System of Government Accounting in Nepal (नेपालको सरकारी लेखा प्रणाली)

A shopkeeper's accounts answer to the owner. A government office's accounts answer to the people who pay the taxes — which is why government accounting is built differently. Every rupee must be traceable from the budget passed by Parliament to the bill paid in a village office, and every office must use the same forms, the same codes and the same rules, or the national accounts cannot be added up. This unit explains what government accounting is, the bases on which Nepal's system rests, how it differs from commercial accounting, how the three tiers of government and the two levels of office keep their accounts, and the two words every student must be able to define — the consolidated fund and the single account fund.

8.1 Government accounting: introduction and features

Government accounting (सरकारी लेखा प्रणाली) is the system by which a government records, classifies, summarises and reports the revenue it collects and the expenditure it incurs, and shows the financial position of the government, in order to make the government answerable to the legislature and to the people for the money entrusted to it.

In Nepal the system is governed by the Financial Procedures and Fiscal Responsibility Act, 2076 and its Rules, 2077, and it is operated by the Financial Comptroller General Office (महालेखा नियन्त्रक कार्यालय, FCGO) through the Treasury and Comptroller Offices in the districts.

Main features.

1. It follows the budget. Every rupee of expenditure must fall under an approved budget head. A payment outside the budget head is illegal, however good the cause.
2. It is fund-based. Money is held and accounted for in prescribed funds — the consolidated fund and the other funds — and the source of the money decides where it may be spent.
3. It is uniform. Every office uses the same forms, the same codes and the same chart of accounts, so the accounts of a village office and of a ministry can be added together.
4. It is cash-based. A transaction is recorded when cash is actually received or paid.
5. It is double-entry and computerised. Entries follow the double-entry rules, and today most of them are made in the government's computerised systems — PAMS, LMBIS, TSA and SuTRA — rather than in bound registers.
6. It is audited from outside. The accounts are audited by the Office of the Auditor General and reported to Parliament through the Public Accounts Committee.
7. It is public. The annual financial statements of the government are published, and any citizen may see them.

8.2 Main bases of government accounting in Nepal

Base	What it means in practice
Legal basis	The Financial Procedures and Fiscal Responsibility Act, 2076 and the Rules, 2077, the annual Appropriation Act and the Finance Act fix what must be recorded and how
Cash basis	Revenue is recorded when received and expenditure when paid; there are no accruals and no debtors and creditors of the ordinary kind
Double-entry system	Every transaction has two sides; the government maintains the general ledger, the budget ledger and the personal ledgers
Fund basis	All revenue goes into the consolidated fund; expenditure is met from it only under an appropriation, and other funds (contingency, reserve, deposit) have their own rules
Uniformity of forms and chart of accounts	The prescribed forms (the म.ले.प.फा. series) and the uniform code carve every revenue head and every expense head in the same way in every office
Budget classification	Expenditure is classified by ministry, office and economic head (remuneration, allowance, goods and services, capital), so budget and actual can be compared line by line
Two levels of accounting	Central level transactions are accounted for at the FCGO; operating level transactions are accounted for in the office itself
Banking arrangement	Government money is kept in the Nepal Rastra Bank and in commercial banks under agreement, and payments are made by cheque or by electronic transfer, not in cash
External audit	Every office's accounts and stores are audited by the Office of the Auditor General

8.3 Similarities and differences between commercial and government accounting

They are similar in that both use the double-entry principle, both rest on documentary evidence, both prepare statements at the end of the period, and both are audited. Everything else is different.

Point	Commercial accounting	Government accounting
Main objective	To find profit or loss and the financial position of a private business	To show accountability for public money and to ensure it was spent as approved
Basis	Usually accrual — income earned and expenses incurred	Cash — receipts and payments as they happen
Ownership	Owners or shareholders, who take the profit	The public; no owner's capital and no drawings
Budget	A plan, used as a guide	A law; spending outside it is irregular
Funds	One general fund of the business	Several funds — consolidated fund, contingency fund and others — each with its own rules
Accounts kept	Journal, ledger, trading and profit and loss account, balance sheet	General ledger, budget ledger, personal and advance ledgers, bank cash book, statements of revenue and expenditure, statement of financial position
Main statements	Trading account, profit and loss account, balance sheet	Statement of revenue, statement of expenditure, statement of financial position, statement of the consolidated fund
Measuring performance	Profit	Economy, efficiency, effectiveness and compliance with the law
Audit	By a chartered accountant or an auditor appointed by the owners	By the Office of the Auditor General, reporting to Parliament
Rules	Accounting standards and company law	Financial procedures law, appropriation and finance acts, and the prescribed forms

8.4 Accounting of the federal, provincial and local levels

Nepal is a federal democratic republic with three tiers of government, and each tier has its own budget, its own accounts and its own audit.

Tier	Who keeps the accounts	How revenue and expenditure are recorded
Federal (सङ्घ)	The ministries and departments and their offices, through the FCGO and the Treasury and Comptroller Offices	Federal taxes and non-tax revenue go into the consolidated fund of the federation; federal expenditure is met under the appropriation act
Provincial (प्रदेश)	The provincial ministries and offices, through the Provincial Treasury and Comptroller Offices	Provincial taxes and the money received from the federal divisible fund go into the provincial consolidated fund
Local (स्थानीय)	Municipalities, rural municipalities and ward offices, through the Local Treasury and Comptroller Offices	Local taxes, service fees and grants go into the local consolidated fund; the local assembly appropriates the expenditure

The three tiers are linked by the divisible fund — the pool of federal revenue shared with the provinces and local levels under the recommendation of the National Natural Resources and Fiscal Commission — and by the grant system. Each tier's accounts are audited by the Office of the Auditor General and reported to its own assembly.

8.5 Central level and operating level accounting

Government transactions are recorded at two levels.

Central level accounting (केन्द्रीय तहको लेखा). Transactions that relate to the centre — payments made at the ministry or the department itself, or expenditure that a central office books on behalf of the whole country, such as a lump-sum transfer to a province — are accounted for centrally, at the Financial Comptroller General Office and the central Treasury and Comptroller Office. The office concerned uses central level accounting.

Operating level accounting (कार्यसञ्चालन तहको लेखा). Transactions of a district or local office — paying a salary, buying stationery, issuing an advance to a section officer — are accounted for in the office itself, using the bank cash book and the prescribed vouchers. Every month the office sends its statement of expenditure and its bank reconciliation to the Treasury and Comptroller Office, which consolidates it.

The difference matters because the two levels use different records: the central level transactions come into the general ledger directly, while the operating level's figures reach it only through the monthly statement of expenditure. If a district office fails to send its statement, the national accounts are incomplete — which is exactly why the monthly reporting deadlines are enforced.

8.6 Chart of accounts and its use in government accounting

The chart of accounts (खातासूची) is the uniform, coded list of every revenue head, every expenditure head, every fund and every asset that a government office may use. In Nepal it is prescribed by the FCGO, and it is the same in every district.

Its structure follows the budget classification. Expenditure is carved first by ministry and office (the organisational classification) and then by economic head:

Code (example)	Head	What it covers
21111	Remuneration (पारिश्रमिक)	Salary of staff
21112	Allowances (भत्ता)	Dearness, house rent, other allowances
21121	Office materials (कार्यालय मसलन्द)	Stationery, printing
22111	Uniform (ड्रेस)	Uniform for staff
22311	Travelling expenses (भ्रमण खर्च)	Travel on duty
22711	Miscellaneous expenses (विविध खर्च)	Other running costs
31111	Machinery and equipment (मेसिनरी तथा उपकरण)	Capital purchase of equipment
31121	Furniture and fixtures	Capital purchase of furniture

Why it matters. A code makes a payment checkable before it is made: the office can see instantly whether the budget head has money left, and the auditor can see instantly whether the head was the right one. And because the code is the same everywhere, every office's figures can be added into one national statement.

8.7 Determination and use of government accounting formats

A format (फाराम) is the printed form on which a particular government transaction or record must be written. The forms are prescribed centrally, and every office must use the prescribed one: an entry made on a plain sheet has no standing in an audit.

The formats are known by the series number म.ले.प.फा.नं. and each carries its own purpose. The ones a Grade 10 student must be able to name are:

Format	Used for
Vouchers (भौचर)	Recording one transaction: the निकासा भौचर for a payment, the आम्दानी भौचर for a receipt, the गोश्वारा भौचर for a transfer between heads or accounts
Bank cash book (म.ले.प.फा.नं. २०९)	The office's combined record of cash and bank receipts and payments, kept month by month
General ledger and budget ledger (म.ले.प.फा.नं. २०७ and similar)	The office's accounts by budget head, showing appropriation, release and expenditure
Advance (पेस्की) register	Advances paid to staff, and their clearance
Statement of expenditure (खर्चको फाँटबारी)	The monthly return sent to the Treasury and Comptroller Office
Revenue statement (राजस्वको फाँटबारी)	The monthly return of revenue collected
Store ledger (जिन्सी खाता)	Goods received and issued

The forms exist because government accounting has to be checked by people who were not there. A voucher that names the budget head, the payee, the purpose, the amount and the authority lets a distant auditor reconstruct the transaction years later.

8.8 Areas of Nepal's government accounting

Area	What it records
Revenue accounting	Taxes and non-tax revenue collected, deposited into the consolidated fund and reported
Expenditure (appropriation) accounting	Payments made under each budget head, advances paid and cleared, the bank cash book and the statement of expenditure
Store (jinsi) accounting	Goods bought, stored and issued; the store ledger and the bin card
Fund accounting	The consolidated fund, the divisible fund, the contingency fund and other funds, and the retention account
Deposit and retention accounting	Money held on behalf of others — retention from contractors, provident fund, income tax deducted
Loan and grant accounting	Foreign and domestic loans received, and grants-in-aid to and from other levels of government
Asset and liability accounting	Government property and the government's liabilities, maintained to complete the statement of financial position

8.9 Single account fund and consolidated fund

These two terms look alike and are constantly confused. They are not the same thing.

Consolidated fund (सञ्चित कोष). The consolidated fund is the government's main account. All revenue — taxes, fees, loans, grants — must be deposited into it, and no money may be withdrawn from it except under an appropriation made by law (the Appropriation Act passed by Parliament or by the provincial or local assembly). It is the account that gives the legislature its real power over the executive: the government can collect, but it cannot spend, without a vote.

Single account fund (एकल कोष खाता). The single account fund is the arrangement under which a government office keeps one bank account — a single treasury account — for its transactions, instead of several accounts for different purposes. All its receipts are deposited into that account and all its payments are made from it, and the office records them in the bank cash book. The single account fund replaced the old practice of a separate account for each scheme; it makes the government's cash position visible at any moment, stops money lying idle in many accounts and makes reconciliation easy.

Chapter summary

• Government accounting is the system by which a government records, classifies, summarises and reports its revenue, expenditure and financial position, in order to be accountable to the legislature and the people. In Nepal it is governed by the Financial Procedures and Fiscal Responsibility Act, 2076 and its Rules, 2077, and operated by the Financial Comptroller General Office.
• Its bases are: the legal basis, the cash basis, the double-entry system, the fund basis, uniformity of forms and chart of accounts, budget classification, the two levels of accounting, the banking arrangement, and external audit.
• Commercial and government accounting both use double entry and documentary evidence, but they differ in objective (profit against accountability), basis (accrual against cash), ownership, the standing of the budget (plan against law), funds, the statements prepared, performance measurement and audit.
• Nepal has three tiers — federal, provincial and local — each with its own consolidated fund, budget and audit, linked by the divisible fund and the grant system.
• Central level accounting records the transactions of the centre at the FCGO; operating level accounting records a district or local office's transactions in the office itself, through the bank cash book, reported monthly by the statement of expenditure.
• The chart of accounts is the uniform coded list of revenue, expenditure, fund and asset heads, following the budget classification (for example 21111 remuneration, 22111 uniform, 22311 travelling expenses). It makes a payment checkable in advance and the national accounts addable.
• Government formats (the म.ले.प.फा. series) are prescribed centrally: the vouchers (निकासा, आम्दानी, गोश्वारा), the bank cash book (No. 209), the ledgers, the advance register, the statement of expenditure and the revenue statement.
• The areas of government accounting are revenue, expenditure, store (jinsi), fund, deposit and retention, loan and grant, and asset and liability accounting.
• The consolidated fund is the government's main account: all revenue is deposited into it and nothing may be withdrawn except under an appropriation made by law. The single account fund is the one bank account an office keeps for all its receipts and payments, recorded in the bank cash book.

Practice questions

Group A — Very short answer (1 mark each)

1. What is government accounting? [1]
2. Write any two bases of government accounting in Nepal. [1]
3. Which basis of accounting does the government of Nepal follow? [1]
4. Which office manages government accounting in Nepal? [1]
5. What is a consolidated fund? [1]
6. Write any two government offices that use central level accounting. [1]
7. What is operating level accounting? [1]
8. What is a chart of accounts? [1]
9. Write any two areas of government accounting. [1]
10. Write any two differences between commercial and government accounting. [1]
11. Name the apex auditing body that audits government accounts in Nepal. [1]

Answers to Group A

1. Government accounting is the system by which a government records, classifies, summarises and reports its revenue and expenditure and its financial position, in order to be accountable to the legislature and the public for public money.

2. Any two of: legal basis, cash basis, double-entry system, fund basis, uniformity of forms and chart of accounts, budget classification, two levels of accounting, banking arrangement, external audit.

3. The cash basis.

4. The Financial Comptroller General Office (महालेखा नियन्त्रक कार्यालय).

5. The consolidated fund is the government's main account, into which all revenue must be deposited and from which no money may be withdrawn except under an appropriation made by law.

6. Any two of: the Ministry of Finance, the Office of the Auditor General, a ministry or department at the centre, the Financial Comptroller General Office.

7. Operating level accounting is the accounting of the transactions of a district or local office, kept in the office itself in the bank cash book and reported monthly through the statement of expenditure.

8. The chart of accounts is the uniform, coded list of every revenue head, expenditure head, fund and asset that a government office may use, prescribed by the Financial Comptroller General Office.

9. Any two of: revenue accounting, expenditure accounting, store (jinsi) accounting, fund accounting, deposit and retention accounting, loan and grant accounting, asset and liability accounting.

10. Any two of: objective (profit against accountability); basis (accrual against cash); budget (plan against law); ownership (private owners against the public); audit (private auditor against the Auditor General).

11. The Office of the Auditor General.

Group B — Short answer (5 marks each)

1. What is government accounting? Explain any five bases of government accounting in Nepal. [5]
2. Explain any five differences between commercial accounting and government accounting. [5]
3. Explain the accounting of the federal, provincial and local levels in Nepal. [5]
4. What is the chart of accounts? Explain its structure and importance in government accounting. [5]
5. What is a consolidated fund? Explain the provisions for its operation. [5]
6. Distinguish between central level accounting and operating level accounting. [5]

Answers to Group B

1. Definition as in Group A answer 1. Bases: (i) legal basis — the Financial Procedures and Fiscal Responsibility Act 2076 and the Rules 2077; (ii) cash basis — receipts and payments recorded when they happen; (iii) double-entry — general, budget and personal ledgers; (iv) fund basis — every receipt and payment belongs to a fund; (v) uniformity — the same forms and chart of accounts in every office. (Also: budget classification, two levels, banking arrangement, external audit.)

2. Objective — profit against accountability; basis — accrual against cash; ownership — private against public; budget — a plan against a law; funds — one general fund against several prescribed funds; statements — trading, profit and loss account and balance sheet against statements of revenue, expenditure and financial position; performance — profit against economy, efficiency and compliance; audit — a private auditor against the Office of the Auditor General. (Any five explained.)

3. The federation keeps its accounts through the ministries, departments and the FCGO; its revenue goes into the federal consolidated fund and its expenditure is met under the federal appropriation act. The provinces keep their accounts through the provincial ministries and the Provincial Treasury and Comptroller Offices; provincial revenue and the divisible fund money go into the provincial consolidated fund. The local levels (municipalities, rural municipalities, wards) keep their accounts through the Local Treasury and Comptroller Offices; their own taxes, fees and grants go into the local consolidated fund and the local assembly appropriates the expenditure. The three are linked by the divisible fund and the grant system, and each tier's accounts are audited by the Office of the Auditor General.

4. The chart of accounts is the uniform coded list of all revenue heads, expenditure heads, funds and assets. Its structure follows the budget classification: first the organisational classification (ministry, office) and then the economic classification (remuneration 21111, allowance 21112, office materials 21121, uniform 22111, travelling expenses 22311, machinery 31111, furniture 31121). Importance: payments can be checked against the balance in the head before they are made; the auditor sees at once whether the right head was used; and because the codes are the same everywhere, the accounts of all offices can be consolidated into the national statement.

5. The consolidated fund is the government's main account. All revenue — taxes, fees, loans and grants — must be deposited into it, and no money may be withdrawn from it except under an appropriation made by law. Provisions for its operation: all government receipts are credited to it; expenditure requires an appropriation act passed by the legislature; the money may be used only for the purposes approved; emergency expenditure is met from the contingency fund and later regularised by the legislature; the fund is managed by the Ministry of Finance and accounted for by the FCGO; and no payment may be made from it without the authority of the prescribed officer.

6. Central level accounting records transactions of the centre — payments made at the ministry or department, or expenditure booked centrally for the whole country — and is kept at the Financial Comptroller General Office and the central Treasury and Comptroller Office. Operating level accounting records the transactions of a district or local office — a salary paid, an advance issued, stationery bought — in the office itself, using the bank cash book and the prescribed vouchers, and is reported monthly to the Treasury and Comptroller Office through the statement of expenditure. The central level figures enter the general ledger directly; the operating level figures enter it only through the monthly return.

Group C — Long answer (8 marks each)

1. What is government accounting? Explain the main bases of government accounting in Nepal and the differences between commercial and government accounting. [8]
2. What is the consolidated fund? Explain the provisions for its operation and distinguish it from the single account fund. [8]

Answers to Group C

1. Definition (1). As in Group A answer 1. Bases (4). Legal basis, cash basis, double-entry system, fund basis, uniformity of forms and chart of accounts, budget classification, two levels of accounting, banking arrangement, external audit — explain any five or six in a sentence each. Differences (3). Objective, basis, ownership, standing of the budget, funds, statements prepared, performance measurement, audit. Give them as a table with a short explanation of each row.

2. Consolidated fund (2). The government's main account: all revenue is deposited into it and nothing may be withdrawn from it except under an appropriation made by law. Provisions for its operation (3). All government receipts credited to it; expenditure only under an appropriation act; use only for the approved purposes; emergency expenditure from the contingency fund, later regularised; managed by the Ministry of Finance and accounted by the FCGO; payment only by the officer authorised to draw. Difference from the single account fund (3). The consolidated fund is about authority and ownership — it is the government's main fund and its use is controlled by the legislature. The single account fund is about the mechanics of day-to-day banking — each office keeps one operating bank account for all its receipts and payments, recorded in the bank cash book, which replaced the practice of several accounts for several schemes. A payment from the single account fund of an office is valid only if it falls within an appropriation from the consolidated fund.