Internal audit helps to maintain financial discipline in the following ways:

1. Regular checking of accounts and records — Internal audit examines vouchers, ledgers, bank statements and other financial records on a regular basis, which discourages irregularities and keeps the accounts up to date.

2. Detection of errors and frauds — It detects errors, omissions and fraudulent activities at an early stage, so that corrective action can be taken before the loss becomes large.

3. Verification of assets and liabilities — Physical verification of cash, stock and other assets ensures that the assets shown in the books actually exist and are properly safeguarded.

4. Compliance with rules and procedures — It checks whether financial transactions are carried out according to the Financial Procedures Act, Rules, budget and other legal provisions, which prevents misuse of public funds.

5. Evaluation of internal control system — By reviewing the internal control system, it points out weaknesses and gives suggestions for improvement, which strengthens the overall financial management.

6. Support to external audit — A regular internal audit keeps the accounts ready and reliable, which helps the external audit (OAG) to complete its work smoothly and reduces audit irregularities.

7. Promotion of accountability and transparency — Since employees know that their work is being checked regularly, they become more careful, honest and responsible in handling public money.

Conclusion: Thus, internal audit acts as an internal watchdog of the organisation. By ensuring regular checking, early detection of irregularities and compliance with financial rules, it helps to maintain financial discipline in public organisations.

Budget Cycle (Budgetary Cycle)

The budget cycle refers to the complete sequence of stages through which a government budget passes, from preparation to final review. In Nepal, it consists of the following steps:

1. Budget Formulation (Preparation)

• The Ministry of Finance (MoF) issues a budget calendar/circular to all ministries and departments, fixing the format and deadline.
• Spending ministries prepare their estimates and forward them to the National Planning Commission (NPC) and the MoF.
• The NPC screens the programmes for consistency with the periodic plan and sets the ceiling.
• The MoF consolidates all proposals, holds pre-budget discussions with stakeholders, and prepares the budget speech.
• The Council of Ministers approves the draft budget before it is presented to Parliament.

2. Budget Presentation (Enactment/Legislative Stage)

• The Finance Minister presents the annual budget (income and expenditure estimates) in the joint sitting of both Houses of Parliament on 15 Jestha (1 June) every year.
• It is discussed in Parliament; the estimates are examined by the Finance Committee and subject committees.
• The budget is passed through the Finance Bill and the Appropriation Bill.
• The Finance Act legalises the collection of taxes; the Appropriation Act authorises expenditure from the Consolidated Fund.

3. Budget Execution (Implementation)

• After the budget is passed, funds are released to the spending agencies through the Financial Comptroller General Office (FCGO).
• Expenditure is made only for the sanctioned purpose, following the principle of legislative control.
• The Treasury Single Account system is used; releases are made quarterly (or as per the new system of releasing the full amount at once).
• The budget is executed through the annual programme and the periodic plan.

4. Budget Monitoring and Control

• Internal control is done by the concerned ministry, department and the FCGO.
• External control is exercised by the Office of the Auditor General (OAG), which audits all government accounts.
• The Public Accounts Committee (PAC) of Parliament examines the audit report and the irregularities.
• Mid-term evaluation of the budget is carried out to assess progress and make corrections.

5. Budget Review and Audit (Post-Audit/Review Stage)

• The OAG submits its annual audit report to the President, who causes it to be laid before Parliament.
• The PAC examines the report, holds the executive accountable and issues directives.
• The findings are used as feedback for the next budget cycle, completing the loop.

Conclusion: Thus, the budget cycle is a continuous and cyclical process of formulation, presentation, execution, monitoring and review, through which the government plans, allocates and controls public resources.

Role of the Chief Accountant in Maintaining Good Governance in Financial Administration

Good governance in financial administration rests on transparency, accountability, legality, economy, and effectiveness. As the head of the accounting function of an office, the chief accountant (मुख्य लेखा अधिकृत) is the key technical and supervisory officer who can translate these principles into practice. The major roles he/she can play are as follows:

1. Ensuring legality and regularity of expenditure The chief accountant examines every bill, voucher, and payment proposal against the approved budget, the Economic Code (आर्थिक संहिता), the Financial Procedures and Fiscal Responsibility Act, and the Public Procurement Act. By refusing or returning irregular, unsupported, or unauthorised claims, he prevents misuse of public funds and enforces the rule of law.

2. Maintaining accurate and complete accounts He keeps the books of account (cash book, ledger, budget register, advance register, deposit register, store and inventory records) up to date and reconciles them periodically with bank statements and the Treasury Single Account. Accurate records are the foundation of transparency and of reliable financial reporting.

3. Preparing and executing the budget He assists in preparing the budget in a realistic and need-based manner, ensures expenditure is kept within the sanctioned ceiling and within the correct budget heads, and warns management in advance about likely excesses or shortfalls. This prevents both over-spending and the lapse of development funds.

4. Strengthening internal control and internal audit He designs and operates internal control systems — separation of duties, dual signatures, pre-audit of bills, surprise cash verification, control over advances and imprest funds — and follows up on internal audit and Auditor General's reports to ensure that irregularities are corrected and accountability is fixed.

5. Promoting transparency and financial discipline He publishes budget and expenditure details, maintains records open to audit and to the concerned authorities, discourages unnecessary expenditure, and ensures that advances are settled in time. This reduces the scope for leakage, misappropriation and corruption.

6. Supporting decision-making with financial information By supplying timely, complete and comparable financial statements, progress reports and variance analyses to the chief of the office and to the ministry, he enables informed, evidence-based decisions on resource allocation and priority setting.

7. Ensuring compliance with audit and reporting requirements He prepares the annual financial statements and reports within the prescribed time, submits them to the Office of the Auditor General through the proper channel, and implements audit observations honestly, thereby closing the accountability loop.

8. Building capacity and ethical conduct He trains and guides subordinate accounts staff, delegates authority clearly, and himself observes integrity, impartiality and confidentiality. A chief accountant who is honest and firm sets the ethical tone of the whole office.

9. Protecting public assets and preventing misuse Through proper store, inventory and asset accounting, physical verification and reconciliation, he safeguards government property and detects misuse or loss at an early stage.

10. Coordinating with oversight bodies He cooperates with the Financial Comptroller General Office, the Auditor General, the Commission for the Investigation of Abuse of Authority and parliamentary committees by providing correct records and explanations, thus helping institutional accountability.

Conclusion In short, the chief accountant acts as the guardian of financial discipline, the promoter of transparency, and the technical adviser on fiscal matters. If he performs these roles sincerely and competently, financial administration becomes lawful, economical and result-oriented, which is precisely the essence of good governance.

Purpose of Preparing Financial Statements (2 marks)

Financial statements are prepared mainly to:

1. Provide financial information — to present the true financial position (assets, liabilities and capital) and the operating result (profit or loss) of an organisation for a given period.
2. Support decision-making — to help management, owners, creditors, investors and the government take informed economic decisions.
3. Ensure accountability and control — to keep a systematic record of income and expenditure, enable comparison of actual results with budgets, and fulfil legal/statutory reporting requirements (e.g. audit, tax).

Subjects (Components) Incorporated in Financial Statements (2 marks)

The main subjects/components incorporated in financial statements are:

1. Statement of Financial Position (Balance Sheet) — shows assets, liabilities and capital/funds as at a given date.
2. Statement of Profit or Loss (Income Statement) — shows revenues/income and expenses, and the resulting profit or loss for the period.
3. Statement of Cash Flows — shows cash inflows and outflows from operating, investing and financing activities.
4. Statement of Changes in Equity/Reserves — shows movements in capital, reserves and surplus.
5. Notes to Accounts / Schedules — supporting details, accounting policies and explanations attached to the above statements.

Note (2 marks)

In government/New Accounting System (Nepal), the financial statements mainly include:

• Statement of Revenue and Expenditure (Goshwara Bibaran),
• Statement of Assets and Liabilities,
• Statement of Outstanding Liabilities (Baki Dabi),
• Statement of Advances (Peski),
• Statement of Deposits (Dharauti) and other subsidiary schedules.

Budget Formulation

Budget formulation is the process by which the government prepares its annual estimate of revenue and expenditure for the coming fiscal year. It involves assessing resource availability, fixing priorities, allocating funds among ministries and departments, and preparing the budget document that is later presented to Parliament. In Nepal, the Ministry of Finance (MoF) leads this process, and the budget is prepared for a fiscal year running from Shrawan 1 to Ashadh 31.

Stages of Budget Formulation in Nepal

1. Pre-budget preparation (macroeconomic framework) — The MoF, with the National Planning Commission (NPC) and Nepal Rastra Bank, prepares the Medium-Term Expenditure Framework (MTEF), determines the resource ceiling, and issues the Budget Formulation Guidelines/Circular to all ministries.
2. Bottom-up estimation by spending units — Line ministries, departments and local levels prepare and submit their expenditure estimates (recurrent, capital, financing) within the given ceiling.
3. Screening and prioritisation — The MoF examines the proposals through its line divisions, holds discussions with ministries, and prioritises programmes consistent with national plans and policies.
4. Consolidation and finalisation — The MoF consolidates revenue estimates and expenditure estimates, balances the budget, and prepares the final budget speech and the Appropriation Bill, Finance Bill and related documents.
5. Approval — The budget is presented in the joint session of Parliament (usually on Jestha 15) and is passed after discussion; it comes into force from Shrawan 1.

Process of Budget Formulation in Nepal

• Budget Calendar: The MoF publishes the budget calendar fixing dates for each activity.
• Circular issuance: The budget formulation circular is sent to all spending units, generally by Magh/Falgun.
• Ceiling fixation: Resource ceilings are communicated to ministries by Chaitra.
• Preparation and submission: Spending units prepare estimates and submit them to the MoF through their ministries by Baisakh.
• Discussion and negotiation: MoF line divisions hold pre-budget discussions with ministries and finalise allocations.
• National Planning Commission consultation: NPC gives its opinion on the consistency of programmes with plans and priorities.
• Finalisation: The budget is finalised by the MoF and approved by the Council of Ministers.
• Presentation and enactment: The Finance Minister presents the budget in Parliament; after passage, it is implemented from the new fiscal year.

In short, budget formulation in Nepal is a top-down and bottom-up combined process — the ceiling comes from the top (MoF), while the demands come from the bottom (spending units) — and it moves through preparation, screening, consolidation, approval and enactment stages.

Meaning

The chart of accounts (CoA) is the systematic, coded list of all accounts used by a government to classify and record its financial transactions: revenue, expenditure, assets, liabilities, and financing. In Nepal's financial administration, each transaction is given a code under the Government Financial Statistics (GFS) based economic classification (with segments for programme, funding source, administrative unit, and so on) and is recorded in the Treasury Single Account system/FCGO's accounting system (e.g. TSA, SuTRA), so that budgeting, accounting and reporting follow one classification.

Major characteristics

1. Uniform and standard — the same classification and codes are applied by all government offices at all three tiers.
2. Systematic coding — each account has a unique code arranged by category (revenue, expenditure, assets, liabilities, financing).
3. Linked with the budget — budget heads match account heads, so actual spending can be compared directly with the budget.
4. Comprehensive — it covers all transactions of the government, with enough detail to record each of them.
5. Based on international standards — consistent with the GFS manual of the IMF, which helps comparison and statistical reporting.
6. Flexible and expandable — new codes can be added without disturbing the structure.
7. Supports reporting and audit — facilitates preparation of financial statements, fiscal reports and audit trails.

Treasury Single Account (TSA) System

1. Concept of Treasury Single Account (TSA)

A Treasury Single Account (TSA) is a unified bank account structure maintained by the government (usually through the Central Bank) in which all government revenues are deposited and from which all government payments are made. Instead of each ministry, department or agency keeping its own separate bank accounts in different commercial banks, the TSA consolidates the cash balances of the entire government into one account (or a set of linked accounts under one treasury control).

In Nepal, the TSA system is operated through the Nepal Rastra Bank as the banker to the government, with the Financial Comptroller General Office (FCGO) managing the operational side. Under this system, all government receipts go directly into the TSA and all expenditures are made through it, so that the government's cash position is known at a single point at any given time.

2. Purpose and Importance of TSA

Purpose:

• To bring all government cash resources under the control of a single treasury account.
• To ensure that government spending is made only from authorised funds released through the treasury.
• To reduce the need for unnecessary borrowing by using idle cash lying in scattered accounts.

Importance:

1. Effective cash management: The government can know its exact cash balance at any time and can plan expenditure and borrowing accordingly.
2. Reduction in borrowing cost: Idle balances lying in many departmental accounts are pooled, so the government borrows less and saves interest.
3. Fiscal discipline and control: Since all payments pass through the treasury, misuse, diversion and off-budget spending are checked.
4. Transparency and accountability: All transactions are recorded in one system, making auditing and monitoring easier.
5. Support to budget implementation: Funds are released as per the budget and can be monitored against actual spending.
6. Reduction in financial irregularities: It prevents agencies from keeping "hidden" accounts and using public money outside the government's knowledge.

3. Challenges in Implementation of TSA in Nepal

1. Resistance from line agencies: Many ministries and departments are reluctant to give up their separate accounts because they lose the freedom to spend cash as they wish.
2. Weak banking and IT infrastructure: In remote districts, commercial bank branches and reliable internet/online payment facilities are limited, so transactions cannot be routed through the TSA smoothly.
3. Delay in fund release: Because all expenditure must pass through the treasury, delays in releasing funds from the centre cause delays in development works and payment of salaries and allowances.
4. Lack of coordination among agencies: The Ministry of Finance, FCGO, Nepal Rastra Bank and spending agencies often lack proper coordination, which slows down implementation.
5. Inadequate accounting and reporting system: The existing accounting system is not fully able to record and reconcile all transactions in real time.
6. Lack of skilled manpower: Officials in many offices are not trained in the new treasury management system and its software.
7. Political and administrative instability: Frequent changes in government and transfer of officials reduce continuity and commitment to reform.
8. Resistance to change: Old habits of handling cash, lack of ownership and fear of losing authority create practical obstacles.

Conclusion

The TSA system is an important reform of public financial management. It strengthens cash management, fiscal discipline and transparency. However, its success in Nepal depends on strong political commitment, better coordination among agencies, improved IT and banking infrastructure, and capacity building of the concerned officials.

Provision for depositing Dharauti (deposit money) in a government body:

Dharauti (deposit) must be deposited with the concerned government office/body under the following conditions:

1. Bid/tender security (Dharauti) — When a bidder or contractor participates in a tender or accepts a contract for construction, supply or service work, the prescribed percentage of the estimated amount must be deposited as bid security or performance security.

2. Performance guarantee — When a contractor is awarded a contract, a certain percentage of the contract amount must be deposited as a guarantee for the faithful and timely completion of the work as per the agreement.

3. Advance payment — When a contractor or supplier receives an advance payment from the government body, an equal or prescribed amount must be deposited as security for the advance.

4. Security for revenue collection — When a person or firm is entrusted with the collection of government revenue (e.g., revenue contracts, lease of government land/property), a prescribed amount must be deposited as security.

5. Guarantee for the fulfilment of a legal obligation — When a party is required by law or by an order of a competent authority to furnish security for the performance of a legal duty or for the payment of a due amount.

6. Conditional release/refund — When money or property held by a government body is to be released to a claimant on condition that the claimant deposits an equivalent amount as security, pending final settlement of the dispute.

In all such cases, the deposit is kept as a guarantee and is refunded or forfeited as per the terms of the contract or the prevailing law.

Revenue Management Information System (RMIS)

Features of RMIS

1. Online revenue collection and recording – Tax and non-tax revenues (land revenue, registration fees, vehicle tax, etc.) are collected and recorded at the source through a computerised system, replacing manual receipt books.
2. Integrated database – All revenue-related data of a revenue office are stored in a single centralised database, so that taxpayer details, payment history and outstanding dues are available at one place.
3. Automated receipt and bill generation – The system generates computer-printed receipts, demand bills and challans with a unique transaction number, reducing the risk of fake or duplicate receipts.
4. Taxpayer identification and registration – Each taxpayer is given a permanent identification number (PAN/VAT or revenue file number), which links all transactions of that taxpayer.
5. Reporting and MIS reports – Daily, monthly, quarterly and annual reports on revenue collection, arrears, refunds and target achievement can be generated instantly for decision-making.
6. Online payment facility – Payment can be made through banks, connect IPS, mobile banking and eSewa/Khalti, so the taxpayer need not visit the office.
7. Data security and audit trail – User-wise login, password control and log records ensure that every entry, edit or deletion is traceable, supporting internal audit and anti-corruption measures.
8. Integration with other systems – Linkage with the Financial Comptroller General Office (FCGO), Office of the Auditor General, Inland Revenue Department and local government systems for reconciliation and reporting.

Implementation Status of RMIS in Nepal

1. Introduction and expansion – RMIS was introduced in revenue offices under the Ministry of Finance/Inland Revenue Department and Financial Comptroller General Office. It has been rolled out in most District Treasury Comptroller Offices, Land Revenue Offices, and Inland Revenue Offices across the country.
2. Online payment integration – Payment gateways such as connect IPS, eSewa, Khalti and mobile banking are connected with RMIS in many offices, allowing taxpayers to pay revenue online.
3. Partial coverage – Implementation is complete in urban and accessible districts, but many remote rural municipalities and some local-level revenue collection centres still depend on manual systems or face internet and electricity problems.
4. Interoperability issues – Full integration between RMIS, the Treasury Single Account (TSA), the Inland Revenue system and local government revenue systems is not yet complete; data are often transferred manually.
5. Capacity constraints – Lack of trained manpower, frequent staff transfer, weak hardware maintenance and low digital literacy among taxpayers limit effective use.
6. Legal and institutional support – The Good Governance (Management and Operation) Act, Right to Information Act, Electronic Transactions Act and annual budget speeches have provided the legal basis for computerised revenue management.
7. Recent progress – With the federal structure, RMIS is being extended to provincial and local governments, and the government has targeted full digital revenue collection and paperless transactions in the coming years.

Conclusion

RMIS has improved transparency, speed and accuracy in revenue collection and has reduced leakage to a large extent. However, for its full benefit, the government must ensure reliable internet, trained staff, complete inter-system integration and strict monitoring, especially in remote areas.

Inspection Process of Government Property and Inventory

Government property and inventory (movable and immovable assets held in government offices) are inspected through a systematic process prescribed by the Financial Procedures and Fiscal Responsibility Act, 2076 and the Financial Procedures Rules, 2077, along with the Public Procurement Act, 2063 and the Public Property (Protection) Act, 2016. The process is as follows:

1. Preparation of inventory (Stock Register / Sampatti Abhilekh): Every office maintains a permanent inventory register (Sampatti Abhilekh) and a consumable stock register (Malmatta Khata) in the prescribed format. Each item is entered with its description, quantity, unit, date of purchase, value, and source of procurement. Bin cards are kept for consumable goods.

2. Fixing inspection authority and period:

• The office chief (Karyalaya Pramukh) inspects the inventory of the office at least once every fiscal year.
• The concerned ministry or department inspects the subordinate offices as per its annual inspection plan.
• The Financial Comptroller General Office (FCGO) and its district offices conduct periodic inspection of cash and kind.
• The Office of the Auditor General (OAG) conducts annual audit (regularity, performance, and special audit) of government property.
• The Public Accounts Committee (PAC) of the Legislature-Parliament examines audit reports and directs follow-up.

3. Physical verification: The inspecting authority physically counts and verifies each item against the register, checks condition, working order, and location of the assets, and identifies surplus, unserviceable, obsolete, or missing items. Verification of immovable property includes land, buildings, and structures.

4. Reconciliation and reporting: Differences between the physical count and the book balance are recorded in the inspection report. The report states the causes of shortage or damage, fixes responsibility on the concerned official or employee, and recommends recovery of loss, repair, or disposal.

5. Follow-up and disposal: Unserviceable or obsolete items are written off or disposed of through the prescribed procedure (auction or sale as per the Financial Procedures Rules). The office implements the inspection recommendations and submits a follow-up report to the inspecting authority within the specified time.

Importance of Inventory Inspection

1. Protection of government property: It prevents misuse, theft, embezzlement, and unauthorized use of public assets, thereby safeguarding national wealth.
2. Accuracy of records: It ensures that the book balance tallies with the physical stock, making the inventory register reliable and up to date.
3. Financial accountability: It fixes responsibility for shortage, damage, or loss and supports recovery from the responsible official, thus enforcing accountability.
4. Basis for audit and reporting: Verified inventory is the basis for preparing financial statements, audit reports, and reports to the OAG and PAC.
5. Prevention of waste and duplication: It identifies surplus and obsolete goods, avoiding unnecessary purchase and duplication of items.
6. Proper maintenance and utilization: It helps in timely repair, maintenance, and optimum use of assets, extending their useful life.
7. Compliance with law: It fulfils the legal requirement of periodic inspection under the Financial Procedures and Fiscal Responsibility Act and Rules, and helps avoid audit irregularities.
8. Decision-making and budgeting: Reliable inventory data supports planning, budgeting, and policy decisions on procurement and disposal.

Annual Procurement Plan: Introduction and Sample

1. Introduction to the Annual Procurement Plan (2 marks)

The Annual Procurement Plan (APP) is a document prepared by every public entity at the beginning of each fiscal year, setting out in advance all the goods, works, consultancy services and other services it intends to procure during that year. It is prepared under the Public Procurement Act, 2063 and the Public Procurement Rules, 2064, and is approved by the head of the public entity itself, in the format prescribed by the Public Procurement Monitoring Office (PPMO).

Its main features are:

• It is prepared before the start of the fiscal year (by the end of Baisakh/early Jestha) and is published on the entity's website and the PPMO website.
• It states, for each procurement, the subject matter, estimated cost, method of procurement, source of fund, time of procurement and the responsible unit.
• It ensures transparency, competition, economy and timely completion of procurement, and helps in budget preparation and monitoring.
• It may be revised during the year if the budget or the need changes, with the approval of the competent authority.

2. Sample Annual Procurement Plan (2 marks)

Public Entity: District Education Development and Coordination Unit, Chitwan Fiscal Year: 2081/82 Approved by: Chief, DEDCU, Chitwan Date of Approval: 2081/02/15

Note: Estimated costs are inclusive of all taxes and are based on the current market rate. The plan will be revised if the budget allocation changes during the year.

3. Importance of the Annual Procurement Plan (2 marks)

• Transparency and competition: Publishing the plan in advance allows all interested bidders to prepare and compete, reducing chances of favouritism.
• Budget discipline: Procurement is linked with the approved budget and source of fund, so unnecessary or unfunded procurement is avoided.
• Timely procurement: Fixing the time of procurement in advance helps complete procurement within the fiscal year and avoid the rush of expenditure at year-end.
• Monitoring and accountability: The plan provides a basis for the Public Accounts Committee, Office of the Auditor General and PPMO to monitor whether procurement was done as planned.
• Efficient use of public resources: Selection of the proper method of procurement (bidding, quotation, direct) for each item ensures economy and value for money.

The Public Procurement Act, 2063 provides the following methods of public procurement:

1. Open competitive bidding — the main method. National Competitive Bidding (NCB) is open to national bidders, and International Competitive Bidding (ICB) is open to foreign bidders as well; used for larger-value procurement.
2. Sealed quotation — for small-value goods, works and services, where quotations are invited and the lowest evaluated quote is chosen.
3. Direct procurement — from a single source for proprietary items, emergencies or very small value.
4. Procurement through a user committee — small local works carried out by a community user group.
5. Force account — the public entity itself carries out the work with its own staff and equipment.
6. Other methods provided in the Act and Rules, such as procurement through international agencies or limited tendering, applied under their prescribed conditions.

Each method applies within the thresholds and procedure set by the Act and the Public Procurement Rules, 2064.

Objectives of INTOSAI

1. Promote mutual cooperation among Supreme Audit Institutions (SAIs) of different countries so that they can help one another in the field of government auditing.
2. Promote the exchange of ideas, experience and information on public audit practices, standards and techniques among member SAIs.
3. Set and disseminate international auditing standards (such as ISSAI) to bring uniformity and quality in public sector auditing worldwide.
4. Strengthen the capacity and independence of SAIs, especially in developing countries, so that they can effectively hold governments accountable for the use of public funds.
5. Promote good governance, transparency and accountability in the management of public resources at the international level.

Major Functions of INTOSAI

1. Organizing congresses and conferences: It holds the triennial INTOSAI Congress (INCOSAI) and regional/committee meetings where member SAIs exchange experiences and decide future policies.
2. Formulating auditing standards and guidelines: It develops International Standards of Supreme Audit Institutions (ISSAI) and guidelines on financial, compliance and performance auditing.
3. Capacity building and training: Through bodies like the INTOSAI Development Initiative (IDI), it provides training, technical assistance and research support to member SAIs.
4. Conducting research and sharing knowledge: Its working groups and committees study specialized areas (e.g., IT audit, environmental audit, public debt) and publish reports and best practices.
5. Promoting the independence of SAIs: It advocates the Lima Declaration and Mexico Declaration principles to protect the independence and mandate of SAIs.
6. Cooperating with international bodies: It works with the UN, World Bank and other agencies to promote accountability and the efficient use of public funds.

Internal Control System

Meaning (2 marks)

An internal control system is the whole set of rules, procedures, methods and practices adopted by an organisation to safeguard its assets, ensure the accuracy and reliability of its accounting records, promote operational efficiency and encourage adherence to prescribed policies. In simple terms, it is the system of checks and balances — such as authorisation, segregation of duties, physical custody of assets, reconciliation and internal audit — through which management keeps the organisation on the right track. It is a means to an end (effective management), not an end in itself.

Necessity of internal control system in public bodies (2 marks)

Public bodies handle public money and property collected from taxpayers. Therefore:

1. Safeguarding public assets — to prevent misuse, misappropriation, theft, waste and loss of government cash, stores, land and equipment.
2. Ensuring reliability of records — to keep accounts, financial statements and reports accurate and complete, so that they present a true and fair picture.
3. Compliance with laws and rules — to ensure that all transactions are carried out as per the Financial Procedures Act, Financial Comptroller General Office (FCGO) rules, Public Procurement Act and other legal provisions.
4. Promoting economy, efficiency and effectiveness — to obtain value for money in the use of public resources.
5. Preventing and detecting fraud and irregularities — early detection of errors, misappropriation and corruption through segregation of duties, reconciliation and internal audit.
6. Supporting accountability and transparency — to make officials answerable to the legislature, the Office of the Auditor General and the public, and to help in the audit process.

Conclusion (2 marks)

In short, an internal control system is the mechanism of checks and balances within an organisation. In public bodies it is indispensable because public funds are a trust; without a sound internal control system, financial discipline, accountability and good governance cannot be maintained.

Calculation of income from employment (Section 15, Income Tax Act, 2058)

Income from employment is computed as the total amount received from employment during an income year, less the deductions allowed under Section 15(2):

$\text{Income from employment} = \text{Total employment income received} - \text{Allowable deductions}$

1. Total amount received from employment includes salary/wages, allowance, bonus, commission, leave pay, fees, and other benefits received in cash or kind from the employer. Amounts exempt under Section 10 (e.g. prescribed allowances, facilities) are excluded.

2. Deductions allowed under Section 15(2):

• Retirement contribution paid to an approved retirement fund — the lesser of one‑third of the employment income or Rs 5,00,000.
• Foreign employment income — the lesser of 25% of such income or Rs 1,00,000.

The resulting net employment income is then taxed at the applicable slab rates.

Interpolation is the statistical technique of estimating an unknown value of a dependent variable (Y) that lies within the range of the given data, using the known values of the independent variable (X). It is used when data are incomplete and we need a value between two known points. It differs from extrapolation, which estimates a value outside the given range.

Types of interpolation (with examples):

1. Linear interpolation — when the unknown value is estimated by assuming a straight-line (constant rate of change) relationship between two adjacent known points.
   Example: If the population of a town was 20,000 in 2011 and 30,000 in 2021, the population in 2016 is estimated as
   $Y_{2016} = 20{,}000 + \frac{30{,}000 - 20{,}000}{2021 - 2011} \times (2016 - 2011) = 25{,}000.$

2. Non-linear (curvilinear) interpolation — when the relationship between the variables is not a straight line, so a curve (parabola, exponential, etc.) is fitted to the data.
   Example: Fitting a parabolic curve to the production figures of a factory for 2019, 2020 and 2021 to estimate production for the first half of 2020.

3. Graphic interpolation — when the unknown value is read directly from a carefully drawn graph of the given data.
   Example: Plotting the yield of paddy against rainfall on graph paper and reading the yield corresponding to 80 mm rainfall.

4. Interpolation by binomial expansion (Newton's method) — used when the values of X are at equal intervals; the missing value is obtained by expanding $(1 + x)^n$ or using finite differences.
   Example: Estimating the number of births in 2015 from a series of yearly birth figures given for 2010–2020 at equal intervals.

Risk-based audit is an audit approach in which the auditor first identifies and assesses the risks of material misstatement in the financial statements, and then directs audit effort and resources mainly to those areas where risk is high. Instead of checking every item equally, the auditor concentrates on high-risk areas and applies only limited procedures to low-risk areas. This makes the audit economical in time and cost while still giving reasonable assurance on the overall fairness of the financial statements. It is also called risk-oriented or risk-focused audit.

Assessment of risk in risk-based audit:

1. Identification of risk — The auditor first identifies the various risks that may cause material misstatement, such as inherent risk (risk arising from the nature of the business or transaction), control risk (risk that the internal control system fails to prevent or detect misstatement) and detection risk (risk that the auditor's procedures fail to detect a misstatement).

2. Study of the entity and its environment — The auditor studies the nature of the entity, its business, its accounting policies, its internal control system, the competence of its staff, the complexity of transactions and the legal/regulatory environment to understand where misstatements are likely.

3. Analysis of financial statements — Analytical procedures such as ratio analysis, trend analysis and comparison of current figures with those of previous years are used to locate unusual or unexpected items that indicate higher risk.

4. Determination of materiality — The auditor fixes the level of materiality, because risk is judged in relation to the amount and nature of the item. Larger and more sensitive items are treated as more risky.

5. Evaluation of internal control — The internal control system is studied and tested to judge control risk. Weak controls mean higher risk and more substantive checking.

6. Rating of risk — The identified risks are graded as high, medium or low on the basis of their likelihood of occurrence and the size of their possible effect.

7. Design of audit procedures — On the basis of the assessed risk, the auditor decides the nature, timing and extent of audit procedures — more detailed and extensive checking in high-risk areas, and sample or limited checking in low-risk areas.

In short, risk-based audit means auditing by priority — first assessing risk, then directing audit work to the high-risk areas so that audit assurance is obtained in the most effective and economical manner.

The Audit Act, 2075 requires the Auditor General to submit an annual report to the President, who has it tabled in the Federal Parliament. It should include the following matters:

1. Audit coverage — the offices, constitutional bodies, federal, provincial and local governments, and public entities audited.
2. Audit findings — irregularities, arrears, loss, misappropriation and misuse of public property detected, with the amounts involved.
3. Status of settlement — progress in settling and recovering the amounts pointed out in previous audit reports.
4. Financial condition — an opinion on the government's financial statements and whether accounts were maintained according to law.
5. Follow-up — status of implementation of directives of the Public Accounts Committee and of earlier audit recommendations.
6. Internal control and compliance — weaknesses in financial discipline, internal control and compliance with laws.
7. Recommendations and suggestions for improving financial administration, accountability and transparency.
8. Any other matter the Auditor General considers should be brought to the notice of the President and Parliament.

(a) Internal and final audit of federal, provincial and local offices (2 + 2 marks)

Audit in Nepal is of two kinds, regulated by the Constitution of Nepal, the Audit Act, 2075, the Financial Procedures and Fiscal Responsibility Act, 2076 and the Local Government Operation Act, 2074.

Offices of all three tiers must keep accounts in the prescribed format, get them internally audited, and present them to the Auditor General for final audit. Reports on local-level audits go to the local assembly, and the Auditor General's annual report goes to the President (Article 294) who has it tabled in the Federal Parliament.

(b) Functions, duties and powers of the Auditor General (2 marks)

The Auditor General is appointed by the President on the recommendation of the Constitutional Council for a single term of six years (Articles 240-241).

1. Audits the accounts of federal, provincial and local governments, courts, the legislature, constitutional bodies, the Nepal Army, the Nepal Police and the Armed Police Force, and all government offices.
2. Audits institutions wholly or partly owned by government, or appoints an auditor for them, as provided by law.
3. Judges each audit on regularity, economy, efficiency, effectiveness and propriety.
4. Gives advice on the accounting format and standards to be used by public bodies.
5. Has the power to see any record, document or property, to call for explanations from officials and to give instructions for recovery or regularisation of irregularities.
6. Submits an annual report to the President, and may submit special reports.
7. Acts independently, without direction from any authority.

Budget Preparation Process under Fiscal Procedures and Financial Accountability Act, 2076 and Regulation, 2077

The budget preparation process in Nepal is governed mainly by the Fiscal Procedures and Financial Accountability Act, 2076 and the Fiscal Procedures and Financial Accountability Regulation, 2077. The process runs roughly as follows:

1. Issuance of Budget Ceiling Circular (बजेट सीमा पत्र) The Ministry of Finance issues a Budget Ceiling Circular to all federal ministries and constitutional bodies, fixing the budget ceiling (expenditure limit) for recurrent and capital expenditure. The ceiling is based on the Medium-Term Expenditure Framework (MTEF), the annual development programme and the resource forecast. The National Planning Commission is consulted in this process.

2. Preparation of Estimates by Spending Agencies On the basis of the ceiling, each ministry/agency prepares its budget estimates (recurrent and capital) in the prescribed format, linking them with programmes, outputs and indicators. These estimates are submitted to the Ministry of Finance within the stipulated time.

3. Scrutiny and Consolidation by the Ministry of Finance The Ministry of Finance examines the estimates through pre-budget discussions with the concerned ministries, reconciles them with the ceiling and available resources, and consolidates them into the annual budget (Statement of Estimated Expenditure and Revenue).

4. Approval by the Council of Ministers The consolidated budget is placed before the Council of Ministers for approval. After approval, it is presented to the Federal Parliament (usually on 15 Jestha) as the Annual Budget Statement along with the Financial Bill and Appropriation Bill.

5. Parliamentary Approval The budget is discussed in Parliament; the Appropriation Bill authorises expenditure and the Financial Bill authorises revenue collection. After passage, it becomes the Appropriation Act and Finance Act.

6. Implementation and Monitoring The approved budget is implemented through the Treasury Single Account, with monitoring by the Financial Comptroller General Office and reporting to Parliament through the Annual Financial Report.

Key points to remember:

• Budget ceiling is fixed by the Ministry of Finance through the Budget Ceiling Circular.
• Estimates are prepared by spending agencies and scrutinised by MoF.
• Budget is approved by the Council of Ministers and then by Parliament.
• The Act ensures fiscal discipline, accountability and transparency in the whole process.

Public Sector Accounting is the process of recording, classifying, summarising and reporting the financial transactions of government and government-owned organisations, carried out under legal and constitutional provisions to show how public funds are collected, spent and controlled.

Definition

Public Sector Accounting is the system of recording, classifying, summarising and interpreting the financial transactions of government units — such as ministries, departments, constitutional bodies and local levels — in the prescribed government formats (e.g. the New Accounting System of Nepal), with the main objectives of:

• maintaining accountability for public funds,
• ensuring legal and budgetary control over revenue and expenditure,
• providing financial information for planning, policy-making and decision-making, and
• disclosing the true financial position and results of government operations.

It is also called Government Accounting. Unlike commercial accounting, it is based on legal provisions, uses the budget as the basis of recording, and its main aim is not profit but accountability and control.

Importance in Public Financial Management

1. Budget formulation and execution — Past accounting data on revenue collection and expenditure help in preparing realistic budgets and in executing them as approved.
2. Budgetary and legal control — Recording expenditure against budget heads (through the New Accounting System) prevents over-spending and misuse of funds, and enforces financial discipline.
3. Accountability and transparency — It makes the government answerable to the legislature and the public for every rupee collected and spent.
4. Basis of audit — Accounts maintained under this system provide the basis for audit by the Office of the Auditor General, which reports to Parliament.
5. Financial reporting — It supplies the data for financial statements, appropriation accounts and reports that show the true financial position of the government.
6. Aid to planning and policy-making — Reliable accounting information supports development planning, resource allocation and economic policy decisions.
7. Control over public property and funds — It keeps records of government cash, stores, assets and liabilities, preventing loss and misuse.
8. Detection of irregularities — It helps to detect fraud, misappropriation and leakage in revenue and expenditure.
9. Support to internal and external control bodies — It provides information to the Financial Comptroller General Office, internal audit, and parliamentary committees.
10. Transparency and good governance — By disclosing financial activities openly, it promotes good governance and public trust.

Conclusion

Thus, Public Sector Accounting is the backbone of public financial management. Without an effective accounting system, budgeting, control, audit and accountability of public funds cannot be ensured.

Treasury Single Account (TSA) System — Introduction and Importance

Introduction

The Treasury Single Account (TSA) is a unified structure of government bank accounts that consolidates all government revenues and payments into a single account (or a set of linked accounts) maintained at the central bank. It is operated under the Financial Comptroller General Office (FCGO) in Nepal through the Central Treasury Management System, replacing the earlier practice of keeping numerous separate accounts in different commercial banks. Under TSA, all receipts of the government flow into one account and all payments are made from that same account, so that the government's cash position is known at a single point at any given time.

Importance

1. Consolidated cash balance: All government funds are pooled in one place, so idle cash lying scattered in many accounts is eliminated and the government's true cash position is known instantly.
2. Effective cash management: It enables the government to meet its payment obligations on time and to reduce unnecessary short-term borrowing, thereby lowering interest costs.
3. Reduced borrowing cost: Because cash is centralised, the government borrows less and can also earn better returns on surplus balances.
4. Control over expenditure: Payments are released only through the treasury system against authorised budgets, which strengthens expenditure control and reduces the risk of misuse.
5. Transparency and accountability: All transactions pass through a single channel, making reporting, auditing and monitoring by the FCGO, the Office of the Auditor General and the Ministry of Finance easier and more reliable.
6. Support to budget execution: It links budget allocation, release and spending in one system, which helps in implementing the annual budget in a disciplined manner.
7. Reduction of financial indiscipline: It curbs the practice of opening hidden or unauthorised accounts by line agencies and reduces leakage and corruption.

In short, the TSA system is an essential reform of public financial management that ensures the safe custody of government money, improves cash management and strengthens fiscal discipline and accountability.

Modified Cash Basis Accounting System

Meaning: The modified cash basis is a hybrid accounting system that combines features of both the cash basis and the accrual basis of accounting. Under this system, revenues and expenditures are generally recorded on a cash basis (when cash is actually received or paid), but certain specific items are recorded on an accrual basis to present a more complete and realistic picture of the government's financial position.

Key Features:

1. Cash basis for regular transactions: Most revenues are recognized when cash is received and most expenditures are recognized when cash is paid, as in the pure cash basis.

2. Accrual treatment for selected items: Certain items are recorded on an accrual basis, such as:

   • Outstanding liabilities (unpaid bills, deposits, advances)
   • Outstanding revenues (receivables)
   • Interest accrued on loans and investments
   • Depreciation on fixed assets (in some cases)

3. Adjustment entries: Adjusting and closing entries are passed at the end of the accounting period to bring the books up to date, which is not done in the pure cash basis.

4. Period-end adjustments: Outstanding expenses and prepaid expenses are adjusted to reflect the correct expenditure of the period.

5. Use in government accounting: This system is widely used in government accounting (including Nepal's New Accounting System) because it maintains simplicity while giving a fuller financial picture.

Objectives:

• To keep the simplicity of the cash basis while improving accuracy.
• To disclose outstanding liabilities and receivables.
• To present a more realistic statement of financial position.
• To help in budgeting and control of public funds.

Advantages:

• Simpler and less costly than the full accrual system.
• Provides more reliable financial information than the pure cash basis.
• Helps in identifying outstanding dues and liabilities.
• Suitable for government offices where full accrual is difficult to maintain.

Disadvantages:

• Not fully accurate, as only selected items are accrued.
• Comparison between periods may be misleading.
• It is not a complete accrual system, so it does not show the true profit or surplus.

Conclusion: The modified cash basis is a practical middle path between the cash basis and the accrual basis. It is widely adopted in government accounting because it maintains simplicity while ensuring that important outstanding items are properly recorded.

Answer:

The Account Chief (लेखा प्रमुख) is the senior-most officer of the accounts/finance section of an office and acts as the financial guardian of the organization. Financial discipline means the systematic, lawful, economical and transparent handling of public funds. The Account Chief can indeed play a significant role in maintaining such discipline through the following functions, duties and rights:

1. Budget preparation and control (बजेट तयारी र नियन्त्रण): The Account Chief prepares the annual budget in consultation with all sections, gets it approved, and then controls expenditure strictly within the sanctioned budget heads. By refusing or discouraging expenditure beyond the allocated ceiling, he/she prevents overspending and keeps the organization financially disciplined.

2. Enforcement of financial rules and procedures: He/she ensures that all transactions are carried out as per the Financial Procedures and Fiscal Responsibility Act, Public Procurement Act, Financial Comptroller General Office (FCGO) directives, and other prevailing laws. By checking every bill, voucher and payment against legal provisions, he/she stops irregular, unauthorized and unsupported expenditure.

3. Pre-audit and internal control: The Account Chief conducts pre-audit of all bills before payment and maintains internal control over cash, bank, store and advances. This detects errors, frauds and irregularities at the source itself, which is the essence of financial discipline.

4. Proper accounting and record keeping: He/she maintains accurate books of accounts — cash book, bank book, ledger, budget register, advance register, etc. — and reconciles bank statements regularly. Up-to-date and reliable records make it difficult to misappropriate funds and make the organization accountable.

5. Financial reporting to concerned authorities: The Account Chief prepares monthly, quarterly and annual financial statements and submits them to the Office of the Financial Comptroller General, the ministry, the auditor and other bodies within the prescribed time. Timely reporting ensures transparency and enables corrective action.

6. Revenue collection and deposit: He/she ensures that all revenues, fees, fines and other receipts are collected as per law and deposited into the government treasury/consolidated fund without delay, preventing misuse or retention of public money.

7. Control over advances and outstanding dues: By keeping records of advances, loans and dues and ensuring their timely settlement/recovery, the Account Chief prevents funds from remaining outside the accounts for long periods.

8. Support to audit and follow-up of audit reports: He/she provides all records and information to the Office of the Auditor General, and ensures compliance with audit observations and settlement of audit irregularities. This closes the loop of financial accountability.

9. Rights (अधिकार) that strengthen his/her role:

• Right to demand supporting documents before passing any bill.
• Right to withhold or stop payment of any bill that is irregular, unsupported or beyond the budget.
• Right to report financial irregularities to the head of office and to the concerned oversight bodies.
• Right to advise the head of office on financial matters and to be consulted before any financial decision.
• Right to inspect cash, store and accounts of subordinate units.

10. Advisory role to the head of office: As the chief financial adviser, the Account Chief warns the head of office in advance about possible budget shortfalls, irregular commitments and legal risks, thereby preventing financial indiscipline before it occurs.

Conclusion: Thus, by preparing and controlling the budget, enforcing financial laws, maintaining proper accounts, reporting in time and exercising the right to withhold irregular payments, the Account Chief acts as the custodian of financial discipline. If he/she performs these duties honestly and independently, financial discipline in the organization is almost automatically maintained. Hence the statement is true.

Code of conduct for an official involved in public procurement proceedings

An official involved in public procurement must follow the following code of conduct:

1. Impartiality and non-discrimination — Treat all bidders equally and evaluate bids only on the basis of the criteria stated in the bidding documents, without favouring or prejudicing any bidder.

2. Avoidance of conflict of interest — Disclose any personal, family, financial or business interest in a bidder or in the procurement, and refrain from participating in the proceeding where such interest exists. A public official must not bid, directly or indirectly, in a procurement of his or her own office.

3. Confidentiality — Keep the information relating to bids, evaluation, negotiation and award confidential until the official publication of the result, and not use such information for personal gain.

4. Integrity and honesty — Neither demand nor accept any gift, commission, bribe or undue favour from any bidder or supplier, and not use official position to obtain any benefit.

5. Transparency and accountability — Follow the Public Procurement Act, 2063 and its Regulations honestly, keep proper records of every decision and step, and be ready to give reasons for decisions taken.

6. Competence and diligence — Perform procurement duties with due care, within the delegated authority and time limit, and refrain from acts that restrict or distort competition.

7. Compliance with law and discipline — Obey the directives of the competent authority and the procurement law, and remain free from any act that harms the prestige of the public service.

In short, the official must act fairly, confidentially, honestly and lawfully, keeping the public interest above personal interest at every stage of the procurement proceeding.

Importance of Procurement Unit in a Public Entity — [5 marks]

The Procurement Unit is the specialized body within a public entity that carries out and manages the entire public procurement process in accordance with the Public Procurement Act, 2063 (2007) and the Public Procurement Regulations, 2064 (2008). Its importance can be shown as follows:

1. Legal and procedural compliance — It ensures that all procurement of goods, works, consultancy services and other services is done through the prescribed methods (direct procurement, quotation, national/international competitive bidding) and procedures, thereby keeping the entity free from legal disputes and audit objections.

2. Preparation of procurement plan and budget linkage — It prepares the annual procurement plan, links it with the approved budget and programme, and publishes it as required, so that procurement is need-based, timely and systematic rather than ad hoc.

3. Transparency, competition and value for money — By preparing bidding documents, inviting sealed bids, conducting pre-bid meetings and opening bids publicly, it ensures open competition, equal treatment of bidders and selection of the lowest evaluated substantially responsive bid, thus obtaining maximum value for every rupee of public money.

4. Prevention of corruption and misuse of public funds — By separating responsibilities (procurement, evaluation, approval), maintaining records and following the complaints-handling mechanism, it reduces chances of collusion, favouritism, leakage and financial irregularities.

5. Efficient contract management and accountability — It awards contracts, monitors delivery, quality and progress, handles variations and claims, and ensures timely completion and payment, thereby making the entity accountable to the public, the Auditor General and the Public Accounts Committee.

Conclusion: The Procurement Unit is thus indispensable for a public entity, as it ensures that public funds are spent legally, economically, efficiently, transparently and accountably, which is the core objective of the public procurement system in Nepal.

Weaknesses in the Recent Management of Goods Received under Foreign Aid

(Nayab Subba, Level 5 — 5 marks)

Foreign aid is an important source of goods and resources for Nepal's development. However, the recent management of goods received under foreign aid has shown several weaknesses, which are described below:

1. Weak needs assessment and planning Goods are often requested and received without a proper needs assessment. As a result, irrelevant, unnecessary or surplus goods reach Nepal, while essential goods remain in shortage. Planning is also not properly linked with the national budget and periodic plans.

2. Delay in receiving and distributing goods Procedural delays occur at the customs point, in the clearance of goods, and in obtaining tax and duty exemptions. Because of such delays, goods reach the beneficiaries late, and in the case of perishable and seasonal goods, they lose much of their value.

3. Poor coordination among agencies Several bodies are involved — the Ministry of Finance, the line ministries, the Department of Customs, donor agencies and local levels. Lack of effective coordination among them creates duplication of effort, confusion over responsibility and delay in implementation.

4. Weak inventory and record management Proper records of goods received, stored and distributed are not always maintained. There is a lack of scientific inventory systems, so goods may be lost, damaged, expired or misappropriated without being detected in time.

5. Inadequate storage and handling Warehouses are often insufficient in number and poor in quality. Lack of proper storage, refrigeration and handling facilities causes damage, decay and deterioration of goods, leading to wastage of valuable aid.

6. Lack of transparency and accountability In many cases, the receipt and distribution of aid goods are not made public. Weak monitoring, auditing and reporting systems create room for irregularities, leakage and misuse of aid goods.

7. Weak monitoring and evaluation There is no effective system to monitor whether the goods actually reached the target group and whether they produced the intended benefit. Post-distribution evaluation is rarely carried out, so mistakes are repeated.

8. Dependency and unsustainability Aid goods are sometimes provided as free handouts without any provision for maintenance, spare parts or local ownership. This creates a dependency mentality and makes the benefits unsustainable after the aid ends.

9. Political interference and delay in decision-making Political instability, frequent transfers of officials and undue political influence in the selection of beneficiaries and suppliers weaken the whole management process.

Conclusion Therefore, to make foreign aid effective, Nepal needs strong needs assessment, timely clearance and distribution, effective coordination, transparent record-keeping, strong monitoring and evaluation, and a clear policy on aid management. Only then can goods received under foreign aid be managed properly and used for the real benefit of the people.

Revenue Management Information System (RMIS) — Objectives and Importance

Introduction Revenue Management Information System (RMIS) is a computer-based information system used by the government to record, process, store, analyse and report all revenue-related activities — tax assessment, collection, accounting, auditing and reporting — in an integrated and systematic manner. In Nepal, it is applied through systems such as the Integrated Tax Administration System (ITAS) and the Revenue Management Information System of the Inland Revenue Department.

Objectives of RMIS

1. Accurate and timely revenue collection — to assess, collect and account for government revenue (VAT, income tax, excise, customs, registration fees, etc.) correctly and within the prescribed time.
2. Integrated revenue accounting — to bring all revenue heads and offices into a single database so that collection at any office is reflected in the central account immediately.
3. Transparency and accountability — to keep a complete, traceable record of every transaction so that leakage, duplication and manipulation are minimized.
4. Effective monitoring and control — to enable the Ministry of Finance, IRD and other authorities to monitor revenue performance against targets in real time.
5. Support to policy formulation — to generate reliable revenue statistics and reports needed for budget preparation, revenue forecasting and tax policy reform.
6. Reduction of administrative cost and delay — to automate manual processes such as filing, assessment, receipting and reporting.
7. Facilitation to taxpayers — to provide online filing, e-payment and quick service to taxpayers.

Importance of RMIS

1. Increases revenue mobilization — systematic assessment and follow-up of arrears help raise the tax-to-GDP ratio and fund public expenditure.
2. Ensures good governance — transparency in revenue collection reduces corruption and builds public trust in the tax system.
3. Strengthens fiscal discipline — real-time information on revenue helps control expenditure and reduce budget deficits.
4. Improves decision-making — accurate data support evidence-based decisions on taxation, subsidies and development planning.
5. Facilitates audit and investigation — electronic records make internal audit, taxpayer audit and investigation faster and more reliable.
6. Supports federalism — it helps in the fair distribution of revenue among the federal, provincial and local governments.
7. Saves time and cost — automation reduces paperwork, queues and the cost of revenue administration.

Conclusion RMIS is thus an essential tool of modern public financial management. By making revenue collection accurate, transparent, timely and accountable, it directly contributes to resource mobilization, good governance and the overall economic development of the country.

Answer:

Inventory management in government offices becomes effective only when the physical condition of each item is properly classified, because the action to be taken differs from item to item. Classifying inventory into categories such as to be kept intact (सुरक्षित राख्नुपर्ने), to be repaired (मर्मत गर्नुपर्ने) and to be auctioned/disposed (लिलाम बिक्री गर्नुपर्ने) helps in the following ways:

1. Clear identification of usable and unusable stock When goods are sorted by condition, the office knows at a glance how much stock is actually serviceable. Items fit for immediate use are separated from those lying idle or damaged, so fresh purchases are not made unnecessarily.

2. Prevention of unnecessary expenditure If repairable items are identified in time, they can be repaired at low cost instead of buying new ones. This saves government revenue and reduces wasteful spending.

3. Proper and timely disposal Damaged, obsolete or unserviceable items, if not classified, keep occupying space and lose value further. Marking them for auction allows disposal at the right time, recovering some value and freeing up storage space.

4. Scientific repair and maintenance planning A separate list of repairable items helps in preparing a repair plan, estimating repair cost and budgeting for maintenance in a systematic way.

5. Protection of good stock Items to be kept intact can be stored in a safe, dry and secure place with proper care (protection from moisture, insects, fire, theft), so that they do not deteriorate and turn into repairable or disposable stock.

6. Accurate records and accountability Condition-wise classification makes the store ledger, bin card and inventory report realistic. It fixes responsibility on the storekeeper for loss or damage, and makes audit and verification easy.

7. Basis for future purchasing decisions By knowing how much stock is intact, how much needs repair and how much is to be auctioned, the office can decide the correct quantity to be purchased, avoiding both over-stocking and shortage.

8. Compliance with legal procedure Government rules require that unserviceable goods be written off and auctioned through a prescribed procedure. Classification provides the necessary basis for writing off, obtaining approval and conducting auction as per the Financial Procedure and Fiscal Responsibility Act and Public Procurement Act.

Conclusion Thus, condition-wise classification of inventory converts a mere pile of goods into a managed, purposeful stock. It ensures economy, efficiency, transparency and accountability in the use of public property, and thereby makes inventory management truly effective.

Difference between Internal Audit and External Audit

Conclusion: Internal audit is an in-house, continuous, management-oriented control device, whereas external audit is an independent, statutory, year-end examination meant to certify the reliability of financial statements. The two are complementary, not substitutes.

Internal Control

Internal control is the whole system of controls—financial and non-financial—established by the management of an organisation to ensure that its activities are carried out in an orderly, efficient and economical manner, that its assets are safeguarded against waste, loss and misuse, that its records are accurate and reliable, and that its objectives are achieved in compliance with applicable laws and policies. In the context of a government office, it is the plan of organisation, methods and procedures adopted to keep public resources safe and to make service delivery transparent and accountable.

Elements of Internal Control

1. Control Environment – The overall attitude, awareness and commitment of top management and employees towards internal control. It includes integrity and ethical values, organisational structure, delegation of authority and responsibility, and the tone set at the top. A sound control environment is the foundation on which all other controls rest.

2. Risk Assessment – The process of identifying, analysing and evaluating the risks (such as fraud, misappropriation, error and non-compliance) that may obstruct the achievement of organisational objectives, and deciding how those risks should be managed.

3. Control Activities – The specific policies, procedures and actions that help ensure management directives are carried out. These include segregation of duties, proper authorisation and approval, physical control over assets, reconciliation, rotation of staff, and periodic verification of records.

4. Information and Communication – The systems and channels through which relevant, timely and reliable information is identified, captured and communicated to the concerned persons so that they can discharge their duties. It also includes reporting of weaknesses to the appropriate level of management.

5. Monitoring – The ongoing supervision and periodic review or internal audit of the control system to assess whether it is operating effectively and to take corrective action where deficiencies are found.

Conclusion

Thus, internal control is not merely an accounting device but a comprehensive management tool. Its elements work together as a chain—if any one element is weak, the reliability of the whole system is affected. Hence, every government office should design and operate these elements properly to safeguard public assets, ensure accurate records and promote good governance.

Forensic Auditing

Concept: Forensic auditing is a specialised branch of auditing that uses auditing, accounting and investigative skills to examine financial records and gather evidence that is admissible in a court of law or in a legal/disciplinary proceeding. The word "forensic" means "suitable for use in a court of law," so a forensic audit is conducted not merely to express an opinion on the fairness of financial statements (as in a normal audit) but to detect, prove and prevent fraud, misappropriation, embezzlement and other financial crimes.

Key features:

1. Objective: To investigate suspected fraud or financial irregularity and fix responsibility, rather than to certify accounts.
2. Scope: Specific and target-oriented — it covers only the area, period and transactions under suspicion, not the whole organisation.
3. Approach: Investigative and sceptical; the auditor presumes that something is wrong and works to prove or disprove it.
4. Evidence: Evidence is collected in a legally valid manner (documents, bank statements, emails, interviews, expert opinion) so that it stands as proof in court.
5. Reporting: The report is submitted to the appointing authority, court or investigating agency, and the auditor may have to appear as an expert witness.
6. Qualification: Requires knowledge of auditing, accounting, law, information technology and investigative techniques.

Difference from a normal (statutory) audit:

Conclusion: In short, forensic auditing is an investigation-oriented audit whose findings are meant to be used as legal evidence. In the context of Nepal, it is increasingly used by the Commission for the Investigation of Abuse of Authority (CIAA), the Office of the Auditor General and parliamentary committees to investigate corruption and misuse of public funds.

Under Section 11 of the Income Tax Act, 2058, the income of the following institutions is exempt from tax, subject to the conditions the Act sets:

1. Government and public bodies: The Government of Nepal and local levels (to the extent of their governmental income), and entities of the government specified by law.
2. Public welfare and charitable organisations: Religious, educational, social, health or other public-benefit organisations that are registered, are not run for profit, and do not distribute income to members; some require approval of the Inland Revenue Department.
3. Approved retirement funds and similar bodies: Funds such as the Employees Provident Fund and Citizen Investment Trust, and other approved retirement or gratuity funds.
4. Diplomatic missions and international organisations: Foreign diplomatic missions and their staff, and international organisations, as provided by treaty or reciprocity.
5. Political parties and other bodies as specified by the Act or by notification of the Government of Nepal in the Nepal Gazette.

Note: The exemption applies to the institution's income from its exempt purpose. Income from unrelated business, or breach of the conditions, can make the income taxable.

Refund of Value Added Tax under the Value Added Tax Act, 2052

Under the Value Added Tax Act, 2052 (and the Rules framed thereunder), a taxpayer is entitled to a refund of VAT in the following circumstances:

1. Zero-rated supplies (Section 17) Where a registered person makes zero-rated supplies (exports of goods and services), the VAT paid on inputs used in such supplies is refundable. The taxpayer may claim a refund of the excess input tax credit remaining after setting off against output tax.

2. Excess input tax credit (Section 18) If in any tax period the input tax credit exceeds the output tax (i.e., a credit balance remains), the excess amount is carried forward to the next tax period. If the credit balance cannot be adjusted within the following six tax periods, the taxpayer may apply for a refund of the unadjusted amount.

3. Purchase of goods/services by diplomatic missions and specified persons VAT paid on purchases made by diplomatic missions, international organisations, and persons entitled to exemption under the Act or international agreements may be refunded as prescribed.

4. Deduction/refund at the time of purchase (Section 20) A registered person purchasing goods or services for a purpose specified under Section 20 (e.g., goods purchased for a diplomatic mission or for a prescribed exempt purpose) may deduct or claim refund of the VAT paid, subject to conditions prescribed in the Rules.

5. Refund on cancellation of registration Where a person's registration is cancelled and a credit balance remains after all adjustments, such balance may be refunded as prescribed.

6. Refund on excess payment or erroneous payment If VAT has been paid in excess of the amount due or paid erroneously, the taxpayer may apply for a refund of such excess/erroneous amount within the prescribed time limit.

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Procedure for claiming refund:

• The taxpayer must file an application in the prescribed form to the concerned Inland Revenue Office within three years from the date the refund became due.
• The application must be accompanied by supporting documents (tax invoices, returns, evidence of zero-rated supplies, etc.).
• The tax officer examines the claim and, if satisfied, sanctions the refund within the prescribed period.
• If the claim is rejected, the taxpayer may appeal to the Revenue Tribunal within 35 days.

Note: Refund may be made either in cash or by adjustment against future tax liabilities, as prescribed.

Fiscal Transfer

Fiscal transfer (also called intergovernmental fiscal transfer) is the system by which a higher level of government transfers funds to a lower level of government to enable it to carry out its responsibilities. In Nepal, the federal government transfers funds to the provincial and local levels to correct the mismatch between their revenue-raising capacity and their expenditure needs, to reduce regional inequality, and to ensure that local governments can deliver basic services as per the constitutional division of functions.

Types of grants transferred to the local level:

1. Conditional Grant (Sasarta Anudan) — Given for specific programmes or sectors with conditions on use; the local level must spend it only for the prescribed purpose. It includes:

   • Complementary Grant (Purak Anudan) — For programmes run jointly by the federal/provincial and local levels.
   • Special Grant (Bishesh Anudan) — For specific projects of national or regional importance.

2. Unconditional Grant (Sasarta Rahit Anudan) — Given without conditions on use; the local government can spend it according to its own priorities. It includes:

   • Fiscal Equalization Grant (Vittiya Samanikaran Anudan) — To reduce fiscal disparity between local units.
   • Fiscal Capacity Building Grant (Vittiya Kshamata Vikas Anudan) — To strengthen the revenue-raising and financial management capacity of local units.

3. Revenue Sharing (Rajaswa Baadphanda) — A share of federal/provincial revenue (such as VAT, royalty on natural resources) is distributed to the local level on the basis of a formula.

4. Special Purpose Grant — For disaster management, rehabilitation, and other special needs.

These transfers are made mainly through the National Natural Resources and Fiscal Commission (NNRFC) recommendations and the Federal Consolidated Fund, as provided by the Constitution of Nepal and the Local Government Operation Act, 2074.

Many newly formed local governments, with small experienced staff and heavy new spending, have had rising audit irregularities (berojga). The Auditor General's reports show many local levels with large outstanding amounts.

Provisions for settling berojga:

1. Audit: Local levels are audited by the Office of the Auditor General (final audit) and by internal audit. Irregularities are put in the audit report and sent to the office concerned.
2. Response and clearance (Beruju Farchhyaut): The office chief and the responsible persons must submit documentary evidence and a reply within the time fixed by law (generally 35 days of receipt of the audit report). If the evidence is satisfactory, the beruju is cleared.
3. Categories: Under the Financial Procedures and Fiscal Accountability Act, 2076 and its Rules, irregularities are classed as:
   • Asuli (recoverable): amounts to be recovered from the person responsible.
   • Niyamit garnu parne (to be regularised): spending with missing procedure or approval that can be regularised by the competent authority.
   • Praman pugnu parne (to be supported by evidence): missing bills, vouchers or documents.
4. Recovery: Recoverable amounts are collected from the responsible person, and recovered like government dues if not paid.
5. Review and follow-up: The Local Government Operation Act, 2074 requires the Assembly's Accounts Committee, the executive, and the Chief Administrative Officer to monitor audit reports and clear irregularities. The Public Accounts Committee and the Auditor General follow up as well.
6. Accountability: The Chief Administrative Officer is the accounting officer, and responsible officials and elected leaders may face departmental action or recovery for losses.

How to solve the problem:

• Train elected members and staff in financial procedures, the Integrated Financial Management system (SuTRA) and accounting.
• Use an internal control system, regular internal audit, and a functioning audit committee.
• Follow the Public Procurement Act and the budget calendar strictly, and keep full documentation of every payment.
• Make spending, plans and audit results public through the Assembly and social audit, with public hearings.
• Respond to audit queries within the deadline and clear old amounts through regular follow-up.
• Fill vacancies in finance and accounts, with qualified accountants.
• Act on those who cause losses (recovery, departmental or legal action), and recognise good performers.
• Provide federal and provincial technical support and guidance, and strengthen the Assembly's oversight.

Sources of Deposit Income in a Government Office and the Process of Refund and Crediting to the Consolidated Fund

1. Sources of Deposit Income (Deposit Heads)

Deposit income (निक्षेप आय) refers to money received by a government office that is not government revenue but is held in trust, to be refunded or adjusted later. Under the New Financial Procedure and Fiscal Responsibility Act, 2076 and the Financial Comptroller General Office (FCGO) classification, the main sources are:

These amounts are credited to Deposit Heads (निक्षेप शीर्षक) in the government account — not to revenue heads — and are recorded in the Deposit Register (निक्षेप खाता) maintained by the office.

2. Process of Refund of Deposit

1. Application by the depositor — The concerned party files an application with the original deposit receipt (भरपाई) and supporting documents.
2. Verification — The accounts section verifies the entry in the Deposit Register, the amount, and the receipt number.
3. Approval — The office chief (or the competent authority) approves the refund after confirming that the purpose of the deposit is fulfilled and no dues remain against the depositor.
4. Preparation of voucher — A Bank Payment Order / cheque is prepared, debiting the concerned deposit head.
5. Payment — The amount is paid to the depositor or transferred to his/her bank account, and the payment is entered in the Deposit Register against the original credit.
6. Retention money — In case of retention money, it is refunded only after the defect liability period is over and the final bill is settled.

3. Crediting to the Consolidated Fund

• If the deposit is forfeited (e.g., a bidder withdraws the bid, or the contractor fails to perform), the amount is not refunded but is transferred from the deposit head to the concerned revenue head by a journal voucher (म.भ.प. – मुख्य भुक्तानी पत्र).
• The amount so transferred is then deposited (दाखिला) into the Consolidated Fund through the bank/treasury, and is shown as miscellaneous revenue in the government account.
• The FCGO, through the District Treasury Comptroller Office (DTCO), consolidates all such receipts and reports them to the Financial Comptroller General Office, which finally reflects them in the Annual Financial Statement (बार्षिक आर्थिक विवरण) presented to Parliament.
• Thus the flow is: Deposit Head → Revenue Head → Consolidated Fund, with proper accounting entries and audit by the Office of the Auditor General.

Conclusion: Deposit income is trust money; it is refunded to the rightful depositor on fulfilment of conditions, and only when it is forfeited or unclaimed beyond the legal period is it credited to the Consolidated Fund as government revenue.

Federal Consolidated Fund — Concept and Operation

Legal basis: Article 115 of the Constitution of Nepal provides that all revenues received by the Government of Nepal, all loans raised by the Government, and all money received by the Government in repayment of loans shall form one fund called the Federal Consolidated Fund (संघीय सञ्चित कोष). No amount can be spent from this fund except as appropriated by an Act of the Federal Parliament (Appropriation Act).

Funds reflected in the Federal Consolidated Fund:

1. All revenues — taxes (income tax, VAT, customs, excise), fees, fines, penalties, royalties, dividends, and other receipts collected by the Federal Government.
2. All loans raised — internal and external borrowings by the Federal Government.
3. Loan repayments received — principal and interest recovered on loans given by the Government.
4. Foreign grants received by the Federal Government.
5. Proceeds from sale of government assets and other miscellaneous government receipts.

(Note: Money of the Contingency Fund, and amounts credited to other separate funds created by law, are not part of the Consolidated Fund.)

Operation of the Fund:

• The Fund is operated and managed by the Minister of Finance on behalf of the Government of Nepal.
• Withdrawal from the Fund is possible only through an Appropriation Act passed by the Federal Parliament; expenditure is limited to the purpose and amount so authorised.
• Advance (imprest) money may be issued from the Fund to meet immediate expenditure, subject to later regularisation by Parliament.
• Contingency Fund: The Federal Parliament may by law establish a Contingency Fund; amounts are paid into it from the Consolidated Fund and used to meet unforeseen expenditure, which must be subsequently regularised through the Appropriation Act.
• Audit: The Office of the Auditor General audits all expenditure from the Fund, and the report is submitted to the President and laid before Parliament.
• Annual Statement: The Finance Minister presents the annual estimate of revenue and expenditure (Budget) to the joint sitting of both Houses, which authorises collection and spending.

Conclusion: The Federal Consolidated Fund is the single central account into which all federal government receipts flow and from which all federal expenditure is made, operated by the Finance Minister under parliamentary control and Auditor General's audit.

Ways to make Public Assets Management System (PAMS) more effective:

1. Complete and accurate digital inventory — Record every public asset (land, buildings, vehicles, equipment, furniture) in the PAMS database with a unique code, location, value and responsible office, and update it regularly.

2. Proper valuation and depreciation — Assess assets at realistic current value and apply depreciation so that the true financial position is reflected in the books.

3. Clear legal and institutional framework — Enforce the Public Procurement Act, Financial Procedures and Fiscal Responsibility Act, and Public Assets Management Regulations strictly, fixing accountability at each level.

4. Capacity building of staff — Provide regular training to accountants, storekeepers and asset officers on digital record-keeping, inventory procedures and reporting.

5. Strong internal control and audit — Conduct periodic physical verification, surprise checks and internal/external audits, and take action against those responsible for misuse or loss.

6. Use of modern technology — Adopt barcode/RFID tagging, GIS mapping of land and buildings, and cloud-based systems for real-time tracking and transparency.

7. Asset maintenance and optimal utilisation — Prepare maintenance plans, repair assets in time, and put idle assets to productive use or dispose of them through proper procedure.

8. Transparency and public disclosure — Publish asset details through open data portals and e-governance systems so citizens and oversight bodies can monitor them.

9. Coordination among agencies — Ensure coordination among the Ministry of Finance, line ministries, local levels and the Financial Comptroller General Office for uniform data and reporting.

10. Strong political will and leadership — Provide commitment at the political and administrative level, with adequate budget and incentives for honest and efficient asset management.

Record Maintenance of Goods Received Under Foreign Aid in Government Agencies

Goods received under foreign aid in government agencies are maintained through a systematic store and inventory accounting system, governed mainly by the Financial Comptroller General Office (FCGO) rules, the Public Procurement Act, 2063 and its Regulations, and the Financial Procedure and Fiscal Responsibility Act, 2076. The key aspects are:

1. Entry in the Store Register (मालसामान दर्ता किताब) All goods received under foreign aid are first entered in the Goods Received Register (मालसामान प्राप्ती दर्ता) of the concerned store. Details recorded include date of receipt, description of goods, quantity, unit, value, name of the donor/aid agency, bill/invoice number, and the name of the supplier.

2. Bin Card (बिन कार्ड) Each item is assigned a Bin Card maintained at the store shelf level. Every receipt and issue of goods is recorded in the Bin Card, showing quantity received, quantity issued, and running balance. This ensures physical verification of stock at any time.

3. Stock Register / Inventory Ledger A Stock Register is maintained in the store section, and a corresponding Inventory Ledger is kept in the accounts section. The two are reconciled periodically. Goods received under aid are recorded separately or with clear marking to distinguish them from government-purchased goods.

4. Aid-wise / Project-wise Records Since foreign aid goods come under bilateral or multilateral agreements, records are maintained aid-wise/project-wise (e.g., separate registers for goods received under grants from ADB, World Bank, or bilateral donors). This helps in reporting utilization to the donor and in fulfilling agreement conditions.

5. Valuation and Accounting Goods are valued as per the agreement or invoice value (including freight and insurance where applicable). The value is recorded in the financial statements and reported through the Financial Comptroller General Office (FCGO) system. Aid received in kind is shown as grant/aid income in government accounts.

6. Periodic Verification and Reporting

• Physical verification of stock is done at least once a year (or as prescribed).
• Stock reports are submitted periodically to the concerned ministry, the FCGO, and the donor agency.
• Audit by the Office of the Auditor General examines whether records are complete and whether goods have been used for the intended purpose.

7. Legal and Procedural Basis

• Public Procurement Act, 2063 and Public Procurement Regulations, 2064
• Financial Procedure and Fiscal Responsibility Act, 2076
• Store Management Rules of the concerned agency
• Bilateral/multilateral aid agreements

Conclusion Thus, goods received under foreign aid are maintained through store registers, bin cards, stock/inventory ledgers, aid-wise records, proper valuation, periodic verification, and reporting to the FCGO, concerned ministry, and donor, ensuring transparency, accountability, and proper utilization of aid.

Current Procurement Methods in the Government Sector (Nepal)

Under the Public Procurement Act, 2063 (2007) and the Public Procurement Regulations, 2064 (2008), a public entity may adopt the following methods to purchase goods, works, and services:

1. Direct Procurement (Bid without quotation) — Purchase from a single source without inviting competition. Used when the estimated amount is below the threshold (currently up to Rs 1,00,000 for goods) or in cases of extreme urgency, monopoly supply, or proprietary items.

2. Quotation (Sealed Quotation) — At least three quotations are invited from registered suppliers. Used for goods/services of small value (generally above Rs 1,00,000 up to Rs 20,00,000), where open bidding would be costly and time-consuming.

3. National Competitive Bidding (Open Bid) — The standard and most preferred method. Bids are invited openly through a national notice, evaluated on the basis of price and other criteria, and awarded to the lowest responsive bidder. Used for large-value procurement.

4. International Competitive Bidding — Adopted when goods/works are of high value or are not available domestically, requiring international suppliers to participate.

5. User Committee Formation — For small works (generally up to Rs 10,00,000) in rural areas, a user committee of local beneficiaries is formed to carry out the work, promoting local participation and employment.

6. Procurement through Force Account — The public entity itself carries out the work using its own labour, equipment, and resources, when competitive bidding is not feasible.

7. Limited Tendering — Bids are invited from a limited number of pre-qualified or pre-selected suppliers, used when only a few suppliers exist or for reasons of national security/standardisation.

8. Procurement from Specialised Firms/Consultants — For consulting services, methods such as Quality and Cost Based Selection (QCBS), Least Cost Selection, Fixed Budget Selection, and Single Source Selection are used.

9. Procurement through Inter-Governmental or International Agency Arrangements — Where procurement is done as per the procedures of a donor or international body.

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Methods Appropriate During Disaster or Pandemic

At the time of a disaster or pandemic, the guiding principle is speed, continuity of supply, and protection of public health, while maintaining as much transparency as possible. The following methods are most appropriate:

(a) Direct Procurement — Most Appropriate

• Reason: The Act itself permits direct procurement in cases of extreme urgency where the time required for bidding would cause irreparable loss or endanger public health. During an earthquake, flood, or COVID-19-type pandemic, medicines, oxygen, PPE, ambulances, and relief materials must be bought immediately. Inviting open bids would cause fatal delay. However, the urgency must be genuine, justified in writing, and approved by the competent authority.

(b) Quotation — Appropriate for Small, Repeated Purchases

• Reason: For routine but urgent items such as food grains, tarpaulins, and disinfectants of moderate value, sealed quotations from at least three suppliers can be obtained within a short period. This balances speed with a degree of competition and price reasonableness.

(c) Limited Tendering — Appropriate for Specialised Emergency Items

• Reason: When only a few firms can supply specialised items (e.g., PCR test kits, ventilators, vaccines), bids may be invited from those pre-qualified suppliers only. This saves time while retaining an element of competition.

(d) Procurement through User Committee / Force Account — Appropriate for Local Relief Works

• Reason: In disaster-hit remote areas where roads are blocked and normal bidders cannot reach, user committees or the entity's own force account can quickly construct temporary shelters, trails, and embankments using local labour and materials.

(e) Single Source Selection for Consultancy — Appropriate for Expert Emergency Services

• Reason: When immediate expert advice (e.g., epidemiologist, structural engineer) is needed, a single qualified consultant may be selected directly.

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Methods NOT Appropriate During Disaster

• International Competitive Bidding and large-scale Open Bidding are generally not suitable during an emergency because they require long notice periods, lengthy evaluation, and approval processes, which defeat the purpose of urgent relief. They may, however, be used after the immediate emergency phase for reconstruction.

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Reasons — Why These Methods Are Suitable

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Conclusion

The main procurement methods in Nepal's public sector are direct procurement, quotation, national and international competitive bidding, user committee, force account, limited tendering, and consultant selection methods. During a disaster or pandemic, direct procurement, quotation, limited tendering, user committee, and force account are the most appropriate because they ensure rapid, uninterrupted supply of essential goods and services while retaining basic accountability through written justification and competent authority approval.

Internal Control

Internal control is the whole system of controls — financial and non-financial — established by the management of an organisation to ensure that its activities are carried out in an orderly, efficient and economical manner. It covers the plan of organisation, the methods and procedures adopted, and the records maintained to:

• safeguard the assets of the organisation against waste, fraud, loss and misuse;
• ensure the accuracy and reliability of accounting records and reports;
• promote operational efficiency; and
• encourage adherence to the prescribed policies, rules and procedures.

In short, internal control is a means of self-checking and self-regulation within an organisation, and it is the responsibility of the management (top-level management in particular) to design and operate it.

Tools of Internal Control

The main tools (techniques) of internal control are:

1. Budgetary control — preparation of budgets for each activity and comparison of actual performance with the budgeted figures, so that variances are identified and corrective action is taken.
2. Internal check — arrangement of duties among staff in such a way that the work of one person is automatically checked by another, without any one person handling a transaction from beginning to end.
3. Internal audit — an independent appraisal of the accounting, financial and operational activities of the organisation by a separate internal audit department, reporting to top management.
4. Statistical analysis and comparative statements — use of ratios, trends, comparative financial statements and statistical records to detect unusual variations.
5. Standard costing — fixation of standard costs and comparison with actual costs to locate inefficiencies.
6. Responsibility accounting — fixing responsibility on individual managers or cost centres for the resources and results under their control.
7. Organisational control — a clear plan of organisation with proper delegation of authority, defined duties and responsibilities, and separation of duties.
8. Physical safeguards and protective devices — custody of assets in safe custody, locks, alarms, restricted entry, pre-numbered documents, and periodic physical verification of assets and reconciliation of bank statements.
9. Personnel control — recruitment of competent and honest staff, training, rotation of duties, and leave arrangements so that no employee occupies a key position continuously.
10. Management supervision and review — day-to-day supervision by superiors and periodic review of performance against plans.

These tools together make up the internal control system, and their effectiveness depends on the honesty and competence of the employees and the attitude of the management.

Performance Audit — Concept (5 marks)

Meaning: Performance audit (also called value-for-money audit or 3E audit) is an independent examination of whether government programmes, projects and organisations are managing resources with economy, efficiency and effectiveness. Unlike financial audit, which checks whether accounts are correct and rules followed, performance audit asks whether money was well spent — whether the intended results were actually achieved.

The Three Es:

1. Economy — Are inputs (goods, services, staff) obtained at the lowest reasonable cost, without sacrificing quality? (Avoiding waste in procurement.)
2. Efficiency — Is the best possible output obtained from the given inputs? (Input–output ratio; avoiding idle capacity, duplication of work.)
3. Effectiveness — Have the intended objectives and outcomes actually been achieved? (Did the programme benefit the target group?)

Some frameworks add a fourth E — Equity (fair distribution of benefits) — and Ethics.

Scope: It covers the entire management cycle — planning, budgeting, procurement, implementation, monitoring and reporting. It may examine a whole ministry, a single project, or a specific activity (e.g., road construction, health camps, subsidy distribution).

Basis and criteria: Audit is done against benchmarks such as legal provisions, government policies, plan targets, budget allocations, norms and standards, and international good practice. Evidence is gathered through document study, physical inspection, interviews and data analysis.

Distinction from financial audit:

Importance in Nepal: The Office of the Auditor General (OAG) conducts performance audits under Article 241 of the Constitution and the Audit Act, 2075. They expose waste, duplication, cost overruns and weak monitoring in projects; support the Public Accounts Committee; and help improve accountability, transparency and value for money in public spending. The OAG reports such findings in its annual report, and ministries are expected to act on the recommendations.

Conclusion: Performance audit is thus a forward-looking, problem-solving audit that measures not merely how much was spent, but how well it was spent — making it a key tool of good governance and accountability.

बेरुजु (Berrju / Irregularity) लोक सेवा आयोग — नायब सुब्बा (Level 5) [5 marks]

अर्थ (Meaning): बेरुजु भन्नाले सरकारी कोष, सम्पत्ति वा स्रोतको उपयोग गर्दा लेखा परीक्षण (Audit) बाट औंल्याइएको, प्रचलित ऐन, नियम, कानुन तथा वित्तीय अनुशासन विपरीत भएको खर्च वा कारोबारलाई जनाउँछ। महालेखा परीक्षकको कार्यालय (OAG) ले वार्षिक प्रतिवेदनमार्फत यस्तो रकम औंल्याउँछ।

वर्गीकरण (Classification):

1. असुल गर्नुपर्ने बेरुजु (Amount to be recovered) — बिना अधिकार, दोहोरो भुक्तानी, अयोग्य खर्च आदि; सम्बन्धित व्यक्तिबाट असुलउपर गर्नुपर्ने।
2. नियमित गर्नुपर्ने बेरुजु (Amount to be regularized) — प्रक्रियागत त्रुटि भए पनि रकम सदुपयोग भएको; कानुनसम्मत प्रक्रिया पूरा गरी नियमित गर्न सकिने।
3. पेश्की बेरुजु (Advance) — पेश्की लिएर फर्छ्यौट नभएको रकम।
4. अन्य बेरुजु (Other) — लेखा अभिलेख नराखिएको, सम्पत्ति दर्ता नभएको आदि।

फर्छ्यौट प्रक्रिया (Settlement Process):

1. बेरुजु फर्छ्यौट समिति (Berrju Farchhyaut Samiti) गठन — कार्यालय प्रमुखको संयोजकत्वमा समिति बन्छ।
2. बेरुजुको पहिचान र अभिलेख — महालेखा परीक्षकको प्रतिवेदन प्राप्त भएपछि बेरुजुको विवरण तयार गरी कार्यालयको बेरुजु अभिलेख (Berrju Register) मा दर्ता गरिन्छ।
3. कारण पहिचान र जिम्मेवारी तोक्ने — बेरुजु हुनुको कारण पत्ता लगाई जिम्मेवार कर्मचारी वा पदाधिकारी पहिचान गरिन्छ।
4. असुल गर्नुपर्ने भए असुलउपर — जिम्मेवार व्यक्तिबाट रकम असुल गरी राजस्वमा दाखिला गरिन्छ।
5. नियमित गर्नुपर्ने भए प्रमाण पेश — आवश्यक कागजात, भुक्तानी प्रमाण, निर्णय आदि पेश गरी नियमित गराइन्छ।
6. महालेखा परीक्षकको कार्यालयमा पेश — फर्छ्यौट भएको प्रमाण महालेखा परीक्षकको कार्यालयमा पेश गरी बेरुजु कट्टा (Write-off) गराइन्छ।
7. समयसीमा — आर्थिक वर्ष सकिएको ६ महिनाभित्र बेरुजु फर्छ्यौट गर्नुपर्ने व्यवस्था छ; नगरेमा कर्मचारीको बढुवा, पदोन्नति तथा अन्य सुविधा रोकिन सक्छ।

निष्कर्ष: बेरुजु फर्छ्यौट गर्नु वित्तीय जवाफदेहिता र सुशासनको महत्वपूर्ण पक्ष हो।

The Financial Procedures and Fiscal Accountability Act, 2076 makes ministers accountable for the finances of their ministries, mainly in these areas:

1. Budget and plans: The minister is responsible for the ministry's annual programmes, estimates of income and expenditure, and the budget submitted to the Ministry of Finance, in line with the Medium-Term Expenditure Framework and national priorities.
2. Spending within authority: The minister must see that money is spent only for approved purposes within the appropriation, with economy, efficiency and effectiveness.
3. Revenue and receipts: The minister must see that revenue and other receipts of the ministry and its bodies are properly raised and deposited in the Consolidated Fund.
4. Fiscal discipline and internal control: The minister must ensure internal control, internal audit, record-keeping and financial discipline, with the secretary as the chief accounting officer who carries out the day-to-day responsibility.
5. Results and reporting: The minister must monitor the progress of programmes and see that financial reports are prepared and submitted on time.
6. Audit and irregularities: The minister must ensure that audit queries (beruju) are answered and cleared, and that recoverable amounts are recovered.
7. Answerability: The minister is answerable to Parliament and its committees, including the Public Accounts Committee, for the financial performance of the ministry.

Organisations exempted from tax (Income Tax Act, 2058, Section 11):

1. Government bodies: The Government of Nepal and local levels, on their governmental income.
2. Public welfare and charitable organisations: Registered religious, social, educational or charitable bodies that are not run for profit and do not distribute income to members.
3. Educational and health institutions: Non-profit schools, colleges, universities and hospitals meeting the prescribed conditions.
4. Approved retirement and social security funds: Employees Provident Fund, Citizen Investment Trust, and approved retirement, pension or gratuity funds.
5. Diplomatic missions and international organisations: As provided by treaty or reciprocity.
6. Other bodies specified by the Act or by notification of the Government of Nepal.

When the exemption is lost:

1. The organisation distributes income or assets to members, directors or related persons.
2. It carries on business unrelated to its exempt purpose.
3. It fails to file returns, keep proper accounts, or submit its audit report on time.
4. It uses funds for personal benefit or for purposes other than its stated objectives.
5. Its registration or approval is cancelled or lapses.
6. It breaches other conditions of the Act.

In these cases its income becomes taxable under the Income Tax Act, 2058.

Under the Value Added Tax Act, 2052 and the VAT Rules, 2053, a person must register for VAT in these cases:

1. Turnover threshold: A person doing taxable transactions in Nepal must register if the taxable turnover of the last 12 months, or the expected turnover of the next 12 months, exceeds:
   • Rs 50 lakh for goods, or
   • Rs 20 lakh for services.
2. Importers and exporters, and prescribed persons: A person importing or exporting goods or services, or any person the Government prescribes, must register whatever the turnover.
3. Voluntary registration: A person below the threshold may register voluntarily if they keep proper books of account and meet the prescribed conditions.

Time limit: The application goes to the Inland Revenue Office, within 30 days of reaching the threshold or starting the business.

Not required to register: Persons dealing only in exempt goods or services (Schedule 1) do not need to register.

Major Provisions of Nepal Government Auditing Standard (NGAS)

The Office of the Auditor General (OAG) has implemented Nepal Government Auditing Standard (NGAS) to make government auditing systematic, professional and comparable with international practices. NGAS is based on the standards of INTOSAI (International Organization of Supreme Audit Institutions) and IFAC. Its major provisions are as follows:

1. Basic Principles of Auditing The standard prescribes that audit must be conducted with independence, objectivity, integrity and confidentiality. The auditor must be free from bias and external influence, and must maintain professional competence and due care while performing audit work.

2. Types of Audit NGAS recognizes three main types of audit:

• Financial Audit – examines whether financial statements present a true and fair view in accordance with prevailing laws and accounting standards.
• Compliance Audit – examines whether government activities, transactions and expenditures comply with laws, rules, regulations and contracts.
• Performance (Value for Money) Audit – examines the economy, efficiency and effectiveness of the use of public resources.

3. Audit Planning The standard requires preparation of an annual audit plan and audit strategy based on risk assessment. The auditor must understand the entity, its environment, internal control system and materiality level before starting audit work.

4. Materiality and Risk Assessment The auditor must determine materiality and assess audit risk (inherent risk, control risk and detection risk) so that audit effort is directed to high-risk and material areas.

5. Evidence and Documentation Sufficient, relevant and reliable audit evidence must be obtained through inspection, observation, inquiry, confirmation and analytical procedures. Working papers must be prepared and retained to support audit findings and conclusions.

6. Internal Control Evaluation The standard requires study and evaluation of the entity's internal control system, including control environment, risk assessment, control activities, information and communication, and monitoring.

7. Reporting Standards The audit report must be prepared in the prescribed format and must contain:

• Audit scope and objectives
• Basis of audit (laws, standards followed)
• Audit findings with evidence
• Criteria, cause and effect of irregularities
• Recommendations for improvement
• Management response and follow-up status

8. Follow-up of Audit Reports The standard makes follow-up of previous audit findings and recommendations mandatory. The concerned entity must submit a follow-up report on action taken on audit observations.

9. Compliance with Laws and Ethics The audit must be conducted as per the Constitution of Nepal, Financial Procedures and Fiscal Responsibility Act, Public Procurement Act, prevailing audit laws and the Code of Ethics of the OAG.

10. Quality Assurance The standard provides for internal quality control and independent quality review of audit work to ensure that audit is performed according to NGAS and reports are of high quality.

Conclusion In short, NGAS establishes uniform principles, procedures and reporting formats for government auditing in Nepal. Its implementation has increased the reliability, transparency and accountability of public financial management.

Distinction between Cash-Based and Accrual-Based Accounting System

Meaning:

• Cash-based accounting system: A system in which revenues and expenses are recorded only when cash is actually received or paid. Transactions are recognised on the basis of cash flow, not on the basis of the period to which they relate.
• Accrual-based accounting system: A system in which revenues and expenses are recorded in the period in which they are earned or incurred, irrespective of whether cash is received or paid.

Main points of difference:

Conclusion: The cash-based system is simple and based on actual cash movement, whereas the accrual-based system is scientific and based on the matching principle. Hence, the accrual system is more reliable for ascertaining the true profit or loss and the true financial position of an organisation.

1. Why the Journal Voucher is Prepared First (2 marks)

The journal voucher (जर्नल भौचर) is the primary/source voucher of the accounting system, so it comes first in the accounting cycle for these reasons:

1. Book of original entry — Every transaction is first analysed into debit and credit and recorded here; no ledger or report can be prepared before this.
2. Basis of ledger posting — The ledger (खाता) is posted only from the journal voucher, so it must exist first.
3. Complete information and narration — It carries date, voucher number, account heads, amount and the reason (narration) of the transaction in one place.
4. Evidence and authorisation — A signed voucher is documentary proof that the transaction was approved by the competent authority; it is the base of audit.
5. Internal control and accountability — Serial numbering prevents omission, duplication and fraud, and fixes responsibility on the preparer and approver.
6. Basis of financial statements — Trial balance, ledger and final accounts all flow from the journal voucher.

2. Preparation Process of the Journal Voucher (3 marks)

Step 1 – Receipt of documents: Collect the supporting papers (bill, invoice, decision, order, bank statement, etc.) relating to the transaction.

Step 2 – Scrutiny and checking: Verify legality, arithmetic accuracy, budget provision, approval of the competent authority and completeness of the documents.

Step 3 – Analysis of the transaction: Decide which account is to be debited and which credited, applying the rules of debit and credit (real, personal, nominal accounts).

Step 4 – Recording in the voucher form: Enter date, voucher number, name of the office, debit and credit account heads with amounts in the respective columns, and a short narration. The total of both columns must agree.

Step 5 – Approval and signature: The voucher is prepared by the accountant, checked by the section chief and approved/signed by the authorised officer (head of office or delegated official).

Step 6 – Posting and filing: Post the entries to the concerned ledgers, then keep the voucher safely in serial order for future reference and audit.

Specimen format:

Conclusion: The journal voucher is prepared first because it is the first and basic record of every transaction, and its preparation passes through scrutiny, analysis, recording, approval and filing.

Charts of Accounts

Definition: A chart of accounts is a systematically classified and coded list of all the ledger accounts (heads and sub-heads) used by an organisation to record its financial transactions. In the context of the Government of Nepal, it is the standardised list of budget heads, sub-heads, and account codes prescribed for recording and reporting all government revenue and expenditure in a uniform manner.

Process of Determining the Government of Nepal's Charts of Accounts

1. Determination of the structure of government: The federal structure (federal, provincial and local levels) is determined as per the Constitution, which forms the base for classifying accounts.

2. Classification of accounts: Accounts are classified mainly into:

   • Revenue (Receipt) heads — tax revenue, non-tax revenue, grants, etc.
   • Expenditure heads — recurrent (regular) expenditure and capital expenditure.

3. Determination of major heads (Main Heads): Major functional and object-wise heads are fixed, e.g., General Public Service, Economic Affairs, Education, Health, etc.

4. Determination of sub-heads and sub-sub-heads: Each main head is divided into sub-heads and further into sub-sub-heads for detailed recording (e.g., salary, allowance, fuel, stationery).

5. Assigning codes: A numeric code is assigned to each head, sub-head and sub-sub-head. The code structure generally follows the pattern: Ministry/Office – Main Head – Sub-head – Sub-sub-head.

6. Approval by the Ministry of Finance: The Financial Comptroller General Office (FCGO), under the Ministry of Finance, prepares and finalises the chart of accounts in consultation with the National Planning Commission and other concerned bodies.

7. Issuance and implementation: The approved chart of accounts is issued through the Financial Comptroller General Office and implemented by all government offices through the LMBIS (Line Ministry Budget Information System) and CGAS (Central Government Accounting System).

8. Revision: The chart of accounts is reviewed and revised periodically as per the need of the budget and changing government structure.

Five major roles expected out of an Account Chief for transparent and accountable public financial administration:

1. Budget preparation and execution — Preparing the annual budget of the office in line with the approved ceiling and programme, and ensuring expenditure is made only under the sanctioned budget heads and within the released appropriation.

2. Maintenance of accounts and records — Keeping accurate, up-to-date and complete books of accounts (cash book, ledger, budget sheet, bank reconciliation) as per the Financial Procedures and Fiscal Accountability Act, so that every rupee spent is traceable.

3. Internal control and compliance — Applying internal control over cash, bank, stores and advances; checking that all payments are supported by proper bills, vouchers and approval, and that the Public Procurement Act and financial rules are followed.

4. Financial reporting and disclosure — Preparing and submitting periodic reports (monthly, quarterly, annual) to the concerned authority and the Financial Comptroller General Office within the prescribed time, thereby making the office's financial position open to scrutiny.

5. Audit coordination and follow-up — Producing all records and statements required by the Office of the Auditor General and other auditing bodies, and ensuring that audit observations, irregularities and arrears are settled or regularised promptly.

(In short, the Account Chief acts as the guardian of financial discipline — planning, recording, controlling, reporting and answering for public money.)

Revenue Management Information System (RMIS) is an integrated ICT-based system used by the government to manage revenue collection, accounting, reporting and monitoring in an efficient, transparent and accountable manner. Its key features are:

1. Online revenue collection – Enables taxpayers to pay taxes, fees and other government dues electronically through banks, mobile banking, wallets and payment gateways without visiting the revenue office.

2. Integrated database – Maintains a centralized database of taxpayers, revenue heads, transactions and receipts, linking revenue offices, banks and the central treasury.

3. Automated accounting and reporting – Automatically records transactions, generates receipts, daily/monthly/periodic reports and financial statements, reducing manual errors and delays.

4. Revenue head-wise classification – Classifies revenue under proper budget heads and sub-heads (tax and non-tax), making it easy to track and reconcile collections.

5. Real-time monitoring and transparency – Provides real-time information on revenue collection to concerned authorities, enabling effective monitoring, control and informed decision-making.

6. Integration with other systems – Interlinks with the Treasury Single Account (TSA), Line Ministry Budget Information System (LMBIS), Central Financial Management Information System and other government financial systems.

7. Security and access control – Uses user authentication, passwords and role-based access to protect data and ensure confidentiality and integrity.

8. Reduced leakage and improved compliance – Minimizes direct contact between taxpayers and officials, curbing irregularities and encouraging voluntary tax compliance.

9. Ease of taxpayer service – Allows taxpayers to view payment history, obtain e-receipts and file returns online, making revenue administration simple and citizen-friendly.

10. Data analysis and decision support – Supports trend analysis, revenue forecasting and policy formulation through reliable and timely data.

Stock Inspection — Nayab Subba (Level 5)

1. Meaning of Stock Inspection (1 mark)

Stock inspection is the systematic physical verification and examination of the goods, materials, supplies and fixed assets held in an office's store, carried out to confirm that the actual quantity, quality and condition of stock matches the records (bin cards, stock register, inventory ledger) and to detect irregularities such as misuse, theft, damage, deterioration or misappropriation. It is a part of internal control over store management.

2. How Stock Inspection Is Carried Out in an Office (2 marks)

The inspection is carried out in the following steps:

1. Formation of inspection team: The head of office forms a stock inspection committee/team (usually 3 members) including a store officer, an accounts officer and a representative of the concerned section, none of whom is the storekeeper himself.
2. Fixing date and time: A date is fixed, preferably at the end of the fiscal year or half-year, and the storekeeper is informed in advance so that records are kept up to date.
3. Preparation of records: The storekeeper prepares bin cards, stock register, issue/consumption records, purchase records and a list of items to be verified.
4. Physical verification: The team counts, weighs or measures each item physically and compares it with the recorded balance. Quality, expiry date and condition of goods are also checked.
5. Checking documents: Purchase bills, challans, issue slips, return notes and adjustment vouchers are examined to verify genuineness of transactions.
6. Recording findings: Differences between physical stock and book stock (surplus, shortage, damage, obsolete items) are noted in the inspection report.
7. Signing the report: The report is signed by all members and submitted to the head of office with recommendations.

3. Processes to Implement Recommendations of the Stock Inspection Report (2 marks)

The recommendations of the stock inspection report are implemented through the following processes:

1. Study and approval of report: The head of office studies the report and approves the recommendations, or forwards it to the higher authority (department/ministry) for approval where required.
2. Adjustment of records: Surplus and shortage found in physical verification are adjusted in the stock register and accounts through adjustment vouchers after approval, so that book stock tallies with physical stock.
3. Action against responsible staff: If shortage, damage or misuse is due to negligence or dishonesty of the storekeeper or concerned staff, departmental action and recovery of the loss amount are initiated as per the rules.
4. Disposal of unusable stock: Damaged, obsolete, expired or unserviceable goods are disposed of through auction, donation or destruction following the prescribed procedure of the Financial Comptroller General Office / Public Procurement Act.
5. Improvement of store system: Weaknesses pointed out in the report (poor record keeping, lack of bin cards, weak security) are corrected by improving the store management system, training staff and issuing necessary directives.
6. Follow-up and monitoring: A follow-up mechanism is set up to ensure that the recommendations are actually implemented, and the progress is reported to the higher authority in the next inspection.

Retention money is a part of each interim (running) payment to a contractor that the public entity withholds as security against defective or incomplete work and against failure to remedy defects during the defect liability period. It is different from the performance security, which is furnished before the contract starts.

Legal framework: Public Procurement Act, 2063; Public Procurement Regulations, 2064; and the standard bidding documents (SBD) and General Conditions of Contract issued by the Public Procurement Monitoring Office (PPMO), which form part of the contract.

Main provisions

• Rate: about 5% of each interim payment is retained, and the total retained is limited to 5% of the contract price (as stated in the SBD/contract data).
• Substitution: the contractor may replace the cash retention with a bank guarantee of equal amount from a commercial bank.
• Release: generally one half is released after the completion certificate / taking over, and the balance after the defect liability period (usually 12 months) ends and defects are made good.
• Custody and accounting: the amount is a liability of the entity. It is recorded in a separate retention account and must not be spent on other items.
• Forfeiture: if the contractor fails to repair defects after notice, the entity may use or forfeit the retention money to have the work done.
• Control: retention accounts are examined by the Office of the Auditor General, and unreleased or misused retention money is a common audit observation.

Conclusion: Retention money protects public funds and gives the contractor an incentive to complete the work to the required quality, and it must be deducted, held and released strictly as the Act, Regulations and contract provide.

Catalogue Shopping Method

Catalogue shopping is a method of purchasing goods in which the buyer does not visit the seller's shop or store. Instead, the buyer selects the required goods from an illustrated catalogue (price list/booklet) published by the supplier, and places an order by post, telephone, or electronic means. The supplier then dispatches the goods to the buyer, usually by post or courier, and payment is made either in advance or on delivery as per the agreed terms.

In this method, the catalogue contains the description, specification, picture, and price of the goods, so the buyer can make a choice without physically inspecting the items. It is also known as mail-order buying.

Goods that can be procured through this method:

1. Standardised goods — items of uniform quality and size, such as stationery, office supplies, and printed forms.
2. Branded consumer goods — readymade garments, shoes, watches, cosmetics, and toiletries.
3. Small and light goods — books, magazines, CDs/DVDs, and small tools that are easy and cheap to transport by post.
4. Durable household items — kitchen utensils, electrical appliances, and furniture (where the supplier arranges delivery).
5. Goods of well-known make — where the buyer is already familiar with the quality and does not need physical inspection.

Goods generally NOT suitable: perishable goods (milk, vegetables, fruits), bulky and heavy goods (machinery, cement), and goods requiring personal inspection or trial (jewellery, custom-made items).

Major Problems in Public Procurement in Nepal

Public procurement in Nepal accounts for a large share of the national budget, yet it continues to suffer from several chronic problems:

1. Weak legal enforcement and loopholes — Although the Public Procurement Act, 2063 (2007) and its Regulations, 2064 provide a legal framework, weak enforcement, frequent amendments, and unclear directives create loopholes that are exploited.

2. Collusive bidding and cartel formation — Suppliers and contractors often collude to fix prices or rotate bids, defeating the purpose of competitive tendering. Fake or "dummy" bidders are used to make a single real bidder appear competitive.

3. Political interference and corruption — Procurement decisions are frequently influenced by political leaders and powerful interest groups. Kickbacks, commissions, and favouritism in awarding contracts are common, especially in large infrastructure projects.

4. Weak capacity of procuring entities — Many public bodies lack trained procurement specialists, proper cost estimates, and technical knowledge. Poorly prepared bidding documents and unrealistic cost estimates lead to delays, cost overruns, and disputes.

5. Lowest-bid mentality ignoring quality — Selection is often based solely on the lowest price without adequate consideration of technical capacity, past performance, or life-cycle cost. This results in substandard works and poor service delivery.

6. Delays and poor contract management — Slow approval processes, frequent time extensions, and weak monitoring allow contractors to abandon works midway or claim undue variations.

7. Weak complaint and review mechanism — The Public Procurement Monitoring Office (PPMO) and review committees lack independence, resources, and authority. Complaints are often not resolved promptly or impartially.

8. Lack of transparency and information disclosure — Although e-GP (electronic Government Procurement) has been introduced, full disclosure of bids, evaluations, and contract awards is still incomplete. Many contracts are awarded without adequate public scrutiny.

9. Inadequate audit and accountability — The Office of the Auditor General repeatedly reports irregularities, but follow-up action against responsible officials is rare, weakening deterrence.

10. Fragmented institutional framework — Multiple agencies (PPMO, line ministries, departmental committees) work without proper coordination, causing duplication and confusion.

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Suggestions to Make Procurement Transparent, Dignified and Effective

To build a transparent, dignified, and effective public procurement system, the following measures are suggested:

1. Strengthen legal and institutional framework — Amend the Public Procurement Act and Regulations to remove ambiguities, close loopholes, and align them with international best practices. Give PPMO statutory independence and enforcement powers.

2. Full digitalization through e-GP — Expand the electronic Government Procurement system to cover the entire cycle — from notice publication and bid submission to evaluation, award, and payment — to reduce human discretion and physical contact.

3. Ensure transparency and public disclosure — Mandatory publication of procurement plans, bid documents, evaluation reports, and contract awards on a central portal. Introduce open contracting data standards so citizens and media can monitor spending.

4. Build professional capacity — Establish a dedicated procurement cadre with certified training, competitive recruitment, and career incentives. Provide regular refresher courses on legal, technical, and ethical aspects.

5. Adopt value-for-money selection — Move beyond the lowest-bid approach to quality-and-cost-based selection (QCBS) for complex works and services, with clear technical evaluation criteria.

6. Strengthen integrity and anti-corruption measures — Enforce codes of conduct, declare assets of procurement officials, impose strict penalties for collusion and fraud, and blacklist defaulting bidders effectively.

7. Improve contract management and monitoring — Use performance-based contracts, real-time progress monitoring, and independent third-party verification. Link payments to verified milestones.

8. Make the review mechanism independent and accessible — Establish an independent procurement review body with quasi-judicial powers, strict timelines for complaint disposal, and protection for whistleblowers.

9. Enhance audit and accountability — Ensure timely follow-up of audit findings, publish action taken reports, and hold responsible officials personally accountable for irregularities.

10. Promote competition and participation — Simplify bidding procedures, reduce unnecessary documentation, encourage participation of SMEs and women-led firms, and ensure a level playing field.

11. Foster ethical culture and political commitment — Build awareness of procurement ethics, ensure top-level political commitment against interference, and reward transparent and efficient procuring entities.

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Conclusion:
Nepal's public procurement problems stem largely from weak enforcement, political interference, and low institutional capacity rather than the absence of laws. A combination of legal reform, full digitalization, professionalization, independent oversight, and strong political will is essential to make public procurement transparent, dignified, and effective — thereby ensuring that public money delivers real value to citizens.

Differences between Financial Audit and Performance Audit

Conclusion: Financial audit is concerned with how much was spent and whether it was spent lawfully, whereas performance audit is concerned with how well the money was spent in achieving the intended results.

(a) ASOSAI

ASOSAI stands for the Asian Organization of Supreme Audit Institutions. It is a regional organization of Supreme Audit Institutions (SAIs) of Asian countries, established in 1979 with its headquarters in Tokyo, Japan. It works as a regional group under INTOSAI and currently has more than 45 member SAIs, including the Office of the Auditor General of Nepal.

Objectives:

• To promote understanding and cooperation among member SAIs.
• To provide a forum for the exchange of ideas, experiences and information on public audit.
• To encourage the development of public audit standards and techniques in the region.
• To build the professional capacity of auditors through training, seminars and workshops.

Functions: ASOSAI organizes a General Assembly every three years, conducts training programmes and research activities, and publishes audit-related materials. It also assists member countries in improving their audit systems in line with international standards. Nepal, as a member, benefits through training and technical support for its Auditor General's Office.

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(b) INTOSAI

INTOSAI stands for the International Organization of Supreme Audit Institutions. It is the worldwide apex organization of Supreme Audit Institutions, established in 1953 with its headquarters in Vienna, Austria. It has nearly 200 member SAIs and works as an autonomous, independent, professional and non-political organization.

Objectives:

• To promote mutual cooperation among Supreme Audit Institutions.
• To support member SAIs in the development and improvement of public audit.
• To set international standards for public sector auditing (such as ISSAI).
• To encourage good governance, accountability and transparency in the use of public funds.

Functions: INTOSAI formulates auditing standards (ISSAI), conducts capacity-building programs, organizes the triennial INCOSAI congress, and carries out research through its committees and working groups. It provides a platform for sharing knowledge and best practices in government auditing. The Office of the Auditor General of Nepal is a member of INTOSAI and benefits from its standards and training programs.

Risk based audit is an audit approach in which the auditor first identifies and assesses the risks that could lead to material misstatement in the financial statements, and then directs audit effort and resources mainly towards those high-risk areas rather than treating all areas equally.

Key points:

• Meaning: It is an audit methodology where the nature, timing and extent of audit procedures are determined on the basis of assessed risk rather than on a uniform or routine basis.
• Process: Understanding the entity and its environment → identifying and assessing risks (inherent risk and control risk) → determining significant risks → designing and performing audit procedures → evaluating results and reporting.
• Focus: High-risk areas (e.g. complex transactions, related parties, cash, inventory, revenue recognition) receive more attention; low-risk areas receive limited or reduced testing.
• Basis: It follows the audit risk model — Audit Risk = Inherent Risk × Control Risk × Detection Risk. The auditor keeps detection risk low in high-risk areas by doing more substantive work.
• Advantages: Better use of limited time and manpower, better audit quality, early identification of fraud and error, and reasonable assurance at lower cost.
• Legal basis in Nepal: The Audit Act, 2075 and Nepal Standards on Auditing (NSA) require the auditor to assess risk and plan the audit accordingly; the Office of the Auditor General also follows risk based audit in public auditing.

In short, risk based audit means auditing "where the risk is high" instead of auditing "everything equally".

Self-Tax Assessment System

Self-Tax Assessment System is a system of tax collection in which the taxpayer himself/herself calculates the taxable income, computes the tax liability, fills up the tax return form and deposits the tax within the prescribed time without waiting for the tax officer to assess the tax. The tax officer only checks or verifies the return afterwards. In Nepal, this system is in practice mainly under the Income Tax Act, 2058 for income tax (and VAT), where the taxpayer files the return in the prescribed form by the deadline.

Why it is needed (Importance):

1. Reduces the workload of the tax office — the tax officer does not have to assess each and every taxpayer's income and tax; only selected returns are audited.
2. Saves time and cost — tax is determined and paid quickly, so both the taxpayer and the government save time and administrative expense.
3. Increases tax revenue — as more taxpayers come within the tax net and pay voluntarily, revenue collection increases.
4. Promotes self-discipline and honesty — the taxpayer becomes responsible for correct calculation and payment of tax.
5. Ensures certainty and transparency — the taxpayer knows in advance how much tax is to be paid and when.
6. Basis of a broad tax net — it supports the policy of "broad base, low rate" and helps bring the informal sector into the tax system.
7. Facilitates quick dispute settlement — assessment is done at the time of filing, so unnecessary delay and disputes are reduced.

Highlights:

• Taxpayer himself computes income and tax liability.
• Return is filed in the prescribed form within the prescribed time.
• Tax is paid along with the return (self-assessment).
• Tax officer verifies/audits only selected cases.
• Penalty and interest are charged for false statement or late filing.
• It is a voluntary, simple and time-saving system of tax collection.

Local level budget formulation: system and procedure

1. Legal basis

• The Constitution of Nepal (Part 19 on local financial procedure, with Articles 59 and 60 on fiscal powers and transfers) gives each Gaunpalika/Nagarpalika the right to prepare and approve its own budget.
• The Local Government Operation Act, 2074 and the Intergovernmental Fiscal Arrangement Act, 2074 set out the detailed process.
• The Executive presents the budget to the Local Assembly on Ashad 10 and the Assembly passes it by the end of Ashad, so that it applies from Shrawan 1.

2. System

• The fiscal year runs from Shrawan 1 to Ashad end.
• The budget is based on the Medium-Term Expenditure Framework (MTEF), the periodic plan and the local revenue improvement plan.
• Resources are own-source revenue, revenue sharing, and fiscal equalization, conditional, special and complementary grants from the federal and provincial governments.
• It is meant to be inclusive and gender-responsive.

3. Procedure

1. The federal and provincial governments inform the local level of expected grants and revenue sharing (resource ceilings).
2. The local level estimates its total resources and the Executive issues the budget ceiling and guidelines.
3. Wards, settlements and sector committees propose programmes, and the Budget and Programme Formulation Committee, led by the Deputy Chairperson/Deputy Mayor, screens and prioritises them.
4. The draft budget and annual programme are prepared and approved by the Executive.
5. The budget is tabled in the Local Assembly on Ashad 10, debated and passed.
6. The Chairperson/Mayor authenticates it, and it is implemented from Shrawan 1 with progress reports.

Conclusion: The process is participatory, bottom-up and tied to the available resources, and it keeps the budget disciplined and accountable.

Introduction

After the constitution of 2072 BS gave local governments (rural municipalities, municipalities, and district assemblies) wide-ranging fiscal powers, they have been accused of fiscal indiscipline and financial irregularities. The Office of the Auditor General has repeatedly issued qualified reports on local bodies, and the media frequently report misuse of funds. The main reasons and the measures to correct them are discussed below.

Reasons that prompted the blame

1. Weak internal control and accounting system. Many local bodies lack a proper internal audit system, double-entry accounting, and a separate internal audit unit. Bills are passed without checking, and expenses are made without budget headings.
2. Weak capacity of elected representatives and staff. Newly elected representatives and newly recruited accounting staff are not well trained in public financial management, so budget formulation, procurement, and reporting are weak.
3. Weak planning and budget discipline. Budgets are made at the end of the fiscal year, expenditure is concentrated in the last months (Chaitra–Ashad), and unspent amounts are spent hastily on unplanned activities.
4. Political interference and lack of transparency. Contract awards and transfers are influenced by political pressure; public hearings and social audits are held only as formalities. Information on income and expenditure is not displayed publicly.
5. Weak monitoring and supervision. The Ministry of Federal Affairs and General Administration, the National Natural Resources and Fiscal Commission, and the Auditor General have limited staff to monitor 753 local units. The Local Level Accounts Examination Office also cannot audit all units in time.
6. Weak legal enforcement. The Local Government Operation Act, 2074 BS provides for action against irregularities, but punishment is rarely imposed. The Commission for the Investigation of Abuse of Authority (CIAA) has limited reach at the local level.
7. Dependence on conditional grants. A large part of local income comes from federal grants, so local bodies do not feel the pressure to raise their own revenue honestly and carefully.
8. Weak citizen participation. Citizens are not aware of their right to demand accountability; ward-level committees and consumer groups are not active.

Measures to make local governments free of such blame

1. Strengthen internal control and internal audit. Make an internal audit unit compulsory in every local body, appoint a separate internal auditor, and prepare and follow an internal audit manual.
2. Improve accounting and reporting. Implement a uniform double-entry accounting system, computerised accounting (such as the LMBIS and SuTRA systems), and publish monthly and quarterly financial reports on notice boards and websites.
3. Build capacity. Run regular training for elected representatives, accountants, and procurement staff on budgeting, procurement, revenue mobilisation, and financial discipline.
4. Enforce budget discipline. Prepare the budget on time, follow the medium-term expenditure framework, stop unnecessary last-month spending, and link expenditure with outputs.
5. Ensure transparency and participation. Hold public hearings and social audits at least twice a year, display income and expenditure details publicly, and make ward committees and consumer groups active.
6. Strengthen monitoring and supervision. Increase staff in the Auditor General's office, the Local Level Accounts Examination Office, and the Ministry of Federal Affairs and General Administration; conduct regular and surprise audits.
7. Enforce the law strictly. Apply the Local Government Operation Act, 2074 BS and the Prevention of Corruption Act firmly; punish those involved in irregularities, and recover misappropriated amounts.
8. Increase own-source revenue. Expand and honestly collect local taxes (property tax, business tax, land revenue) so that dependence on grants decreases and local accountability increases.
9. Use technology. Introduce e-governance, online billing, digital payment of taxes and allowances, and a grievance-handling system to reduce chances of manipulation.
10. Promote citizen awareness. Educate citizens about their rights, publish citizen charters, and encourage them to demand accountability from their representatives.

Conclusion

Fiscal indiscipline in local governments is caused mainly by weak internal control, weak capacity, political interference, and weak monitoring. If internal audit, transparency, capacity building, strict legal enforcement, and active citizen participation are ensured, local governments can become clean, accountable, and development-oriented, and the blame will gradually disappear.

Process of Formulation of Federal Budget in Nepal [5 marks]

The federal budget of Nepal is formulated through a constitutional and systematic process, mainly governed by Article 119 of the Constitution of Nepal (2072) and the Financial Procedures and Fiscal Responsibility Act (FRA), 2076. The main steps are:

1. Preparation of Budget Ceiling (Macroeconomic Framework): The National Planning Commission (NPC) prepares the macroeconomic and resource framework in coordination with the Ministry of Finance (MoF). The MoF determines the total expenditure ceiling and sector-wise ceilings based on projected revenue, foreign aid, and borrowing limits.

2. Call for Budget Proposals (Circular): The MoF issues a budget circular to all ministries, departments, and provincial/local governments, asking them to submit their programmes and budget demands within the given ceiling, consistent with the national plan and priorities.

3. Screening and Prioritization: The Budget and Programme Division of the MoF, along with sectoral divisions, screens the proposals. Projects are prioritized based on readiness, national priority, cost-effectiveness, and absorption capacity. The National Planning Commission verifies the programmes for their consistency with plans and policies.

4. Approval by Council of Ministers: The MoF prepares the draft budget (Annual Estimate) and places it before the Council of Ministers for approval. After approval, it becomes the government's official budget proposal.

5. Presentation in Parliament: The Finance Minister presents the budget in a joint sitting of both Houses of the Federal Parliament on 15 Jestha (as per constitutional practice). It is presented along with the Annual Estimate of Revenue and Expenditure and the Financial Bill.

6. Discussion and Endorsement: The budget is discussed in Parliament — general discussion, then principle and priority discussion, followed by head-wise (ministry-wise) discussion in the House of Representatives. Finally, it is passed (endorsed) by both Houses, and the Finance Bill is passed to give legal effect to taxation proposals.

Thus, the federal budget is formulated through a systematic cycle of planning, proposal collection, screening, approval, presentation, and parliamentary endorsement.

(a) Main feature of the double entry bookkeeping system (2 marks)

The main feature of the double entry bookkeeping system is that every transaction is recorded in two accounts — one account is debited and another account is credited — for an equal amount, so that the total of debits always equals the total of credits. This keeps the accounting equation (Assets = Liabilities + Capital) always balanced and allows the preparation of a trial balance to check arithmetical accuracy. In short, "every debit has an equal and corresponding credit" is its distinguishing feature.

(b) Is the government accounting system of Nepal based on double entry? Clarify with arguments (2 marks)

The government accounting system of Nepal is not fully based on the double entry bookkeeping system; it is mainly based on the single entry (cash-based) system.

Arguments in support:

1. The Financial Comptroller General Office (FCGO) maintains government accounts on a cash basis, recording only receipts and payments of cash. It does not record non-cash assets and liabilities through debit and credit entries.
2. Government accounts are kept in the form of budget heads (vouchers, ledgers, and reports such as the Statement of Receipts and Expenditure) rather than in the form of personal, real, and nominal accounts as required by double entry.
3. The main objective is budgetary control and accountability — comparing budgeted amounts with actual receipts and expenditure — not ascertaining profit or loss, so the double entry framework is not essential.
4. However, in recent years Nepal has moved towards double entry accrual accounting in some areas: the New Accounting System introduced in 2019 BS (1962 AD) brought some double entry elements, and the Federal, Provincial and Local level governments are gradually adopting accrual-based double entry accounting under the Public Financial Management Reform Programme. Local levels maintain both budgetary and double entry records as per the Local Government Operation Act, 2074.

Conclusion: The traditional and still-dominant government accounting system of Nepal is single entry (cash-based), though reforms are gradually incorporating double entry accrual accounting. Hence it cannot be said to be fully based on the double entry system.

(c) (1 mark)

The double entry system is superior because it records both aspects of every transaction, keeps the books self-balancing, and makes fraud and error detection easier through the trial balance.

Issues to be Considered while Preparing Financial Statements as per Nepal Public Sector Accounting Standards (NPSAS)

Nepal Public Sector Accounting Standards (NPSAS) are issued by the Accounting Standards Board (ASB) Nepal and are applicable to all government and public sector entities preparing financial statements. While preparing financial statements as per NPSAS, the following issues must be considered:

1. Reporting Entity and Scope The reporting entity must be clearly identified. Financial statements should cover all funds, accounts and units controlled by the entity (e.g., a ministry, department or local body), so that the reporting boundary is complete and no controlled resource is left out.

2. Basis of Accounting NPSAS follows the cash basis of accounting (with certain disclosures). Therefore, transactions must be recognised only when cash is received or paid, not when the transaction is incurred. The entity must ensure that the accounting basis adopted is consistently applied and disclosed.

3. Compliance with Legal and Constitutional Provisions Financial statements must be prepared in accordance with the Constitution of Nepal, the Financial Procedures and Fiscal Responsibility Act, the Local Government Operation Act (for local bodies), and the annual Appropriation Act. Budget heads and expenditure classifications must match the legal framework.

4. Recognition and Measurement of Assets and Liabilities

• Cash and bank balances must be reconciled with bank statements and treasury records.
• Advances, deposits and investments must be properly classified and disclosed.
• Outstanding liabilities (liabilities not yet paid) and receivables must be disclosed as notes, even under cash basis.
• Physical assets (land, buildings, vehicles, equipment) must be recorded in the asset register and disclosed as required.

5. Completeness and Accuracy of Transactions All revenues (tax, non-tax, grants, loans) and all expenditures (recurrent, capital, financing) must be recorded completely and accurately. No transaction should be omitted or misstated. Reconciliation of bank accounts, advances and suspense accounts is essential.

6. Classification and Presentation Transactions must be classified into proper heads and sub-heads as prescribed by the Financial Comptroller General Office (FCGO) and the budget classification. The financial statements must include:

• Statement of Cash Receipts and Payments
• Statement of Budget vs. Actual (Comparison)
• Notes to the Financial Statements
• Disclosure of accounting policies

7. Accounting Policies and Disclosure Significant accounting policies (basis of accounting, treatment of grants, foreign currency, etc.) must be disclosed in the notes. Changes in policies, if any, must be explained with their effect.

8. Consistency and Comparability The same accounting policies and classification must be followed every year so that comparison between years is possible. Comparative figures of the previous year must be presented.

9. Consolidation and Fund Accounting Where multiple funds (Consolidated Fund, Contingency Fund, etc.) exist, proper consolidation or separate presentation must be made. Inter-fund transfers must be eliminated or disclosed to avoid double counting.

10. Foreign Currency and Grants Foreign currency transactions must be translated at the prescribed rate. Foreign grants and loans must be recognised and disclosed separately as per the agreement terms.

11. Internal Control and Audit The financial statements must be supported by a sound internal control system, and they must be audited by the Office of the Auditor General (OAG). Audit observations and their follow-up must be considered.

12. Timeliness Financial statements must be prepared and submitted within the time limit prescribed by law (e.g., within three months of the end of the fiscal year) so that they are useful for decision-making and accountability.

Conclusion Thus, while preparing financial statements as per NPSAS, the entity must consider the reporting entity, cash basis of accounting, legal compliance, proper recognition and disclosure of assets, liabilities, advances and outstanding amounts, correct classification, consistent accounting policies, consolidation of funds, foreign currency translation, internal control and audit, and timeliness. These considerations ensure that the financial statements present a true and fair view of the financial position and are useful for accountability and decision-making.

Under the Financial Procedure and Fiscal Responsibility Act, 2076 and the Financial Procedure Rules, 2077, each spending office must prepare a monthly budget implementation (progress) report and send it after the end of every month, within the period fixed by the rules (about 7 days).

Contents of the report

• Expenditure of the month and the cumulative figure against the allocated budget, by budget head and by recurrent and capital heads.
• Physical and financial progress of programmes and projects.
• Advances (peshki) given and settled, and any outstanding liabilities or unpaid bills.
• Revenue collected and deposited, where the office collects revenue.

Submission: the report goes to the line ministry/department, which consolidates it and passes it to the Ministry of Finance and the Financial Comptroller General Office (FCGO). In practice it is entered in the electronic systems, LMBIS (budget) and CGAS/TSA (accounting).

Purpose: to monitor progress, find delays, control spending and keep the fiscal accounts current.

Treasury Single Account (TSA)

Concept

The Treasury Single Account (TSA) is a unified structure of government bank accounts that consolidates all government cash resources—both revenue collections and expenditure disbursements — into a single account or a set of linked accounts maintained at the central bank (in Nepal, Nepal Rastra Bank). It is the core instrument of a Single Treasury Account system through which the Ministry of Finance (through the Financial Comptroller General Office – FCGO) controls and manages the entire cash position of the government.

Under TSA, line ministries, departments and spending units do not keep their own independent bank accounts. All revenues flow into the TSA and all payments are made from it. Where operational flexibility is needed, sub-accounts or zero-balance accounts (ZBAs) are opened, which are swept daily into the main TSA so that the aggregate government cash balance is always known and controlled in one place.

Objectives

1. To establish a unified cash management system for the whole of government.
2. To ensure effective control over public money and prevent leakage, idle balances and misuse.
3. To reduce borrowing costs by avoiding unnecessary cash holding and idle balances in many accounts.
4. To improve budget execution, accounting and reporting.
5. To support fiscal discipline and macroeconomic stability.

Positive Aspects in Public Financial Management (PFM)

1. Consolidated cash balance and better cash management: TSA gives the government a complete picture of its cash position at any time. Surplus cash in one part can be used to meet the needs of another part, so the government does not need to borrow while its own money lies idle in scattered accounts.

2. Reduction in borrowing cost and interest burden: Because idle balances are eliminated, the government borrows less from the market and pays less interest. This directly reduces the fiscal deficit and debt burden.

3. Effective expenditure control and fiscal discipline: All payments are made through the TSA with the approval of the FCGO. This prevents unauthorized spending, over-spending and diversion of funds, and strengthens commitment control.

4. Prevention of corruption and leakage: Since money does not remain in the hands of spending units outside the treasury system, the risk of misuse, embezzlement and “parking” of funds is greatly reduced. It supports transparency and accountability.

5. Timely and reliable accounting and reporting: Transactions are recorded in one system, enabling the FCGO and the Ministry of Finance to prepare monthly and annual financial statements quickly and accurately. This helps in budget formulation and in reporting to Parliament and donors.

6. Better budget execution and cash planning: TSA provides reliable data on revenue inflow and expenditure outflow, which helps prepare a realistic cash plan and release funds according to actual need rather than according to the spending capacity of units.

7. Support to monetary and debt management: The central bank can better coordinate with the treasury, as government balances at the central bank are known. This avoids conflict between fiscal and monetary operations.

8. Reduction in cost of banking services: Instead of maintaining thousands of accounts in many commercial banks with service charges, a single account at the central bank reduces transaction and administrative costs.

Challenges

1. Resistance from line ministries and spending units: Departments are used to having their own accounts and “own" funds. They fear loss of flexibility and delay in getting money, so they resist the reform.

2. Weak legal and institutional framework: In many countries, legal provisions still allow autonomous bodies, projects and local levels to keep separate accounts. Without strong legal backing, TSA cannot be fully implemented.

3. Incomplete coverage: Donor-funded projects, revolving funds, and autonomous institutions often maintain accounts outside the TSA. This reduces the benefit of consolidation.

4. Weak banking and IT infrastructure: TSA requires a robust real-time information system, reliable connectivity and an efficient payment system. In remote areas, lack of internet and banking access makes it difficult.

5. Delay in fund release and payment: If the treasury is centralized but not efficient, spending units may face delays in payment, affecting service delivery and development works.

6. Lack of skilled manpower: Effective operation of TSA needs trained accountants, IT staff and cash managers. Shortage of such manpower weakens the system.

7. Coordination problem: TSA needs close coordination among the Ministry of Finance, FCGO, Nepal Rastra Bank, line ministries and commercial banks. Poor coordination creates confusion and duplication.

8. Risk of centralization of power: Excessive concentration of financial authority in the treasury may reduce the accountability and initiative of spending units.

Conclusion

TSA is a core reform of Public Financial Management. It consolidates government cash, reduces borrowing cost, controls expenditure and curbs corruption. However, its success depends on strong legal backing, complete coverage of all government accounts, efficient IT and banking systems, and trained manpower. In Nepal, TSA has been gradually implemented through the FCGO and Nepal Rastra Bank, but full coverage and effective cash management remain unfinished tasks.

Consolidated Fund

The Consolidated Fund is the main government account in which all public money of the Government of Nepal is pooled and from which all government spending is met. Money can leave the fund only through an appropriation made by law.

Constitutional provisions (Constitution of Nepal, 2072, Part 9, Federal Financial Procedure)

1. No tax or loan without law (Art. 115): no tax may be levied and no loan raised except in accordance with law.
2. Consolidated Fund of Nepal (Art. 116): all revenue received by the Government of Nepal, all loans raised and all repayments of loans are credited to this fund, and all government expenses are met from it.
3. Withdrawal only by law: money cannot be taken out of the fund except under an Appropriation Act passed by the Federal Parliament. The Finance Minister presents the annual estimates of revenue and expenditure, and Parliament authorises spending after deliberation.
4. Advance spending: if the budget is not passed before the fiscal year starts, the Constitution allows spending in advance (a vote on account) from the fund for a limited period, with the amount later regularised by law.
5. Supplementary and special grants: additional or unforeseen needs can be met through supplementary estimates and similar provisions, which also require parliamentary approval.
6. Contingency Fund: a separate fund for urgent unforeseen expenses, which is reimbursed from the Consolidated Fund.
7. Regulation by law: the operation of the funds is governed by the Financial Procedure and Fiscal Responsibility Act, 2076.
8. Audit: the Auditor General audits public accounts and reports to the President, who places the report before Parliament, and the Public Accounts Committee follows it up.
9. Other levels: provinces and local levels have their own provincial and local consolidated funds under the same principles.

Conclusion: The fund gives Parliament control over public money, so that revenue and spending are lawful, transparent and accountable.

Importance of Recording and Management of Government Assets

Government assets (land, buildings, vehicles, equipment, furniture, cash, etc.) are public property held in trust for the people. Their proper recording and management is important for the following reasons:

1. Protection from loss, misuse and theft — Proper records show what assets exist, where they are kept and who is responsible for them. This accountability prevents misappropriation, misuse and loss of public property.

2. Accurate accounting and financial reporting — Asset records are needed to prepare reliable financial statements (balance sheet, statement of assets and liabilities) and to know the true financial position of the government.

3. Basis for planning and budgeting — Information on existing assets helps the government decide what new assets are needed, avoid unnecessary and duplicate purchases, and allocate the budget properly.

4. Proper maintenance and longer life — A management system records the condition, repair and depreciation of assets, so that timely maintenance can be done and the service life of assets extended.

5. Ensuring accountability and transparency — It fixes responsibility on the concerned office and official, and makes the use of public resources transparent. This helps in effective audit by the Office of the Auditor General.

6. Prevention of corruption and irregularities — Regular verification (physical counting), reconciliation and reporting reduce chances of embezzlement, misappropriation and irregular disposal of assets.

7. Proper disposal and transfer — Old, unserviceable or surplus assets can be identified and disposed of or transferred according to the rules, which prevents them from lying idle and losing value.

8. Support to good governance — Sound asset management ensures the best use of limited public resources, increases public trust and supports the delivery of effective public services.

Conclusion: Recording and management of government assets is therefore essential for protecting public property, maintaining financial discipline, ensuring accountability and transparency, and using national resources efficiently for the welfare of the people.

Reasons for Writing Off Inventory and the Process of Writing Off

(Nayab Subba, Level 5 — 5 marks)

Meaning

Writing off inventory means removing from the books those inventory items which have become unusable, unserviceable, obsolete, expired or lost, and recording them as a loss/expense of the concerned office. In government accounting, it is done as per the prevailing financial rules so that the store/stock account reflects only usable goods.

Reasons for Writing Off Inventory

1. Damage/Deterioration – Goods damaged by fire, water, insects, rats, damp, rough handling or natural calamity.
2. Obsolescence – Items that have gone out of date or out of use due to change in technology, design or government policy (e.g., old typewriters, old computer parts).
3. Expiry Date – Medicines, chemicals, stationery with expiry dates that are no longer usable.
4. Wear and Tear – Items that have lost their utility due to long storage or repeated use.
5. Loss/Theft/Pilferage – Shortage or loss of goods found during physical verification, theft or misplacement.
6. Surplus/Unserviceable Stock – Excess quantity beyond requirement or items declared unserviceable by a technical committee.
7. Breakage/Leakage – Bottles, glassware, chemicals, oil, etc., broken or leaked during storage or transport.
8. Change in Specification/Standard – Old stock not matching the new prescribed standard.

Process of Writing Off

1. Identification – The storekeeper/concerned section identifies unusable, obsolete or lost items during store inspection or physical verification.
2. Preparation of Proposal – A written proposal (with details of items, quantity, value and reasons) is prepared by the store section.
3. Technical Examination/Recommendation – A technical committee or competent technical officer examines the items and recommends writing off, fixing the amount to be written off.
4. Approval by Competent Authority – The proposal is forwarded through the concerned office head to the authority empowered by the financial rules (e.g., concerned Secretary/Department head/Office head as per delegation) for approval.
5. Approval and Order – The competent authority approves the write-off and issues an order specifying the items and amount.
6. Accounting Entry – The approved amount is removed from the inventory/stock account and debited to the appropriate expense/loss head (e.g., "Loss on Write-off of Inventory") in the books.
7. Disposal of Items – The written-off items are disposed of as per rules (auction, destruction, donation, etc.), and the proceeds, if any, are deposited in the government revenue/concerned fund.
8. Record Keeping – The approval order, committee report and disposal records are kept on file for audit and future reference.

Conclusion

Writing off inventory is necessary to keep the store account accurate, to avoid unnecessary storage cost and to maintain accountability. It must be done only after proper verification and approval of the competent authority as per the financial rules.

Deposit income is the amount received by a government office as a deposit (बैंक जमानी/धरौटी) from a party — such as a contractor, bidder, or service seeker — as a security or guarantee for the fulfillment of a contractual obligation or for the proper use of government property. It is not the office's own revenue; it is a liability of the office because it must be refunded to the depositor when the condition is fulfilled, or forfeited to the government if the condition is breached. In government accounting it is therefore recorded as a deposit (liability), not as revenue.

Writing off (refunding/settling) the deposit amount in the office:

1. Receipt of deposit: When the deposit is received, it is entered in the Deposit Register and a receipt (भरपाई) is issued to the depositor. In the budget/accounts it is credited to the deposit account (e.g., "Deposit of Contractors" / धरौटी खाता) as a liability — not as revenue.
2. Application for refund: When the condition for which the deposit was taken is fulfilled (e.g., contract completed satisfactorily), the depositor applies to the office for refund, attaching the original deposit receipt and the recommendation of the concerned branch/officer.
3. Verification and approval: The concerned section verifies that no dues remain against the depositor and that the terms of the contract have been met. The deposit is then approved for refund by the competent authority (office chief).
4. Accounting entry (write-off): The deposit is written off by debiting the deposit (liability) account and crediting cash/bank:
   • Dr. Deposit (धरौटी) account … Rs. X
   • Cr. Cash/Bank … Rs. X This reduces the office's deposit liability and the cash balance simultaneously. The entry is recorded in the cash book and the deposit register is updated (marked "refunded").
5. Forfeiture (if condition breached): If the depositor fails to fulfill the condition, the deposit is not refunded but forfeited and transferred to government revenue:
   • Dr. Deposit (धरौटी) account … Rs. X
   • Cr. Revenue (राजस्व) account … Rs. X The amount is then deposited into the government treasury (राजस्व खाता) and reported in the monthly revenue statement.
6. Reporting: The refund or forfeiture is shown in the monthly/periodic financial statement so that the closing balance of the deposit account is reconciled with the deposit register.

Clarification: "Writing off" a deposit does not mean destroying the record; it means closing the office's liability either by refunding it to the depositor on fulfillment of the condition or by forfeiting it to the government on breach. The essential point is that a deposit is never treated as income when received — it is only recognized as revenue when it is forfeited.

Role of the Public Procurement Monitoring Office (PPMO) in public procurement management

The PPMO is the apex body for monitoring and guiding public procurement in Nepal. It was established under the Public Procurement Act, 2063 and works under the Office of the Prime Minister and Council of Ministers. It does not carry out the entities' procurement itself. Its role is to make the system work in line with the Act and Regulations, 2064, so that procurement is economical, efficient, transparent, competitive and accountable.

1. Policy and legal role

• Proposes amendments to the Act and Regulations and advises the government on procurement policy.
• Prepares and issues standard bidding documents, standard requests for proposals, forms, manuals, guidelines and circulars so that all entities follow one format.

2. Monitoring and supervision

• Monitors whether public entities follow the law on planning, bidding, evaluation, contract award and contract management.
• Inspects procurement records, reviews performance and recommends corrective action to entities and ministries.

3. e-Government procurement (e-GP)

• Runs the e-GP system (Bolpatra portal), which publishes bid notices, awards and contract information.
• Keeps procurement data and publishes it for transparency and analysis.

4. Capacity building

• Trains procurement officers, evaluation committee members, contractors and suppliers, and develops procurement professionals and certification.

5. Information, blacklisting and reporting

• Maintains the information system, including the list of debarred or blacklisted bidders, and publishes an annual report on procurement.

6. Grievances and coordination

• Receives complaints and directs the entities concerned, while the formal review of bid decisions lies with the review body under the Act.
• Coordinates with ministries, the provincial and local levels, the Office of the Auditor General, the CIAA and development partners.

7. Promoting good governance

• Promotes fair competition, value for money and integrity, and discourages collusion, delay and corruption.

Conclusion: By setting standards, monitoring compliance, providing e-GP and building capacity, the PPMO strengthens public confidence in how Nepal's procurement is managed.

Special grant (विशेष अनुदान)

A special grant is a transfer of money from the Federal Government to a province or local level for a specific purpose that is identified as special. It is provided under Article 60 of the Constitution of Nepal and the Intergovernmental Fiscal Arrangement Act, 2074. It is a separate type of grant alongside fiscal equalization, conditional and complementary (matching) grants.

Purposes

• To improve access to services such as education and health for disadvantaged groups and regions.
• To build basic infrastructure in remote, backward and marginalised areas.
• To protect the rights and welfare of vulnerable communities and to promote balanced development.

Features

1. It is project- or programme-based and may be spent only on the stated purpose.
2. It is decided by the Federal Government on the basis of proposals and needs, with advice from the National Natural Resources and Fiscal Commission. It is not given by a fixed formula.
3. The amount is stated in the annual budget and the recipient must submit expenditure and progress reports, and the accounts are audited.
4. It is not part of the regular unconditional (equalization) support. It meets special needs only.

Difference from other grants: equalization grants are formula-based and unconditional, conditional grants fund sector programmes, and complementary grants require a counterpart contribution. A special grant answers a particular need.

Conclusion: It lets the federal government reduce disparities among regions and communities when regular transfers are not enough.

Internal Control System

Meaning: Internal control system is the sum total of all the policies, procedures, methods and practices adopted by an organisation to safeguard its assets, ensure the accuracy and reliability of its accounting records, promote operational efficiency and encourage adherence to prescribed managerial policies. It is a continuous and organisation-wide process, not a one-time activity.

Objectives:

1. Safeguarding assets — preventing theft, misuse, fraud and wastage of cash, stock and other property.
2. Ensuring reliability of records — producing accurate, complete and timely accounting and financial information.
3. Promoting operational efficiency — reducing errors, duplication of work and unnecessary cost.
4. Ensuring compliance — making sure that rules, laws, financial regulations and management policies are followed.
5. Facilitating audit — providing a sound basis for both internal and final (statutory) audit.
6. Achieving organisational goals — directing all activities towards the planned objectives.

Components / Elements:

1. Control environment — the overall attitude, awareness and commitment of top management, including integrity, ethical values and organisational structure.
2. Risk assessment — identification and analysis of the risks that may prevent the organisation from achieving its objectives.
3. Control activities — the actual procedures and actions, such as segregation of duties, rotation of staff, authorization and approval, physical safeguarding of assets, reconciliation, and double-entry bookkeeping.
4. Information and communication — timely flow of relevant information to the right level of management.
5. Monitoring — regular supervision, internal audit and review to see whether controls are working effectively.

Types:

1. Preventive control — applied before the activity to stop errors or fraud (e.g., authorization, segregation of duties).
2. Detective control — applied after the activity to detect errors or fraud (e.g., bank reconciliation, physical verification).
3. Corrective control — applied to correct the detected errors and weaknesses.

Importance: It protects public property, checks fraud and corruption, ensures economy and regularity in the use of public funds, makes financial reporting trustworthy, and supports good governance and accountability in government and public organisations.

Conclusion: An effective internal control system is the backbone of sound financial administration. It must be reviewed and updated continuously, because a weak or outdated control system invites errors, irregularities and loss of public resources.

Registration of a taxpayer under the Value Added Tax Act, 2052

Section 10 of the Act and the VAT Rules, 2053 govern registration. A person must be registered with the Inland Revenue Office before collecting VAT.

1. Who must register (compulsory)

The thresholds are those currently prescribed and may be changed by the Finance Act. The person must apply within 30 days of becoming liable.

2. Voluntary registration: a person below the threshold may register if he supplies taxable goods or services and keeps proper accounts. Such a person is bound by the VAT obligations and cannot cancel registration freely.

3. Procedure

1. Obtain a Permanent Account Number (PAN) from the Inland Revenue Office.
2. Submit the prescribed application with the citizenship certificate or company registration, proof of business premises, the PAN, and the memorandum and articles or partnership deed for firms and companies.
3. The tax officer examines the documents and may inspect the premises.
4. If satisfied, the officer issues the VAT registration certificate carrying the registration number.
5. The registered person must display the certificate at the place of business, issue tax invoices, keep records and file returns.

4. Changes and cancellation: changes in name, address or business must be reported to the office. Registration can be cancelled if the business closes or the person no longer meets the conditions, after settling tax dues.

5. Not registering: an unregistered person cannot charge VAT or issue tax invoices, and is liable to tax with penalty and interest for the period of default.

Asian Association of Supreme Audit Institutions (ASOSAI)

Introduction

ASOSAI is a regional organisation of Supreme Audit Institutions (SAIs) of Asian countries, established in 1979 with its headquarters in Tokyo, Japan. It works as an autonomous regional group under the framework of INTOSAI (International Organisation of Supreme Audit Institutions). Nepal's Office of the Auditor General (OAG) is a member of ASOSAI.

Objectives

1. To promote mutual cooperation and understanding among Supreme Audit Institutions of Asian countries.
2. To strengthen the capacity and professional competence of member SAIs in public audit.
3. To exchange knowledge, experience, and information on audit practices, standards, and techniques.
4. To encourage the adoption of international audit standards (ISSAIs) and good governance practices in public financial management.
5. To assist member SAIs in developing institutional capacity, human resources, and modern audit methods.
6. To serve as a regional forum for discussing common problems and emerging issues in public audit.

Functions

1. Organising assemblies and seminars — Holds the ASOSAI Assembly every three years and conducts seminars, workshops, and training programmes for member SAIs.
2. Capacity building — Provides training, technical assistance, and e-learning facilities to strengthen member institutions.
3. Research and publication — Conducts research on audit-related themes and publishes reports, guidelines, and journals.
4. Promoting audit standards — Encourages members to apply INTOSAI standards and best practices in auditing.
5. Cooperation with INTOSAI and other bodies — Works with INTOSAI, regional working groups, and donor agencies on audit development.
6. Knowledge sharing — Maintains databases, e-learning platforms, and networks for sharing audit experiences among members.
7. Advocacy — Raises awareness about the role of SAIs in accountability, transparency, and good governance.

Conclusion

ASOSAI plays a vital role in enhancing the professionalism, independence, and effectiveness of Supreme Audit Institutions in Asia. Through cooperation, training, and standard-setting, it helps member SAIs contribute to sound public financial management and accountable governance.

(a) Federal Contingency Fund

Constitutional basis: Article 223 of the Constitution of Nepal 2072.

• It is a fund created at the federal level to meet unforeseen and emergency expenditures not included in the annual budget.
• The Federal Parliament makes law to create and operate this fund. The Federal Government may advance necessary amounts from it during an emergency.
• The amount advanced from the fund must be reimbursed to the fund as soon as possible.
• Details of advances made from the fund are submitted to the Federal Parliament, ensuring legislative control and financial discipline.
• Significance: It enables the government to respond quickly to disasters, epidemics, war-like situations or other emergencies without waiting for fresh budget approval.

(b) Supplementary Estimates

Constitutional basis: Article 225 of the Constitution of Nepal 2072.

• Supplementary estimates mean additional estimates of expenditure presented by the Federal Government to the Federal Parliament during a financial year.
• These are presented when the annual estimates are insufficient or when new and additional expenditure arises due to changed circumstances, increased costs or new policy needs.
• They follow the same procedure as the annual estimates: presentation in Parliament, approval by both Houses, and inclusion in the Appropriation Act.
• After approval, the government gets legal authority to withdraw additional money from the Federal Consolidated Fund.
• Significance: They provide legal authority for extra spending, maintain parliamentary control over public finance, and bring flexibility in budget management. They are also called supplementary budget/grant.

Performance Auditing: Meaning, Objectives and Status in Nepal

1. Meaning of Performance Audit (4 marks)

Performance audit (also called value-for-money audit or 3E audit) is the independent examination of the economy, efficiency and effectiveness with which a government entity uses its resources to achieve its stated objectives. Unlike financial audit, which asks "Has the money been spent legally and correctly?", performance audit asks "Has the money been spent well?"

It rests on the three Es:

• Economy — acquiring resources of the right quality at the lowest cost (avoiding waste in procurement).
• Efficiency — getting the maximum output from the resources used (input–output relationship).
• Effectiveness — achieving the intended objectives and outcomes of the programme.

INTOSAI defines performance audit as an audit of economy, efficiency and effectiveness, and in Nepal the Auditor General Act, 2075 and the Audit Act, 2075 give the Office of the Auditor General (OAG) the mandate to conduct such audits.

2. Objectives of Performance Audit (6 marks)

1. Assess economy — to see whether goods, works and services were procured at reasonable cost and without extravagance.
2. Assess efficiency — to examine whether human, financial and physical resources were used productively and whether idle capacity or duplication exists.
3. Assess effectiveness — to measure whether the programme achieved its intended outputs, outcomes and beneficiaries' needs.
4. Ensure accountability — to hold the executive accountable to Parliament and the public for results, not merely for spending.
5. Support decision-making — to provide reliable information for budget formulation, planning and resource allocation.
6. Identify weaknesses and suggest improvement — to point out systemic weaknesses in laws, procedures and management and recommend corrective measures.
7. Promote good governance and transparency — to strengthen financial discipline, reduce corruption and enhance public trust.
8. Value for money — to ensure that every rupee of taxpayer money delivers maximum public benefit.

3. Critical Status of Performance Audit in Nepal

Positive developments:

• The OAG has been conducting performance audits since the 1990s (formally institutionalised after 2052 B.S.) and reports them in its Annual Report under a separate chapter.
• The Auditor General Act, 2075 and Good Governance (Management and Operation) Act, 2064 provide legal backing.
• Nepal follows INTOSAI standards and has adopted the ISSAI framework; the OAG is a member of INTOSAI and ASOSAI.
• Performance audits of sectors such as drinking water, irrigation, health, education, roads and local bodies have been conducted.
• The Public Accounts Committee (PAC) of Parliament discusses these reports and issues directives.

Critical weaknesses:

1. Dominance of financial and compliance audit — more than 80% of OAG resources and reports are still compliance-oriented; performance audit remains a small fraction.
2. Weak follow-up — PAC directives are rarely implemented; the same irregularities repeat year after year, showing that audit findings do not translate into reform.
3. Lack of performance indicators — most government programmes lack measurable output/outcome indicators, making 3E evaluation difficult.
4. Inadequate capacity — shortage of trained multi-disciplinary auditors (engineers, economists, IT experts) in the OAG.
5. Political interference — audit reports are often politicised; serious findings are diluted or ignored.
6. Weak internal audit — internal audit units in ministries are understaffed and not independent, so performance audit lacks a foundation.
7. Delay in reporting — reports are often tabled years after the audit period, reducing their relevance.
8. Limited citizen engagement — public participation and social audit are not systematically linked with OAG performance audits.
9. No legal obligation to act — there is no provision making implementation of performance audit recommendations mandatory.

Conclusion:

Performance auditing in Nepal has made progress in legal mandate and methodology, but in practice it is still in an emerging stage. To make it effective, the OAG must invest in capacity building, develop result-based indicators, strengthen internal audit, ensure timely reporting, and make follow-up on recommendations legally binding. Only then can performance audit become a real tool of accountability, good governance and value for money in the public sector.

None of the given options — the correct cost price is Rs 2000.

Let CP = $x$.
Marked price = $1.3x$.
After 10% discount, selling price = $0.9 \times 1.3x = 1.17x$.
Profit = $1.17x - x = 0.17x$.

Given profit = Rs 340: $0.17x = 340 \Rightarrow x = \frac{340}{0.17} = 2000$

So CP = Rs 2000, which is not listed among the options.