GTZ Report on Accrual Accounting Status Quo - LGCDP

Findings and observations in the Nepalese municipalities 19
KMC. KMC is also in the process of decentralizing this software to its wards, making it easier for
citizens to access public services. The wards function as local accounting centres and only have
a limited budget. Through the network connection the wards and the central KMC administration
will be interlinked, making it easy for the central management to supervise the activities in the
wards. The software is also able to limit access to different accounting heads and vouchers
according to the job position of the public officer. The creation of cost centres according to
projects, taxes, fees, wards, specific individuals and so on is also possible. All in all this
integrated and modular software is easy adjustable to the needs and administrative status of any
municipality and would be a sound solution for all municipalities in Nepal.
• KMC is well ahead of modified accrual accounting but is not practising asset management,
meaning depreciations, and reserve allocation etc. at the moment.
Type II • These municipalities have some experiences in accrual accounting implementation but failed in
the previous attempt for explained reasons (Dhangadhi, Nepalgunj, Pokhara, Hetauda and
Banepa).
• Some of these municipalities also tried to implement accrual accounting manually but
discontinued after some time and returned to cash based accounting.
• These municipalities all have at least partly computerized accounting and/or tax systems and
usually are eager to restart there accrual accounting implementations efforts.
Type III • These municipalities did not try to implement accrual accounting systems but have at least partly
computerized accounting systems and some information about what accrual accounting is (e.g.
Lalitpur, Bhaktapur).
• Some of these municipalities now feel prepared to join the accrual accounting reform process.
Type IV • These municipalities are not computerized, have never tried to implement accrual accounting and
also do not have sufficient information about what accrual accounting actually is (many small
and remote municipalities etc.).
All in all the municipalities of Nepal are currently under a strong pressure for reform. They are still very much
dependent on the Local Development Fee (LDF), which is a national import tax, collected by the central government
and distributed to the municipalities. The LDF accounts for over 70 percent of the municipal tax revenues (udle, 2008).
However due to the upcoming membership of Nepal in the WTO the LDF will be abolished soon. This will leave the
municipalities with a huge revenue gap. The government has not yet decided how much money on which scheme will
be distributed to the municipalities in order to partly cover this gap in the future.
Whatsoever, the municipalities are very much under pressure to increase their own revenues through local taxes and
fees but also to find ways to efficiently allocate scare resources. The implementation of accrual accounting can be
of major help in achieving these aims (see again advantages on p.5).