The federal government has developed the model 'Procedure Relating to Internal Audit of Consolidated Fund-2021' for the local levels to maintain fiscal discipline through transparency in utilisation of resources available to them.

The procedure also envisages to ensure that expenditures of local governments are with the limits specified by the law. It comes into effect upon its passage from the executive office of the local levels concerned. As per the procedure, the local level shall develop and implement internal control system to maintain austerity measures, efficiency and effectiveness of the approved programmes to be carried out under the prevailing law, besides making the financial reporting system reliable. The internal control system aids the local level to perform the activities of the approved programmes in a risk-free manner and incorporates potential risks, their control measures, communication and information strategy and monitoring officer.

"The local level shall designate an officer responsible to carry out monitoring of internal control system and cause him/her to prepare and submit a report thereof to the audit and internal control committee of the local government on a regular basis," it says.

The main function of the committee is to ascertain whether or not the local level has complied with the internal control system and it may instruct the officials concerned to improve the system as per necessity.

Similarly, the procedure requires the local level to get internal audit of its income and expenditure conducted. "Audit of appropriation, revenue, deposit, income and expenditure or assets and liabilities and the office operation or other public funds established under the prevailing law shall be provided to the internal auditor assigned for conducting the internal audit. The official concerned shall cause to validate the irregularities pointed out in the audit by the internal auditor prior to the start of final audit," the procedure reads. A copy of the internal audit should be provided to the person or agency assigned by the Auditor General for final audit.

According to the procedure, the internal audit should clearly reflect the expenditure within the budget ceiling in the prescribed format, settlement of all arrears, income, deposit, records of government assets and their utilisation/protection, effectiveness of internal control system, achievement of progress within the budget and programme, compliance of the procurement law during procurement of goods and services and adherence to financial procures while making budget transfer, among others.

The procedure also says that the chief administrative officer of the local level shall ensure that the revenues are collected on a regular basis and are not missed out, while updating thereof. "The local level shall settle the irregularities or arrears pointed out in the in the quarterly and annual internal audit reports within the next quarterly period and before the final audit, respectively," it says.

The procedure stipulates an two-member audit facilitation committee led by an officer assigned for conducting internal audit. It includes a technical officer designated by the chief administrative officer as another member. The committee will be responsible to prepare the financial reports in a timely manner, settle or cause to be settled irregularities/arrears and perform works effectively my adopting internal control system.

Earlier, the Ministry of Federal Affairs and General Administration has developed Arrears Settlement Action Plan and Guideline to be implemented by the MoFA- GA and agencies under it to gradually reduce the arrears to zero.

When the law requires the government agencies to perform their business in such a way that they maintain fiscal discipline and arrears do not exceed one per cent, the arrears of local levels sometimes stand at more than 35 per cent. The tendency of showing activeness in giving and taking advance, and doing less for settlement of advances has led to accumulation of arrears.

A version of this article appears in the print on August 21 2021, of The Himalayan Times.