Local Governments (LGs) in Nepal have been at the helm of public service delivery and governance at the block level in Nepal since 2017. Key pieces of legislation have been passed to deliberate on the roles and responsibilities of the LGs. However, and as expectedly so, their performance in the past three years indicates that they lack institutional capacity and adequate human resources. It is also unwarranted that, by and large, sub-national governments lack a mechanism that merits performance, accountability, and reflects transparency. A look into the practicalities of reporting of income and expenditure offers a good deal of insight into this issue.
From an administrative standpoint, LGs are obligated to produce reports and submit them to both federal and state governments, inline ministries, constitutional commissions as well as the audit authorities. The Local Government Operations (LGO) Act 2017, in clause 69, provisions the working, operation, and reporting aspect of local consolidated funds. LGs are also required to prepare a consolidated report of the same using Sub-national Treasury Regulatory application (SuTRA), a web-based platform, that has been developed to empower subnational governments in financial management.
The Office of the Auditor-General (OAG) in its annual report 2019 notes that only 298 out of 753 Local Governments submitted a consolidated report of funds and treasury positions using SuTRa, and in many instances, local agencies failed to follow accounting/reporting formats prescribed by the OAG. The report also mentions that 105 LGs missed the deadline of presenting the estimates of revenue and expenditure as proposed by the LGO Act 2017. Three years in working, local agencies seem to be struggling with the formulation of legal frameworks, procedural directives, and other legislative instruments. Internal control, financial compliance, and in house audit mechanisms at local levels are sub-par. Similarly, utilization of consolidated as well as divisible funds remains sub-optimal.
In addition to the LGO Act, LGs have to maintain compliance procedures as provisioned by numerous other legislations. Lines of reporting and statutory obligations are both inordinate; proving a bit too much work for the local agencies — at least more than what the LGs are capable of coping, given their current state. For instance, we have provisions whereby the Ministry of Finance seeks details of utilization of recurrent expenditures by LGs in their reports while explicitly asking them to keep out of reporting capital expenditures. In other cases, LGs are required to submit both capital and recurrent expenditure reports, and to make matters complicated LGs may be asked for a consolidated report that includes periodic treasury position and grant utilization status. One cannot help but wonder why we did not simply install a universal reporting framework whereby the LGs report everything, and other agencies can pull necessary reports from this instrument as per their need.
It goes without saying that Nepal’s history in policymaking is marred with complacency, and so has been our track record in implementing a policy. Policymakers and executives alike conveniently seek refuge in each other’s inability to deliver. Remarks such as “We have one of the best policies; the only problem is that we could not implement it as planned.” are a regular feature. One could argue that what makes a policy great if it can never be implemented. Our new reporting system for LGs is eerily close to falling victim to this culture. A nascent sub-national setup like ours might require such exercise but it is also important to ensure that while we practice this administrative institutionalization of federalism, governments also give due regard to accountability towards their taxpayers — their funders.
The National Natural Resource and Fiscal Commission has been conducting capacity building of the local governments pertaining to fiscal discipline and management. The office of the financial comptroller general has been busy training local level representative and administrative personnel on Financial compliance, use of integrated systems in revenue and expenditure management, and on audit parameters. Such initiatives are useful in helping LGs avoid errors occurring via oversight. But the results have been less than encouraging. Capacitating LGs on a reporting system that is plagued with duplication of information, redundancies, and with an outlook that disregards the foundational pillar of accountability towards the public, is reminiscent of our own old archaic unitary government. From a taxpayers’ perspective, the longer it takes for the LGs to function efficiently, the heavier will be the burden on the former’s coffers.
Hence, governments at all levels should work on structural reform that seeks to create a leaner system. Integrated information management and central databases for internal control and performance reporting, both within the bureaucracy and to the public are the need of the hour. A harmonized reporting system will help LGs free up their time and focus on public service delivery. These course corrections will help the government to internalize the spirit of fiscal federalism while maintaining the essence of accountability from the sub-national governments.