Econ-ity » July 11, 2014

Daily Archives: July 11, 2014

The Yellow Book and accounting jokes – somehow the administrative costs don’t administer!

I started my research by going through the Yellow Book produced by the Ministry of Finance. The Yellow Book is the accounting performance review of public enterprises in Nepal. If there is any doubt on financial matters or anyone wants to know how tax payers’ money is being used in the public enterprises in Nepal, this is the go-to book.

When it’s a work of the government (publishing the Yellow Book!), somehow, I had this notion of absoluteness – soon to realize most of the figures were manipulated – manipulated to the extent that there were mistakes; blunders –  some so shameless that an elementary school student could spot out! But hey, some of those could have also been human errors – we all make them. Nevertheless, if you spotted only one error in such an important document, that reason might be validated; if there are mistakes in almost every section of the book – to the extent that you could write 20 blog posts on it, now that’s a different story.

Let’s look at a few of those which are the simplest and funniest:

1. The basic Profit calculation.

This can be done by any layman. We know that Profits in the simplest form is Cost subtracted from Revenue. Profits (π) =Revenue (p (q)*q)-Cost(c(q) ).

Pic 1

This picture is from the 90th page in the Yellow Book, 2070 (2013 A.D). If you see the fourth column, it signifies the actual operating profit calculation in the year 2068/69; the profit is calculated to be negative NRs. 323 Lakh.  You do the basic math now.

Subtract NRs. 30675 Lakh (Operating Cost) from NRs. 33123 Lakh (Operating Revenue)- you must get +NRs.2448 Lakh provided you do it correctly.  The calculation published by the Ministry of Finance says this figure is a negative NRs. 323 lakh. This is a difference of NRs. 277100000!

The other years are correct, provided you do the same; you could subtract and see for yourself.

The story behind this manipulation (assuming this is not one of the hundred human errors in the Yellow Book): The above table is about Agricultural Inputs Corporation Limited (AICL). This is the government body in Nepal which distributes chemical fertilizers throughout the country, with transactions worth billions as you can see from the table itself.

During the year for which the figure was manipulated, or rather deliberately shown as a loss, there was a shortage of chemical fertilizers in the Nepalese market. During the past two consecutive years there was a shortage due to limited subsidy.This created a big black market.

I really cannot pin point why AICL wanted to show this figure as a loss on their assumption that the people were so foolish that they could not subtract and see for themselves. But one guess I have is because they wanted to show that they worked to the extent of loss. You judge it for yourself.

Pic2

You could do the same for the 95th page. All calculations here for the operational profits are erroneous.

The joke is that with the administrative staff that makes such erroneous calculations, gets paid in millions of rupees, as you can see in the above table.

Pic3

The same errors on the 110th page of the Yellow Book, the same argument for administrative costs hold!

2. Formulae given in the end – they forgot to follow themselves!

pic 4

This can be found in the last page (302nd) of the yellow book. I want you to notice the last formula conveying the debt to equity ratio.

pic 5

Notice the debt to equity given for the year 68/69 is 305:1.

pic 6

From the table above

  • Long term loans are: NRs. 247710 Lakhs ( Sn: 27)
  • Loans that exceeded the durations are: NRs. 70610 Lakhs (Sn: 29)
  • Current Liabilities are: NRs. 47321 Lakhs (Sn. 16)
  • Share holder’s funds  are: NRs. 967 Lakhs (Sn 22)

If we follow the formula, the considered loans are all the loans except for current liabilities. This amounts to NRs.318,320 Lakhs (27+29). If you follow the formulae and divide this amount by the share holders fund you should get the figure 329.18, the mentioned debt equity is 305.

These are only few of the many errors that one finds in the yellow book. Print mistake, tabulation mistake, human error has it place, but the amount of mistakes in the book baffles the reader and gives them a clear impression of carelessness and even arbitrariness in coming up with the mentioned figures. Somehow the administrative costs don’t administer when it comes to the government.

Serene Khatiwada

About Serene Khatiwada

Serene Khatiwada is a Research Intern at Samriddhi, The Prosperity Foundation. He did his Economics Honors from Hansraj College, University of Delhi.

Published by:

Can’t FIRE; don’t want to HIRE

employers in troubleLike in many developing nations around the world, the process of industrialization in Nepal has been evolving with time. According to Central Bureau of Statistics, the country has about 11.7 million work force, of which 1.8 million are in the formal sector and around 3.5 million are in foreign jobs. Although, comparatively the formalized labor force covers a small chunk, an economy seeking growth cannot ignore this segment. And thus, the Labor Act, Trade Union Act, Industrial Enterprise Act, National Labor Policy were enacted, many of which were meant to protect employees and these provisions in totality can be termed Employment Protection Legislation (EPL).

As with most labor market regulations, employment protection legislation (EPL) was first introduced with the aim of enhancing workers’ welfare and improving employment conditions. It includes employees’ protection against dismissals, limitations on the use of temporary forms of employment, regulation of working hours, but in a broader sense also health and safety, protection of employees in less favorable conditions

In our case, perhaps, the existent hire and fire policy which makes it easier to hire employees but poses many restrictions on the firm’s ability to fire workers, fulfills its stated purpose, namely protecting existing jobs. But this has come at a price as it has led to many employers opting to have temporary contracts with employees and thus, less or no investment in employees’ skill development programs. Since the hire and fire policies come with added burden to the employees—legal and other transnational costs— many say this has been the reason behind the slow pace of growth. Employers, at large, shy away from hiring people on permanent basis and given the costs that come with firing employees affiliated to unions strongly backed by political parties; this has cut down incidences of hiring people.

Many employers in Nepal who have had to face permanent shut-downs and heavy financial losses have asserted that Nepal’s labor legislation is pro-workers and biased against the employers. According to them, it affects the market place dynamics and deters them from investing more in permanent employees. Perhaps, the consequences have been more dire than expected and about time we look at the laws more critically, right?

To understand more on what I actually mean, check out the following video. The second point on government regulations explains how hire and fire policies which make it difficult to fire employees have dire consequences on intended growth.

Anita Krishnan

About Anita Krishnan

Krishnan holds dual degrees--in law and sociology. Currently, she works as a Research Associate at Samriddhi, The Prosperity Foundation.

Published by: