Nepal’s cumulative financial irregularities have continued to rise amid persistent weaknesses in fiscal discipline, poor transparency, and weak enforcement of financial accountability across government agencies.

According to the 63rd annual report of the Office of the Auditor General, the country’s total outstanding arrears have crossed Rs750 billion, reaching Rs755.17 billion by the end of the fiscal year 2024–25.

The report said irregularities amounting to Rs88.09 billion were identified during the latest fiscal year alone. The findings emerged during audits of accounts worth Rs9.48 trillion across 5,526 public offices, including federal ministries, provincial agencies, local governments, state enterprises, and bodies established under federal laws.

By the end of the previous fiscal year, cumulative arrears stood at around Rs733 billion. Although Rs63.12 billion was settled through audits and other recovery measures over the year, fresh irregularities pushed the total outstanding amount to Rs755.17 billion.

Auditor General Toyam Raya submitted the report to President Ramchandra Paudel at Sheetal Niwas on Friday.

Speaking at a press conference after presenting the report, Raya expressed concern over the continued rise in financial irregularities and said public institutions had repeatedly failed to implement corrective measures recommended by the auditor general.

“The continued growth in arrears shows that government agencies have not seriously implemented the reforms and recommendations repeatedly pointed out in audit reports,” Raya said.

The report divides newly identified irregularities into three categories. Of the total Rs88.09 billion recorded in the latest fiscal year, Rs32.64 billion has been categorised as amounts to be recovered, Rs50.26 billion as expenditures requiring regularisation, and Rs5.17 billion as uncleared advances.

Apart from the main arrears figures, the report also identified several additional financial discrepancies. It recorded Rs13.83 billion in direct financial irregularities and Rs36.28 billion in expenditures lacking supporting documents and vouchers.

The report further noted that the government failed to claim reimbursement of Rs141.1 million in foreign grants and loans that could have been recovered from development partners.

According to the auditor general’s office, auditing work was also affected by missing and damaged records following the Gen Z protests on September 8–9 last year. Due to the absence of account books and financial records, the office could not audit accounts worth Rs147 billion across 179 public offices.

The report said federal ministries and agencies accounted for the largest share of newly recorded irregularities.

Federal government agencies alone recorded arrears amounting to Rs53.49 billion. Local governments accounted for Rs19.05 billion, while committees and state-owned enterprises recorded Rs10.32 billion in irregularities. Provincial governments accounted for Rs5.23 billion.

Despite the growing arrears, the report noted some progress in recoveries and settlements. According to the auditor general’s office, Rs14.63 billion was recovered during the latest audit cycle through the implementation of post-audit directives and follow-up actions.

The report also highlighted a much broader financial liability facing the state. Beyond standard arrears, it stated that Rs787.86 billion requires legal or administrative action. This includes unresolved audit backlogs, outstanding revenue recoveries, unsettled foreign grants and loans, and other pending financial obligations.

During the preliminary phase of the latest audit cycle, total arrears had initially been estimated at Rs95.27 billion. However, departmental instructions, corrective measures, and additional clarifications reduced the amount by nearly Rs7 billion prior to the final compilation of the report.

Among federal ministries, the Ministry of Finance recorded the largest volume of unsettled accounts. The ministry and its subordinate agencies accounted for Rs37.63 billion in arrears, representing more than 70 percent of the total unsettled accounts under the federal government.

The Ministry of Physical Infrastructure and Transport ranked second, with arrears amounting to Rs7.10 billion. The Ministry of Land Management, Cooperatives and Poverty Alleviation followed with Rs1.53 billion.

Other ministries also have substantial volumes of unsettled accounts.

The Ministry of Forests and Environment recorded Rs1.34 billion in arrears, while that under the Ministry of Communication and Information Technology totalled Rs1.16 billion.

The Ministry of Urban Development recorded Rs805.1 million in such amount, followed by the Ministry of Foreign Affairs with Rs743.4 million, the Ministry of Energy, Water Resources and Irrigation with Rs652.6 million, the Ministry of Home Affairs with Rs577.2 million, and the Ministry of Health and Population with Rs524.3 million.

Other ministries collectively accounted for Rs1.39 billion in unsettled accounts.

The report also analysed the financial discipline of local and provincial offices.

Among the country’s 753 local units, audits were conducted in 721 local governments during the current audit cycle. Of them, 661 local units recorded irregularities below 5 percent. Thirty-nine local units recorded irregularities between 5 and 15 percent, while one local unit exceeded the 15 percent threshold.

Similarly, among 3,050 federal offices audited, 894 recorded zero arrears. At the provincial level, 328 out of 1,124 audited offices were found to have no irregularities.

Province-wise data showed Madhesh recording the highest arrears among provincial governments, at Rs1.87 billion.

Karnali Province followed with Rs773.5 million in unsettled spending, while Lumbini Province recorded Rs726.9 million. Bagmati Province accounted for Rs693.7 million, Sudurpashchim Province for Rs604.8 million, Gandaki Province for Rs595 million, and Koshi Province for Rs586.6 million.

The auditor general’s office attributed the continued rise in arrears to weak governance, poor monitoring, procedural violations, and the failure of public institutions to comply with existing laws and financial regulations.

The report stated that many government agencies continue to ignore repeated audit observations and fail to settle pending accounts on time.

It also pointed to weaknesses in procurement practices, poor project planning, delays in implementation, and ineffective supervision as major reasons behind the growing financial discrepancies.

The report outlined 24 reform priorities aimed at improving governance, public financial management, procurement systems, foreign aid mobilisation, project implementation, public asset management, and institutional accountability.

One of the major recommendations focuses on reducing duplication among government agencies and improving coordination among federal, provincial, and local governments.

The auditor general’s office recommended establishing a single-door mechanism for mobilising foreign aid and regulating spending by non-governmental organisations and development partners.

The report also advised the government not to launch development projects without secured funding sources, stating that poorly planned projects have contributed to wasteful spending.

It called for amendments to public procurement laws and recommended removing contradictory provisions that create confusion during implementation.

The report further stressed the need for stricter monitoring of procurement related to information technology equipment, medical supplies, fertiliser distribution, land acquisition, and heritage conservation projects.

According to the auditor general’s office, weaknesses in procurement and contract management continue to create opportunities for misuse of public funds.

The report also recommended improving transparency in infrastructure projects, particularly hydropower schemes and large public construction works.

On land acquisition for hydropower projects, Raya suggested that instead of distributing large cash compensations, displaced local communities should be provided employment opportunities and equity shares in projects.

According to the report, such measures could reduce misuse of compensation payments and strengthen local participation in development projects.

The report also highlighted the need to strengthen intergovernmental fiscal transfers under the federal system.

It stated that transfers from the federal government to provincial and local governments should be made more predictable, transparent, and performance-based.

To reduce duplication and wasteful spending, the report recommended establishing a clear partnership model among the three tiers of government for managing shared resources and implementing joint programmes.

The auditor general’s office also emphasised the need to strengthen the capacity of regulatory bodies to protect consumer rights, monitor markets, and maintain price stability.

On the broader economy, the report called for policy reforms aimed at strengthening domestic production, creating employment opportunities, and reducing dependence on imports.

It stressed the need to develop a self-reliant economy through industrial growth, skilled workforce development, and expansion of domestic industries.

The report also highlighted the importance of strengthening risk management systems to protect the economy from external shocks, global economic instability, and natural disasters.

To improve financial transparency, the auditor general’s office recommended reducing cash transactions and expanding digital payment systems.

The report called for mandatory electronic billing and invoicing systems across business sectors and urged the government to develop integrated digital public infrastructure to bring informal economic activities within the formal economy.

Institutional reforms in public enterprises were also among the major recommendations.

The report said appointments of chief executives and board members in state-owned enterprises should be made through competitive and merit-based processes.

It also recommended linking salaries and benefits of officials in public enterprises to performance evaluations.

According to the report, state-owned enterprises should not be allowed to create long-term financial liabilities without prior approval from the Ministry of Finance.

The auditor general’s office further proposed suspending government grants, subsidies, and administrative support to public enterprises that fail to conduct regular audits.

The report also recommended reducing unproductive administrative expenses across government agencies.

It called for cuts in spending on unnecessary meetings, conferences, and ceremonial events, stating that public spending must remain within the limits prescribed by law.

The report also suggested introducing department-specific codes of conduct and linking the settlement of arrears to officials’ performance evaluations and promotions.

Madan Kumar Sharma, president of Transparency International Nepal, criticised what he described as growing indifference towards the findings of the auditor general.

“Every year, the auditor general identifies irregularities and provides recommendations, but the implementation remains weak,” Sharma said.

“The Commission for the Investigation of Abuse of Authority files cases and oversight agencies issue instructions, yet there is little visible improvement in governance and financial discipline.”

Sharma said attempts to obstruct audits and pressure auditors reflected a lack of political commitment to reforming public financial management.

He warned that failure to address repeated audit findings could weaken public trust in state institutions and give rise to fiscal indiscipline.