RAA report identifies financial irregularities, calls for stronger public finance management

PEMA TSHOMO
Thimphu

The Royal Audit Authority of Bhutan (RAA) has released its annual report for the Fiscal Year (FY) 2022–23, providing a comprehensive analysis of the government’s financial health and auditing activities.

While the report acknowledges a decline in overall irregularities despite an increase in audits conducted, it also highlights persistent issues with accountability, financial management, and adherence to regulations.

Under government budget and financing, the approved budget for FY 2022–23 was Nu 74,807.887 million, which was revised upwards to Nu 79,360.850 million. Domestic revenue contributed 41.84 percent of the revised budget, followed by grants with 26.32 percent, borrowings of 24.49 percent, and other receipts with 0.02 percent.

The government borrowed Nu 66,367.393 million through Treasury bills (T-bills) and Nu 3,603.620 million through bonds, while redeeming Nu 75,363.898 million during the year. This resulted in a reduction of Nu 6,496.505 million in the T-bill liability, leaving a balance of Nu 9,050.000 million as of June 30, 2023.

External borrowings amounted to Nu 8,727.508 million, with Nu 7,965.412 million received in cash and Nu 726.096 million in kind. Grant receipts totaled Nu 14,363.319 million, comprising Nu 14,093.105 million in cash and Nu 270.215 million in kind.

The RAA conducted a total of 456 audits during the year, issuing qualified opinions in 17 cases and unqualified opinions in the remaining 439 while one performance audit report issued between 1st July 2022 and 30th June 2023. These reports highlight irregularities totaling Nu 2,840.092 million, in various categorizations.

Fraud and corruption cost Nu 39.604 million, which is 1.39 percent followed by non-compliance with laws, rules, and regulations with Nu 2,244.804 million, which is 79.04 percent with a shortfall  of Nu 555.683 million, which is 19.56 percent.

The report emphasizes that these irregularities have financial implications for the government. Cases requiring action from the audited entities are detailed in individual reports, identifying accountable officials and recommending corrective measures. During the period, the RAA forwarded nine audit reports with 52 findings to the Anti-Corruption Commission (ACC) for further investigation.

The report delves into specific cases of irregularities, providing insights into the nature of the challenges. Some of the concerning observations include fraud and corruption, non-compliance with laws, rules, and regulations, and shortfalls, laxities, and deficiencies.

Specifically, the Ministry of Information and Communication (MoIC) witnessed an irregular award of operation and maintenance contracts for electric vehicle charging machines and spare parts, amounting to Nu 13.970 million.

Where the procurement officer is suspected of manipulating the process through falsified tender IDs, additionally, the MoIC made a fictitious payment of Nu. 0.785 million for the maintenance of charging stations without proper verification and crucial records.

With regard to non-compliance, Punatshangchu Hydroelectric Project (PHEP)-II and the Phuntsholing Township Development Project were identified as having the highest instances of non-compliance, with Nu 885.02 million and Nu 478.82 million in irregularities, respectively.

RAA said these non-compliances often stem from deviations from financial norms, procurement procedures, human resource management policies, and other relevant regulations.

When it comes to shortfalls and deficiencies, Druk Holding & Investments and Punatshangchu Hydroelectric Project (PHEP)-I exhibited the most significant shortfalls and deficiencies, amounting to Nu 145.87 million and Nu 133.95 million, respectively.

Likewise, the RAA conducted three performance audits during FY 2022–23, focusing on irrigation systems, cyber security, and the operations and management of Thimphu Thromde (Municipal Corporation).

The performance audit of Thimphu Thromde revealed inadequacies in areas like staffing and employee management, budgeting, and financial management, including instances of revenue misuse and delayed deposits, revenue management systems lacking proper controls, and the acquisition and management of vehicles, and so on.

Based on these findings, the RAA presented seven specific recommendations to address the identified issues and improve overall performance.

To strengthen accountability, the RAA recommended that there is a need to expedite the enforcement of court verdicts on the audit irregularities prosecuted by the respective agencies to uphold the rule of law and dispense justice.

Since then, the audit lawsuits will pile up to 64 by September 2023 due to delays in enforcing court decisions. This raises concerns about holding individuals accountable for financial wrongdoing.

Moreover, the audit report identified improper travel allowance claims by officials. So, strengthening controls within agencies is recommended to prevent future misuse of public funds.

Likewise, the audit identified shortfalls in collecting royalties on boulders used for road construction. The RAA recommends better collaboration between forestry and road agencies to ensure accurate royalty collection based on actual boulder use.

Additionally, the audit report recommends reviewing practices for assigning deposit work and identifying spillover activities during budget preparation. This aims to improve efficiency and prevent misuse of “closed work accounts” for incomplete projects.

Specifically, the RAA also highlights the need for stronger monitoring and evaluation of government projects. This could improve efficiency, track spending, and ensure projects meet their goals. The report cites the Bhutan Integrated Taxation System (BITS) as an example where a weak M&E system led to project delays and unclear spending.

Further, the government audit recommends the full implementation of a Ministry of Finance initiative to consolidate agency bank accounts. This aims to improve cash management, transparency, and the overall Public Financial Management System (PFMS). The audit notes that so far only a fraction of accounts have been consolidated.

Finally, the report also found inconsistencies in how government vehicles are assigned, raising concerns that officials are not getting the vehicles they’re entitled to by law under the Pay Revision Act 2023.

The report highlighted that some people are getting vehicles they shouldn’t, while others aren’t getting the ones they should. The audit recommends stricter enforcement of the law and clear rules for assigning vehicles, including electric cars, to ensure fairness and efficiency.

Further, the RAA report underscores the need for a multi-pronged approach to improve Bhutan’s public financial management system.

The report presents that by addressing these challenges and implementing the RAA’s recommendations, the country can strive towards a more robust and accountable public financial management system.

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