RENUKA RAI | Thimphu
The Royal Audit Authority (RAA) has called for wide-ranging reforms to improve transparency, accountability, and efficiency across public sector operations. Based on audits conducted during the 2024-25 fiscal year, the RAA highlighted systemic weaknesses in financial management, contract administration, asset oversight, and civil service operations, emphasizing that urgent action is needed to safeguard public resources and build trust in government institutions.
The audit revealed that many Civil Society Organizations (CSOs), Non-Governmental Organizations (NGOs), Religious Organizations (ROs), and even some government-affiliated bodies receive external funding directly from international donors without notifying regulatory authorities such as the Civil Society Organisations Authority or the Ministry of Finance. While Bhutan’s Civil Society Organisations Act of 2007 and the Financial Rules and Regulations of 2016 mandate registration, accounting, and reporting of all funds, the absence of a formal monitoring framework has left oversight bodies largely unaware of the volume, purpose, and outcomes of these funds. The RAA warned that unreported external funding carries significant risks of misuse, mismanagement, and misalignment with national priorities. It recommended that all organizations declare any external funding and ensure proper auditing to strengthen transparency, accountability, and donor confidence.
Contract management practices across several government agencies were also found to be inconsistent. In many cases, agencies failed to enforce termination clauses or recover financial obligations in full when contracts were breached. Some agencies recovered only 20 percent of the value of incomplete work or liquidated damages, but not both, citing concerns about double penalties. However, the Procurement Rules and Regulations of 2023 explicitly allow recovery of both, enabling agencies to cover the cost of completing unfinished work while also receiving damages for delays. Particular concern was noted in hydropower projects, where recoveries and adjustments to contractors were delayed and often executed without applying interest. This practice increased opportunity costs and added to interest obligations on loans used to fund projects. The RAA recommended that future contracts include provisions for interest on delayed recoveries and that the Ministry of Finance enforce all contract provisions rigorously to prevent financial losses and prolonged delays in project completion.
The management of government assets also requires attention. The Government Inventory Management System (GIMS), launched in 2021 to record, allocate, safeguard, transfer, and dispose of public assets, has yet to achieve full operationalisation. Agencies continue to face technical glitches, inconsistent usage, and a lack of mandatory compliance, undermining accountability. The RAA recommended that the Ministry of Finance address technical issues, improve the user interface, enforce mandatory compliance through performance monitoring, and build the capacity of users across agencies. Effective implementation of GIMS, the report noted, is essential for ensuring accountability, supporting informed decisions on asset maintenance, and safeguarding public resources.
Digitisation of financial records was another area highlighted by the audit. The FinDoc system, introduced under the Cluster Finance Service model, has successfully standardised documentation in cluster offices but remains limited in scope. Expanding the system to non-clustered agencies could enhance efficiency, reduce duplication, and strengthen financial controls, although technical and administrative challenges such as storage limitations and integration with existing payroll and accounting systems would need to be addressed.
The audit also uncovered significant errors in the payment of salaries, allowances, and benefits. Across 64 agencies, 120 cases were identified involving incorrect pay fixation, inadmissible allowances, leave encashments, and retirement benefits, totalling Nu. 11.611 million. Miscommunication between HR and accounts departments contributed to these errors, highlighting weaknesses in financial controls and compliance. The RAA recommended integrating payroll and personnel systems with additional verification layers to prevent errors, ensure timely adjustments, and protect both employees and public funds.
Beyond operational errors, the audit stressed the importance of fair compensation in promoting ethical behavior among civil servants. Low salaries, combined with restrictions on private employment under the Bhutan Civil Service Rules and Regulations, can create pressure that incentivizes unethical practices such as collusion, bribery, and falsification of claims. By reviewing pay scales and ensuring fair remuneration, the government can proactively reduce the risk of misconduct and foster a culture of integrity in public service.
The report highlighted the misuse of closed work accounts and deposit works. In some agencies, expenditures were recorded for works that had not yet commenced or were incomplete to avoid lapsing funds at the end of the fiscal year. Such practices violate the finance and accounting manuals, distort financial statements, and create opportunities for fraud. Similarly, pending adjustments of advances for deposit works undermined the accuracy of reported expenditures and had the potential to affect the Annual Financial Statements. The RAA recommended stronger monitoring systems, pre-approval processes for expenditures, and ongoing oversight to ensure compliance and proper accounting.
Procurement practices also faced scrutiny. The audit found 40 cases of uncollected rebates on cement and HDPE pipe purchases, totalling Nu. 9.497 million. Agencies cited administrative challenges and difficulties in obtaining contractor invoices as the main obstacles. To address this, the RAA suggested that suppliers adjust rebate amounts at the point of sale for departmentally executed works, while implementing stricter accountability and awareness measures for contract-based projects to ensure timely collection.
The RAA emphasized that addressing these systemic issues is crucial not only for financial management but also for promoting ethical governance. Financial pressures on civil servants and weak internal controls can create opportunities for misconduct. By improving pay, enhancing oversight, and reinforcing accountability mechanisms, the government can foster a culture of integrity and strengthen public trust.
RAA underscored that the recommendations aim to provide actionable solutions rather than merely identify problems. “Our audits are designed to help the government safeguard public resources, strengthen governance, and build trust among citizens and donors,” he said. He noted that coordinated action by the Ministry of Finance, Royal Civil Service Commission, Civil Society Organisations Authority, and other agencies, along with robust monitoring and capacity-building efforts, will be critical to the successful implementation of these reforms.
If adopted, the RAA’s recommendations are expected to create systemic improvements in contract enforcement, financial management, asset oversight, payroll accuracy, budgetary compliance, procurement efficiency, and civil service ethics. Observers say that these measures could reduce financial leakage, improve transparency, and ensure that Bhutanese institutions are equipped to manage resources effectively. By addressing operational inefficiencies and fostering ethical practices, the government will strengthen public sector governance and enhance the credibility of national institutions, ensuring that public resources are used effectively for the benefit of all citizens.
