From Compliance to Responsiveness: Rethinking Internal Control Mechanisms in Nepal's Public Administration

Abstract

Internal control systems are the key to responsive governance. In Nepal’s public sector, these controls are merely compliance-based and focus on output, emphasizing procedural adherence and ex-post audit over substantive accountability and governance outcomes. Up to FY 2023/24, the annual financial irregularities exceed NPR 90 billion, and cumulative unsettled audit observations are over NPR 700 billion, where over 40% of capital expenditure is concentrated in the final month of the fiscal year. The study aims to explore the relationship between a compliance-oriented internal control system and administrative responsiveness. To institutionalize accountability within the public organization, the COSO framework is being used. Quantitative research design is used in this study, and data were obtained from published reports of different public institutions. The analysis is carried out by integrating quantitative analysis of an Internal Control Weakness Index (ICWI) with qualitative policy analysis. The ICWI is constructed from longitudinal data on financial arrears, Commission for the Investigation of Abuse of Authority (CIAA) cases, and capital expenditure absorption rates spanning fiscal years 2018/19 to 2023/24. The result shows that there is a significant positive correlation between ICWI and both arrears (r = 0.666) and CIAA cases (r = 0.629), and a significant negative correlation with capital expenditure (r = -0.641). Furthermore, Regression analysis indicates that the ICWI explains approximately 44.4% of the variance in total arrears (R² = 0.444). empirical analysis suggests that responsive control mechanism in public administration of Nepal is essential to promote fiscal sustainability and accountability throughout the government institution.