GTZ Report on Accrual Accounting Status Quo - LGCDP

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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).
Findings and observations in the Nepalese municipalities 20 Another current incentive to implement accrual accounting is its role in the new Minimum Conditions and Performance Measures (MC/PM) system, which was developed by MLD/LBFC with technical support of udle. Within this system the implementation of accrual accounting is supported through monetary incentives. The MC/PM system is a performance based tool for the distribution of grants and funds honouring outstanding institutional capacity and service delivery function. The municipalities must fulfil an increasing number of minimum conditions (MCs) in key institutional improvement areas. The individual performance measures (PMs) allow the distribution of funds according to outstanding performance. The use of accrual accounting systems is one of these performance indicators (PM). Future LGCDP expanded block grant distribution to municipalities will be based on municipal MC/PM performance.
Page 1 and 2: Urban Development through Local Eff
Page 3 and 4: Contents 01. Executive Summary (p.1
Page 5 and 6: Cash Accounting vs. Accrual Account
Page 17 and 18: Findings and observations in the Ne
Page 19 and 20: Findings and observations in the Ne
Page 21: Findings and observations in the Ne
Page 25 and 26: How to implement Accrual Accounting
Page 33 and 34: Annex 30 05. Annex Annex 1 IPSAS Li
Page 35 and 36: References 32 06. References ADB (2
Page 37: References 34 Schiavo-Campo, S. & T

GTZ Report on Accrual Accounting Status Quo - LGCDP

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