital expenditure is attributed to budgeting system as it incorporates half-baked projects and projects of political interest often not implementable, the government has been not able to spend the recurrent expenditure too.
However, finance ministry officials say that the trend of last-minute spending will continue this fiscal year as well and the remaining 20 days will see surge in overall budget spending.
Former finance secretary Rameshwor Khanal attributes last minute expenditures to some valid technical reasons but more to the systemic and governance problem.
Generally, a contractor will prepare bill after 28 days of the completion of the work, he said, adding that the engineers will then verify and evaluate the work, and the contractor will make claim for payment in another 28 days. "They should ideally get payment within 2 months of the completion of the work."
However, the paying authority will start bargaining before making payment and keeps the payment pending till they get their cut, Khanal added. “At the end of the fiscal year, either one has to give the cut to get paid or the budget will be frozen.”
The current government record system also cannot show when the work has been completed, he said.
“Thus, the bill paid at the last minute could be the payment of the work completed in January or June,” he said, adding that the paying authority takes the advantage of the lack of tracking system and bargains for the cut.
Most of the 'Payment Ministries' like the Ministry of Physical Infrastructure and Transportation and Ministry of Energy has the culture of making payment in the last hour, pushing last month’s spending figures up.
Development partners also send the record of the projects completed through their direct payment at the last month of the fiscal year. Likewise, the government schedules the debt payment in the last month of the fiscal year also pushing the spending up in the last month.
However, Khanal attributed the last hour surge in budget spending to the lack of governance, financial indiscipline, eroding capacity of bureaucracy and lack of political willpower.

Government bodies able to settle only one third of questionable expenses

The government agencies have settled only one third of the questionable expenses of the fiscal year 2011-12, according to the Office of Auditor General.

Of the total Rs 35.80 billion questionable expenses of the fiscal year 2011-12, only around Rs 12 billion has been settled, informed deputy auditor general Mohadatta Timilsina.

As a sign of rising financial indiscipline of the government various committees including District Development Committees (DDCs), and public enterprises stood the country's cumulative questionable expenses — since fiscal year 2003-04 to 2011-12 — has increased to Rs 204.26 billion.

The questionable expenses have increased by 12.94 per cent in the fiscal year 2011-12 compared to a fiscal year ago but it is only an indicative figure as the actual questionable expenses could be much higher, if the performance audit is done.

Only recoverable accounts, need to regularise accounts and unsettled advances accounts come under the questionable expenses.

“Of around 38,000 cases, only 2,000 have been settled,” he added.

In the absence of parliament post-May 28 Constituent Assembly (CA) demise, there is no parliamentary committee that would have forced the irresponsible government agencies settle the questionable expenses, he said, adding that the follow up of the Office of Auditor General report is a must to promote not only accountability and transparency but also to inform people where and how has their hard earned money spent.

After the Office of Auditor General publishes the report every year, the respective agencies have to clarify about the questionable expenses within the 35 days, Timilsina added.

“Office of Auditor General even accepts their clarification after eight months, by the time of report preparation,” he said, adding that they, however, do not take interest on settlement as the culture of financial impunity and indiscipline has been on rise.

The secretaries of the respective ministries are responsible for the settlement of their line agencies unsettled expenses, however, they also seem not interested, according to the law that has also recognised them as chief financial monitors. “The Office of Auditor General notify the secretaries to settle the irregularities,” deputy auditor general said, adding, “if they also do not follow, the state ministers and ministers are requested to settle the questionable expenses.”

According to the Office of Auditor General’s 50^th report, some five ministries have contributed 61.91 per cent to the total questionable expenses of last fiscal year.
"Ministry of Physical Infrastructure and Transport's questionable expenses stood at Rs 5.36 billion, seconded by Ministry of Federal Affairs and Local Development (Rs 3.54 billion), and Ministry of Education (Rs 3.27 billion), Ministry of Finance (Rs 3.17 billion) and Ministry of Urban Development (Rs 1.98 billion) making a total of Rs 17.32 billion that is some 61.91 per cent of the total questionable expenses among the government agencies.

Due to lack of parliament since last May 28, the Auditor General's report of the fiscal year 2010-11 also has not been tabled in the parliament, let alone the last fiscal year 2011-12's report.

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IRD fails to audit 75pc of 'suspicious' tax fraud cases

The Inland Revenue Department (IRD) has failed to complete a full audit of one-third of 'suspected' tax frauds.

"IRD has started full audit of 11,334 tax payers — carried over from to last fiscal year from a year ago — but it has been able to complete full audit of only 2,942, which is only 25.96 per cent," according to the report of the Auditor General.

"The full audit of the 2,942 tax payers has helped the government mobilise an additional Rs 8.68 billion," the report said, suggesting the IRD to expand the sampling size and accelerate the full audit process of pending files to check revenue leakage.

Generally, a tax payer files tax on self assessment and the IRD, honouring the tax payers’ integrity, accepts it. However, IRD annually cross checks 1.4 per cent of the files — of tax payers — through random sampling on the basis of risk and does desk review. "If there is any suspicion during the desk review, IRD starts a full audit of them," according to an official at IRD.

However, the department has failed to do a full audit of 8,392 tax payers — till last fiscal year — as it is more involved in administrative work rather than concentrating on audit.

"IRD, instead of being involved in administrative work, should focus on tax compliance and audit, which could contribute more to the government coffer," he said, adding that the unproductive administrative staff has to be minimised and channelised to productive work including expansion of the sampling size.

"If the sampling size of the current 1.4 per cent is increased to five per cent, revenue mobilisation will also go up by three times that will help the government mobilise resources for development activities."

The Auditor General's report has also revealed IRD's incompetency. "The IRD has not only failed to complete full audit of samples within time, but also has no concrete basis of sampling," it said, adding that IRD has failed to comply with the Income Tax Act 2058 BS and VAT Act 2052. "Some of the acts of IRD are also against the Interim Constitution 2063 BS."

However, due to the absence of Public Accounts Committee (PAC) after the dissolution of the Parliament on May 27 last year, there is no check and balance mechanism.

During the Local Donor Meeting recently, development partners had suggested the formation of an extraordinary committee to play the role of the PAC — as an interim measure — consisting of qualified personnel to scrutinise accounts and take necessary action until a regular PAC is established.

"The audit observations keep piling up year after year with limited efforts towards institutional public financial management improvements," they had said.

How much loan do Nepalis carry on their heads?

How much is too much when it comes to per capita debt?
The state’s indebtedness in terms of per capita has increased by over 60 per cent in the last six year, thanks to the government’s inefficiency.
Nepal’s per capita debt – that is per head – touched Rs 19,748 in the last fiscal year 2011-12, according to the Auditor General’s report. The per capita debt in the fiscal year 2005-06 stood at Rs 12,000 only.
“The increasing per capita debt will not only erode fixed income people’s spending capacity but also country’s capacity to spend on human capital,” said senior economist Prof Dr Bishwhambher Pyakuryal. The government’s capacity to spend on social safety net like primary education and health will be hit hard due to rising burden of debt, he said, adding that debt servicing and borrowing capacity will also take a beating.
Had the government been efficient on its spending the resources, half of the debt would have been reduced as the total debt stood at Rs 523.20 billion and the cumulative questionable expenses have increased to Rs 204.26 billion till the last fiscal year since 2002-03,” the report said.
The country’s total loan till the last fiscal year 2011-12 stood Rs 523.20 billion — including foreign loan of Rs 309.28 billion and domestic loan of Rs 213.92 billion — according to the 50th report of the Auditor General.
The total loan stood at Rs 443.62 billion — including Rs 259.50 billion external loan and Rs 184.12 billion internal loan — till fiscal year 2010-11, which was Rs 403.9 billion, including Rs 256.24 billion external loan and Rs 147.66 billion domestic loan, in the previous fiscal year 2009-10.
The alarming debt has, however, not shown its impact on either capital formation or productive output that has raised doubts of misuse of resources, as around 23 per cent of the foreign assistance is out of the government’s sight, according to the Development Cooperation Report (DCR) 2013.
“A lack of information with the government has made it difficult for it to check how much of the loan has been used in capital formation,” the senior economist added.
“Apart from some 20 per cent of the technical assistance that has been spent on donors themselves on average, there is no harmonisation of the systems among the government agencies on exchange rate calculation,” he said, adding that some agencies calculate exchange rate on the basis of the date of borrowing, whereas others calculate on the date of payment.
Likewise, the internal resources are also grossly misused, the Auditor General’s report said, asking the government agencies to take serious action against the responsible employees.

The increasing burden
Fiscal Year — Outstanding Loan
2007-08 — Rs 366.57 billion
2008-09 — Rs 399.84 billion
2009-10 — Rs 403.90 billion
2010-11 — Rs 443.62 billion
2011-12 —Rs 523.20 billion
(Source: Office of the Auditor General)

Accountability Nepal to strengthen capacity of Office of Auditor General

'Accountability Nepal' has been officially launched, here today, aiming at  strengthening the Office of Auditor General.
Experts during the launch of 'Accountability Nepal' shared their ideas on strengthening financial audits, performance audits, and highlighted the efficient management of public resources.
"Effective implementation of the Auditor General's annual report is a must for government accountability," said acting auditor general Bimala Subedi, inaugurating the programme.
Every year, the Office of Auditor General publishes the audit report of government agencies, public entities and local government bodies. "The report is handed over to the head of the state, who then sends it to the Parliament," she said, adding that Public Accounts Committee (PAC), under the Parliament, further scrutinises it for its effective implementation.
"Though effective implementation rests on respective agencies themselves, questionable expenses have been increasing continuously," she added.
Apart from promoting accountability and transparency in public spending, Accountability Nepal aims to improve the quality of audit and its impact within the portals of government and in the broader public sphere, said team leader of Accountability Nepal Anupam Kulshrestha.
Sponsored by Multi Donor Trust Fund, administered by the World Bank, and implemented by Office of Auditor General, the project was started in November 2012, he said, adding that the project will run for 30 months till May 2015. "Cowater International Inc of Canada is serving as project consultant with associates PP Pradhan and Co of Nepal."
The project, a part of the government's Public Financial Management Reform Programme, will also enhance the quality of financial statement audits, upgrade the capacity to conduct performance audits, and enhance the impact of audits.
"It has a target to increase the percentage of financial audits meeting international standards to 70 per cent under the enhancement of quality of financial statement audits," Kulshrestha added. "Likewise, it will help increase the number of in-depth performance audits reported to Parliament annually to three from one on a selected theme, programme, department of the government under upgrading capacity to conduct performance audits."
Similarly, it will give technical support to PAC, enhance audit reporting process, enhance audit follow-up process and software — under enhancing impact of audits — which will help increase percentage of current year audit recommendations implemented to 50 per cent from less than 35 per cent at present, he added.