Class 10 Account (Office Management and Accounting)

A legally organized and established reserve of money set up to fulfill specific financial and social objectives is called a Fund. It ensures that a dedicated budget is available for particular tasks and purposes.

The main types of Government Funds currently in operation in Nepal are as follows:

• 1. Consolidated Fund: This is the main treasury of the government into which all government revenues, loans, and grants are deposited, and from which expenditures are made through the annual budget.
• 2. Public Debt Fund: This fund is established for the purpose of receiving the loans taken by the government and for making repayments of the principal and interest on those loans.
• 3. Earmarked Revenue Fund: This is a fund in which revenue collected from specific taxes or fees is deposited and can only be spent on a specific designated purpose — for example, road maintenance or environmental conservation.
• 4. Divisible Fund: This fund is established to distribute revenues such as Value Added Tax (VAT) and domestic excise duty among the Federal, Provincial, and Local levels of government.
• 5. Special Project Operation Fund: This is a fund established with donor agency support or government investment to operate large-scale and special-nature projects.

In a democratic system of governance, the Consolidated Fund is built from taxes paid by the citizens. Therefore, the representative institution of those very citizens — the Parliament or Legislature — exercises complete control over the fund. The statement “expenditure from the Consolidated Fund cannot be made except as authorized by law” means that the government (Executive) cannot withdraw and spend money from the treasury arbitrarily or at its own discretion.

Before spending any amount, the government must present a Budget (Appropriation Bill) in Parliament. Only after Parliament has deliberated upon and passed that bill as an Act does the government obtain the legal authority to spend. This process ensures financial discipline, transparency, and accountability in government expenditure.

The necessity and uses of the Consolidated Fund can be explained through the following points:

• Consolidation of Revenue: To securely store all taxes, fees, and other government income collected from across the country under a single umbrella account.
• Basis for Budget Implementation: To provide the financial resources needed to operate the development, administrative, and welfare programs mentioned in the annual budget.
• Managing Expenditure of Constitutional Bodies: To pay the salaries and allowances (Charged Expenditures) of constitutional office-holders such as the President, Vice-President, and Chief Justice.
• Maintaining Financial Balance: To maintain a balance between government income and expenditure, and to manage resources during times of financial crisis.

In Nepal, the operation and management of the Consolidated Fund is under the direct supervision of the Financial Comptroller General Office (FCGO). Its operational system is as follows:

• Treasury Single Account (TSA): To manage the Consolidated Fund, the government’s main account is held at the Nepal Rastra Bank (Nepal’s central bank) and is operated through the Treasury Single Account (TSA) system.
• Account Operation: The Federal Consolidated Fund is operated by the Financial Comptroller General Office; the Provincial fund is operated by the Provincial Comptroller’s Office; and the Local fund is managed by the accounting section of the respective local body (municipality/rural municipality).
• Revenue Deposit and Release: All offices must deposit the revenue they collect directly into this fund through the banking system. For expenditure, the District Treasury Controller Office (DTCO) releases funds into the concerned office’s account through a payment order.

With the implementation of federalism, the process of equitably distributing the country’s total revenue among the Federal, Provincial, and Local levels of government — based on their needs and workload — is called Revenue Distribution. To systematize this process, the Divisible Fund has been established.

In particular, the revenue collected from Value Added Tax (VAT) and domestic excise duty does not go directly into the Consolidated Fund; instead, it is first deposited into the ‘Divisible Fund’. Based on the recommendation of the National Natural Resources and Fiscal Commission (NNRFC) and in accordance with the legal provisions, the amount deposited in this fund is distributed as follows: 70% to the Federal Government, and the remaining 15% each to the Provincial and Local levels.

If a difference arises between the balance in the office’s General Deposit Ledger (office records) and the balance shown in the Bank Statement for the Deposit Bank Account, the reasons for the difference must be investigated and a Bank Reconciliation Statement must be prepared. The common reasons for such differences include:

• 1. Retention amounts sent by the office to be deposited in the bank but not yet credited by the bank (deposits in transit).
• 2. Cheques issued by the office to refund retention amounts to parties, but not yet presented to or cleared by the bank (outstanding/unpresented cheques).
• 3. Bank charges directly debited or interest directly credited by the bank to the account without the office’s prior knowledge.

By identifying these transactions and making the necessary additions and subtractions, the balances on both sides are made equal and the accounts are reconciled.

Introduction to the Consolidated Fund:
The main treasury or central account of the state — into which all revenues, foreign grants, loans, and income from any other source received by the Government of Nepal are deposited — is called the Consolidated Fund. Article 116 of the Constitution provides that all amounts received by the government — except for Guthi funds or amounts that the law directs to be deposited in another separate fund — shall be deposited in the Federal Consolidated Fund.

Its main features are:

• 1. The Government Treasury: This is the ultimate repository (main store) of the assets of the Government of Nepal.
• 2. Parliamentary Control: There is a mandatory constitutional provision requiring Parliament to pass an Appropriation Act (Budget) before any amount can be withdrawn or spent from this fund.
• 3. Charged Expenditures: The salaries and allowances of the President, Chief Justice, and Heads of Constitutional Bodies, etc. are paid directly from this fund (without requiring a vote in Parliament).

Operation and Management:
The Consolidated Fund is operated by the Financial Comptroller General Office (FCGO) through the Nepal Rastra Bank. It has now been made technology-friendly and transparent through the Treasury Single Account (TSA) system. All revenues collected from across the country are channeled into this fund, and all government expenditures also flow from this fund through the District Treasury Controller Office (DTCO).

After the implementation of federalism in Nepal, there is now one Federal Consolidated Fund, seven Provincial Consolidated Funds, and 753 separate Local Consolidated Funds — one for each local government body — all in operation simultaneously.

Introduction to Retention / Deposit:
When carrying out any work at a government office, taking on a contract, or availing a service, the amount deposited by the concerned party (individual, firm, or contractor) with the office — in the form of cash or a bank guarantee — as a security or surety that they will honestly fulfill the terms and conditions of the agreement, is called a Retention Deposit. After the work has been satisfactorily completed, this amount is returned to the concerned party. Therefore, this is not income for the office but rather a Liability.

The main circumstances under which a Retention Deposit must be made are:

• 1. Bid Bond / Tender Deposit: A deposit that a contractor wishing to participate in a tender for a contract or construction work called by an office must make upfront to demonstrate the seriousness of their bid/proposal.
• 2. Performance Bond / Contract Deposit: After a contract has been awarded, the contractor must deposit a fixed percentage (usually 5%) of the contract amount as a guarantee that they will complete the work on time and to the required quality standard as per the agreement.
• 3. Retention Money (Deduction Deposit): During construction work, when making running bill payments to the contractor, a fixed percentage (usually 5%) is deducted from each bill and held as a deposit, so that any defects found in the work after completion can be repaired at the contractor’s cost.
• 4. Customs and Tax Dispute Deposit: When a dispute arises over the assessment of customs duties or taxes and a case is filed, a deposit of the disputed amount must be made pending the final verdict.
• 5. Court Deposit (Bail Bond): The amount deposited by an accused or petitioner as bail while a court case is pending and under deliberation.

In Nepal’s government accounting system, various forms prescribed by the Auditor General (AG) are used to organize the retention/deposit accounting records systematically:

• 1. Personal Deposit Ledger (G.A. Form No. 212): This is an account maintained by creating a separate page in the name of each individual, contractor, or organization that deposits a retention amount with the office. From this account, clear personal information can be obtained — such as how much a particular person deposited, how much has been refunded, and how much remains to be refunded.
• 2. General Deposit Ledger (G.A. Form No. 213): This is a summary account that consolidates all the Personal Deposit Ledgers. It shows, in a combined and aggregate form, the total deposits received, total amounts refunded, and the total remaining balance of all retention amounts deposited with the office within a given month or specified period.
• 3. Deposit Bank Cash Book: Similar to the Bank Cash Book used for budget expenditure, a separate Bank Cash Book is maintained exclusively for cash and bank transactions (receipts and payments) related to retention/deposit amounts. It shows the daily status of the bank balance in the deposit account.
• 4. Financial Report of Deposit: This is the report prepared by the office at the end of the financial year (or at a specified period) to be submitted to the District Treasury Controller Office (DTCO) or the higher authority. It contains accurate details of: the total retention received throughout the year, the amounts refunded, the amounts forfeited and transferred to revenue, and the total outstanding liability (amount still to be refunded).