Service Contract Management and Fiscal Accountability in Nepal’s Local Governments: A Mixed-Methods Assessment Based on Audit Data and Municipal Surveys

Abstract

Service contracts have now become a major source of filling long-term staff gaps by the federal and local governments of Nepal. This paper will focus on the relationship between service contract management and fiscal accountability in such governments. It is based on a convergent mixed-methods design that uses national audit data, a survey of 150 local governments, interviews and focus group discussions with officials and contract staff. Service Contract Management Index is used to measure adherence to rules in relation to advertising, selection, written contracts, and renewal. The Audit Irregularity Ratio is a ratio that represents the audit arrears as a percentage of total expenditure. Pearson correlation indicates that there is a strong negative correlation between the two indicators (r = -0.61, p < 0.05). Simple regression indicates that an improvement in the quality of the contract management by one point decreases the audit irregularity ratio by an average of 0.43. On average, local governments hire about 20 to 25 contract employees, many of them in core roles, but only 58 % of them state that they operate under formal procedures. Workers in contracts are moderately to lowly satisfied, social security access is low, and security concerning renewal is weak. The qualitative analysis highlights administrative reliance on contract employees, poor documentation and internal controls, employee insecurity, and policy uncertainty. The results indicate that service contracts managed more appropriately can help to minimize fiscal risk and promote more responsible and equitable local governance.