Public enterprises in the State of Kuwait were established to accelerate the pace of socio-economic development of the country. With the substantial increase in oil revenues due to higher production and improved prices, activities in various fields to form an adequate base for rapid development were undertaken by the government. Though the private sector showed signs of growth in some fields, it fell short of national needs. Government was therefore obliged to act in order to promote the country's development process.
Public enterprises are of the following types:
(a) Departmental undertakings
Departmental undertakings, or government administrative enterprises, follow the government pattern of administration and are committed to implementing state policy. Examples of such enterprises are the Cable, Telephone and Telegram Administration, the Post Office Administration and the Civil Aviation Administration.
(b) Statutory bodies
These are public bodies which manage public utilities. These bodies have their own legal entity and their allocated budget is prepared in line with the state public budget and is a supplement to it. There are 12 bodies of this type, such as the Kuwait University and the Public Housing Authority.
In addition to the foregoing, there are independent legal entities which perform industrial, commercial, agricultural or financial activities. These have their own budgets which are prepared on commercial lines. There are 11 institutions of this type such as Central Bank of Kuwait, Kuwait Airways Corporation and the Credit and Savings Bank.
(c) Companies
There are companies in which government has contributed to the share capital in order to undertake projects which require large investments. Through these companies, the state pursues a policy of economic and social orientation. There are 36 companies in each of which the state owns more than 50% of the share capital, such as Kuwait Investment Company, Kuwait Foreign Trading, Contracting and Investment Company, the National Industries Company, Kuwait Flour Mills and Bakeries Company. In addition, there are many others where the government's share-holding is less than 50% equity.
Departmental undertakings are administered by one or more directors general assisted by specialised technical staff appointed by the government. The commercial enterprises and government companies have their own articles of association which define the formation of their Boards of Directors and they are generally subject to parliamentary control. The members of Boards are appointed by the government. In case of the government companies in which the state holds 50% or more of the shares, the government appoints members of the Board of Directors in proportion to its share holding. The other members of the Board are elected to represent the rest of the shareholders. Boards of Directors are the highest executive authority in their respective enterprises; they decide the general policy and plans to be followed in pursuing the corporate objectives envisaged by the government.
Public enterprises in the State of Kuwait have their own employee cadres, which are not subject to the rules and regulations of the government. The Boards of Directors have absolute freedom to select, appoint, remunerate and terminate the services of their own employees. Employees are not subject to the Public Civil Service Act. Public enterprises draw up plans and organise training programs in co-operation with certain specialist organisations for professional development and improved performance.
Public enterprises other than companies are financed entirely by government and their funds are considered public funds. However, financing takes various forms - provision of capital funds, subsidies, or a guarantee of a minimum level of profit. These enterprises are free to borrow money on their own account. Companies in which the state holds share capital, finance and manage their projects from their own revenues and carry responsibility for any risks resulting therefrom.
The Ministry of Finance approves the accounting systems of the public enterprises, in addition to approving the annual budget estimates. The public enterprises submit to the Minister of Finance annual reports on their performance and financial position comprising statements and information as stipulated by the Minister. These enterprises prepare a final account for the fiscal year, a general annual budget on commercial basis, and submit them to the Minister of Finance in accordance with a specified timetable. The Minister then submits these within a reasonable period to the Council of Ministers along with his own reports on the financial standing of the enterprises, taking into consideration the time needed for their presentation and adoption by the National Assembly within the period stipulated in the Constitution.
The Council of Ministers, which is the Supreme Central Institution, controls all public enterprises. This control is exercised through the Council's technical committees, ministers, or specialised administrations to whom such enterprises are attached, or through appointed members of the Boards of Directors of government companies. The control of the Council of Ministers thus satisfies itself about the proper performance of public enterprises within the general framework of the state policy.
Financial laws have been formulated to ensure the independence of public enterprises, the rights of their Boards of Directors to make by-laws and regulations for the purpose of realising their objectives. The Boards thus maintain flexibility in operation in adoptipn of policies that lead to achieving the predesignated goals, and in the selection and appointment of their employees without interference from any outside authority.
Boards of Directors control the enterprise's administration and operation through reports submitted to them so as to monitor progress in relation to approved plans and policies. In regard to departmental undertakings and statutory bodies, the administrations that supervise them exercise control over their work according to government regulations.
Computers are in general use in most public enterprises for financial reporting. The government also has an interest in the availability of such financial information to enable it to make forecasts and plans for the future, while measuring performance and facilitating control.
The statutory bodies and commercial enterprises prepare and present their estimates of revenue and expenditure to the Minister of Finance, the Council of Ministers and the legislature for approval and adoption. The Minister of Finance defines the form of reporting required of public enterprises. Government companies have their own financial administration in accordance with commercial practice.
Public enterprises, other than companies, have their own accounting systems covering financial transactions, storekeeping, recording, documentation and methods of processing of accounts of financial and other operations and auditing.
The Minister of Finance defines the budget form which shows the accounting standards applied taking into consideration the modern trends of public budgets, and the economic and social development plan requirements. The departmental undertakings and statutory bodies apply the same financial rules as applicable to the state budget. Government companies adopt their own accounting standards consistently with their organisational rules and accounting principles.
Estimates of revenue and expenditure of the public enterprises, other than companies, are presented to the legislature at least two months before the fiscal year commences. The final accounts and general budgets are also presented to the legislature during the period stipulated in the Constitution. Government companies are not required to submit their budgets or their financial statements to the legislature. The accountability of such companies to the legislature is through the respective Minister.
The legislature exercises control over public enterprises through specialised legislative committees formed from its members, selected from among those having economic and financial knowledge. The legislature remits to these committees issues of financial and technical nature that require research, study and scrutiny. These committees then submit their reports and recommendations to the legislature for taking necessary action.
The State Audit Bureau - the Supreme Audit Institution (SAI) in the State of Kuwait - examines and checks the accounts of every company or establishment in which the government, or any other public legal entity, holds share capital of not less than 50% or guarantees it a minimum level of profit. In addition, all companies having authorisation to utilise or manage a public utility or given concession to exploit one of the natural resources of the state fall under its purview. All such bodies provide the SAI with a copy of their final accounts, their general budgets and a copy of the Minister of Finance report on their financial standing. The State Audit Bureau examines and checks these documents.
The SAI exercises an effective control over public enterprises. The SAI is empowered by law to undertake financial and performance audit of the enterprises, by checking accounts and reviewing all records, documents and papers considered essential for the audit. The SAI is authorised to make surprise inspections. According to the law establishing the SAI, it can conduct both pre-audits and post-audits. Tenders for purchases and works, in addition to every contract above a specified monetary amount, are subject to pre-audit.
Post-audit is conducted to ensure that allocated funds have not been exceeded and that they comply with the applicable laws. The SAI has appointed a number of specialised technical staff, apart from accountants and lawyers, to. enable it to carry out technical reviews to ensure proper utilisation of public funds in public enterprises.
Audits aim at safeguarding public funds and assets of public enterprises by verifying whether transactions have been carried out in accordance with the predetermined plans and policies, by studying, analysing and reporting any deviations and making appropriate recommendations for remedial measures. The scope of audit covers all activities of the enterprises.
Each public enterprise in Kuwait has issued directives for the establishment and organisation of internal audit administration with well qualified staff. The internal audit derives its authority from these directives and works directly under the managing director of the enterprise. The internal audit submits its periodical reports to the managing director and the Board of Directors, revealing the extent of adherence of the enterprise to the objectives and by-laws, stating any difficulties in the implementation of its mandate and other problems and suggesting remedial measures for ensuring better performance.
The by-laws of some of the public enterprises provide for the engagement of commercial auditors. Some others have been granted freedom to appoint their auditors. However, enterprises which are governed by the Commercial Companies Law are obliged to appoint one or more licenced auditors. The company's general assembly appoints the auditors, determines their remuneration and holds them responsible for the correctness of information stated in their reports. According to the articles of association, the auditors' reports and the reports of the Board of Directors are sent to the SAI for examination.
The SAI employs modern auditing techniques. Its function is no longer confined to a mere accountancy audit or regularity and compliance audit. The role of the SAI has surpassed the traditional control function and extends to the evaluation of the overall performance of public enterprises.
The SAI comprises the President, Undersecretary, Assistant Undersecretary and sufficient number of technical staff. However, a vice-president and more than one Undersecretary or Assistant Undersecretary may be appointed according to the needs and requirements. Also, the State Audit Bureau employs the required number of non-technical staff of different categories and grades. The organisational structure consists of departments, controllerships, divisions and sections. These are formed, organised and their number and specialisations defined by resolutions issued by the President himself.
The audit of public enterprises continues through the year. It covers all financial transactions carried out by these enterprises.
The coverage and intensity of the audits vary depending on the internal audit systems adopted in each enterprise. Usually reports prepared by the SAI are of the following nature:
The SAI's reports aim at proper accounting by the public enterprises and the safeguarding of public funds. The reports have assisted many authorities as guidance in evolving their future financial policies. The SAI ensures prompt reporting to the public enterprise to enable remedial and timely measures to be taken so that the proper financial statements may be presented. The SAI plays a positive and effective role in highlighting certain defects in laws, by-laws and financial directives.