According to the 53th Annual Report of the Office of Auditor General (OAG) released on April 11, the amount of irregularities at government agencies jumped 20.28 percent in the last fiscal year 2014-15. Financial Procedures Act 2007 has defined “irregularity” as financial transactions conducted without complying with provisions stated in the existing law, accounts not maintained as required by the law, and transactions made in an irregular and irrational manner. Advance payments-related irregularities increased the highest, most likely due to huge advance payments for the mobilisation of rescue and relief after the April 25 earthquake last year, whose settlement is yet to be done. Against this background, Mukul Humagain and Prithvi Man Shrestha spoke with Bhanu Prasad Acharya, auditor general at the OAG, about the annual report’s findings, increase in financial indiscipline in the country, tax exemptions to private entities, and the relevance of the Tax Settlement Commission, among others.

This year’s report from the OAG shows that the amount of irregularities grew by Rs56 billion this year and reached Rs328 billion. This reveals a dangerous trend in financial indiscipline, particularly in government bodies. What is your assessment of this report’s findings?

There is not doubt that this points to an increase in fiscal indiscipline and financial unaccountability. If we unpack the figure, the amount of money that has gone into advance payment has increased a lot. If we look at the total amount of irregularities, the figure that has risen is more or less similar to last year’s.  

Would it be wrong to say that the government mechanisms have been indifferent to maintaining financial discipline?

In my four-decade long experience in public service, I have come to understand that if a public servant has internalised certain core, non-negotiable values like integrity and probity, then there is plenty of room to improve the overall system. Because of the long transition that the country underwent, some uncertainties have been created, which have affected the entire structure of the society and government, including the mechanisms for maintaining accountability.

However, we cannot simply get away by blaming the political transition. If everyone performs one’s duty with integrity—particularly in matters of financial transaction—it contributes to good governance, which, in turn, strengthens democracy.

Where, in your understanding, does the root of the problems lie?

First, there are shortcomings from the initial stage of budget formulation to its implementation. Second, there are uncertainties in our procurement laws. The government last year introduced an ordinance on Public Procurement, which was meant to address these uncertainties, but the parliament did not pass it. I have mentioned beforehand also that the issues identified by the ordinance have to be implemented. I think we also need to review our Westminster model, which has developed a system of making a secretary, who is a bureaucrat, accountable for financial affairs. Given that political interference in the bureaucracy is rife, perhaps we should think about making a political representative accountable for financial matters.

As things stand, how much do you think are politicians responsible for financial indiscipline?

Responsibility is not something that is readily amenable to quantification. Our rules, laws and provisions hold a secretary responsible, as far as auditing is concerned. However, had there been no influence of or pressure from the political masters, usually the ministers, the situation would have been better. We already have uncertainty in the political realm; changing the secretary frequently brings uncertainty into the bureaucracy as well. So while it is indisputable that politicians are responsible for financial indiscipline in the country, quantifying the extent of their responsibility is difficult. Where the secretary is firm, the room for political interference is small.

We have heard accounts of contractors receiving advance payments for a project and then not carrying out the job. To what extent are such accounts true?

They are correct. Even after an agreement is reached with a contractor, they do not complete the project. In the current scenario, it is not due to a lack of resources that projects have stalled. For budgeted expenditures, the government’s treasury position is positive. In order to address this problem, the procurement laws need some amendments. Three new sets of legislation—on public procurement, budget transparency and fiscal responsibility, and audit—are urgently required to bring about significant improvements not only in fiscal transparency and utilisation of our resources but also in curbing corruption.

Moving to the private sector, how effective have tax exemptions been, say, on cooking oil, ghee or mobile phones?

There is an illusion that financial accountability applies only to the government sector, when the truth is that it applies to all citizens, although we may not be able to assess it at the individual level. All organised sectors, be they governmental, non-governmental, cooperative or private, are subject to financial accountability, according to the laws of the state. The private sector needs to be held accountable just as much as the public sector.

The state provides protection to all the organised sectors through its laws. For example, the state gives chartered accountants the responsibility and freedom to produce a true and fair picture of the financial affairs of private entities. When accountants compromise their integrity and produce a picture that is not true and fair, it deals a blow to the overall financial system.

Every year the amount of tax exemption is increasing, which is justifiable if it accords with the national laws or international conventions. The idea is that if certain products get a tax rebate, they will not be smuggled in or that consumers will not have a pay a high price. But there is little monitoring of whether the intended results have actually been achieved. In fact, our analysis shows that there is little impact of the tax rebates. Still the government is continuing with the rebates. This is a systemic anomaly.

Your have previously mentioned that the Finance Ministry did not provide the report of the Tax Settlement Commission to the OAG, although receiving the details of the Commission’s work is the constitutional right of the OAG. Has the OAG been prevented from exercising its constitutional right?   

There is a universal understanding that the OAG is an autonomous body. There is even a UN resolution aimed at enhancing its autonomy. Our constitution also stipulates that all government entities have to provide the OAG with information that it asks for. If an entity does not abide by a constitutional provision, I have no other instrument to make it do so. All I can do is point out that the entity has not been accountable. This may also point to a growth in the culture of impunity in the overall system. The state may have become softer when it comes to enforcing laws. This means there is neither reward for obeying the laws nor punishment for disobeying them. As I said before, we cannot accept the situation citing political transition. We have to address it now.

The OAG report has also raised questions over the relevance of the Tax Settlement Commission itself. Why do you think tax settlement through such a commission is inappropriate?

The commission was formed according to the Tax Settlement Commission Act in 2033 BS. The act back then had not conceptualised the idea of self-tax determination. The Auditing Act was passed in 2048 BS. The Income Tax Act—which, incidentally, is very advanced even by global standards—was passed in 2058 BS. These acts render the Tax Settlement Commission redundant. The trend of settling transactions internally through bilateral negotiations with the taxpayers and then not revealing them will not take the country far. 

Finally, the OAG has shown concerns over the lack of transparency regarding the use of technical assistance from donors. How big is this problem?

There are some practical problems associated with assigning a monetary value to commodity as well as technical aid. This presents the Ministry of Finance with difficulty in billing. For example, if the Ministry of Health receives aid—which has the provision of being audited—the donor has to provide the necessary documentation. But they do not always do that in a timely manner. The donor simply gives a figure, which is impossible to verify and audit. It is also true that part of the aid that donors spend in Nepal at their discretion does not come within the purview of audit.