Main points

• Nepal is allocating more than 10% of its national budget to education, yet integrity risks remain widespread and are continuing to undermine efficiency and trust in the sector. Large flows of resources are managed at the local government (LG) and school level, where accountability systems are not keeping pace.
• Teacher management, school construction, procurement, and student support schemes are all vulnerable to misuse. Cases of fake credentials, ‘ghost’ teachers and students, political patronage in recruitment, collusion in contracts, inflated costs, incomplete projects, and diversion of scholarships and funding for menstrual products illustrate how loopholes are exploited in practice.
• Oversight and accountability mechanisms remain weak and inconsistent. More than half of local governments lack functional internal audit units, while accounts and education committees often do not meet or resolve arrears through ad hoc measures. At school level, many school management committees (SMCs) and parent–teacher associations (PTAs) exist only on paper or conduct audits in a ritualistic way, with little link to real accountability.
• Underlying these risks are stalled legislative reforms, including the delay in passing the Federal Education Act, and overlapping mandates between federal, provincial, local, and school authorities. Rigid conditional grant systems leave little flexibility for schools and LGs to respond to needs, while inconsistent application of financial rules, combined with limited staff and technical capacity, continue to drive irregularities.
• Suggested reforms include finalising the Federal Education Act to clarify mandates, consolidating conditional grants into broader categories, strengthening local audit and accountability committees, introducing direct transfers and beneficiary verification for student support schemes, and enforcing minimum standards and audits for SMCs and PTAs. Together, these measures can help close the gap between policy and practice, reduce leakage, and strengthen accountability.