Flaws in government mechanism led to misappropriation of funds, auditor general’s report says

  • The flaws reflect weak implementation of laws by the KP Sharma Oli administration
- RAJESH KHANAL, Kathmandu

Apr 15, 2019-

Flaws in the government’s working mechanism led to misappropriation of funds from the state coffers despite its commitment to implement good governance and improve work efficiency. The Office of the Auditor General, in its 56th annual report for the fiscal year 2017-18 which was released on Friday, raised concerns over the failure of government agencies to fix the defects causing large-scale irregularities.

The report revealed government inefficiencies in a number of areas—tax collection, unproductive expenses, implementation of policies, implementation of internal control and audit, fiscal management of provinces and local units, coordination, monitoring, evaluation and decision execution, among others.

The government has time and again announced adopting austerity measures to check unnecessary expenditure, but millions of rupees from the state coffers are spent unnecessarily every year, it said. The flaws reflect weak implementation of laws by the KP Sharma Oli administration.

Prime Minister Oli took office in February last year. In the last one year, his government has pledged to root out corruption and control irregularities. In his address to the nation on the occasion of the Bikram Sambat Nepali New Year on Sunday too, Oli talked at length about the scourge of corruption.

In his statement, Oli said that the government was working to stabilise the legal framework in compliance with the present constitution to achieve systemic reform. “Corruption is the main adversary of good governance,” said Oli, adding that his administration would be stern against those involved in corruption. Oli added that the government would not let off those who misappropriate public funds.

However, the report of the Office of the Auditor General shows that major misappropriation took place from 2017-18 when the Oli administration took office.

In 2017-18, as per the report, government offices blew Rs10.83 billion under miscellaneous expenses, almost 10 times higher than the Rs1.27 billion allocated under the heading. It includes expenses for entertainment, hospitality service, office security and ceremonies.

The policy roadmap that the government issued last year states that the government should check budget transfers to control expenses on unproductive activities. The report shows that even the Ministry of Finance, the apex authority in charge of maintaining fiscal discipline, was found to have violated government laws.

As per the Appropriation Act 2017, the government cannot transfer more than 10 percent of the funds allocated under a particular budget heading. However, the ministry has allowed transfers of amounts 19 times higher than the limit.

The ministry conducted budget transfers of over Rs93 billion out of the total allocated budget of Rs1.27 trillion for the fiscal year. The ministry has also been accused of making unnecessary transfers from the budget allocated to the Budhi Gandaki Hydropower Project, as it was unable to utilise Rs9.91 billion of the transferred amount.

The Office of the Auditor General has also slammed the ministry over its poor implementation of value added tax. “VAT implementation has not been effective because of incidents such as the failure of a large number of taxpayers to submit details on time, submission of fake details and non-reimbursement of huge amounts by the government,” states the report.

VAT is considered to be an effective tax system as it ensures more revenue to the government. However, more than 63 percent of the revenue generated through VAT was from imported goods. The apex audit institution has recommended that the government expand the tax base instead of relying on imports to meet its VAT collection target.

Giving an example of sugar imports, the office pointed to delays in the implementation of the policy as a major flaw in the government’s working mechanism. The government decided to increase the import duty on sugar to 30 percent from 15 percent on December 26, 2017. But it went into effect only on April 17, 2018, almost four months after the government reached a deal to this effect with traders.

Taking advantage of the delay in the implementation of the policy, many traders imported immense quantities of sugar to beat the increased duty, resulting in imports swelling more than 3.3 times the normal quantity. “If the duty had been raised on time, it could have added Rs536.6 million to government revenues,” the report said.

The report identified 18 areas needing reform to strengthen financial discipline. They include budget and expenditure management, foreign assistance, project management, public procurement, and protection and utilisation of public properties.

Service delivery, revenue administration, laws related to financial management, financial compliance, use of information and technology, and accounting and auditing are other areas that need to be targeted for reform, the Office of the Auditor General said.

Published: 15-04-2019 08:16

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