Public financial accountability system ‘severely threatened’

THE accountability system in public finance (government spending) is being severely threatened due to a weak link between voters and the government, dissolution of the legislature and absence of leaders in key accountability bodies, a report says. Absence of a national legislature has led to the absence of functioning parliamentary committees for legislative budget review and legislative audit scrutiny, as well as the absence of sector-specific parliamentary committees to hold the government to account, according to a study titled “Operational Risk Assessment of Public Financial Management Reform in Nepal: A Review of Challenges and Opportunities” conducted by the Centre for Aid and Public Expenditure says The report made public on Monday has suggested forming a mechanism of the civil society as a stop-gap measure to fulfill the vacuum of the Parliamentary Public Accounts Committee given this context. Besides ineffective oversight, the report has also pointed out dysfunctional budget process, weak capital project implementation and flawed central finance institutions as major hurdles to better public finance management. Tahseen Sayed, country manager of the World Bank, said Nepal’s development partners are deeply committed to support public financial management reforms. “Credible improvements in PFM systems would strengthen the government’s case for channeling more development assistance through country systems,’ she said. The report said disarray of the budget process has led to much execution of the budget occurring in the final trimester of the year. The first and second trimesters often see the continuation of planning and negotiation with exception of salary expenses. The report has suggested presenting the budget two months prior the beginning of the fiscal year. While under spending of the capital budget is a problem, the report says it is further weakened by external interferences in decision making which diverts spending to lower priority projects and causes fragmentation of the capital budget. The WB country manager said legal framework recognises the need for flexibility for budget execution and allows reallocation to a limited extent. “While flexibility is important, reallocations within capital spending have reached as high as 30 percent of the total capital budget,” she said. There are reports of losses and leakages of funds and inflation of user cost of consumer and overcharging by the consumers committee, the report says. The procurement and contracting are weak in terms of both competition among contractors and technical capacity of procurement planning. Besides the vacuum in political governance, outdated audit technique and skills have also constrained the audit and oversight of public financing, the report says. Local government audit arrangements for VDCs and municipalities are hamstrung by capacity constraints and prone to political capture, according to the report. The report has suggested improving technical prioritisation, strengthening fiduciary controls through local monitoring and clearer norm setting for project input costs, improving procurement practice through the training of officials and enhancing the performance of contractors through enforcement of minimum standard for materials.