August 22: The 58th annual report of the Office of the Auditor General (OAG) published by the Auditor General reveals a surge in financial irregularities and anomalies. The report states that the government bodies themselves have worked against the Financial Procedure Act and Fiscal Responsibility Act. 

The report shows that the transactions have been carried out without fulfilling the required procedures and keeping its records. In the fiscal year 2019/20 alone, audit reports of federal, state, and local government office as well as other organizations and committees have shown arrears of Rs 439 billion. 

Similarly, the foreign grant which needs to be reimbursed is Rs 9.13 billion and the loan amount is Rs 12.73 billion. The volume of loan acquired by the government along with interest during the review period amounts Rs 2.5 billion. The report shows that the total amount of loan that needs to be settled is Rs 676.41 billion an increase from last year’s amount of Rs 664.44 billion.

Rs 40 billion arrears at local level

According to the report, the local governments alone have arrears of Rs 40 billion. Of it, Rs 5.47 billion has to be recovered, Rs 10.75 billion has been misappropriated, Rs 17.16 billion lacks the required documents and Rs 10.6 million has not been reimbursed, while Rs 7.7 billion advance needs to be returned back. 

The total amount of arrears at the local level has reached Rs 103.37 billion. Arrears of the previous fiscal year is Rs 622 billion.

Haphazard expenses

The report points out anomalies in the preparation and distribution of the budget. Like in the previous year, a big volume of budget was introduced and huge expenses have been made at the end of the fiscal year along with reckless transfer of money. 

Although Rule 33 of the Financial Procedure Rules-2064 mentions that the accounts should be closed before the end of the fiscal year (July 9 of this fiscal year), Rs 210.19 billion has been spent in the month of July alone. Of the total budget expenditure, Rs 1.91 billion alone has been spent in the last week of Asadh (mid-July). So the Auditor General has asked the government to control the payment and expenditure in the last week of Ashadh.

Procurement of medical goods flouting the law

The 58th report has pointed out that the government has procured medical items going against the law. It has claimed that it is against the law to enter into an agreement with an individual who has not been assigned responsibility for this purpose. The government had made an agreement with the Omni Group to purchase health products after the second case of COVID-19 was detected  in the country. The report of the Auditor General states that a committee was formed without following the provisions specified in the Act. Also, the goods purchased by Omni Group were used without conducting any technical examination. 

Vehicles purchased flouting rules

According to the OAG report, the local governments have purchased vehicles illegally. In the Fiscal Year 2019/20, the local level spent Rs 133 billion on vehicle procurement. Although the Ministry of Finance had issued directive preventing the purchase of vehicles for regular use of the office from the budget provided by the government, the local government purchased vehicles flouting the issued directive. 

MCC and Fast Track irregularities

The report has revealed the Millennium Challenge Account Nepal under the US-funded Millennium Challenge Corporation (MCC) grant has misappropriated funds of Rs 200 million on the pretext of consulting services. "By appointing a consultant as a financial agent and agreeing to pay $ 5.05 million to each consultant, so far Rs 20.83 million has been spent," the report states. MCA Nepal   has spent the money by appointing a consultant as a financial agent to keep track of the initial phase of financial transactions and recommend payments and financial transactions.

The report shows that after spending a large amount of money, the Nepalese Army canceled 14 contracts related to the Kathmandu-Terai Fast Track terming it to be unnecessary and  inappropriate. Cancelling the process and contract after making payment of Rs 3.74 billion is itself an act of financial irregularity, states the report.  

Income Tax not paid

It has been found that the banks and financial institutions have not even paid the income tax.  According to the report, 24 commercial banks and 13 insurance companies have earned Rs 11.63 billion through FPOs and share auctions.  Thirty  percent tax applied to these transactions amount to Rs 3.48 billion. However, it seems that the revenue has been waived off. The report states that the tax should be assessed and collected after required investigation.

The report also speaks of the malpractice in the transfer of right shares. In the case of payment made by one person transferring property to another person, the amount equal to the market value of the property has to be verified but the tax has been assessed without verifying the capital gains. The OAG report states tax worth Rs 106.86 million to be  received under the Income Tax Act, 2058 should be assessed and collected.

Similarly, as per the agreement reached between the banks and financial institutions for merger, the report has decided to assess and collect the tax and interest of Rs 4.47 billion as per the Income Tax Act.

Big companies evading tax

The OAG report has found multinational and other large companies to be evading tax.  Gorkha Brewery has evaded tax of around Rs 1 billion, Bottlers Nepal which has been producing soft drinks including Coca-Cola, Sprite and Fanta in the country has evaded capital gains tax applicable in transfer of ownership.  Similarly, the report shows that Coca-Cola has to pay more than Rs 250 billion tax. Seven airline companies have evaded tax worth Rs 51.98 million applicable in airline tickets.

On the other hand, OAG report has suggested bringing social apps and sites operating without being registered under the tax net.