Professionalizing Public Procurement Oversight in Federal Nepal: From Architecture to Outcomes[1]

-CA. Thakur Prasad Adhikari

The author is Council Member, ICAN and currently serving as the Chairperson of the ICAN Committee on Public Finance and NPSAS. He can be reached at: thakur.adhikari@ican.org.np

 

Abstract

Nepal’s transition to federalism has fundamentally reshaped its public financial management (PFM) system. Extensive constitutional, legal, and institutional reforms have established a comprehensive framework covering budgeting, accounting, procurement, and audit across federal, provincial, and local governments. Nepal has invested heavily in building a modern public financial management system following the adoption of federalism. Procurement laws, digital platforms, and oversight institutions now operate across all tiers of government. Despite this strong architecture, persistent weaknesses in execution continue to undermine development outcomes. Procurement-related weaknesses remain the most recurrent feature of audit reports and a major constraint on service delivery. This article analyses public procurement as the operational fulcrum of Nepal’s PFM system and argues that the persistence of execution failures reflects limitations in professional capacity rather than regulatory gaps. Focusing on the role of oversight institutions and professional accountants, the article explores how targeted professionalisation of procurement skills can strengthen implementation quality. It proposes that aligning procurement oversight with professional standards and risk-based approaches offers a pragmatic pathway for translating Nepal’s PFM framework into tangible development outcomes to improve value for money, accountability, and public trust in federal Nepal.

 

 

Key Words: Public Procurement, Federalism, Public Financial Management, Professionalisation, Oversight, Nepal

 

1. Introduction: From Reform Ambition to Execution Reality

Nepal’s adoption of federalism marked a decisive shift in public governance, accompanied by far-reaching reforms in public financial management. Constitutional provisions for fiscal federalism, procurement legislation, and digital financial systems were introduced with the explicit objective of improving accountability, efficiency, and service delivery. Technically speaking, Nepal’s current framework incorporates numerous components of globally recognized public financial management (PFM) standards.

However, nearly a decade of implementation, the gap between reform ambition and operational reality remains evident. Budget execution challenges, recurring audit observations, and procurement delays continue to affect infrastructure development and public service delivery in three tiers of of Government. These challenges promptly raise a fundamental question: if the institutional framework is largely in place, why do outcomes remain uneven?

 

This article contends that Nepal’s PFM challenge has evolved. The primary issue is no longer the absence of rules or systems, but the quality of implementation—how institutions function in practice, how responsibilities are exercised, and how professional judgement is applied. Public procurement lies at the center of this challenge in PFM, acting as the point where budgets are translated into tangible public goods.

 

2. Federal Nepal and the Expansion of Procurement Authority

Federalisation has significantly expanded the number of spending and procuring entities. Procurement authority is now exercised independently across federal government, seven provincial governments and 753 local governments, each responsible for planning, tendering, contract management, and payments. This decentralisation was intended to enhance responsiveness and accountability by bringing decision-making closer to citizens.

 

In practice, however, authority has been expanded more rapidly than institutional capacity. Many subnational governments face shortages of trained personnel, high staff turnover, and limited access to specialised expertise. Procurement responsibilities are frequently assigned to officials whose primary background lies in general administration rather than procurement or financial management. At the same time, accountants and auditors are expected to review procurement outcomes without having received structured training in procurement law, methods, or contract management adequately.

 

This imbalance between authority and capability has created systemic vulnerabilities. Rules and digital platforms, while necessary, cannot substitute for professional competence. As procurement decisions multiply across the federal system, weaknesses at individual and institutional levels accumulate into significant fiscal and governance risks.

 

3. Why Procurement Dominates Audit Observations

Audit reports of public entities in Nepal consistently show that a large proportion of irregularities originated in procurement processes. Common findings include weak procurement planning, inadequate competition, non-compliance with bidding procedures, cost variations, price escalation, delays in contract completion, and deficiencies in asset management.

 

These issues are not merely technical lapses. They reflect deeper challenges in how procurement functions are understood and managed. In many cases, procurement is treated as a procedural requirement rather than as a strategic process requiring judgement, analysis, and risk management. As a result, compliance with procedures is often prioritized over achievement of value for money.

 

The recurrence of similar audit observations year after year indicates that corrective actions are not being implemented effectively. This suggests a failure to close the accountability loop, whereby audit findings inform improvements in practice. Without addressing the underlying capacity and professional issues, audit recommendations alone are unlikely to deliver lasting change.

 

3A. Procurement as a Fiscal Stress at Government Levels

Beyond audit observations, weaknesses in public procurement have direct and measurable implications for budget execution and fiscal discipline, at federal, provincial and local government levels. In federal Nepal, capital budgets account for a significant share of subnational expenditure, yet capital budget absorption rates remain persistently low. Procurement delays—stemming from weak planning, late tendering, frequent rebidding, and contract management failures—are a major contributor to this outcome.

 

In many cases, procurement processes are initiated late in the fiscal year, compressing implementation timelines and creating pressure for accelerated spending toward year-end. This pattern increases the risk of poor-quality execution, cost variations, and incomplete works, while also undermining the credibility of annual budgets. Where contracts are not awarded or completed as planned, funds remain unspent or are reallocated in ways that weaken the link between planning and service delivery.

 

Procurement weaknesses also affect cash management and commitment control. Delays in contract execution complicate cash forecasting, while inadequate monitoring of contractual commitments exposes governments to arrears and contingent liabilities. These issues are particularly pronounced in infrastructure and works contracts, where variations and extensions of time are common but not always supported by adequate justification or documentation.

 

From an accountability perspective, procurement-related delays and irregularities contribute to repeated audit observations, eroding public confidence in public financial management. They also limit the effectiveness of performance-based grant systems and development partner programmes that rely on timely and compliant execution. Addressing procurement capacity is therefore not only a compliance issue, but a prerequisite for improving budget credibility, fiscal discipline, and service delivery outcomes in federal Nepal.

 

4. Limits of Rules, Systems, and Digital Platforms

Nepal has made notable progress in establishing procurement regulations and deploying digital platforms, including electronic Government procurement (eGp). These initiatives have enhanced transparency and standardisation, reducing certain forms of discretion and opacity.

 

Nevertheless, experience shows that rules and technology have inherent limitations. Compliance-based oversight focuses on whether procedures have been followed, not whether procurement outcomes are efficient, timely, or aligned with development objectives. Digital systems can automate processes, but they also replicate underlying weaknesses if workflows are poorly designed or if users lack the necessary skills. Nepal’s e-GP system has significantly faced several persistent weaknesses that hinder its full effectiveness. Primarily, inadequate ICT infrastructure and unreliable internet connectivity, particularly in remote districts, create a significant digital divide that limits fair competition. Technical limitations, such as frequent server downtimes, system errors, and difficulties in uploading large-volume engineering drawings, often lead to bid submission failures and administrative delays. Furthermore, there is a notable lack of technical capacity and digital literacy among both government procurement officers and local contractors, which is often compounded by institutional resistance to moving away from traditional manual processes.

 

Moreover, in the absence of professional judgement, automation may reinforce mechanical compliance rather than encourage critical assessment of procurement risks and performance. Effective procurement governance therefore requires not only systems and rules, but also skilled professionals capable of interpreting, applying, and challenging them.

 

5. Procurement as a Professional Discipline

Public procurement is often perceived as an administrative function. It lacks the procurement cadres. In reality, it is a complex professional discipline involving legal interpretation, financial analysis, market assessment, risk management, contract administration, and ethical judgement. Each stage—from procurement planning to contract completion—requires specialised knowledge and informed decision-making.

 

Recognising procurement as a professional discipline shifts the focus from procedural compliance to outcome-oriented performance. It underscores the long-term fiscal and service delivery implications of procurement decisions and highlights the need for separate procurement cadre in administrative service of Government with formal training, certification, and ethical standards comparable to those applied in accounting and auditing.

 

6. Role of Professional Accountants in Procurement Governance

Professional accountants occupy a distinctive position within Nepal’s PFM ecosystem. They are engaged across budgeting, accounting, audit, advisory services, and donor-funded programmes at all tiers of government. Their training emphasises financial control, accountability, risk assessment, and ethical conduct.

 

Professional accountants can play a significant role in strengthening procurement governance. They are well placed to assess procurement planning against budget realism, evaluate financial aspects of bids, review contract management practices, and integrate procurement risks into audit and assurance work.

 

Importantly, professional accountants bring an outcome-oriented perspective. Rather than focusing solely on procedural compliance, they are trained to consider materiality, value for money, and sustainability. This perspective is essential for shifting procurement oversight from a narrow compliance focus to a broader performance-based approach.

 

However, the professional accountants face limited capacity in the procurement sector due to a traditional focus on clerical bookkeeping and compliance. This gap is characterized by a lack of specialized knowledge in public procurement legislation (such as Nepal’s PPA and PPR), a struggle to conduct technical bid evaluations that separates financial oversight from the actual procurement planning. To enhance their capacity, professional accountants must undergo specialized Continuous Professional Education that bridges the gap between financial auditing and procurement. This includes mastering e-GP systems, training in Value for Money analysis to move beyond simply choosing the lowest bidder, and developing skills in contract management and market price assessment.

6A. Procurement Audit and the Limits of Traditional Financial Review

In practice, procurement audit in Nepal has often been approached as an extension of traditional financial audit, with emphasis placed on documentation available at the payment stage. While this approach can identify certain compliance issues, it is insufficient to address procurement risks that arise earlier in the procurement cycle.

 

Many procurement-related irregularities originate during planning, specification development, bid evaluation, or contract award. By the time payments are reviewed, key decisions affecting competition, pricing, and contract scope have already been made. Auditors who lack structured procurement knowledge may therefore overlook upstream risks, focusing instead on voucher-level compliance.

 

This limitation highlights the need to reconceptualise procurement audit as a distinct but integrated component of public sector assurance. Effective procurement audit requires understanding of procurement methods, evaluation criteria, contract conditions, contract execution, and market behaviour. It also requires the ability to assess value for money, not merely procedural compliance.

 

Professional accountants, with appropriate procurement training, are well positioned to bridge this gap. Their familiarity with risk assessment, materiality, and internal control enables them to examine procurement processes holistically. By integrating procurement considerations into audit planning and execution, auditors can provide more meaningful assurance and generate insights that support systemic improvement rather than repetitive observations.

 

Strengthening procurement audit capacity is therefore a critical complement to broader PFM reforms. It enhances the credibility of oversight, supports corrective action, and contributes to more effective use of public resources.

 

7. Oversight Institutions and Risk-Based Regulation

Public Procurement Monitoring Office (PPMO) of Nepal is legally mandated to regulate, standardise, and monitor procurement activities through instruments such as standard bidding documents, compliance monitoring, and enforcement mechanisms.

The PPMO faces a multi-faceted set of challenges that impede its ability to ensure transparency and efficiency in the nation's public spending. A primary institutional hurdle is its limited executive authority, which often restricts its role to advisory and reporting functions rather than direct enforcement, compounded by a high turnover of key officials that disrupts institutional memory and long-term policy continuity. Furthermore, the office contends largely with compliance-driven, making it difficult to shift the prevailing culture from a lowest-bidder focus toward a modern Value for Money and sustainable procurement framework.

 

 Greater emphasis is required on risk-based regulation, where oversight efforts are targeted towards high-value, high-risk, or high-impact procurements. Such an approach depends on reliable data, analytical capability, and informed professional judgement.

 

The involvement of procurement-literate professionals, including accountants with specialised procurement training, can support this transition. By strengthening analytical and interpretive capacity, professionalisation enables oversight institutions to focus on performance, risk mitigation, and systemic improvement rather than procedural enforcement alone.

 

8. Professionalisation as a Reform Instrument

Professionalisation of procurement competencies should be viewed as an instrument of systemic reform rather than a standalone training initiative. Structured certification and capacity-building programmes establish a common body of knowledge, promote consistent interpretation of rules, and embed ethical standards in procurement practice. Procurement cadre should be developed in Civil service injecting professionals in such cadre.

 

Such professionalisation delivers multiple benefits. It enhances audit quality by enabling auditors to assess procurement holistically. It supports improved contract management and reduces disputes. It also strengthens confidence among development partners in national systems. Most importantly, it helps translate formal rules into effective practice.

 

In a federal system characterised by dispersed authority, professional standards provide a unifying framework that complements legal and institutional arrangements.

 

Professionalisation also contributes to institutional memory and continuity within a system characterised by frequent staff transfers and turnover. Standardised training and certification help ensure that procurement knowledge is retained within institutions, reducing dependence on ad hoc experience or individual discretion. In this regard, ICAN is conducting PFM certification course to its member, which includes some course relating to procurement.  Recently, ICAN and PPMO has entered in to collaboration to organize certification course which is depicted in Annex A. Over time, this creates a shared professional culture that supports consistent interpretation of rules and expectations across jurisdictions. In the context of federal Nepal, where procurement authority is widely dispersed, such consistency is particularly valuable. Professional standards complement legal frameworks by providing practical guidance on how rules should be applied in complex and evolving situations. This alignment between regulation and professional practice strengthens implementation quality and reduces the likelihood of recurring non-compliance.

 

9. Implications for ICAN Members and Public Sector Practice

For members of the accounting profession, enhanced procurement competencies expand professional relevance and responsibility. Accountants engaged in public sector work increasingly operate at the intersection of budgeting, procurement, and audit. Strengthening skills in this area enables them to contribute more effectively to governance and development outcomes.

 

From an institutional perspective, the engagement of professionally trained accountants in procurement oversight supports broader PFM reforms. It reinforces accountability mechanisms, improves value for money, and contributes to restoring public trust in the management of public resources.

 

10. Conclusion: Moving from Compliance to Capability

 

Nepal’s transition to federalism has established a robust Public Financial Management (PFM) architecture; however, a significant gap remains between these institutional reforms and actual development outcomes due to persistent execution weaknesses. Public procurement serves as the operational fulcrum of this system, but its effectiveness is currently undermined by limited professional capacity rather than a lack of regulations, leading to recurring audit irregularities and poor budget execution. These challenges have an effect in making the systems work consistently and effectively across all tiers of government. To resolve this, the document argues for a strategic shift from rigid procedural compliance to a capability-based governance model that recognizes procurement as a specialized professional discipline. Strengthening procurement oversight, investing in professional capacity, and aligning these efforts with broader PFM reforms offer a pragmatic and nationally grounded pathway forward. Likewise, by professionalizing procurement competencies and leveraging the expertise of professional accountants supported by initiatives like the ICAN-PPMO certification course, Nepal can bridge the gap between its PFM framework and tangible results, ultimately ensuring value for money, accountability, and enhanced public trust.

 

 

 

 

 

References

Government of Nepal. Constitution of Nepal (2015).

Office of the Auditor General, Nepal. Annual Audit Reports. Various years.

Public Expenditure and Financial Accountability Secretariat. Public Expenditure and Financial Accountability Assessment: Nepal (2024).

Government of Nepal. Public Procurement Act and Public Procurement Regulations.

Ministry of Finance, Government of Nepal. Public Financial Management Reform Strategy and related policy documents.

Public Procurement Monitoring Office. Standard Bidding Documents, e-GP Guidelines, and Procurement Monitoring Reports.

International Federation of Accountants. International Public Sector Accounting Standards Framework.