Financial Irregularities Surged to Rs 669 billion in 2022/23, the 61st Annual Report of Office of the Auditor General Reveals.

 NewBiz Report

The 61st Annual Report of the Office of the Auditor General (OAG) highlights a significant and troubling rise in financial irregularities within government agencies. According to the report, such irregularities surged by 23% in fiscal year 2022/23 to reach Rs 669 billion.

The Financial Procedures Act, 2007, defines 'irregularity' as transactions conducted without adhering to existing legal provisions, failure to maintain records as required by law and transactions carried out in an irregular and irrational manner.

Despite the government's commitments to rectify these irregularities and manage new expenditures efficiently, the situation has worsened, as evidenced by the tripling of financial irregularities from Rs 290 billion in the 54th report to Rs 669 billion in the latest assessment. Such irregularities rose by Rs 95.60 billion during 2022/23. This increase encompasses the cumulative irregularities across federal, provincial, and local governments.

The OAG audited 5,605 state-owned agencies, institutions and committees, covering transactions amounting to Rs 7,881 billion. The report also criticises the government for its tax exemption policies and recommends recovering outstanding taxes from the private sector. Experts say a huge amount of financial irregularities indicate that there is corruption within the system. "A huge amount of irregularities may indicate that there is corruption. But we cannot prove it. All we can say is there is no discipline within the system," said Former Chief Secretary Bimal Koirala.

The total amount of financial irregularities in 753 local units has reached Rs 200 billion, including Rs 31 billion added in the last fiscal year alone. Koirala says the local units have also been imitating the federal government as they are not liable to taxpayers money. “When the central government itself is undisciplined, you cannot expect subnational governments to follow all the laws,” he added. 

The OAG report shows that local units have been spending haphazardly, as 2.72% of the total expenditures 748 local units audited was found to be irregular. According to the report, irregularities have been found under various headings such as providing services, procurement and maintenance of vehicles, daily expenses of schools including meals and sanitary pads, employee recruitment, DPR and projects, payments to consumer committees, and social security allowances. The OAG has raised questions on the expenditures and payments made under these categories.

Former Chief Secretary Koirala said that there is no fear of repercussions in Nepal. "Every year, the OAG publishes a report highlighting systemic issues in government spending. However, recommendations and suggestions are consistently disregarded even though relevant authorities are in place to take action," Koirala lamented. "There is a pervasive sense of impunity."

The OAG has also questioned the tax discounts amounting to Rs 341.74 billion provided by the Ministry of Finance (MoF) and related institutions over the past five years. It was observed that the ministry neglected to maintain proper records and conduct thorough assessments when granting such discounts during the specified period.

The OAG has categorised irregularities into three distinct types: those slated for recovery, those earmarked for regularisation, and advances. The first category includes misappropriated funds, losses and outstanding amounts yet to be similarly. Similarly, irregularities categorised for regularisation includes expenditures made without adequate documentation and processes, failure to delegate authorities and unreimbursed sums. The advance category comprises funds taken in advance by civil servants and expenses related to mobilisation.

The report states that recoverable irregularities constitute 24.47% of the total amount, while those requiring regularisation make up 68%. The portion attributable to misappropriated funds stands at 18%. The report offers suggestions, evaluations and analyses across various critical domains including governance management, public financial management, development management and public administration enhancement. According to Toyam Raya, the Auditor General, recommendations have been outlined in key areas such as the overall economy of the country, management of public assets, information technology and the promotion of good governance.

According to the report, the Ministry of Finance (MoF) recorded the highest amount of irregularities among government ministries in 2022/23. Out of the total irregularities amounting to Rs 46.53 billion among federal government ministries, the MoF accounted for Rs 25.47 billion (54.74%). Of this amount, Rs 3.55 billion has been identified for recovery, while Rs 21.92 billion requires regularisation. Similarly, the MoF’s irregularities totaled Rs 32.46 billion in 2021/22.

The ministry tasked with upholding the highest standards of financial discipline is discovered to be embroiled in significant non-transparent financial transactions. "This occurs in the absence of stringent financial discipline," said Koirala, who refrained from elaborating further on the finance ministry.

Despite the government's commitments to rectify irregularities, the situation has worsened, as evidenced by the tripling of financial irregularities from Rs 290 billion in the 54th report to Rs 669 billion in the 61st report. Such irregularities rose by Rs 95.60 billion during 2022/23.

The Ministry of Physical Infrastructure and Transport ranked second with irregularities totaling Rs 12 billion, up from Rs 8.79 billion in the previous fiscal year. Additionally, the Ministry of Communications and Information Technology reported irregularities amounting to Rs 3.12 billion, compared to Rs 2.70 billion in the previous year. The Ministry of Energy, Water Resources, and Irrigation was next with non-transparent transactions worth Rs 1.01 billion.

Similarly, the Ministry of Urban Development reported irregularities totaling Rs 920 million, while the Ministry of Water Supply recorded Rs 764 million. The Ministry of Land Management, Cooperatives, and Poverty recorded irregularities amounting to Rs 650 million, and the Ministry of Home Affairs reported Rs 540 million in irregularities. Furthermore, the Ministry of Tourism and Civil Aviation had irregularities worth Rs 407 million, and the Ministry of Foreign Affairs reported irregularities totaling Rs 386 million. Collectively, these 10 ministries accounted for 97.42% of the total financial irregularities recorded within the federal government.

Among the seven provinces, Madhesh Province reported the highest amount of irregularities, totaling Rs 8.31 billion. Following closely, Koshi recorded Rs 5.58 billion, Bagmati Rs 4.28 billion, Lumbini Rs 4.02 billion, Karnali Rs 3.94 billion, Gandaki Rs 2.68 billion and Sudurpashchim Rs 2.68 billion. The 61st annual report of the OAG has raised concerns about the government's decision to provide tax discounts amounting to billions of rupees. Over the past five years, the government has issued customs duty and internal revenue exemptions totaling Rs 341.74 billion. 

While there have been some improvements in the provisions for granting revenue exemptions, the expansion of exemptions on import duties and ad-hoc decisions has led to an increase in the total exempted amount. Customs duty waiver totaled Rs 99.42 billion in the previous fiscal year alone. Although these exemptions are granted as per the Financial Act, the Ministry of Finance and the Inland Revenue Department have failed to maintain adequate records, as highlighted by the OAG.