Government Accounting System of Nepal

Five provisions for the operation of the Consolidated Fund (Constitution of Nepal and the Financial Procedures and Fiscal Responsibility Act, 2076):

1. One fund for all government receipts. All revenue received by the Government, all loans raised by it and all money received in repayment of loans are credited to the Consolidated Fund.
2. Withdrawal only as authorised by law. No money can be withdrawn or spent from the Consolidated Fund except as provided by law, i.e. through the Appropriation Act passed by the legislature.
3. Budget approval first. Expenditure can be made only for the heads and up to the amounts approved in the annual budget.
4. Charged expenditure. Certain expenses, such as the salaries and allowances of constitutional office-holders and judges and the interest and repayment of public debt, are charged directly on the Fund.
5. Separate funds at each level. The federal, provincial and local governments each operate their own Consolidated Fund, kept and accounted for through the treasury system (FCGO, Treasury Comptroller Offices).

Two main charts (forms/statements) of government accounting are:

1. Bank Cash Book (AGF No. 209), recording releases received and payments made through the bank.
2. Statement of Expenditure, showing budget head-wise annual appropriation, expenditure to date and the remaining appropriation.

Five similarities between business accounting and government accounting:

1. Both are based on the double-entry system. Every transaction is recorded with an equal debit and credit, so the accounting equation (Assets = Liabilities + Capital/Fund) holds true in both systems.

2. Both use the same basic books of accounts. Journals, ledgers, and subsidiary books are maintained in both business and government accounting to record and classify transactions systematically.

3. Both prepare financial statements at the end of the accounting period. A business prepares a Trading and Profit & Loss Account and Balance Sheet, while a government office prepares statements such as the Statement of Revenue and Expenditure and the Balance Sheet of assets and liabilities.

4. Both follow common accounting concepts and conventions. Concepts such as the business entity concept, consistency, and the convention of full disclosure are applied in both systems.

5. Both aim at effective use and control of funds. Business accounting measures profit and controls cost, while government accounting ensures the proper utilisation of public funds and checks misuse — in both cases, accounting serves as a tool of financial control and accountability.

Five bases of government accounting in Nepal

Government accounting in Nepal is guided mainly by the Financial Procedures and Fiscal Responsibility Act (FPFRA) and the rules of the Financial Comptroller General Office (FCGO). The five important bases are:

1. Cash basis of accounting Under this basis, income is recorded only when cash is actually received and expenditure is recorded only when cash is actually paid. Transactions are not recorded at the time of commitment or accrual. Nepal's government accounting follows the cash basis, so the annual financial statements show actual cash receipts and cash payments during the fiscal year.

2. Double-entry system Government accounting in Nepal follows the double-entry system of book-keeping. Every transaction has two effects — one debit and one credit — so that the accounting equation (Assets = Liabilities + Capital/Fund) always holds true. This makes the accounts complete, accurate and self-balancing. The FCGO maintains central accounts on this basis.

3. Budget basis (budgetary accounting) Government accounting is done on the basis of the annual budget approved by the Parliament. Expenditure is classified under headings such as recurrent (regular) expenditure, capital expenditure and financing (principal repayment and lending). Income is classified as revenue receipts, capital receipts, foreign grants and loans. Actual amounts are compared with budgeted amounts to find out the surplus or deficit.

4. Fund basis (use of separate funds) All government money is kept in the Consolidated Fund of Nepal. Expenditure from this fund can be made only through an appropriation approved by Parliament. Besides this, there are other funds such as the Contingency Fund (for unforeseen expenses) and special funds created by law. Each fund is maintained and accounted for separately.

5. Accounting entity and reporting basis The whole government of Nepal is treated as one accounting entity. Accounts of all ministries, departments, district offices and other government units are consolidated. Reports are prepared in a prescribed format — monthly and annual statements of receipts and expenditure — and submitted to the Office of the Auditor General for audit. The fiscal year runs from Shrawan 1 to Ashad end.

These bases together ensure regularity, control, transparency and accountability in the use of public funds in Nepal.

Two areas of government accounting in Nepal are:

1. Federal (central) government accounting
2. Provincial government accounting

(Local government accounting is the third area.)

The following are not deposited into the Consolidated Fund of the federal government:

• amounts received as deposits or in trust (for example security deposits and earnest money), which must be returned or paid to others; and
• amounts that the law directs to be credited to some other fund (for example a fund created for a special purpose).

Five provisions relating to government accounting at federal, province and local levels

1. Maintenance of accounts in the prescribed format. Every level of government must keep its accounts in the format prescribed by the Financial Comptroller General Office (FCGO), based on the accounting standards and formats approved by the Auditor General. The accounts are kept on a cash basis (recording only actual receipts and payments), and the fiscal year runs from Shrawan 1 to Ashadh end (Ashadh 31/32).

2. Use of a single fund system (Consolidated Fund). All revenues received and all loans raised by the federal, provincial and local governments are credited to their respective Consolidated Fund, and all government expenditure is met from that fund. No amount can be spent from the fund except through an appropriation made by the concerned legislature (Parliament or Provincial/Local Assembly).

3. Operation of bank accounts through the FCGO/treasury system. Each level of government must open and operate its bank accounts only through the Financial Comptroller General Office and its subordinate treasury offices (or the designated bank accounts approved for local levels). All government receipts are deposited into and all payments are made from these accounts; separate bank accounts cannot be opened without legal authority.

4. Compulsory maintenance of subsidiary records and reporting. Along with the main cash book, each level must maintain subsidiary records such as the budget release register, expenditure ledger, advance (peski) register, deposit (dharauti) register, and store/asset records. Periodic financial reports — monthly, quarterly and annual — must be submitted to the FCGO, the concerned ministry, and ultimately to the Auditor General and the legislature.

5. Compulsory audit by the Auditor General. The accounts of all three levels of government are audited by the Auditor General of Nepal, who submits the audit report to the President (for federal), the Governor/Chief Minister (for province), and the concerned assembly (for local level). The audited report is then discussed by the Public Accounts Committee of the respective legislature, and irregularities must be settled (farfaar) as per the law.

Note: These provisions are laid down mainly in the Financial Procedures and Fiscal Responsibility Act, 2076, the Local Government Operation Act, 2074, and the rules framed thereunder.

The consolidated fund of a local government is the main government fund in which all revenues received, loans raised and grants received by the local government are deposited, and from which all its expenses are met.

Five bases of government accounting operation:

1. Budgetary basis (budget as the basis of accounting) Government accounting is operated on the basis of the approved budget. The annual budget passed by the legislature authorises the government to collect revenue and incur expenditure. All transactions are recorded, classified and reported according to the budget heads (heads, sub-heads and detailed heads), so that actual receipts and expenditure can be compared with the budgeted amounts. This is why government accounting is called budget-based accounting.

2. Cash basis of accounting Government accounts are generally maintained on a cash basis. Revenue is recorded only when it is actually received and expenditure only when it is actually paid. Amounts merely due or payable are not recorded in the accounts. This makes the accounts simple, verifiable and useful for controlling the flow of cash into and out of the government fund.

3. Double-entry system Government accounting follows the double-entry system of book-keeping. Every transaction has two aspects — one debit and one credit — so that the accounts remain balanced. The accounts are kept in the form of journals, ledgers and registers, and the difference between receipts and expenditure is reconciled with the cash balance held in the government fund.

4. Fund-based accounting Government accounting is operated on the basis of separate funds. A fund is a fiscal and accounting entity created for a specific purpose. The main fund is the Consolidated Fund, and there are other funds such as the Contingency Fund and the Public Account. Receipts and payments are credited and debited to the concerned fund, and no money can be spent from a fund without legislative authority.

5. Classification of accounts into receipt and expenditure heads All government transactions are classified into revenue receipts, capital receipts, revenue expenditure and capital expenditure. Receipts are further divided into tax and non-tax receipts, and expenditure into recurring and capital expenditure. This classification helps in presenting the accounts in a clear form, in comparing them with the budget, and in measuring the financial performance of the government.

Cash basis and accrual basis.

Government accounting in Nepal is mainly kept on the cash basis (transactions recorded when cash is actually received or paid), though the accrual basis (transactions recorded when they are earned or incurred) is also recognised and is being gradually adopted.

Government accounting system is the system by which the government records, classifies, summarises and reports its receipts and expenditure in a systematic way, based on the budget and the prescribed forms. It is operated under the Financial Procedures and Fiscal Responsibility Act and its main aim is control over public funds and accountability to the public.

Four areas of the government accounting system:

1. Revenue accounting – recording all revenue collected, such as taxes, fees and fines.
2. Expenditure accounting – recording payments made under the different budget heads.
3. Budget accounting – comparing the approved budget with actual receipts and expenditure.
4. Fund accounting – keeping separate accounts of the Consolidated Fund, Contingency Fund and other funds.

Office of the Auditor General and the Financial Comptroller General Office.

These are central-level government offices that maintain central level accounting.

The Consolidated Fund is the main account of the government because all revenue received by the government, together with the loans it raises, is deposited into this fund, and all government expenditure is made out of it.

Government accounting aims at control, accountability and service to the public and records receipts and expenditure (mostly on a cash basis), whereas business accounting aims at measuring profit or loss.

Similarities (any two)

1. Both use the double-entry system, with equal debit and credit for every transaction.
2. Both keep books such as journal, ledger and cash book, and prepare financial statements at the end of the period.

Dissimilarities (any three)

1. Objective: Government accounting aims at accountability and control of public money; business accounting aims at profit.
2. Basis: Government accounting is mainly on the cash basis; business accounting is mainly on the accrual basis.
3. Budget: Government spending must follow the budget approved by the legislature; a business budget is not legally binding.

The main use of the Consolidated Fund is to meet the expenditure of the Government of Nepal. All revenue, grants and loans received by the government are credited to it, and money can be spent from it only as approved by the Federal Parliament through the Appropriation Act.

The Auditor General (Office of the Auditor General) gives final approval of the government accounting formats in Nepal; the Financial Comptroller General Office prepares and enforces them.

Central level accounting means the accounting of the federal government, in which the receipts and expenditure of federal ministries, departments and offices are recorded and reported according to the prescribed formats and finally consolidated by the Financial Comptroller General Office.

The budget system in Nepal started in 1991 B.S. (about 1935 A.D.). Budgeting in its modern, formal shape developed from 2008 B.S.

Five similarities of accounting at central, province and local levels

1. Same legal basis. All three levels keep accounts under the Constitution of Nepal and the Financial Procedures and Fiscal Responsibility Act, with their own laws consistent with it.
2. Same accounting system and basis. All use the double-entry system, mainly on the cash basis, with a common chart of accounts and economic classification of budget heads.
3. Budget-based. At each level, money can be spent only after the concerned legislature (Federal Parliament, Provincial Assembly, Village/Municipal Assembly) approves the annual budget.
4. Consolidated Fund. Each level keeps its own Consolidated Fund into which revenue and loans are credited and from which all spending is met, only as authorised by law.
5. Same fiscal year, formats and audit. All follow the fiscal year from Shrawan 1 to Ashadh end, prepare accounts and reports in the prescribed formats, and are subject to audit by the Auditor General.

Five dissimilarities between government accounting and business accounting

Consolidated Fund is the main fund of the government into which all revenue, loans raised and repayments of loans received by the government are deposited, and from which government expenditure is met.

Four necessities of the Consolidated Fund

1. It keeps all government money in one place, so that nothing is hidden or spent outside the accounts.
2. It ensures that money is withdrawn only as authorised by law, through the Appropriation Act, giving the legislature control.
3. It makes the government accountable to the public and helps in auditing.
4. It helps in planning and financing the budget, and in showing the true financial position of the government.

Office of the Auditor General and the Financial Comptroller General Office.

These are central-level offices that maintain central level (government) accounting.