Nepal, with a land area of 147,181 sq. km., is divided into the three regions of Himalaya, Mountain and Terai. The Mountain and Himalaya regions account for about 83 percent and the Terai region 17 percent, of the total land area. Due to geographical factors and the lack of adequate infrastructure, Nepal remains one of the least developed nations. In order to promote economic development, top priority has been given to the execution of public works and projects, including roads, airports, irrigation and housing.
The main objective of the current eighth National Plan (1992/93 - 1997/98) is to increase productivity, alleviate poverty and minimise regional disparities. Public works such as road construction, irrigation and electricity are being undertaken to provide the infrastructure facilities for accelerated economic development in order to fulfill national planning objectives.
The main public works undertaken by the Government of Nepal are:
| PUBLIC WORKS/PROJECTS | RESPONSIBLE MINISTRY |
| Roads and Bridges | Ministry of Works and Transport |
| Power and Irrigation | Ministry of Water Resources |
| Drinking Water and Sewerage | Ministry of Housing and Physical Planning |
| Airport Construction | Ministry of Tourism and Civil Aviation |
| Local Development | Ministry of Local Development |
Project identification, feasibility studies, investment criteria, budgeting, funding and implementation procedures are common for all public works and projects. These procedures are guided by the existing financial rules and regulations of the government. Public works and projects carried out with external assistance are also guided by the terms and conditions of the particular agreement signed between the government and the donor agency.
4.1.1. The National Planning Commission (NPC) has the overall responsibility of preparing national plans and co-ordinating sectoral plans on the basis of long-term strategies. Sectoral plans are prepared by the relevant department or ministry under guidelines issued by NPC. Project formulation processes include annual action plans, estimates and projections of financial, manpower and other resources. These strategies are reviewed through a discussion process under the auspices of the NPC which submits a draft plan to Cabinet for final approval.
4.1.2. Financial resources for the approved public works and projects are allocated by the Ministry of Finance. Investment by the government may be in the form of budgetary appropriation through government agencies or shares or loans through public enterprises or public companies. District and village level public works are carried out through local bodies under government's grants including public participation and their own resources.
Approval of new projects is based on a feasibility study which includes scope of the project, capital and recurrent expenditure requirements, rates of return, cost benefit analysis and implementation schedule with details of manpower and material requirements. The feasibility study is conducted by the technical experts of the Planning and Design Cell of the department concerned. In the case of externally assisted projects, the feasibility study is conducted by a team of foreign and local consulting firms.
The level of authorisation depends on the amount of expenditure undertaken by the government. Authorisations are classified into various categories under the financial administration rules. Approval of the competitive bids are assigned to the sectional head, divisional head, project manager, regional director, director general, secretary etc., depending upon the amount of bids. Bids of large national projects are approved by the minister concerned. However, such authorities may also be delegated to his subordinates under his own responsibility.
The national budget of Nepal is classified into revenue and capital expenditure. Revenue expenditure includes consumption cost, office operating and services, grants, production cost etc.. Similarly, capital expenditure includes capital transfer, capital formation, investment and grant (subsidy) etc.. Most of the public works are financed from development expenditures. Prior to the presentation of the budget in Parliament, detailed discussions are held among the ministry concerned: Ministry of Finance and NPC. Inclusion of public works and projects in the national budget depends on the details of the feasibility study, engineering design, cost estimate and planned work schedule.
The amount allocated in the budget document comprises the funds to be contributed by the government and donor agencies. Most of the projects which require major investment are financed jointly by the government and donor agencies. The accounting records of individual projects are kept in accordance with government regulations and the requirements of the donor agencies involved.
Nepal has a unitary system of government with a multiparty parliamentary system and a constitutional monarchy. The Council of Ministers, headed by the Prime Minister, is the executive organ of the government and is responsible to the House of Parliament.
The ministerial agencies, under the Council of Ministers, which undertake public works are charged to the Ministry of Works and Transport, Ministry of Water Resources, Ministry of Housing and Physical Planning^ Ministry of Tourism and Civil Aviation and Ministry of Local Development.
Based on size and scope, the various public works and projects are generally classified according to two categories, i.e. central and district level projects. Central level projects are carried out through the ministries and departments concerned. District level projects are decentraUsed through 75 districts and 5 development regions, with implementation by individual project managers. Such projects are supervised, directed, co-ordinated and monitored by regional directors in each region.
6.2.1. There is a separate planning and design section within each department. Design and cost estimates of the projects financed by the government's own resources are carried out departmentally. For this purpose, departments may hire local consultants. The design and detail of cost estimates for externally assisted projects are carried out by international consultants, generally in association with local consultants.
6.2.2. The bid documents for public works and projects are prepared by the particular government agency concerned in government-funded projects. In externally assisted projects, these documents are prepared by the foreign and local consultants involved.
6.2.3. A separate Project or Development Board has been formed for the implementation of large public works and projects. For these large projects, contractors are short-listed by a method of prequalification. Bids are invited in the following ways:
The bids received are evaluated by the Tender Evaluation Committee which comprises technical and financial experts for the government-funded projects. In the case of projects assisted by the World Bank and Asian Development Bank, bids are evaluated by consulting engineers and reviewed by the government. Final approval for the award of individual contracts is given by the relevant donor agency. Contracts are usually awarded to the lowest bidders after receiving pre-approval from the donor agency involved.
6.2.4. In accordance with the Financial Administration Regulations, bid approval depends upon the amount involved in the cost estimate and the competitive bid amount. Public works above Rs. 100 million are subject to approval by the departmental minister and amounts below this figure are approved by various levels of public authorities as assigned to their respective position.
6.2.5. Supervision of public works and proj ects is carried out by the department concerned in government-funded projects. However, the supervision of externally-financed projects is undertaken by international consultants, generally in association with local consultants.
The double-entry accounting system is used for both regular and development budgets. The accounting system is regulated by Financial Comptroller General's Office (FCGO) under the Ministry of Finance (MOF). The accounting forms are designed by the FCGO and approved by the Auditor- General.
Monthly Statements of Expenditure are prepared by the executive agencies involved to report the actual expenditure incurred, estimated expenditure for the remaining period and budget surplus or deficit. The basis of these statements is actual expenditure incurred, with copies being submitted to the District Treasury Controller's Office (DTCO), in addition to the department and ministry concerned.
A substantial amount of the development budget is spent on public works. Expenditure incurred on public works is recorded in a general accounting format. As a general accounting format is inadequate in providing information required to monitor and control public works expenditure, special formats are also used to account for public works activities :
In order to meet the requirements of donor agencies, a project account is prepared at the end of the fiscal year to report on the financial position of the project. This account is prepared and submitted to the FCGO and OAG for verification and certification before its presentation to the donor agency concerned. The internal audit of project accounts is conducted by the relevant DTCO on a monthly or trimester basis, depending on the volume of transactions and size of the project. An internal audit report is submitted to the office or project concerned, with copies being sent to the ministries and Office of the Auditor- General (OAG).
The standard norms on public works are approved by the government, which provides the basis for preparing cost estimates. In order to ensure quality, public works laboratories are established locally. Most laboratories perform only a limited number of tests. More complex tests areconducted off-site. With donor-funded projects, quality control is achieved through the relevant consulting engineers establishing laboratories on-site.
Project Monitoring Evaluating Cells are established in each department. Weaknesses detected by these cells are immediately reported to the executive authority concerned, to enable appropriate remedial measures to be taken. In addition, projects are also monitored, reviewed and evaluated by the NPC on the basis of the performance of individual projects.
A Mechanical Division is established in the Department of Roads under which six Heavy Equipment Divisions (HED) are located in various regions of Nepal. The Mechanical Division compiles a list of the required machinery and equipment which is procured through competitive bidding. With
some projects, equipment is procured by the project itself. However, with externally assisted projects, procurement is made on the basis of official guidelines promulgated by the relevant donor agencies, such as those of the World Bank. Usually heavy equipment is imported by the contractors involved with the benefit of duty exemptions.
The Procurement of construction materials depends on the terms and conditions of the contract document, with donor agency guidelines being followed. Domestic construction materials are given some priority but some items are expensive compared to imported materials.
As individual projects obtain approval from the MOF and NPC after detailed consideration, each project is executed through the respective ministry. In some ministries, a separate board is constituted under the Development Board Act or a separate project office is set up for the implementation of the public works involved. The board and project offices are controlled by their respective ministries and departments. The NPC reviews the works periodically. The board or project offices are required to furnish progress reports to the various ministries and the NPC. The Secretary of the ministry concerned is made accountable for the proper execution of the project as per the operation schedule and is made responsible for maintaining the books of accounts for the expenditure incurred. The relevant parliamentary committee also reviews the progress of the project
The particular ministry concerned is responsible for the operation and maintenance of public works and projects. Periodic and routine maintenance are carried out either departmentally or by inviting tenders. Maintenance activities are generally labour intensive. In Nepal, most public
works and projects are financed through external assistance. The level and composition of revenues are inadequate to address regular maintenance and operations, compared to the investment made in such projects. The ratio of revenue to total expenditure is very low.
A large number of private sector companies are registered to undertake public works and projects. However, National Construction Co. Nepal Ltd. (NCCN) is the only public enterprise contractor. Established in 1960, NCCN is engaged in a variety of public works (e.g. roads, bridge, irrigation and buildings) in competition with private sector contractors for public works and projects.
10.1. Foreign-aided projects mainly involved roads, irrigation, electricity, drinking water and aviation. The donor countries and agencies involve the World Bank, Asian Development Bank, Japan, China, USA, Finland, U.K., India and France. These foreign-aided projects fall into two categories:
10.2. Turnkey projects are implemented by the donor countries or agencies themselves. Such projects are formally handed over to the government on completion. The government provides the land required for individual projects and makes available other facilities such as customs and taxation concessions and import licences. With such projects, the procurement of construction material, award of contracts and execution of works are the responsibility of the respective donors.
10.3. Projects being implemented through loans are also financed jointly by the government i and donor agencies. The proportion of funds to be contributed from each of these sources is [ determined when individual agreements are signed. Donor agencies provide most of the finance [ for civil works, procurement of equipment and consulting services.
10.4. For large projects assisted by external agencies, competitive bids are invited internationally for construction and the procurement of machinery and consultancy services according to the official guidelines of donor agencies. Bids received are evaluated by a technical committee of the respective ministry and approved by the competent authority based on the provisions of the government's Financial Administration Rules. However, concurrence of the particular agency involved is also required for bid approvals.
10.5. To ensure proper execution of the work plan, disbursement, quality and the fulfilment of the intended results, the secretary of the respective ministry is made accountable. The agencies' representatives also review and monitor the progress of the projects from time to time and suggest appropriate measures for any shortcomings and weaknesses.
In accordance with the constitution of the Kingdom of Nepal, all government offices are subject to audit by the Auditor- General in the manner determined by law with due consideration to regularity, economy, efficiency, effectiveness and propriety. Additional rights and duties of the Auditor- General are mentioned in the Audit Act 1991 which prescribes the methods of audit and matters to be audited. Hence public works and projects undertaken by the government are also subject to audit by the office of the Auditor-General.
The audit of public works is conducted with the objective of examining :
Public works undertaken by the different ministries are audited by the relevant directorate ofthe OAG. The Audit Act 1991 provides for the following audit procedures and methodologies:
14.1. Investment decisions taken by the government to initiate public works are based on the feasibility study and appraisal reports.
14.2. As the design of public works is undertaken by technical experts, auditing its adequacy and completeness requires highly specialised knowledge and skill. Although the OAG does not audit the design function, there is no limitation to the authority ofthe OAG in this respect where it is deemed necessary.
14.3. The government has developed norms and standards of rate analysis. Cost estimates of the particular public works are prepared in accordance with these prescribed norms and standards. During the course of audit, the cost estimates ofthe projects are verified to confirm whether the set norms and standards are followed by the ministry while preparing the cost estimates.
14.4. During the course of audit, contract documents such as the agreement, conditions of contract, specifications, minutes of meeting and other related documents are reviewed. Progress payments or accounts presented by the contractors are checked to ensure whether claims made are in accordance with the terms and conditions of the contract. Such accounts are submitted for verification to the supervising engineer and approved by the competent authority. However, there is no system of pre-audit of the various contracts.
14.5. The Audit Act 1991 empowers the Auditor-General to comment on the propriety of public works activities, including:
14.6. The Auditor -General is empowered to conduct audits in the context of economy, efficiency, effectiveness and propriety. There is a separate directorate in the OAG to conduct performance audits of projects being undertaken by the government.
14.7. As the audit of public works and projects also includes the examination of technical aspects, the Auditor- General is empowered to conduct such audits and may, if necessary, engage professional experts for this purpose.
14.8. The audit of public sector assets - in addition to their operation, maintenance and utilisation - falls within the scope of regular auditing operations.
14.9. The audit of public works and projects, involves related revenues, including those from fuel, vehicle tax, licence fees, registration fees, highway maintenance tax, irrigation tax, pipe water tax and landing charges.
14.10. The OAG has the responsibility of auditing NCCN Ltd, the only government-owned public enterprise contractor in Nepal. However, the OAG may appoint a firm of professional chartered accountants to carry out this function.
14.11. Privatised manufacturing and trading enterprises, previously owned by the government, are not subject to audit by the OAG.
The government's regular and development budgets are growing every year, with a corresponding increase in the amount of audit work and responsibility of the OAG. Because of limited audit resources, there is greater reliance on audit sampling and field work. As far as the financial resources of the OAG are concerned, the budget is allocated by the government through the Appropriation Bill. Manpower requirements are approved by the government and employees are recruited by the Public Service Commission. In-house and outside training courses are organised for the development of human resources.
According to the Constitution of the Kingdom of Nepal, the Auditor-General submits his annual report to His Majesty the King. The Auditor-General may also submit periodic reports at any time on individual cases, if warranted by the seriousness of the audit findings. The report is divided into three volumes:-
Volume 1 - The general review of government accounting practices and financial performance and a comprehensive appraisal of selected projects and schemes.
Volume 2 - The audit reports of government-owned corporate bodies, universities and other autonomous organisations.
Volume 3 - The statement of accounts relating to public revenues and budgetary expenditure.
17.1. Depending on the nature of the public works involved, there may be a need for tests of both quantity and quality. However, due to the lack of experts and laboratory facilities, these tests have proved difficult to apply in practice.
17.2. Audits are generally conducted after the completion of the fiscal year which ends on 15th of July every year. However, the late submission of financial statements and books of accounts leave only a short period of time for auditing.
17.3. There are relatively few professional associations in Nepal. Among them are the Chartered Accountants Association of Nepal, Nepal Engineers Association and Nepal Management Association. The Office of the Auditor-General and the Chartered Accountants Association maintain a professional relationship in the conduct of audits.
17.4. The Financial Comptroller General is attempting to improve internal auditing and the quality of financial practices.
17.5. Annual financial statements are not produced in time by some offices and projects, thus delaying the audit and causing a backlog which is increasing every year.
17.6. Audit experience shows that irregularities of same nature are repeated every year. The non-recovery of advances and their settlements, non-presentation of books of accounts and related documentary evidence, are the main problems faced by the Auditor-General.