Public audit aims to enhance good governance by promoting transparency and accountability in governmental financial affairs. Throughout the audit process, identifying any weakness and gaps is crucial, particularly pertaining to legal compliance; internal control; revenue assessment and collection; budget, public procurement and project management; and service delivery. To address such deficiencies, audits present advice designed to achieve economy, eficiency and effectiveness in public resource use; however, merely providing suggestions does not meet an audit’s desired objectives. The ultimate objective— making a difference in the lives of citizens—can only occur when audited entities implement the recommendations.
Measuring an audit’s impact demands extensive survey and follow-up mechanisms to effectively identify program, project and service delivery enhancements. SAIs can strengthen audit impact in numerous ways, such as conducting real-time audits; reducing impunity by taking action against financial irregularities; building ongoing relationships with audited entities; enriching audit quality; producing logical, convincing recommendations; and engaging media, Civil Society Organizations and other stakeholders. Formulating solid stakeholder communication strategies has become essential, particularly as SAIs increase stakeholder inclusion in audit work. SAI Nepal’s work has resulted in several cases that illustrate increasing an audit’s impact through stakeholder engagement. This article provides a case study of Value Added Tax as one of many examples.
Acorrding to Nepal’s constitution, all taxes are levied as per parliamentary acts. Each year, parliament authorizes specific Value-Added Tax (VAT) refund percentages on certain commodities sold to VAT-registered firms. An audit conducted by Nepal’s Office of the Auditor General revealed a total of 309 million dollars in VAT refunds over a 5-year period (2012-2017).
This amount included treasury monies paid to (1) oil processing industries that import crude oil (out of sĩ process activities, five were carried out beyond Nepal’s borders and simply refined in Nepal), and (2) cellular mobile phone importers (not manufacturers). These refunds resulted in huge national revenue loss. Additionally, providing VAT refunds directly from the treasury goes against the VAT principle. Accordingly, the OAGN audit suggested reviewing and discontinuing such provisions.
OAGN communicated this issue in audit reports for two consecutive years, and Nepal’s Ministry of Finance evetually established the High-level Tax System Review Commission (HTSRC). The HTSRC, created to assess revenue exemption and VAT refund impact, suggested a VAT refund reduction on certain goods – a recommendation in line with the International Monetary Fund’s 2015 report on Nepal that called for a limit on tax exemptions as per international practices. During the subsequent annual OAGN report, the Public Account Committee (PAC) issued a directive – reduce (and limit) the practice of granting VAT refunds.
SAIs play a vital role in holding government accountable and promoting economy, efficiency and effectiveness in government operations. They help deter misuse and extravagance, assist decision-makers by performing independent assessment and provide much-needed warnings to public sector entities by identifying emerging trends and challenges. SAIs must go beyond simply publishing a report by engaging and communicating with stakeholders. Media outlets, CSO’s and the general public provide exposure and can exert pressure toward audit recommendation implementation— one way to measure an audit’s success. Audit reports should not be mere paperweights. Through implemented recommendations, audits should improve government resource management and, ultimately, add value and benefits to the lives of citizens.
Office of the Auditor General of Nepal (PHAN THU HIỀN dịch)