Governmental Fund Flow Mechanism at Central and District Level, Reporting and Audit

Bhava Nath Dahal, FCA

Local Level Fund Flow and Reporting

Agenda for Discussion

Fund Flow of Public Fund- Central and Local Accounting System for public fund Internal control and auditing Overall scenario on accounting, reporting and monitoring Comparison of accounting system with Bhutan (Group Discussion) Computerization status for public accounting.
Local Level Fund Flow and Reporting 2

Fund Flow in Central Level

Funds through Consolidated Fund
Budgetary Fund~ Revenue and Expenditure Special accounts~ ADB, IDA etc. Cash Grants and reimbursements Direct Payment- grant in form of goods/ turn-key

Funds beyond Consolidated Fund

Non budgetary Fund~ Project Funding esp. grant Participatory Fund- Proportionate revenue from different accounts Operational Accounts
Local Level Fund Flow and Reporting 3

Organization for public fund

Central Fund Flow:
Expenditure is based on annual Appropriation Act. Revenue is based on annual Finance Act with procedure under line item special acts.

Local Level Fund Flow:

Decentralization / independence has allowed in local funds including central budgetary grants . Corporations are independent for their business, accounting, reporting based on Nepal Accounting Standards.
Local Level Fund Flow and Reporting 4

Central Fund: Consolidated Fund

Receipts
Revenue (Tax and non-tax) Loan (internal or external) Grants

Expense ~ Red Book Mechanism (BUDGET)

Release through District Treasury Comptrollers Office (DTCO), authorised through Ministry Unreleased fund to be freezed at year-end.

Accounting ~ Cash Basis (with accrual information)

Manual system in unit level Manual system consolidation in Ministry level Central networking for DTCO records (Batch Processing) Central networking for VAT/PAN records (Batch Processing)
Local Level Fund Flow and Reporting 5

Central Fund- Expenditure

Through governmental banking
Planning, Authority to expense and Current Fund account Monthly reimbursement for expense made Return at year-end (minor freeze accounts)

Project Fund- Direct Payment

Special Accounts or Imprest accounts, if allowed Local payments to be reimbursed to Consolidated Fund Foreign payments allowed or some cases direct payment through IDA/ADB or other development partner accounts. Many project funding falls under this category

Local Level Fund Flow and Reporting

Central Fund- Expenditure

To Local Authority (Districts, Town and Village)
Bulk fund based on approved planning to Ministry of Local Development Disburse to Districts (central account based) Expense itself (local accounts based) or disburse to town or village.

Project Fund- Direct Payment

Special Accounts or Imprest accounts, if allowed Local payments to be reimbursed to Consolidated Fund Foreign payments allowed or some cases direct payment through IDA/ADB or other development partner accounts. Many project funding falls under this category
Local Level Fund Flow and Reporting 7

Central Fund
Project Fund- with or without counterpart through Governmental budgetary system
Cash Grant (central government Ka 7 series) Reimbursable Grant
Govt. first release and expend Then Project Office request for reimbursement Reimbursement of the expend is deposited into consolidated fund.

Capital grant Goods

Recorded as per documentary evidences and reported Durable assets are to be recorded into OAG Form 47
Local Level Fund Flow and Reporting 8

Central Fund
Operational Fund Normally created by law of parliament or under decision of government Income and expense are as per law governing the fund Accounts are audited by OAG Reporting to the ministry and National Planning Commission Non of development partner contributes in these accounts, normally.
Local Level Fund Flow and Reporting 9

District Fund
District itself can earn revenue and expend it
Different revenues
Royalties ~Electricity, forest, mine, or natural resources Land Revenue or registration fees Local Development Duty Tourism etc.

The amounts are distributed as per various laws Accounts are to be audited normally similar as other accounts of DDC

Local Level Fund Flow and Reporting

10

District Fund
District Council pass the budget to expend
Central budget and own source revenue can be expend under decision of council and DDC make expend DDC release the fund to VDCs and to Municipalities as per Budget approved by council Programs are implemented as per project documents and reported accordingly

District Accounts are to be audited by OAG

All incomes, expenses and assets of DDC are audited by OAG and reporting to Parliament OAG shall issue Audit Reports for the specific donors as required by the project agreement OAGs audit for release of fund to VDCs and Municipalities to be limited to release vouchers, practically
Local Level Fund Flow and Reporting 11

District Fund
Proportionate sharing of Fund
DDC shares the revenue received itself
Some local taxes are levied by DDC and it share to concern VDCs/Municipalities
Whole amounts to be recorded by DDC as revenue or only own portion is as revenue Share out portion is release as RELEASE or not They keep their records on cash basis accounting

Some local taxes are levied by VDCs/Municipalities and they share these with DDCs
Receiver records all receipts and deposit DDCs share to DDC accounts. Records for these are normally kept under cash basis accounting
Local Level Fund Flow and Reporting 12

DDC level Summery

DDC Fund Received from:
Central Government Sharing from Central Own income Loan Donation from Individual/Development Partners Shared income with VDC/M collected by DDC Share income with VDC/M collected by VDC/M DDC are tax exempted except in rent and interest
Local Level Fund Flow and Reporting 13

DDC level Summery

DDC Fund expend to:
Administrative purpose Development Program as passed by council Release to VDCs/M Refund of loan

DDC Accounts reported as:

Internal audit by own staff Final audit by OAG Project audits as per project agreement
Local Level Fund Flow and Reporting 14

Material in Central Accounting

Central Funds:
Financial Procedural Act, 2055 Financial Administrative Regulation, 2056 Procedural Manual for Central Accounts Agreement of Nepal Government with Nepal Rastra Bank Budget Manual

District Level:
Local Self-governance Act, 2055 Local Self-governance Regulation, 2056
Local Level Fund Flow and Reporting 15

Group Discussion
Group AComparison of Central Fund Flow Group B- Comparison of Local Fund Flow For both: between Nepal and Bhutan in terms of
Release and recordings Accounting Reporting Auditing

Public Fund Flow and Reporting

16

Systems used in Public Fund

Most cases, accounting and recording are in manual form (vouchers, OAG Forms, reports) DTCO consolidates budget release in networking and centrally consolidates by way of batch processing system (output is reliable, FCGO reproduce its reports based on these) Value Added Tax, source tax records are in computarised system- now redirected to taxpayer level web based input too. Income tax returns are kept in system, even not used officially till.
Local Level Fund Flow and Reporting 17

Systems used in Public Fund

Large sized Governmental undertakings in most cases use computarised accounting and reporting. Almost all offices use computers- but not for accounting (ms-office especially for ms-word) Local school and VDC level accounting is poor, central level accounting is fair in current year cash basis. Most manual accountings are format based.
Local Level Fund Flow and Reporting 18

Monitoring and control

Accounting records are audited by DTCO as internal auditor (for fund released from or revenue received to consolidated fund). Department and line ministry is monitor for program progress. Auditor General is final auditor for all central fund and some local funds too. Various legal and control mechanism has established against unwanted activities.
Local Level Fund Flow and Reporting 19

Development in accounting
From July 16, 2008 all public sector business entity require to comply all mandatory Nepal Accounting Standards. By 2011 NAS shall converse as same as IFRS. Public sector entity, other then business entity require to comply Nepal Public Sector Accounting Standards (going process to develop, Cash basis standard -similar as cash basis IPSAS is near to complete).
Local Level Fund Flow and Reporting 20

Thank You
Local Level Fund Flow and Reporting 21