Anirudra Neupane
National audit involves the independent evaluation of financial statements of government agencies by Supreme Audit Institution (SAI). It assesses whether the government has raised revenues and spent them in line with the approved budget, and whether the information regarding revenues and expenditures are accurate and provide a reliable picture of the fiscal position of a country. Generally, SAIs undertake financial audits of government agencies to review the procedure followed for accounting, and compliance audits to test the legality of transactions made by those agencies. However, the scope of audit is not limited to financial and compliance audit. Modern SAIs are expected to scrutinize the economy, efficiency and effectiveness of programs undertaken by the government.
The Office of Auditor General (OAG) is the supreme audit institution in Nepal. It annually audits financial statements of about 4,800 government agencies. The only local bodies it audits are District Development Committee (DDCs). OAG produces individual report and provides it to each audited agency. A consolidated annual report that incorporates major audit findings from nationwide auditing is its major output. The annual report of OAG is handed over to the President, which later reaches the parliament for discussions. In addition, OAG also undertakes performance audit of some selected programs/projects based on findings.
As per the Lima declaration of International Organization of Supreme Audit Institutions (INTOSAI)-1977, SAIs are expected to promote the proper and effective use of public funds, development of sound public financial management, proper execution of administrative activities, and communication of information to public authorities and the general public. This clarifies that SAI has a great role in promoting overall transparency and accountability of a country. It is also expected to play the role of watchdog to enhance Public Financial Management (PFM) in Nepal, reduce mismanagement, misuse and leakages of public fund, and ultimately, improve governance.
Auditing and oversight are important components of a budget cycle. Audit report can significantly contribute to better planning and execution of national budget. If the role of OAG is neglected, important feedback about national budget is also ignored by policymakers and budget executers, which retards overall development process. Unfortunately, OAG has not been recognized as an important pillar of PFM system in Nepal. Only a small group of people are interested in audit reports, and an even smaller group really enters into it. There is limited public interest and participation both in audit process and outcome.
When there is parliament, Public Account Committee (PAC) conducts discussions with responsible officials based on audit findings, basically on arrears pointed out by the audit report. However, in most cases officials convince parliamentarians that arrears pointed out by OAG are not very important, and there is no need for corrective action. There might be two possible reasons for this. First, parliamentarians lack sufficient insight about the meaning and significance of arrears, and second, the OAG report may not be clear and consistent.
In the context of Nepal, there are several areas for improvement in the functioning of OAG itself, as well as national auditing and reporting system. On the other hand, redefinition of roles and responsibilities of other oversight bodies and government agencies that are expected to respond to the audit findings also seems important. OAG audits the accounts of government agencies and projects, makes annual audit and submits it to the president, which ultimately reaches the parliament and PAC. It shows that OAG communicates the information it produces to the concerned agencies, but PAC hardly communicates its report to the people. This limits the possibility of public oversight regarding whether issues raised by OAG and PAC are addressed by the government. As a result, the amount of arrears is going up every year.
It is not the duty of OAG to ensure that the government internalizes and acts upon its findings and recommendations. Parliament and PAC are expected to oversee that necessary actions are taken by the government to correct mistakes, wrongdoings and mismanagement of public resources in course of budget execution. Political commitment and greater efforts may be required in enhancing the performance of oversight bodies like PAC and the parliament. However, strengthening OAG and improving the overall auditing and reporting system is possible with minimum effort if weaknesses are accepted and needs for improvements are realized.
According to Nepal report of open budget survey (OBS)-2012, OAG in Nepal is strong enough to work independently, though it still has several weaknesses. Beyond the publication of audit reports, OAG’s system of communication of audit findings is weak. There is no mechanism to ensure public participation in the development of audit agenda. The report is not comprehensive, it scored only 30 out of 100 by OBS on comprehensiveness. This is because findings from the audit of extra budgetary fund are not separately disclosed, detailed report on the security sector and secret programs are not provided to the parliament, and reports on actions taken by executives on previous audit are not developed. International Budget Partnership has strongly recommended OAG to increase comprehensiveness by publishing reports and listing actions taken by the executive to address audit recommendations. Moreover, the supreme audit institution should provide the legislature with detailed audit reports on the security sector and secret programs.
OAG, being a member of INTOSAI, should not disregard guidelines prescribed by international standards on auditing. On the other hand, it should work to enhance PFM system in Nepal. In addition to IBP recommendations, OAG should develop immediate action points and long term strategies to establish a positive image. It should also allow different sections of society to be involved in the budget. During the planning phase, OAG should consult concerned stakeholders for risk assessment and audit planning. During execution, consultation with beneficiaries is important. For the communication of audit findings, demystification of contents of audit report for range of audiences, addition of necessary annexes to the main audit report, and customized dissemination among media, civil society and people at large is important.
OAG has been accused of lack of uniformity and consistency in auditing, due to which the same non-compliance may be reported as arrear for one agency, and not for the other. Auditors should be provided with clear cut guidelines and trainings before being mobilized for auditing. Stakeholders, including the media, should understand, interpret and disseminate audit findings so as to create a wider discourse on the audit report beyond PFM system. International best practices can also be replicated. For example, SAI in Philippines has developed a fraud alert system that records frauds complaints on its website, which in turn provides inputs for audit planning. In Colombia, SAI provides trainings to civil society, and conducts wider discussions among civil society groups to develop audit agenda. In South Korea, a mechanism has been built allowing citizens to demand special investigation of certain programs. Hopefully, Nepal’s OAG will be serious about these issues soon.
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