PEFA Secretariat
Terms of Reference
For
The Study on the Pattern and Implication of Off-budget items
in Financial Accountability (especially with reference to
Donor Funded Projects)
1. Background : Over view of Nepalese PFM System
A sound public financial management (PFM) system is essential for
the effective implementation of policies and achievement of
development results. It will also support aggregate fiscal discipline,
strategic allocation of resources and efficient service delivery.
There is a wider consensus that effective institutions and systems
of PFM play constructive role for implementation of national
development policies and ultimately helping the overreaching
goal of poverty reduction. Recent fiscal reforms include planning
for enactment of the fiscal responsibility legislations and the
introduction of the new budgetary practices that would map
outlays to quantifiable deliverables, outcomes objectives and
states the risk profile of Government programs. The ongoing
governance and fiscal reforms emphasizes on the enhancement
of transparency and accountability.
The PEFA initiative has developed a robust tool for measuring PFM
performances and providing sound assessment of the quality of
PFM for countries of all income levels. Nepal has conducted PEFA
assessment based on in 2005/06 data against PEFA indicators (
PEFA assessment Report 2008) and adopted an action plan that
serve as the national policy for the overall improvement in PFM
system, processes and institutions. Effective implementation of
action plan contributes to improve PFM performances that
eventually help achieve better service delivery and efficiency in
public expenditure.
The Government of Nepal (GoN), following the PEFA Assessment
Report 2008 decided to establish PEFA Secretariat in 2009 to
enhance the overall performance of Public Financial Management
1
(PFM) and accountability in Nepal by coordinating PFM reform
activities.
PEFA Secretariat is a government agency working under the
Ministry of Finance. It works under the overall guidance of PEFA
Steering Committee chaired by Finance Secretary. The PEFA
Steering Committee is responsible for providing overall
leadership, coordination and strategic direction of the PFM reform
programme. PEFA Secretariat is coordinating the PFM reform
activities of GoN and monitoring the the implementation of the
PFM Strategy.
The main roles of the PEFA Secretariat are to develop the Overall
Framework of the Public Financial Management Reform
Programme (PFMRP), development of a capacity building
programme, develop measurable milestones for monitoring
progress, assessing and reporting progress over time, organizing
seminars and workshops on various thematic issues relating to
PFM reform, coordinating review meetings of the progress made
in various sectors and sharing major outcomes, liaisoning with
development partners, disseminating the PFMRP activities within
Government/Media/Civil Society based on Communication and
Reporting Strategy; and knowledge sharing by awarding the best
PFMRP performers, developing PEFA website and publishing
PEFA/PFM newsletter and conducting small research on PFM
innovation. Presently it is coordinating the repeat PEFA
assessment (2014) in Nepal.
The PEFA assessment report 2008 has clearly indicated on the
lack of vibrant internal audit system which fails in practice to
deliver its desired goals. The report has suggested for an
improvement in internal audit system. The PFMRP, which is
basically developed on the basis of PEFA assessment report 2008,
has also had set strategies to improve the internal control
system. There are two internal audit related activities as follows
under the strategy:
i) Develop concept for improving the internal audit system;
2
ii) Implement institutional strengthening program for internal
audit system reform.
After the implementation of TSA the questions over the
independence of internal auditors is raised as the treasury role
and internal audit is conducted by the institutions- the DTCOs.
The Government of Nepal has received a grant from World Bank
managed /administered Multi Donor Trust Fund (MDTF) towards
Strengthening Public Financial Management (PFM) Project, and it
intends to apply part of the proceeds of this grant to payments
under the Contract for this assignment.
2. Current Situation and Problems.
1. Existing legal provision on the Pattern and Implication of Offbudget Items:
A) Inclusion of Foreign Aid in Budget Statement: (1) In
obtaining any kind of aid in cash or in-kind from any foreign
organization, institution, agency or state or making agreement to
obtain such assistance, each Office shall consult the National
Planning Commission and obtain approval of the Ministry of
Finance.
(2) The Office shall reflect the assistance obtained, or to be
obtained, pursuant to Financial Procedure Rule 2007 Sub-rule 27
(1) in the annual program and budget, and receive income and
make expenditure of the same.
(3) In reflecting the foreign assistance in the budget pursuant to
Financial Procedure Rule 2007 Sub-rule 27 Sub-rule (2), the
Ministry of Finance shall include it in the appropriation budget
amount.
(4) Following the conclusion of an agreement concerning foreign
aid, the Ministry of Finance shall send a copy of the agreement
each to office of the Auditor General and the Office of the
Financial Comptroller General within thirty days.
3
-Financial Procedure Regulation 2064(2007), Rule No.27.
2. Current Pattern and Implication of Off-budget Items
Foreign aid is channeled through the International Economic
Cooperation Coordination Division of MOF. In principle, all foreign
loan assistance is within the purview of the budget. Foreign grant
assistance, to a large extent, does not fall under the purview of
the budget and is mostly provided directly by donors to
concerned line ministries or agencies. In case of loan assistance,
donors provide information to MOF.
In case of grant assistance, except for a very small proportion of
aid that is channeled through the Government budget, however
an aid management portal is established in Ministry of Finance,
there is a very weak system to track how much of grant aid
outside the budget, around 1.3 dollars operates outside the
system flows. When financial information is required MOF has to
obtain information from concerned line agencies. Monitoring of
foreign aid flow (both within the budgetary framework and
outside) is a major challenge to the system. Some of the key
issues are (i) absence of data on expenditures made directly by
donors (most donors focus on disbursements from their own
account to the implementing agency), (ii) absence of standard
formats for reporting for grant financed projects (except
reimbursable grants), (iii) concerns about the accuracy and
consistency of expenditure data (in case of budget information it
is monitored), and (iv) delays in providing information to the
Government on grant assistance that operates outside the
budgetary framework (lag time of six months for direct
payments). All major donors, primarily bilateral, do really provide
forecasts for disbursement of project aid for coming fiscal year
and at least three months prior to its start. With regard to
reporting system, except for a few loan-financing donors, most do
not provide quarterly reports within two months of the end-ofquarter on the disbursements made for at least 50% of the
externally-financed project estimates in the budget.
4
3. Extract of 50th Annual Report of the Office of the Auditor
General
Of the total public spending of NRs. 260 billion during FY
2009/010, NRs.50 billion (about 19.23 %) was donor financed. Of
the total spending during FY2009/010, about 80.79% of total
public spending was Government financed. Similarly of the total
spending of 295 billion and 339 billion during FY 2010/011 and
2011/012, NRs.58 billion (about 19.66 %) and NRs.52 billion
(about 15.34 %) was donor financed. Out of the total spending
during FY 2010/011 and 2011/012, (about 80.34 % and 84.66
%) of the total public spending was Government financed.
The trend has been similar for several years, except in
FY2003/04, when the percentage of donor-financed expenditure
was about 25% and that was due to the first budget support
provided by the World Bank. The Auditor General’s annual reports
of 2004 and 2005 have reported that a large amount of grant
financing remains outside the Government’s budgetary
framework. They also reported the absence of reliable statistics to
capture the volume of aid flowing outside the budgetary
framework.
The Interim Constitution requires all types of assistance to be
obtained by the Government to be included in the budget and the
Financial Procedure Act, 1999 has directed to bring all types of
assistance inside the budgetary framework and central income
and expenditure account. But the Auditor General’s reports
specify that there is lack of transparency in foreign grant
assistance which are not within the budgetary framework and are
not audited. During the FY 2068/069 (2011/012) there is no
inclusion of about NRs. 1.5 billion received from Asian
Development Bank, IDA, and SDC, Norwegian Government etc in
the financial statement of consolidated fund and central income
and expenditure, which was submitted by the Office of the
Financial Comptroller general Office. Similarly the statement
5
covering the amount of income and expenditure of additional
statement of technical and other assistance which are submitted
by the Finance Minister in the legislative assembly along with the
Budget Speech is not incorporated into the financial statement of
GoN. The provision of performing audit from the Office of the
Auditor General is not fully complied /followed (sometimes there
is misunderstanding with the donor partners) with the agreement
signed with the Ministry of Finance. As a result, there is lack of a
system for tracking all the aid in-flows.
3. Objectives of the Consulting Service :
The main objective of the study is as follows:
 To find out the pattern and implication of off-budget items in
financial accountability (especially with reference to donor
funded projects).
The other objectives of the study are as follows:
 To find out the pattern / structure of Off-budget items
of foreign aid along with the extent /percentage of offbudget items in terms of volume/quantity;
 To find out the consistency and linkage between the
operational development strategies of the development
partners and national development priorities of the
Government of Nepal in relation to off-budget;
 To recommend a strong system of networking linkage
established between the development partners and
International
Economic
Cooperation
Coordination
Division (IECCD) of Ministry of Finance (MoF) / line
ministries as regards to off-budget items for
coordinating, monitoring and evaluating effectively the
public expenditure of GON;
 To suggest necessary measures to reduce the volume
of off-budget items of public expenditure in quantity
and in number/sector;
6
 To suggest for appropriate institutional arrangements,
organizational and operational modalities and legal
framework to reduce off-budget items of public finance.
4. Scope of Services
The scope of study / research is to identify the volume of
off-budget items of public expenditure for a transparent PFM
system in Nepal. The research work covers to identify
quantity and number and /sector so that there will be
greater consistency and strong linkage between the
operational development strategies of the development
partners and national development priorities of the
Government of Nepal.
5. Suggested Methodology:
1. Review of literature
2. Questionnaire-Develop questionnaire to find out the
pattern and implication of off-budget items in financial
accountability and carry out survey based on the set
questionnaire of at least 5 government ministries
consisting 2 project/programmes each based on the set
questionnaire.
3. Analysis of survey data/outcomes to draw conclusion and
recommendation for improvement.
6. Specific Duties and Responsibilities to be performed
by the consultant (consulting firms/ individuals) :
The researcher shall be responsible to perform the following
tasks and responsibilities under the technical direction and
supervision of PEFA Secretariat by considering the given
objectives of the study:
7
 Conduct Study / Research to identify the pattern and
implication of off-budget items in financial accountability
based on the following format :
1. Background of the Study;
2. Statement of the Problem;
3. Significance of the Study;
4. Objectives of the Study;
5. Limitation of the Study;
6. Methodology;
7. Analysis and Findings;
8. Summary, Conclusions and Recommendation;
9. References;
10. Appendix;
11. Acronyms.
12. Glossary

Prepare a study report by identifying the pattern and
implication of off-budget items in financial accountability.

Find out the volume and quantity of off budget operations of
donors funded programmes.

Find out the off-budget operations of GoN (the central
government).

To suggest necessary measures to reduce and regulate the
volume of off-budget in quantity and in number/sector for
greater consistency and strong linkage between the
operational development strategies of the development
partners and national development priorities of the
Government of Nepal.
Submit a study report to PEFA Secretariat on the pattern
and
implication
of
off-budget
items
in
financial
accountability.
The consultant will work under direct supervision of PEFA
Coordinator. Furthermore, s/He should work together with the

8
Member Secretary and other staffs of PEFA Secretariat. The
workstation will be located at the PEFA Secretariat Kathmandu,
Nepal.
7.
Availability of other support(Related Information :
The consultant shall be made available the following supports
for the accomplishing the obligations under the assignment:
 IEC materials published by PEFA Secretariat and its
Resource Center.
 Other reports/documents produce by the PEFA Secretariat.
 Publications of FCGO.
8. Output:
The key output of the consulting service will be as follows:

Research & Study Report on the pattern and implication of
off-budget items in financial accountability.
9. Consultant's Qualifications and Experience:
 The consultant should have the following qualification and
experience to carry out the assignment:
9.1 Academic Qualification:
 At
least
Master's
Degree
in
Management/
Economics/Finance/Public
Financial Management or
Development Management related Discipline.
 Advance study in Management/ Economics/Finance/Public
Financial Management or Development Management related
Discipline will be an extra advantage.
9
9.2 Experience
 General Experience: Should have a minimum 1 (one) year
or more experience in the field of Public Financial
Management with good knowledge in the following areas (at
least one): Planning, Budgeting, accounting and foreign aid
management.
 Specific Experience: Study/Research in PFM area will be
an extra advantage.
9.3 Special Requirement:
 Excellent IT knowledge; and communication skills both in
English
and
Nepali;
proven
skills
in
project
proposals/concept notes/reports writing, and monitoring &
supervision of programs/projects.
10. Duration of Services:
 The service period of the consultant shall start from …..,
2014 and end after 3 months. Subject to satisfactory
performance and mutual acceptance, the services of the
consultant may be further extended.
11. Reporting Requirements and Deliverables:
The Researcher / consultant should report, during or at the
completion of the assignment, the following reports and deliver
the outputs as mentioned below:
11.1 Reporting Requirements: The Consultant shall prepare
and submit the following reports/documents in hard copies (two)
and soft copies within the given time schedule:
 Inception Report: The consultant should submit the
Inception Report within one month after the date of the
signing of the contract agreement.
10
 Draft Final Report: The consultant should also submit draft
final report within forty five days after the date of the
signing of the contract agreement.

Final Report: The consultant should also submit final
report within two months after the date of the signing of the
contract agreement.
11