completed· Governance

PUBLIC AUDIT REFORM AND CAPACITY BUILDING OF OAGN

Objectives of the Grant. The main objective of the Grant is to help the Office of the Auditor General of Nepal (OAGN) to further enhance the institutional capacity to deliver quality public audit through (a) revising the existing audit guidelines according to the International Organization of Supreme Audit Institutions (INTOSAI) standardscomma the International Standards on Auditing (ISA) issued by the IFACcomma and the changes in Government rules and requirementscomma in the following public audit areas Revenue Auditcomma Procurement/ Public Works Auditcomma Project Audit and General Public Auditcomma (b) revising and consolidating the audit standards and guidelinescomma (c) improving the Auditor Generals reporting methodology commensurate with best international practicescomma and (d) developing the Human Resource Development Plan including the strengthening of its Training Division to create a strong and fully equipped training unit capable of providing quality training to its staff. To meet this objectivecomma the grant will help review the existing guidelines and develop new guidelines in the areas mentioned abovecomma and update audit standards and guidelines. In additioncomma it will help establish institutionalized training arrangements to implement the guidelines within OAGNcomma and conduct training programs. The grant will also help to provide exposure to senior officers through carefully plannedcomma monitoredcomma and evaluated programs of short term training secondment and training exchanges with well-developed Supreme Audit Institutes (SAIs) in South or East Asia or Pacific countriescomma and “twinning” with another successful SAI. These senior officers will be developed as “Trainers” who will then impart training to auditors responsible for the management of public audit. Background. The Nepal Country Assistance Strategy (CAS dated November 17comma 1998) identified governancecomma management of public expenditures and institutional constraints as serious impediments preventing Nepal from achieving its full economic potential and reducing poverty. In its Executive Summarycomma it specifies two new prongs: (a) bringing resources closer to the beneficiariescomma where they are most likely to be productively usedcomma and (b) fostering the strong governance needed to reduce waste and mismanagement. Good governancecomma public accountability and corruption control are stated to be high priorities of the Government. The Auditor General promotes and upholds the public accountabilitycomma credibility and discipline in financial operations. Quality audit helps to identify measures to eliminate or reduce waste and inefficiency in the mobilisation of public resourcescomma to create public awareness on good governancecomma to recommend the improvement of policies and procedurescomma and to sharpen the process of public accountability. Emerging changes in technology and growing demands from the public and donors for public accountability and good governance are putting pressure on the OAGN to be more proactivecomma quality conscious and oriented to serving the public interest. The technical assistance provided to date through the Banks past IDF grants has greatly contributed to the institutional development of OAGN. The first IDF grant helped to set up a stage for institutionalising the audit procedures and practices. The project contributed the five manuals which was immediately put in usecomma although they were implemented without field testing. A few policy decisions were made during the tenure of the project making departure from conservative approach to a more demand approach. The first IDF was rated “unsatisfactory” during exit. The second IDF grant was a follow on project which was deemed essential to carry on with the activities initiated during the first IDFcomma to continue to build the momentumcomma and to appreciate the Banks support to whatever marginal achievements were attempted. The project continued to focus in improving auditing of development projects and public enterprises comma and provide training to staff. Performance improved as compared to the first IDF. Outcomes achieved during the second IDF are becoming sustainable. It was rated “Partially Satisfactory” at exit. The third IDF which was provided to help OAG build a performance auditing capability as its contribution to improving the financial management of public sector projects was rated “Highly Satisfactory”. A strong commitment demonstrated by the Auditor General and ownership taken by him enabled to fully achieve the development objectives. Performance Audit Manual was developedcomma staff were trainedcomma twinning arrangement with Mala ysian OAG was arrangedcomma and performance auditing capacity has been internalised. In recognition of the fact that capacity building is an ongoing effortcomma it is important for the Bank to continue to be the development partner of OAGN to support its institutional development efforts. An added advantage is that the same Auditor General who implemented the third IDF is committed to continue reforms in auditing and improving the capability of his office. The recently completed Country Financial Accountability Assessment (CFAA dated July 5comma 2002) jointly carried out by His Majestys Government of Nepal (HMGN) and the World Bank confirmed that HMGN is serious and committed to improving public and private sector financial management. It has concluded that reforms in financial management are critical and should be approached in an integrated way covering planningcomma budgetingcomma accountingcomma internal controlcomma internal auditcomma external audit and oversight. With regard to public sector auditcomma the CFAA has recognized the strong and dedicated leadership of the OAGNcomma and has also concluded that the OAGN sets a good example of fearless reporting. A strong partnership forged by OAGN with the Public Accounts Committee (PAC) to follow-up on irregularities and other accountability issues is an impressive examplecomma as confirmed by the CFAA. While recognizing the OAGNs strong pointscomma the CFAA has made several recommendations to further enhance its capacity. HMGN has endorsed the recommendations of the CFAA and has committed to implement the Development Action Plan proposed therein. Recommendations related to public audit have been discussed and agreed with HMGN and OAGN. The CFAA recommended actions which includecomma inter aliacomma increasing OAGNs independencecomma providing sufficient resources to OAGN to cope with the needs for more trainingcomma equipmentcomma and expertisecomma reviewing and revising audit standards and guidelines according to INTOSAI standards and to accommodate changes in HMGN rulescomma developing Human Resource Development Plan including the strengthening of its training division to create a strong and fully equipped training unit capable of providing quality training to its staffcomma and providing exposure to senior officials of OAGN through carefully plannedcomma monitoredcomma and evaluated programs of short-term training secondment and training exchanges with well-developed SAIs abroad. The Auditor General requested the Banks IDF grant about a year back to support OAGN with its institutional development efforts. A draft proposal was submitted to the Bankcomma which was reviewed and discussed with OAGN. The Bank suggested that the OAGN should postpone this request until the CFAA was completedcomma and indicated that the Bank would be interested in providing support to the OAGN in line with the CFAA recommendations. The previous draft has been slightly modified along the lines of the CFAA recommendationscomma and this request is to support the specific action plans of CFAA to improve the quality of public audit. A few actions related to OAGN are already in the process of implementation as a result of strong c