Unit 16 Solutions: Government Accounting in Nepal

Answers to the Unit 16 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, four explained points for 4 marks, and an introduction, explained points and a conclusion for 8 marks.

A. Very Short Answer Questions (1 Mark Each)

1. Define Government Accounting.

Government Accounting is the process of recording, classifying, summarizing, reporting and auditing all financial transactions relating to the receipt, transfer and expenditure of public funds and government property, in accordance with parliamentary budget appropriations and financial rules.

2. When was the State Audit Office and the Civil Personnel Record Office established in Nepal?

The State Audit Office was established by King Prithvi Narayan Shah in 1769 A.D., soon after the unification of Nepal, and the Civil Personnel Record Office was established in 1925 B.S. (1868 A.D.).

3. Who propounded the Traditional Bookkeeping System, and in which year?

Chief Clerk Gunwant propounded the Traditional Bookkeeping System in 1936 B.S. (1879 A.D.).

4. Define Daily Sub-Total, Cumulative Grand Total, Classified Ledger, and Final Summary Statement.

• Daily Sub-Total: The total of one day’s entries in the Primary Daily Record, closed with a single line.
• Cumulative Grand Total: The accumulated total of all entries up to that day, closed with double lines.
• Classified Ledger: The book, similar to a modern ledger, in which receipts (Revenue Ledger) and expenditures (Expenditure Ledger) were classified head by head.
• Final Summary Statement: The summary statement, similar to a Balance Sheet, prepared at the end of a job, a month or a year.

5. When was the Accounts Committee formed to draft the New Accounting System, and on what date was the New Accounting System approved?

The Accounts Committee was formed on 2nd February 1961 A.D. The New Accounting System was approved by the Auditor General on 2nd February 1962 A.D. and received royal assent from King Mahendra on 15th March 1962 A.D.

6. Which Part of the Constitution of Nepal (2072 B.S.) provides for the Auditor General?

Part 22 (Articles 240–241) of the Constitution of Nepal, 2072 B.S.

B. Short Answer Questions (4 Marks Each)

1. Differentiate between Government Accounting and Commercial Accounting on any five bases.

2. Explain the three books used under the Traditional Bookkeeping System (Primary Daily Record, Classified Ledger, and Final Summary Statement).

The Traditional Bookkeeping System, introduced by Chief Clerk Gunwant in 1936 B.S. (1879 A.D.), used three books:

1. Primary Daily Record: This was the book of first entry. It was kept on handmade paper folded into 16, 24 or 36 creases, with receipts written on the left side and payments on the right side. Each day’s entries were totalled and closed with a single line (the Daily Sub-Total), and the running total to date was closed with double lines (the Cumulative Grand Total). The record was divided into three parts: the Cash Record, the Store/Property Record and the Security Deposit Record.
2. Classified Ledger: This book was similar to a modern Ledger. The receipts and expenditures were classified by head, with receipts grouped in the Revenue Ledger and expenditures in the Expenditure Ledger, so that the total under each head could be known.
3. Final Summary Statement: This statement summarized the accounts and was similar to a modern Balance Sheet. It was prepared as a Job-ending, Month-ending or Year-ending Summary Statement, depending on whether a job, a month or the year had been completed.

This system remained in practice up to F.Y. 2022/23 B.S.

3. Write short notes on: (a) Office of the Auditor General (OAG), (b) Financial Comptroller General Office (FCGO), and (c) District Treasury Comptroller Office (DTCO).

(a) Office of the Auditor General (OAG): The OAG was established on 29 June 1959 A.D., succeeding the State Audit Office of 1769 A.D. It is a constitutional body under Part 22 (Articles 240–241) of the Constitution of Nepal, 2072 B.S. The Auditor General is appointed by the President on the recommendation of the Constitutional Council for a six-year term. The OAG:

• conducts the final statutory audit of all federal, provincial and local government offices, courts, parliament, army, police and wholly-owned corporate bodies, with due regard to regularity, economy, efficiency, effectiveness and propriety;
• prescribes and approves all government accounting forms (AGF forms); and
• submits its Annual Audit Report to the President for tabling before the Federal Parliament.

(b) Financial Comptroller General Office (FCGO): The FCGO was first set up as the Accountant General Office in 2008 B.S. and was reorganized as the FCGO in 2032 B.S. under the Ministry of Finance. It:

• oversees the Consolidated Fund and national treasury operations through the Treasury Single Account (TSA);
• supervises all 77 District Treasury Comptroller Offices and directs internal auditing; and
• prepares the Central Consolidated Financial Statements of the Government of Nepal and submits them to the OAG for final audit.

(c) District Treasury Comptroller Office (DTCO): DTCOs were established in all districts starting from F.Y. 2038/39 B.S. as the district-level operating wing of the FCGO under the Ministry of Finance. A DTCO:

• releases approved budget funds and authorizes payments through the TSA for all government offices in the district;
• conducts the mandatory internal audit of all operating-level government offices in the district; and
• compiles district-wide monthly and annual revenue and expenditure statements for the FCGO.

C. Long Analytical Questions (8 Marks Each)

1. Trace the historical evolution of Government Accounting in Nepal and explain the four accounting systems practiced in Nepal prior to the introduction of the New Accounting System.

Government accounting in Nepal has a history of more than 1,500 years. It grew from simple records of royal revenue on palm leaves into a uniform double-entry system for every government office. Its evolution can be traced as follows:

Historical evolution:

1. Lichchhavi period: State revenue came from land and agricultural tax, animal husbandry tax, commercial tax, charitable trusts and voluntary community labour. It was spent on royal administration, war and temples.
2. Malla period: Growing trade between India and Tibet made customs duties and the minting of coins major sources of state revenue. Accounts were kept on palm leaves and scrolls of traditional handmade paper.
3. Shah unification (1825 B.S. onwards): After the unification of Nepal in 1825 B.S. (1768 A.D.), King Prithvi Narayan Shah established the State Audit Office in 1769 A.D. to inspect and audit state accounts. In 1871 B.S. (1814 A.D.), a Red Seal Revenue Register was introduced to record state revenue and administrative expenditure, followed by a Master Land Assessment Register for land holdings and land revenue. In 1925 B.S. (1868 A.D.), the Civil Personnel Record Office was set up to keep the records and salary rolls of civil servants and army personnel; it still works today as the National Personnel Record Department.
4. Rana period to modern times: Four accounting systems were used one after another (explained below), until the New Accounting System was implemented from F.Y. 2019/20 B.S.

The four accounting systems before the New Accounting System:

1. Statement of Remainder System (early Rana period, before 1936 B.S.): This system was based on the single entry system and was used for small, short-term projects. Revenue collected was written on one side and expenditure on the other, and the account was closed only at the end of the year or when the project was completed. It was replaced because it was unscientific and incomplete, and it could not classify revenue and expenditure under separate budget heads as state activities grew.
2. Traditional Bookkeeping System (1936 B.S. / 1879 A.D.): Propounded by Chief Clerk Gunwant, it used three books. The Primary Daily Record recorded receipts on the left and payments on the right of folded handmade paper, with the Daily Sub-Total closed by a single line and the Cumulative Grand Total by double lines; it was divided into Cash, Store/Property and Security Deposit Records. The Classified Ledger grouped receipts (Revenue Ledger) and expenditures (Expenditure Ledger) by head, and the Final Summary Statement, like a Balance Sheet, was prepared at the end of a job, month or year. It remained in practice up to F.Y. 2022/23 B.S., but it could not cope with the development budgets and double-entry banking controls needed after 2007 B.S.
3. Form-Based Accounting System (1968 B.S. / 1911 A.D.): This system was introduced to record land revenue in the Terai and urban districts, using 51 standardized forms such as the Cashier’s Day Book, 10-Days Report, 15-Days Report and Monthly Pay Sheet. It was confined mainly to land revenue offices and did not give the country a unified double-entry framework.
4. Payment-Based Accounting System (2017 B.S. / 1960 A.D.): This system followed the start of the Budget System (2008 B.S.), the First Five-Year Plan (2013 B.S.) and the Government Fund Expenditure Act 2016 B.S. It was the first system based on the double entry principle. It divided government offices into Central Level Offices (ministries and departments) and Operating Level Offices (district and project offices), and introduced the freezing of unspent budget into the Consolidated Fund at year-end. Within two years, it was replaced by the more complete and standardized New Accounting System (2018/2019 B.S.).

Conclusion: Government accounting in Nepal moved step by step from simple revenue registers and a single-entry statement to the double-entry Payment-Based System. Each system was replaced when it could no longer meet the needs of a growing state. These experiences prepared the ground for the uniform, scientific New Accounting System that every government office uses today.

2. What is the New Accounting System of the Government of Nepal? Explain its major features and importance.

Meaning: The New Accounting System is the uniform, scientific, double-entry and bank-based accounting system used by all government offices of Nepal. To design it, the Government of Nepal formed a four-member Accounts Committee on 2nd February 1961 A.D., with the Accountant General of Nepal as coordinator and, as members, the Under Secretary of the Foreign Aid Division, Ministry of Finance, the Public Administration Advisor of USAID and an Accounting Specialist of the United Nations. After 288 days of study, the Committee submitted its draft report. The system was approved by the Auditor General on 2nd February 1962 A.D., received royal assent from King Mahendra on 15th March 1962 A.D., and was implemented from F.Y. 2019/20 B.S., first in Kathmandu Valley, then in the Bagmati and Narayani Zones in 2020/21 B.S., and in all districts of Nepal by July 1968 A.D.

Major features:

1. Based on the double entry system: Every transaction is recorded in both its debit and credit aspects, using Journal Vouchers (AGF No. 10, now AGF 203).
2. Based on cash and banking transactions: All revenue and budget releases go through bank accounts (Nepal Rastra Bank or commercial banks), and all payments except petty cash are made by cheque or electronic fund transfer (EFT / TSA).
3. Budgetary control through budget heads: Expenditure is tracked against the approved budget heads in the Budget Sheet (AGF No. 8, now AGF 208), so no office can spend beyond its approved budget.
4. Two-level classification: Central Level Accounting is kept by constitutional bodies, ministries and central departments, and Operating Level Accounting by regional, district and project offices that receive budget releases and spend on the ground.
5. Uniformity and simplicity through AGF forms: Every government office uses the same numbered Auditor General Forms. In 2076 B.S., these were updated into the 200-series forms, such as the Journal Voucher (AGF 203), Budget Sheet (AGF 208), Bank Cash Book (AGF 209) and Monthly Statement of Expenditure (AGF 210).
6. Use of brackets ( ): Brackets are used in the Budget Sheet and Bank Cash Book to show negative figures, credit balances or deductions, such as the clearance of an advance.
7. Compulsory internal and final audit: Internal audit is carried out by the DTCO, and the final statutory audit by the Office of the Auditor General.

Importance:

1. Uniform accounts across the country: Because every office uses the same forms and procedures, accounts are easy to compare and to combine into national figures, and staff transferred from one office to another can work without retraining.
2. Control over public spending: Budget heads and the Budget Sheet keep each office’s spending within the amounts approved by Parliament.
3. Accuracy of records: The double entry system makes errors easier to detect and gives a complete record of every receipt and payment.
4. Safety of public money: Routing receipts and payments through banks reduces the handling of cash and the risk of theft, loss and misuse.
5. Easier audit and accountability: Vouchers and AGF forms give a clear trail for the DTCO’s internal audit and the OAG’s final audit, which helps curb corruption and irregularities.
6. Information for planning and budgeting: Monthly and annual statements give the Ministry of Finance and the National Planning Commission the revenue and expenditure figures they need to prepare the next year’s budget.

Conclusion: The New Accounting System replaced the earlier scattered systems with one scientific, double-entry and bank-based system for the whole country. By keeping spending within the budget and making every rupee of public money traceable and auditable, it has become the foundation of transparent and accountable government accounting in Nepal.