Nepal’s education sector commands more than 10% of the national budget, with the largest share flowing to school education. Since the 2015 Constitution came into effect, local governments have had primary responsibility for managing and delivering basic and secondary education. This decentralisation is creating opportunities for more responsive and accountable education services, but it is also exposing gaps in integrity and public financial management.

Integrity challenges are evident across teacher management, school construction and procurement, and student support schemes. Investigations by the Commission for the Investigation of Abuse of Authority (CIAA) and audit reports from the Office of the Auditor General (OAG) repeatedly document cases of fake teacher credentials, ‘ghost teachers’ on the payroll, and recruitment processes shaped by nepotism and political patronage. Vacancies are sometimes filled through political networks, undermining merit-based selection and lowering morale among qualified teachers. While direct salary transfers and verification systems are reducing misuse, underlying loopholes remain.

School construction and procurement continue to attract collusion between contractors, local officials, and political actors. Audit reports point to inflated costs, contracts awarded without competitive bidding, use of substandard materials, and incomplete buildings – despite significant expenditure. Weak oversight and lack of proper completion certificates mean that funds are disbursed even when little or no work has been carried out.

Student support schemes are showing similar risks. Programmes such as scholarships, midday meals, and menstrual product distribution are designed to increase equity and reduce barriers to schooling, yet audit findings and interviews highlight cases where benefits are diverted to politically connected families or better-off households. Poor-quality food and insufficient supplies are recurring problems. Inflated enrolment data in the Education Management Information System, including ‘ghost students’, allows schools to claim additional resources without corresponding needs.

These vulnerabilities are driven by structural and systemic factors. The legal and institutional framework has not kept pace with federalisation. The Federal Education Bill, intended to clarify mandates, remains subject to thousands of proposed amendments and is yet to be enacted. The Education Act and the Local Government Operation Act assign overlapping responsibilities to schools, school management committees, and local governments, creating frictions and inconsistent practices. Procurement rules do not clearly identify who holds the ultimate authority at the school level, fuelling disputes and enabling political interference.

Oversight structures remain weak. More than half of LGs lack functioning internal audit units, and many accounts committees and education committees are inactive or using inconsistent procedures. At the school level in some areas, school management committees and parent–teacher associations exist on paper but are not meeting minimum standards of functionality. EMIS 2023/24 shows that 50% of basic schools and 44% of secondary schools have not conducted social audits, despite these being mandatory. Where audits are conducted, they are often ritualistic and do not link resources to outcomes.

Public financial management also remains rigid and fragmented. Conditional grants flow through 19 different categories, released in tranches that are frequently delayed. Local governments and schools have little flexibility to reallocate funds to meet local priorities. A significant share of earmarked resources for meals, menstrual products, and infrastructure is frozen each year and returned to the treasury unused. Basic reporting requirements are in place, but they are applied inconsistently across municipalities, and documentation standards vary widely.

Capacity constraints at local government and school levels exacerbate these problems. Many education units operate with only two or three staff, compared with up to nine in metropolitan municipalities. High turnover and lack of training mean that officers struggle with planning, budgeting, and monitoring. Teacher deployment is uneven, with some provinces reporting very high student–teacher ratios. Local governments and schools often resort to informal reallocation of funds to cover gaps in salaries or operations, creating further irregularities.

These challenges are undermining Nepal’s constitutional commitment to free, compulsory, and quality education. Addressing them requires a combination of legislative, institutional, and financial reforms that close the gap between policy design and implementation.

Key measures recommended include:

• Finalise and pass the Federal Education Act to remove contradictions between laws and clarify which institutions hold authority over teacher recruitment, procurement, and school governance.
• Consolidate conditional grants into broader categories for teachers, students, operations, and infrastructure, reducing rigidity and misuse.
• Strengthen oversight mechanisms at local government level by establishing functional internal audit units, accounts committees, and education committees with clear mandates and guidance.
• Introduce beneficiary verification for scholarships, meals, and menstrual products through direct transfers, EMIS-linked identity checks, or biometric systems, to reduce leakage and ghost enrolments.
• Standardise audit processes by issuing uniform guidance for resolving arrears and requiring the OAG to conduct risk-based sample audits of procurement and construction projects, with results disclosed publicly.
• Ensure minimum functionality of school management committees and parent–teacher associations, including mandatory training, regular meetings, and public reporting.
• Improve transparency in procurement and construction through mandatory completion certificates, third-party verification, and public disclosure of contracts and costs.

Taken together, these measures offer a pathway to reduce leakage, improve compliance, and strengthen accountability. Building capacity at the local level, clarifying roles and responsibilities, and applying rules consistently are central to restoring integrity in Nepal’s education governance.