Public finance management in local bodies dismal

Kathmandu, October 22

A recent public expenditure and financial accountability (PEFA) assessment of the local bodies commissioned by the Ministry of Federal Affairs and Local Development has identified absence of locally elected representatives as the major cause for weak performance of public finance management in local bodies.

The Sub-National PEFA Assessment completed in September this year has found there is lack of information dissemination related to public finance, like ineffective advertisements through various media on procurement opportunities, awarding contracts, budget execution data, among others.

If there were locally elected representatives, there would have been demand for regular budget execution reports, follow-up of audit recommendations and in-depth review of budgets, as per the report.

Similarly, there are other key weaknesses like absence of regular bank and advance account reconciliation, poor record-keeping and document archiving, absence of adequate back-up of computer systems, among others, which reflect poor application and in some cases lack of understanding of basic financial management procedures in local bodies.

“The accuracy of payroll records is weakened by omissions in recording accrued leave and other entitlements (such as medical expenses) of personnel records, while the basis of transactions involving the mandatory staff welfare funds are not transparent,” said the report. The absence of detailed execution reports in both competitively tendered and user group executed projects, as well as annual reporting against annual procurement plans weakens the transparency of the entire procurement function.

The report has identified that the PEFA framework at the local level, Local Bodies Financial Administrative Rules (LBFAR) and Local Self-Governance Act (LSGA), are not effective enough for implementation of budget. The village development committees also receive a large chunk of the government’s grant but they do not fully abide by the LBFAR.

On the other hand, the public finances at the village development committees is not scrutinised as the Office of the Auditor General (OAG) only looks into the repots compiled by the district development committees and that too on programme basis.

Similarly, the reliance of nearly all bodies on central financing means that basic public finance management practices in relation to cash forecasting or realising the potential tax yield from local resources (particularly property tax) have not been implemented, as per the report.

The report has also stressed on need for reforms in the financial framework of the local bodies to reflect the recent changes in public finance management practices, such as multi-year budgeting, consolidation of local bodies financial statement through sub-national governments, financial management information system and consolidation of bank accounts under a Treasury Single Account framework.

PEFA assessment of the district development committees, municipalities and village development committees had set 28 different public finance management performance indicators. As compared to the scores of central PEFA assessment report of 2014, local bodies performance is high on five indicators, same on seven indicators and worse in 16 indicators.