Main challenges in the government budget formulation process in Nepal

1. Unrealistic and inflated estimates – Revenue targets and expenditure ceilings are set high to show ambition, without matching actual collection capacity and spending ability. This creates a wide gap between budgeted and actual figures.

2. Weak project readiness and selection – Projects are included in the budget without feasibility studies, detailed design, or land acquisition. As a result, capital spending lags and funds go unspent (low capital expenditure ratio).

3. Politically driven allocation – Constituency-based and party-interest pressure leads to distribution of resources on political grounds rather than on need, cost-benefit, or national priority. This fragments the budget into many small, unproductive projects.

4. Late and ad-hoc formulation – The budget is often prepared in a hurry near the fiscal year-end, with frequent changes at the last stage. The Medium-Term Expenditure Framework (MTEF) and ceiling system are not followed seriously.

5. Weak coordination among agencies – The National Planning Commission, Ministry of Finance, line ministries, and provincial/local governments do not coordinate effectively, causing duplication and mismatch between plans and budgets.

6. Dependence on uncertain foreign aid – A large part of the capital budget depends on foreign loans and grants, which are often delayed or not disbursed on time, disrupting implementation.

7. Weak monitoring and evaluation – There is no strong system to track whether allocated funds are used properly, so the same weaknesses repeat every year.

8. Fiscal indiscipline and off-budget spending – Unbudgeted and off-budget expenditures, plus weak control over transfers to sub-national governments, reduce the credibility of the budget.

Conclusion: These challenges together make Nepal's budget more a statement of intent than a practical spending plan. Reform requires realistic estimates, project readiness, disciplined implementation, and strong monitoring.

Public sector accounting standard is a set of uniform rules, principles, concepts and guidelines formulated for recording, classifying, presenting and reporting the financial transactions and statements of government and public sector entities. In Nepal, such standards are issued by the Accounting Standards Board (ASB) and are known as Nepal Public Sector Accounting Standards (NPSAS), which are based on the International Public Sector Accounting Standards (IPSAS) issued by IFAC.

Major objectives:

1. Uniformity and comparability — To bring uniformity in accounting policies and practices of all government and public sector entities so that their financial statements can be compared with each other and with those of other periods.

2. Transparency and accountability — To make the use of public funds transparent and to make the government and public officials accountable to the legislature and the public for the resources entrusted to them.

3. True and fair financial reporting — To ensure that financial statements present a true and fair view of the financial position, financial performance and cash flows of public entities.

4. Basis for decision making — To provide reliable, timely and relevant financial information to the government, legislature, donors, auditors and other stakeholders for planning, budgeting and policy decisions.

5. Effective financial management and control — To help in the proper management, control and safeguarding of public resources, and to facilitate auditing and evaluation of the efficiency and effectiveness of public expenditure.

6. Compliance with legal provisions — To ensure that accounting and reporting are carried out in accordance with the constitution, financial procedures and other prevailing laws of the country.

7. Support to good governance — To promote fiscal discipline, reduce corruption and strengthen good governance in the public sector.

Chart of Accounts — Introduction and Importance in Government Financial Administration

Introduction

A Chart of Accounts (COA) is a systematically classified and codified list of all account heads — revenue, expenditure, assets, liabilities and other balances — used to record, classify and report financial transactions in a uniform manner. In Nepal's government financial administration, the COA is issued and maintained by the Financial Comptroller General Office (FCGO) under the Ministry of Finance, and is applied compulsorily by all government offices through the Central Level Accounting System (CLASS) and the Line Ministry Budget Information System (LMBIS). It follows a structured coding system in which each budget head is assigned a numeric code indicating the ministry, department, office, programme, activity, source of fund and object of expenditure.

Importance in Financial Administration of the Government

1. Uniformity and Standardisation — All government offices across the country record transactions under the same heads and codes, making accounting uniform and comparable.

2. Budget Formulation and Execution — The COA provides the basis for preparing the annual budget (Red Book) and for releasing and controlling appropriations head-wise, so that expenditure does not exceed the authorised limit.

3. Effective Expenditure Control — Since every payment is charged to a specific budget head, the COA helps prevent misclassification, misuse and irregular expenditure.

4. Transparency and Accountability — It clearly shows how much was spent, on what, and by which office, making public expenditure transparent and fixing accountability on the concerned office and official.

5. Reliable Financial Reporting — It enables preparation of consistent financial statements such as the annual appropriation account, statement of expenditure, and consolidated financial statements of the Government of Nepal.

6. Facilitates Audit — The Office of the Auditor General can easily verify transactions head-wise, as all records follow a common classification.

7. Basis for Analysis and Decision-Making — It allows classification of expenditure by economic and functional nature (recurrent, capital, financing), helping in policy analysis and resource allocation.

8. Support to Planning and Monitoring — Development programmes and projects are coded distinctly, which assists in monitoring progress and linking expenditure with national plans.

Conclusion

The Chart of Accounts is thus the backbone of government accounting. By ensuring uniformity, control, transparency and comparability in financial transactions, it strengthens the entire financial administration system of the Government of Nepal.

Treasury Single Account (TSA) System

The Treasury Single Account (TSA) is a unified structure of government bank accounts maintained at the central bank (in Nepal, Nepal Rastra Bank) through which all government revenues are collected and all government payments are made. Instead of each ministry, department or project office keeping its own separate bank account, all such accounts are linked to or consolidated into one master account operated by the Treasury (Financial Comptroller General Office — FCGO). Under this system, the balances lying in the accounts of spending units are not separate idle funds; they form part of a single consolidated cash balance of the government.

Positive aspects:

1. Consolidation of cash balance: All government funds come into one account, so the government knows its true cash position at any time and does not need to borrow while its own money lies idle in scattered accounts.
2. Reduction in borrowing cost: Since idle balances in departmental accounts are eliminated, the need for short-term borrowing and the interest burden on it is reduced.
3. Effective cash management: The Treasury can plan and prioritise payments according to available cash, ensuring timely release of funds for priority expenditure.
4. Control over expenditure and leakage: Payments are made directly from the TSA to the payee, which reduces the risk of misuse, diversion and irregular retention of funds.
5. Transparency and accountability: All receipts and payments pass through a single channel, making monitoring, auditing and reporting easier and strengthening fiscal discipline.
6. Reduced administrative cost: Maintaining and reconciling hundreds of separate bank accounts is costly and time-consuming; TSA reduces this administrative burden.
7. Support to fiscal policy: Accurate and timely cash information helps in budget execution and in coordinating fiscal and monetary policy.

In short, TSA is a reform tool of Public Financial Management that brings all government cash under one umbrella, ensuring economy, efficiency, transparency and accountability in the use of public funds.

Financial Administration

Financial Administration refers to the entire system of planning, organising, directing, controlling and reporting the financial resources of an organisation or government in order to achieve its objectives efficiently, economically and in accordance with law. It covers the whole cycle of public or organisational money — budget formulation, resource mobilisation, expenditure management, accounting, internal control, auditing, reporting and financial accountability.

In the context of Nepal, financial administration is guided mainly by:

• Article 115 of the Constitution of Nepal — no tax shall be levied and no expenditure shall be incurred except in accordance with law.
• Financial Procedure and Fiscal Responsibility Act, 2076
• Local Government Operation Act, 2074 (for local bodies)
• Public Procurement Act, 2063
• Financial Comptroller General Office (FCGO) rules and directives

Its main objectives are:

1. Proper utilisation of funds — spending only on approved heads and programmes.
2. Fiscal discipline — keeping expenditure within the authorised budget ceiling.
3. Transparency and accountability — every rupee spent must be traceable and auditable.
4. Economy and efficiency — avoiding waste, duplication and leakage.
5. Compliance with law — following the budget, procurement and accounting rules.
6. Reliable financial reporting — timely and accurate statements for decision-making.

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Role of the Chief of Account in Maintaining Fiscal Discipline

The Chief of Account (also called Pramukh Lekha Adhikrit / Chief Account Officer) is the head of the accounts section of an office. He/she works under the Office Chief but is technically guided by the FCGO and is responsible for the correctness of every financial transaction. Fiscal discipline means spending only what is authorised, at the right time, for the right purpose, with proper records. The Chief of Account plays a vital role in this through the following functions:

1. Budget Control and Expenditure Ceiling

The Chief of Account keeps the budget release (nikasa) and the expenditure register of every budget head. Before passing any bill, he/she verifies that sufficient balance remains under that head. This prevents over-expenditure (अधिखर्च) and unauthorised expenditure, which are the biggest threats to fiscal discipline.

2. Pre-audit and Bill Checking

Every bill, voucher and payment order is checked before payment for:

• correctness of amount, rates and calculation,
• approval by the competent authority,
• availability of budget,
• completeness of supporting documents (bills, quotations, contracts, delivery reports).

This pre-audit function stops irregular payments at the source itself.

3. Maintaining Books of Accounts

The Chief of Account maintains the cash book, ledger, subsidiary registers, advance register, deposit register, store and asset registers as prescribed by the FCGO. Correct and up-to-date books make the real financial position of the office known at any time and form the basis of all reporting.

4. Revenue Collection and Deposit

He/she ensures that all revenues, fees, fines and other receipts are collected as per the legal rate, receipted through the prescribed revenue receipt (राजस्व रसिद), and deposited into the consolidated fund / revenue account within the time limit. This prevents misuse and delay in depositing government money.

5. Management of Advances and Deposits

Advances given for programmes are recorded and settled within the prescribed period; old advances are followed up and adjusted. Similarly, deposits (धरौटी) and retention money are kept and released only as per rules. This stops money from remaining outside the government account.

6. Internal Control and Financial Discipline

The Chief of Account acts as the first line of internal control. He/she can refuse or hold back a payment that violates the budget, procurement rules or delegation of authority, and report it to the Office Chief and the FCGO. This preventive check keeps the office on the path of fiscal discipline.

7. Financial Reporting

He/she prepares and submits monthly and quarterly expenditure reports, annual financial statements, budget comparison statements and other returns to the FCGO, the ministry and the auditor. Timely reporting helps the management to compare actual expenditure with the budget and take corrective measures.

8. Support to Audit and Follow-up

The Chief of Account prepares the records and replies for the Office of the Auditor General, and ensures that audit irregularities (बेरुजु) are settled within the prescribed period. Reducing and clearing बेरुजु is a direct measure of fiscal discipline.

9. Asset and Store Accounting

He/she keeps records of fixed assets, consumable stores and inventories, carries out periodic verification, and ensures that assets are not lost or misused. This protects public property and prevents financial loss.

10. Advice to the Office Chief

As the financial expert of the office, the Chief of Account advises the Office Chief on budget allocation, fund release, economy measures and legal provisions, helping to prevent wrong financial decisions before they are taken.

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Conclusion

The Chief of Account is thus not merely a record-keeper but the guardian of fiscal discipline in an organisation. By controlling the budget, checking every bill before payment, keeping accurate accounts, ensuring timely revenue deposit and reporting, and supporting audit settlement, he/she ensures that public funds are spent legally, economically and for the intended purpose. In the absence of an alert and honest Chief of Account, fiscal discipline in any office cannot be maintained.

Formation Process and Responsibilities of the Promotion Committee in a Public Entity

Formation Process:

1. Constitution of the Committee: In accordance with Section 12 of the Civil Service Act, 2049 (and the corresponding provisions of the Nepal Government Service Act for public entities), the promotion committee is constituted in each public entity to recommend eligible employees for promotion.

2. Composition: The committee is chaired by the Chief of the concerned public entity (or the official designated by him/her). The members include:

   • The concerned departmental head or an officer of at least one level higher than the post to be filled,
   • A representative from the Public Service Commission (in case of promotion to gazetted posts),
   • The chief of the personnel/administration section who serves as member-secretary.

3. Appointment of Members: The chairperson and members are appointed by the concerned authority (Chief of the entity or the Ministry as prescribed). The tenure of the committee is generally two years, and members must not have any conflict of interest in the promotion of any candidate.

4. Notification and Record: The formation of the committee is notified through official notice, and its decisions are recorded in the promotion register maintained by the entity.

Responsibilities:

1. Evaluation of Eligibility: To examine the service period, educational qualification, performance appraisal reports, and departmental examination results of candidates to determine eligibility for promotion.

2. Preparation of Merit List: To prepare a merit list on the basis of the total marks obtained from performance appraisal, seniority, and departmental examination, as prescribed by the Act and Regulations.

3. Recommendation for Promotion: To recommend the most suitable and eligible candidates for promotion to the vacant posts in a fair, transparent, and merit-based manner.

4. Consideration of Reservation: To ensure compliance with the reservation (Aarakshan) provisions for women, indigenous nationalities, Madhesis, Dalits, and other specified groups as per the law.

5. Hearing Complaints: To hear and settle complaints and grievances related to promotion and to maintain confidentiality of the evaluation process.

6. Maintaining Records: To keep proper records of minutes, decisions, and evaluation sheets for future reference and audit.

7. Reporting: To submit the promotion recommendation report to the concerned authority for final approval and appointment.

Why the principles of transparency and competition are necessary in public procurement

Public procurement means the purchase of goods, works and services by the government using public money. Since this money belongs to the taxpayers, the process must follow the principles of transparency and competition. Their necessity can be clarified as follows:

1. Transparency

• Transparency means keeping the whole procurement process open — publishing the notice, bid documents, evaluation criteria, bid opening and award decision. It ensures that all bidders get the same information at the same time.
• It makes officials accountable, because every step can be examined by bidders, auditors and the public.
• It reduces corruption, favouritism and nepotism, as decisions cannot be taken secretly.
• Example: If the Public Procurement Monitoring Office publishes the tender notice on its website and opens the bids publicly before all bidders, an officer cannot secretly award the contract to a favoured firm. But if the notice is given only to one supplier, that supplier can charge an inflated price.

2. Competition

• Competition means inviting bids from as many qualified suppliers or contractors as possible and selecting the best one on the basis of price and quality.
• It obtains goods and services at the lowest possible cost, giving the best value for money.
• It improves quality and timely delivery, because bidders try to offer better terms than their rivals.
• It prevents monopoly and cartel formation by a single supplier.
• Example: If five construction companies compete for a road-building contract, the government may get the work done for Rs 90 lakh instead of Rs 1 crore 20 lakh that a single favoured contractor would demand. Similarly, competitive bidding for school textbooks reduces the price per copy and improves printing quality.

Conclusion Transparency and competition together ensure economy, efficiency, fairness and public trust in the use of public funds. They protect the national treasury from waste and corruption, and guarantee that every citizen receives quality service at a reasonable cost. Hence these principles are indispensable in public procurement.

Major Activities Included in the Inventory Inspection Report

An inventory inspection report (मालसामान जाँच प्रतिवेदन) is prepared by the concerned inventory inspection committee to verify whether the goods and materials held by an office exist in the stated quantity and condition. Its major activities are as follows:

1. Verification of physical existence The committee physically counts or measures the goods and materials recorded in the inventory register (मालसामान दर्ता किताब) and compares the actual quantity with the book balance. Any difference between the two is pointed out.

2. Examination of the inventory register and records The committee examines whether the inventory register, stock register, bin cards, purchase records and issue/distribution records are maintained regularly, completely and in the prescribed format.

3. Inspection of the condition of goods It inspects whether the stored materials are in usable condition, whether they are damaged, expired, obsolete, deteriorated or beyond repair, and whether proper arrangements for their storage and protection exist.

4. Checking of purchase and distribution procedures It verifies whether purchases were made through the prescribed procedure (quotation, tender, etc.), whether the rates were reasonable, and whether materials were issued or distributed only for official purposes with proper records and signatures.

5. Examination of the annual inventory (भौतिक मालसामान जाँच) It carries out the annual physical verification of materials as required by the Financial Procedures and Fiscal Responsibility Act and the Financial Regulations, and reconciles the physical count with the book balance.

6. Identification of discrepancies and irregularities It identifies shortages, excesses, misappropriation, misuse, unauthorized possession or irregular maintenance of materials, and fixes responsibility on the concerned officials or employees.

7. Recommendation for disposal and settlement It recommends the disposal of unusable, obsolete or surplus materials through the prescribed procedure (auction, donation, destruction, etc.) and suggests adjustment or settlement of shortages and excesses in the books.

8. Submission of the report with suggestions Finally, the committee prepares a detailed report stating its findings, observations and suggestions for improving the inventory management system, and submits it to the concerned authority (office chief or higher authority) for necessary action.

In short, the inventory inspection report covers counting and verification of materials, examination of records and procedures, assessment of condition, identification of irregularities, recommendation of disposal and submission of the report with suggestions for reform.

सदस्यता (Sadasyata / Membership)

Meaning: "Sadasyata" means membership — the formal status of being an accepted member of an organisation, group, or institution. In the context of Nepal's civil service and public administration, it refers to the membership of an employee in a civil service organisation/association (कर्मचारी संगठन) or in a pension-related or service-related body, through which the member enjoys certain rights and bears certain duties. In general usage, it also refers to membership of any association, club, committee, or board.

Conditions of Sadasyata (सदस्यताका शर्तहरू):

1. The person must be a permanent employee (स्थायी कर्मचारी) of the concerned office or service.
2. The person must not be under suspension or departmental punishment at the time of applying.
3. The person must submit a written application in the prescribed format to the concerned authority.
4. The person must abide by the constitution, rules, and by-laws of the organisation.
5. The person must pay the prescribed membership fee (प्रवेश शुल्क / सदस्यता शुल्क) and renew it as required.
6. The person must not be a member of more than one organisation of the same nature (dual membership is generally prohibited).
7. The person must fulfil any age, service-period, or qualification requirement set by the by-laws.

Process of Sadasyata (सदस्यता प्राप्तिको प्रक्रिया):

1. Application: The interested employee fills out and submits the prescribed membership application form to the concerned organisation/office.
2. Recommendation/Verification: The immediate superior or the concerned section verifies the applicant's service record and eligibility.
3. Decision by the Executive Committee: The executive committee (कार्यकारिणी समिति) or the authorised body examines the application and takes a decision to accept or reject it.
4. Payment of Fee: On approval, the applicant deposits the prescribed membership fee and obtains a receipt.
5. Issuance of Membership Certificate: The organisation issues a membership certificate/identity card to the member.
6. Rights and Duties: The member then enjoys rights such as voting, contesting elections, and participating in general assemblies, and must fulfil duties such as paying fees regularly and following the by-laws.
7. Renewal/Termination: Membership must be renewed periodically; it is terminated on resignation, retirement, death, or expulsion for violation of rules.

Conclusion: Sadasyata is thus the legal membership status obtained through a prescribed application, verification, approval, and fee-payment process, subject to the conditions laid down by the concerned organisation's rules.

Revenue Management Information System (RMIS) in Nepal

Introduction

RMIS is a web-based, centralised and integrated tax administration software platform developed and operated by the Inland Revenue Department (IRD) under the Ministry of Finance. It links all Inland Revenue Offices, Taxpayer Service Offices and the Large Taxpayers Office to a single central database, replacing the earlier fragmented, office-wise manual and semi-computerised systems. It covers Value Added Tax (VAT), Income Tax, TDS/Withholding Tax, Excise and other internal revenues, and is the backbone of Nepal's domestic revenue administration.

Key Features of RMIS

1. Centralised, web-based architecture — A single central server at IRD with all tax offices connected online; data is captured once and used everywhere, in real time.
2. Taxpayer registration module — Online PAN/TIN registration, taxpayer identification, category-wise classification (individual, firm, company, LTU) and maintenance of a permanent taxpayer master file.
3. Electronic return filing (e-filing) — Taxpayers file VAT returns, income tax returns and TDS statements electronically through the IRD Taxpayer Portal, with automatic acknowledgement and receipt.
4. Integrated e-payment — Payment through bank counters, Connect IPS, mobile/digital wallets and direct credit to the government revenue account, with automatic reconciliation against returns.
5. Refund management — Systematic processing of VAT refunds, excess payments and withholding credits, with tracking of refund claims and status.
6. Audit and risk management — Risk-based selection of cases for audit, audit case assignment, working papers and audit yield reporting.
7. Arrears and collection management — Automated tracking of unpaid dues, ageing of arrears, reminders and follow-up action.
8. Taxpayer service and communication — Taxpayer portal, SMS/e-mail alerts on filing deadlines, notices, tax clearance certificates and query handling.
9. MIS and reporting — Built-in revenue reports, dashboards and statistical summaries by tax head, office, taxpayer group and period for management and policy decisions.
10. Security and control — Role-based user access, password control, audit trail of every transaction and separation of duties to reduce misuse.
11. Interoperability — Linkage with other government systems such as the Office of the Company Registrar, customs (ASYCUDA), Nagarik App and the banking system for data verification.

Contribution to Improving Nepal's Revenue Management System

1. Widened the tax base and simplified registration. Online PAN registration and integration with the Nagarik App and company registration records have made it easier to bring new taxpayers into the net and to detect unregistered economic activities.

2. Reduced compliance cost and time. Taxpayers can file returns and pay taxes from anywhere without visiting the tax office, saving travel time, paperwork and the cost of intermediaries. This has improved voluntary compliance.

3. Reduced corruption and discretion. Automated calculation of tax, system-generated notices and online payment reduce face-to-face contact between taxpayers and officials, curbing rent-seeking and arbitrary decisions.

4. Real-time revenue monitoring and better forecasting. Revenue collection figures are available to IRD and the Ministry of Finance on a daily basis, enabling timely analysis, realistic revenue targets and mid-year corrective measures.

5. Strengthened VAT enforcement. Cross-matching of purchase and sales invoices in the central database helps detect fake invoices, under-reporting and missing traders — a major source of revenue leakage.

6. Efficient, risk-based audit. Instead of random or politically influenced selection, RMIS selects high-risk cases, making better use of limited audit manpower and raising audit yield per case.

7. Faster refunds and improved taxpayer trust. Systematic refund processing reduces delays and disputes, encouraging compliance, especially among exporters entitled to VAT refunds.

8. Better data for policy making. Reliable taxpayer and transaction data support evidence-based tax policy, rate structure reforms and impact analysis of budget measures.

9. Improved transparency and accountability. Audit trails, digital records and accessible taxpayer services make the administration more accountable to taxpayers and oversight bodies such as the Office of the Auditor General.

10. Business continuity. During the COVID-19 pandemic and other disruptions, e-filing and e-payment allowed tax administration to continue without physical presence.

Conclusion

RMIS has transformed Nepal's internal revenue administration from a manual, office-bound and discretionary system into a centralised, digital, transparent and taxpayer-friendly one. It has raised registration, compliance, audit efficiency and revenue mobilisation. However, full benefit requires uninterrupted connectivity, complete data integration with all revenue agencies, taxpayer digital literacy and strong cybersecurity. Continued upgrading of RMIS is therefore essential for sustainable domestic revenue mobilisation.

Audit is the independent examination and verification of the books of accounts, financial statements and other financial records of an organisation to ascertain whether they present a true and fair view of its financial position and operating results. It is carried out by a qualified and independent person (auditor) who checks the accuracy, legality and reliability of the recorded transactions and reports the findings to the concerned authority.

Differences between Internal Audit and Final Audit

(Any five points of difference are sufficient for full marks.)

Risk-based auditing is an audit approach in which the auditor first identifies and assesses the risks of material misstatement in the financial statements, and then designs and directs audit procedures towards the areas where such risk is highest, rather than treating all items and transactions with equal attention. In other words, it is the process of concentrating audit effort on high-risk areas and keeping it at a minimum in low-risk areas, so that the audit is performed efficiently and effectively within the available time and resources.

Rationality (logic/justification) of risk-based auditing:

1. Limited time and resources: An auditor cannot examine every transaction of a large organisation. Risk-based auditing allocates the scarce audit resources to the areas where misstatement is most likely, making the audit practicable.
2. Materiality consideration: Audit is concerned with material misstatements, not with every minor error. Effort spent on low-risk, immaterial areas gives little benefit, so it is rational to direct attention where significant misstatement is probable.
3. Inherent and control risk vary: Some items (cash, inventory, revenue recognition, related-party transactions) are inherently more risky, and some have weak internal control. It is logical to give more attention to such items and less to routine, well-controlled items.
4. Cost-benefit principle: The cost of audit procedures should not exceed the benefit derived. Risk-based auditing keeps the cost of audit reasonable while maintaining the desired level of assurance.
5. Focus on significant assertions: By identifying risks at the assertion level (existence, completeness, valuation, etc.), the auditor can select procedures that actually address the real chances of error or fraud.
6. Detection of fraud and error: High-risk areas are also the areas where fraud and material error are likely to occur; hence focusing there increases the probability of detection.
7. Professional judgement and quality: It requires the auditor to apply professional judgement in assessing risk, which improves the quality and reliability of the audit opinion.
8. Timely completion: By reducing unnecessary detailed checking of low-risk areas, the audit can be completed within the statutory or agreed time limit.

Thus, risk-based auditing is rational because it matches audit effort with audit risk, thereby ensuring economy, efficiency and effectiveness in the audit work.

According to the Financial Procedures and Fiscal Responsibility Regulations, 2077 (as amended), every prescribed office/body of the Government of Nepal must form a Budget Committee (बजेट समिति) to prepare, approve, execute, monitor and review the budget. Its main functions and duties are:

1. Budget Formulation

• Prepare the annual budget (programme and estimate) of the office in line with the ceiling and directives given by the Ministry of Finance and the National Planning Commission.
• Prepare the medium-term expenditure framework (MTEF) and the annual programme and budget estimates.
• Prioritise programmes and allocate the ceiling among headings/activities.

2. Budget Approval and Submission

• Approve the budget prepared by the financial administration section before it is submitted to the concerned ministry/body.
• Submit the approved budget to the concerned ministry/body within the prescribed time.
• Ensure the budget is submitted and approved before the beginning of the fiscal year.

3. Budget Execution

• Implement the approved budget as per the appropriation and the prescribed procedure.
• Ensure expenditure is made only within the approved appropriation and for the approved purpose.
• Maintain internal control and take necessary steps to prevent irregular, unauthorised and wasteful expenditure.

4. Re-appropriation and Revised Estimates

• Recommend and approve re-appropriation of funds between headings/activities as per the prescribed procedure.
• Prepare and submit revised estimates when required.

5. Monitoring and Review

• Monitor and review the progress of budget expenditure and physical progress of programmes at regular intervals.
• Analyse variances between the approved budget and actual expenditure and take corrective measures.
• Review audit reports and take follow-up action on audit findings.

6. Reporting

• Prepare and submit periodic reports (monthly/quarterly/annual) to the concerned authority.

7. Coordination and Other Duties

• Coordinate with the concerned ministry, department and other offices on budget matters.
• Perform other functions related to budget as prescribed by the Ministry of Finance or the concerned authority.

Note: The Committee is headed by the chief of the concerned office/body, with the chief of the financial administration section as member-secretary and other concerned section chiefs as members.

Role and Necessity of the Treasury Comptroller Office (कोष तथा लेखा नियन्त्रक कार्यालय)

Introduction The Treasury Comptroller Office (Treasury and Accounts Control Office — कोष तथा लेखा नियन्त्रण कार्यालय) is the central government body responsible for the management, control and release of government funds. It functions under the Ministry of Finance and is headed by the Comptroller General (Financial Comptroller General). It was established to bring discipline, transparency and centralised control over the country's revenue and expenditure system.

Role (Functions)

1. Fund Release and Control — It releases budgeted funds to ministries, departments and district offices only after proper authorisation, and keeps expenditure within the approved ceiling.

2. Centralised Accounting — It maintains the central accounts of all government revenue and expenditure, and consolidates the accounts of all spending units.

3. Payment Control — It examines and approves payments, ensuring that no amount is drawn without legal appropriation and proper documentary evidence.

4. Revenue Collection and Deposit — It collects government revenue through its offices and bank accounts and deposits it into the Consolidated Fund.

5. Financial Reporting — It prepares periodic financial statements (monthly, quarterly, annual) and submits them to the Ministry of Finance and the Office of the Auditor General.

6. Pension and Salary Payment — It manages the payment of salaries, pensions and allowances of government employees through its network.

7. Monitoring and Supervision — It monitors the financial activities of all government offices and gives necessary directives to prevent irregularity.

Necessity (Importance)

1. Financial Discipline — It prevents misuse, overspending and unauthorised expenditure of public funds.

2. Transparency and Accountability — Centralised accounting makes the flow of public money traceable and makes officials accountable.

3. Basis for Budget Formulation — Reliable financial data supplied by the office helps in preparing the national budget and in economic planning.

4. Control of Corruption — By checking every payment and release, it acts as a strong internal control against corruption and leakage.

5. Uniformity in Accounting — It maintains a single, uniform accounting system throughout the country, which makes comparison and audit easier.

6. Support to Audit — It provides the necessary accounts and records to the Office of the Auditor General for independent audit.

7. Effective Implementation of Plans — Timely and proper release of funds ensures that development plans and programmes are implemented on time.

Conclusion The Treasury Comptroller Office is the financial backbone of the government. Without its control and accounting system, the budget would remain merely a document and public expenditure would fall into disorder. Hence its role and necessity are indispensable for sound financial administration in Nepal.

Conditional Grants and Equalization Grants in Fiscal Transfers to Local Levels

Nepal's Constitution (Article 59 and Schedule 9) and the Local Government Operation Act, 2074 provide for financial transfers to local levels through four main channels: fiscal equalization grants, conditional grants, special grants, and complementary grants. The first two are clarified below.

1. Conditional Grants (सशर्त अनुदान)

Meaning: Grants provided to local levels by the federal (and provincial) government for implementing specific programmes or projects of national priority, subject to prescribed conditions on their use.

Key features:

• Purpose-specific: Must be spent only on the programme/project for which the grant is given (e.g., school construction, health camp, drinking water).
• Condition-bound: The receiving local level must follow the conditions set by the granting government — matching contribution, reporting, auditing, and use of prescribed standards.
• Not discretionary: Local levels cannot divert the amount to other headings.
• Basis of distribution: Programme cost estimates, national priority, and absorption capacity — not on the basis of fiscal need alone.
• Objective: To ensure implementation of programmes of national importance and to maintain minimum national standards in service delivery.

2. Equalization Grants (समानीकरण अनुदान)

Meaning: Unconditional (or minimally conditional) grants given to reduce fiscal disparity among local levels and to strengthen their fiscal capacity so that they can provide a comparable level of basic services.

Key features:

• Need-based distribution: Allocated mainly on the basis of fiscal need indicators — population, area, poverty, illiteracy, cost of service delivery, and revenue-raising capacity.
• Unconditional use: Local levels may spend it on any programme within their own jurisdiction according to their priorities; there is no programme-wise binding.
• Objective: To bridge the gap between expenditure needs and revenue capacity (fiscal gap), and to promote balanced regional development.
• Equity principle: Poorer and remoter local levels receive more, so that per-capita service standards do not differ sharply across the country.
• Legal basis: Recommended by the National Natural Resources and Fiscal Commission (NNRFC) and provided through the annual budget and the Local Government Operation Act.

Difference at a Glance

Conclusion

Conditional grants direct local spending towards nationally prioritized programmes with accountability conditions, whereas equalization grants correct horizontal fiscal imbalance and respect local autonomy. Together they form the core of Nepal's system of intergovernmental fiscal transfer to the 753 local levels.

Revenue

Revenue (राजस्व) refers to the income received by the government through taxes, fees, fines, penalties, grants, and other sources. It is the main source of funds for meeting public expenditure. In government accounting, revenue is classified mainly into:

1. Tax Revenue – compulsory payments collected from the public, e.g. income tax, VAT, customs duty, land revenue.
2. Non-Tax Revenue – income from sources other than taxes, e.g. fees, fines, registration charges, dividends, interest, sale of government property.

Revenue is recorded on the credit (income) side of the government account and is used to finance both regular (recurrent) and capital expenditure.

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"Lagat" (लागत) — Cost

Lagat means cost. It refers to the total expenditure incurred in producing goods or rendering services. In government accounting, "Lagat" denotes the amount spent by a government office or project to accomplish a particular task or produce a particular output. It includes:

• Direct cost (materials, labour, direct expenses)
• Indirect/overhead cost (administrative expenses, depreciation, etc.)

In simple terms, Lagat = total expenses incurred to earn revenue or produce output. It is the sacrifice made to obtain a benefit.

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"Hanstam" (हस्तान्तरण) — Transfer

Hanstam (हस्तान्तरण) means transfer — the act of handing over or transferring something from one person, office, or level to another. In government financial administration, it refers to:

• Transfer of funds from one budget head, office, or level of government to another (e.g. federal government transferring funds to provincial or local governments).
• Transfer of responsibility/authority from one official to another.
• Transfer of assets or records when an employee is transferred or a project is handed over.

Such transfers are recorded in the government account as transfer expenditure or transfer receipt, and they do not represent new production of goods or services — they are simply a shifting of resources from one entity to another.

Irregularity (बेरुजु)

Irregularity means any transaction, receipt or expenditure of a government office that has not been carried out in accordance with law, or for which the prescribed procedure or supporting documents are missing. The Financial Procedures and Fiscal Accountability Act, 2076 defines it as a transaction that is not in conformity with law or has not been supported by the required evidence, and it is the Auditor General who audits and records it. In practice it covers:

• expenditure made without legal authority or beyond the approved budget or appropriation;
• payment without proper vouchers, bills, estimates or approvals;
• failure to follow the procurement, tax-deduction or accounting procedure;
• revenue not collected or not deposited as per law;
• loss, damage or misappropriation of government money or property;
• advances (peski) taken but not cleared in time.

Irregularities are classified as sampati-related and procedural irregularities, mainly: (i) assulyatabya (recoverable, e.g. wrongly paid or unlawfully spent amount), (ii) niyamit garnu parne (to be regularised, where evidence or approval is lacking), (iii) peski (outstanding advances), and (iv) jinsi (store and property related).

Provisions on recording

1. The Office of the Auditor General (OAG), under Article 241 of the Constitution of Nepal, audits the accounts of all government offices, and records the irregularities in its audit report and in the irregularity register.
2. The audited office must also keep an irregularity register (बेरुजु अभिलेख) and update it for every audit observation, advance and recovery.
3. The Financial Comptroller General Office (FCGO) and Treasury and Accounts Control Offices compile and report the irregularity position, and the OAG's annual report to the President, presented to the Parliament, summarises it.
4. The Public Accounts Committee (PAC) of the House of Representatives reviews the report and gives directives.

Provisions on settlement (फछ्र्यौट)

1. The audited office must answer the audit observations within the time given by the OAG (normally 35 days from the receipt of the preliminary audit report) and submit evidence.
2. An irregularity is settled in one of these ways: by producing the missing documents and approval (regularisation), by depositing the amount in the Government of Nepal's account (recovery), by clearing the advance, or by the competent authority writing off a loss as provided by law.
3. The chief of the office is personally responsible for settling irregularities, and the concerned employee who caused it is liable to pay. The head of the higher office and the concerned ministry's Secretary monitor settlement and report it.
4. If an amount is not recovered, the matter is passed to the authority for recovery as arrears of government, and for corrupt or criminal acts to the Commission for the Investigation of Abuse of Authority (CIAA) or the court.
5. The Auditor General, after review, may declare an irregularity settled; the PAC can direct further action on unsettled and long-pending irregularities.
6. Irregularities not settled in time reduce the performance rating of the office, and may result in departmental action, withholding of salary or promotion, and a bar on further advances to the responsible person.

Conclusion

Irregularity is a breach of financial discipline. Prompt recording by the office and OAG, and timely settlement through regularisation, recovery or advance clearance under the Financial Procedures and Fiscal Accountability Act and Rules, keep public money accountable and give the PAC a basis for parliamentary control.