Originally public enterprises in Thailand were confined to trading activities of the state under royal monopoly. After the Second World War, other public enterprises were created for the production of military supplies and for commercial and industrial activities which the private sector was unwilling to undertake because of heavy investment commitments and low rates of return. These enterprises ranged from a simple handicraft retail store to a highly sophisticated oil refinery. Unlike some other countries in the region, Thailand has around 61 public enterprises despite the present government policy of privatization. The public enterprise form has now been adopted for many banks and finance companies, for public utilities such as water, electricity and telecommunications, and for transport systems such as bus companies, railways and the national airline. Public enterprises also include a glass factory, tobacco and cigarette manufacturing plants, and a number of distilleries. Currently there is a tendency to privatise public enterprises which make losses and serve no useful public purpose.
In the early years of development, public enterprises did not contribute significantly to economic or infrastructural development. Activities were more of a trading rather than industrial nature. This imbalance led to the privatisation of some enterprises in the late 1960s. More recently, public enterprises have been extended to the agricultural sector of the Thai economy.
The rationale for establishing public enterprises has undergone marked changes over the last fifty years, and some of the important considerations now are that public enterprises should:
The impact of public enterprises in the Thai economy has become so significant that the Prime Minister set up the National Public Enterprises Committee in 1985 to monitor their activities. This special committee, comprising high-ranking officials from relevant government agencies, is headed by a Deputy Prime Minister. The functions of this committee are to ensure that all public enterprises conform with corporate plans and the national development policy; and to advise on pricing, financial and labour policies including such matters as privatisation.
Public enterprises in Thailand are defined by law as companies or partnerships in which more than 50 per cent of the capital is owned by a branch of the government or by another public enterprise or in aggregate by the government and a number of enterprises.
Statutory authorities are created under individual enabling Acts of Parliament which specify their objectives, functions and activities, as in the case of the Electricity Generating Authority, the State Railways and the National Petroleum Authority. Such bodies can also be established by Royal Decree underthe wider provisions of the Public Enterprises Establishment Act. The Royal Decree setting up a particular body also defines its objectives, functions and scope of operations. Typical examples of this category are the Bangkok Mass Transit Authority, the Glass Organisation and the Public Warehouse Organisation. This category of public authorities enjoys the same legal status as those established by specific Acts of Parliament. A similar procedure to establishment by Royal Decree is by Revolutionary Party Order which can set up authorities under the Proclamation of Revolution legislation. The Rapid Transit Authority of Thailand and the National Housing Authority were set up in this manner.
Government companies are set up underthe Commercial Code of Thailand and the Commercial Bank Act, and operate as limited companies in accordance with the Memorandum and Articles of Association. Included in this category are banks and commercial and industrial ventures such as the Krung Thai Bank, Thai Airways and the North East Jute Mill.
Enterprises can also be established by cabinet resolution, as in the case of the Liquor Distillery Organisation and the Thailand Tobacco Monopoly. As such bodies have no separate legal status, they are conducted more on the lines of departmental enterprises under the jurisdiction of individual supervising ministries which issue regulations governing their functions, operations and control.
In Thailand the Cabinet has overall control of the activities and operations of public enterprises. Although policy matters and final authorisations in areas of the national interest are determined by Cabinet, direct responsibility for the various enterprises rests with the respective Ministers who intervene where necessary in the management of individual enterprises in the event of any breach of government regulations or policies.
The Chief Executive Officer, members of the Boards of Management and senior appointments in a particular enterprise are appointed by the responsible Minister with the consent of Cabinet. The same procedure applies to removals from office. Usually, Board members include government representatives from the Ministry of Finance, Bureau of the Budget, the Ministry of Industry and other relevant Ministries. In all cases the Boards are responsible to the Ministers concerned but, where companies are jointly owned with the government, the Boards are also responsible to the shareholders.
Despite the clear lines of authority and responsibility, the Boards function quite independently of the government. Although the Ministers concerned play the main role in the selection of chief executive and top management, the Boards exercise full control over all other appointments.
Except for senior managerial positions which are usually filled by current and former civil servants and high ranking military officers, public enterprises recruit their staff from the open market. Although such staff are not classified as government employees and are not subject to Public Service regulations, their conditions of service are quite similar to those in the public service except that the basic salaries for equivalent educational qualifications and work experience are generally 20% higher than those in the public service.
As the private sector often presents more attractive prospects in terms of salary and conditions, the leading public enterprises are able to recruit quality personnel whereas those enterprises with low profitability and performance have to make do with less qualified personnel. Fortunately experienced personnel tend to remain in the public enterprise system, which does not restrict the movement of staff between individual enterprises. There are no training institutions catering exclusively for the needs of public enterprises and only a few institutions have been set up for training electrical and petroleum personnel which have suitable programs.
In Thailand public enterprises obtain funding from three sources - own income and internal surpluses, grants and subsidies, and foreign and domestic loans. Except for some of the small bodies, most public enterprises are able to generate sufficient income to meet operating costs. Only in rare cases, such as the Bangkok Mass Transit Authority, is a government subsidy required. In raising revenue public enterprises must have their rates, fees and product prices approved by the government.
Grants and subsidies are given to public enterprises for financing capital projects, stabilising prices, and meeting deficits arising from the high costs of raw materials used in production. The terms of the grants are not usually prescribed as they are given for specific purposes, but some subsidies are given conditionally where they are made by Cabinet resolution.
Public enterprises are allowed to borrow from domestic as well as foreign sources provided that approval of the Ministry of Finance is first obtained. So far there have not been any serious cases where loan obligations have not been met, but in such an event the government may have to accept ultimate liability. Loans by the government to public enterprises are given at preferential rates of interest. Certain loan institutions specify rates of return expected on capital employed but this is not usually the case. Enterprises which are operating profitably are required under prescribed regulations to surrender part of their surplus at specified rates which will not be less than the corporate tax payable. Generally, those bodies which were set up for the purpose of generating income for the state are required to remit higher proportions of their surplus than in the case of service-oriented bodies. Government owned companies pay out dividends as determined by the government. In addition to these payments, the government may also require the remittance of part of any excess cash holdings.
The fate of those bodies which make continuous losses are reviewed by the responsible ministry, but the final decision as to whether they should be rehabilitated or wound up is made by the Cabinet. In the event of the enterprise being wound up, the government assumes responsibility for both its assets and liabilities.
Legally the powers of the responsible Minister or Minister-in-Charge of a public enterprise in Thailand are extensive. He has the authority to direct and control public enterprise activities in general, including policy decisions to:
In contrast, the responsible Minister or Minister-in-Charge seldom intervenes to change operating decisions. These are the prerogative of the Managing Director or equivalent executive who has full authority and responsibility for the operations of the public enterprise. The only exception involves politically sensitive matters, such as public utility and transport pricing decisions, which are usually referred to Cabinet. Less important and routine pricing decisions, however, are made at Board level.
Headed by a Chairman or Managing Director, each public enterprise has a Board of Directors of nine to eleven members and a Chief Executive officer who, collectively, function as a business-policy and decision-making body. The responsible Minister or Minister-in-Charge usually selects the Chairman and most of the directors, subject to Cabinet approval. For large and powerful public enterprises, the Prime Minister or Cabinet may select the directors but, for most
public enterprises, the Minister concerned plays the key role in selecting top management. Other staff are appointed by the public enterprise itself.
The responsible Minister or Minister-in-Charge does not exercise complete financial control over, or make all major financial decisions for, the public enterprise. Generally other agencies of the Government are involved in major financial matters while routine matters are controlled internally by management. However, the responsible Minister must approve annual operating and investment budgets, also all loans - both foreign and domestic - which require government guarantee. A Minister may not direct the payment of funds to a destination nominated by him.
Public enterprises in Thailand operate within a framework of central agency controls. These controls are particularly evident in the area of budgeting and finance, but also extend to the personnel of public enterprises.
The budgeting arrangements of individual public enterprises are subject to central agency control through three instrumentalities:
(1) Bureau of the Budget
The Bureau of the Budget reviews annual operating budgets of profitable public enterprises for information purposes. However those of loss-making public enterprises are analysed for remedial purposes, such as recommending transfers to cover operating losses - but such transfers do not cover all the losses incurred by public enterprises. The Bureau also sets targets for public enterprise remittances to central government, and monitors budget execution.
(2) National Economic and Social Development Board
This Board also reviews the annual operating budgets of public enterprises, but to ensure consistency with the capital budget. The capital budget is then analysed in detail by the Capital Budget Committee which is chaired by the National Economic and Social Development Board. The Board also monitors the investment policies and procedures of public enterprises.
(3) Office of Comptroller General
The Office of Comptroller General monitors budget execution by public enterprises. This Office also determines the amount and timing of their annual remittances, and controls their subsidy disbursements.
In the area of finance, central agency control over public enterprises is exercised through the representation of the Ministry of Finance on almost all Boards. Also involved in central agency controls in the financial area of public enterprises are the:
In the personnel area of public enterprises, central agency control is not as comprehensive and exists in more limited form. The establishment legislation of each public enterprise confers considerable autonomy over its own staff, in matters such as their appointment and dismissal. However conditions of service are controlled externally in the interests of uniformity and equity. For example, pay scales, bonuses and fringe benefits are recommended for Cabinet approval by the Comptroller General's Office in the Ministry of Finance.
Public enterprises in Thailand are not required by the Government to earn a specified rate of return on capital. The only exception is where such a rate is a covenant in loan agreements with foreign lending institutions. Despite this apparent flexibility, the Government has given high priority to improving the profitability of public enterprises, particularly chronic loss-makers. A public enterprise must now meet a number of conditions before receiving a Ministry of Finance guarantee for either domestic or external borrowing. Enterprises are required to finance 25 per cent of new investments from their own resources and must remit at least 30 per cent of profits to the Treasury.
In addition, overdrafts are not permitted to be used to finance new projects, nor may foreign borrowing be used for counterpart funds.
Not all public enterprises are required to pay taxes applicable in the private sector. While public enterprises established under the commercial code (corporate law) pay corporate income and sales taxes, the remaining ones which were created by Act or Decree or Cabinet Resolution - including the fiscal monopolies - are tax exempt. However they are expected to pay dividends in lieu of income taxes. A recent Cabinet Resolution requires all such companies to pay at least 30 per cent of their profits as dividends. Some company statutes specify a much higher dividend, e.g. 80 per cent in the case of the Tobacco Monopoly. Nevertheless the actual payment is often quite different, because public enterprises are allowed to retain profits for approved investment programmes.
In the case of these tax-exempt public enterprises, the Bureau of the Budget sets five-year targets for dividend payments, which may allow the enterprise to use a higher percentage of its profits than the statutory dividend would permit to cover investments. At the end of the financial year the enterprise can request the Office of the Comptroller General to reduce further or delay the dividend payment set by the Bureau of the Budget, and changes are often made.
Dividend payments should best be seen as a form of tax revenue, and the deferment or reduction of dividend payments as an equity investment of (potential) tax money in support of public enterprise development projects.
In addition to fiscal considerations, the government intervenes in the area of public enterprise pricing policies. Price controls are imposed, for social and political reasons, in enterprises providing transport services and public utilities. Accordingly the main ones affected by price control are the State Railway of Thailand, Bangkok Mass Transit Authority, Provincial Water Works Authority, Metropolitan Water Works Authority, and Telephone Organisation of Thailand. The prices charged by these public enterprises are regarded as the most sensitive in view of public protests against past increases.
Subsidies are granted to some loss-making enterprises providing public utilities in order to cover operating losses. Such subsidies which are recommended by the Bureau of the Budget after an examination of the operating budgets of the public enterprises involved, are not set so as to compensate the enterprises for the full cost of meeting the government's social goals (e.g. operating an uneconomic railway line) but rather to help them break even.
Further in the area of pricing policy, public enterprises do not generally provide free or discounted services to central government, the services provided being charged at the same rates as those to the public. There is an exception, however, in the case of air travel where Thai Airways International Ltd. provides discounted services.
Each public enterprise in Thailand has a board of directors, with the chairman and individual directors being appointed by the parent ministry or its Minister, subject to Cabinet approval. As noted, for large and powerful public enterprises, the Prime Minister or Cabinet may nominate directors; but for most public enterprises, the Minister involved plays the major role in selecting top management. By law, the Ministry of Finance is represented on almost all Boards and, by the public enterprise's own statute or tradition, other agencies or military branches are also represented. Board members usually serve a two or three-year term, while individual civil servants may serve on a maximum of three boards. The remuneration of members is not fixed by Boards, but is regulated by the Ministry of Finance.
The board of directors is not independent of the government in its decisions, and the actual operations of public enterprise are not completely free from political interference. In some cases the intervention of parent ministries in monitoring public enterprises has been dominated by political considerations.
All large public enterprises in Thailand have management information systems which are computerised in most cases. Computerisation facilitates the provision of regular reports. The performance of individual public enterprises is monitored by the board of directors through monthly reports. Public enterprises are also required to submit annual performance reports to the responsible Ministry and other controlling agencies. These reports may be discussed by the responsible Minister with the top management of individual enterprises. The Minister may also issue directions on specific issues as a result of these discussions. If necessary, the performance reports are presented to Cabinet for discussion. In addition, these reports enable the Ministry concerned to be kept informed on important matters through its representative on the Board.
Public enterprises in Thailand are required to follow generally accepted accounting principles prescribed by the Association of Certified Public Accountants. The Ministry of Finance also prescribes accounting regulations wherever necessary, and approves the form of the financial statements of public enterprises.
The Parliament of Thailand exercises a number of controls, which vary in their effectiveness, over public enterprises. As an integral part of its prerogative over all legislation, the Parliament controls the setting up of public enterprises through establishment or enabling legislation.
Although the Parliament's control over public enterprises may, to a certain extent, be indirect and thus not completely effective, the major role in controlling public enterprises is played by the Government. The Cabinet is the dominant control body, with policy matters and crucial problems related to the operations of public enterprises being settled by appropriate resolutions of Cabinet. As noted previously, additional oversight of the operations of public enterprises is provided by their parent ministries, five central agencies (Bureau of the Budget, National Economic and Social Development Board, Fiscal Policy Office, Office of Comptroller General, and Office of Auditor General) and special committees set up to supervise certain aspects of public enterprise activities.
The legislature controls borrowings by public enterprises through the passing of laws prescribing restrictions and specifying ceilings on borrowings. Currently there are five such laws, e.g. Act Authorising the Ministry of Finance to Raise Loans from Abroad. Each of the five laws imposes a different constraint on the public investment programme of individual enterprises.
In addition to approving the national policy shaped by Cabinet, the legislature also controls finance, mainly through annual budget appropriations but it does not review budgetary bids. However, the Parliament has the opportunity to scrutinise only those public enterprises which request such appropriations. In this respect the annual report of Auditor General, summarising the activities and highlighting the deficiencies of public enterprises, is taken up for consideration by the Parliament.
The legislature also maintains accountability of public enterprises through the activities of parliamentary committees set up to investigate particular aspects (including expenditure) of public enterprises. Accordingly the Minister concerned and/or management may have to appear before the members of such a committee and answer their questions, which can be probing and wide-ranging. Investigations by these committees - or, for that matter, the legislature itself - arising from consideration of the financial and other affairs of public enterprises are open to the public.
Under the provisions of the State Audit Act B.E. 2522 (1979) all public enterprises in Thailand, including subsidiary companies owned or controlled by the government, are subject to audit by the Auditor-General of Thailand, as the Supreme Audit Institution (SAI). In addition, the Regulation on Accounting and Finance for Public Enterprises (1977) provides that the financial statements of public enterprises must be audited annually by the SAI. In the case of some public enterprises, their own establishment statutes provide for the appointment of the SAI as auditor.
The SAI acts as neither consultant nor adviser to the management of public enterprises. Although not empowered to correct managerial decisions, the SAI may give advice to individual managements - usually through management letters - on improving systems and procedures, strengthening internal control and remedying other material matters arising from the examination of the annual financial statements. However, where shortcomings are found during the course of the audit, the SAI is required to inform that particular public enterprise and the chairman of its board of directors, and advise ways for the immediate correction of such shortcomings where possible. A summary of this advice is included in the annual report of the SAI which is submitted to thej'arliament through the Prime Minister. Additionally, the audit report on each public enterprise, with accompanying audited financial statements, are submitted - for their respective considerations - to the particular public enterprise concerned, Comptroller General's Department, Bureau of the Budget, and National Economic and Social Development Board.
In the absence of any formal body (such as a Parliamentary Accounts Committee) which could, potentially, review the financial activities of public enterprises and investigate allegations of waste, inefficiency and misappropriation, additional responsibilities for financial surveillance are placed on the Government itself. As the responsible Minister and ultimately the members of Cabinet are usually in a strategic position to examine the financial and other aspects of the administration of public enterprises, corrective action is likely to emanate directly from the Government to avoid the matters in question being ventilated publicly in parliamentary debate.
Control over subsidiary government companies is also achieved through the public sector audit function. Accordingly subsidiary companies owned or controlled by the Government are subject to audit by the SAI. This auditing mandate is consistent with the legal requirement that all public enterprises are required to be audited by the Auditor General.
The SAI undertakes three types of audits for public enterprises:
(1) Financial and Compliance Audits
Under the provisions of the State Audit Act, the annual financial statements of public enterprises are subject to financial and compliance auditing. The SAI checks on probity in the use of public funds and adherence to regulations in order to express an opinion on the fairness of the financial statements. In conducting this type of audit, the SAI uses generally accepted auditing standards, supplemented where necessary by the SAI's own auditing standards which were issued formally in February 1984.
(2) Investigative Audits
Investigative auditing of public enterprises by the SAI under the State Audit Act covers systematic enquiries into alleged fraud, financial abuse and related complaints involving the audited agencies. Also included in this category is the audit of construction and procurement contracts, which have increased substantially in value in recent years.
(3) Performance Audits
The State Audit Act authorises the SAI to extend the scope of the audit beyond purely financial criteria to assessments of economy, efficiency and effectiveness. Accordingly the SAI examines the disbursement of cash and use of other assets in order to form an opinion on whether these aspects are in accordance with the objectives, and meet relevant performance measures, of the public enterprise concerned.
Since 1982 several performance audits have been conducted of various projects undertaken by public enterprises. Prominent among these have been the rural electricity project of the Provincial Electricity Authority, the expressway construction project of the Expressway and Rapid Transit Authority of Thailand, and the slum relocation project of the National Housing Authority.
The performance audits of the SAI have been closely tied in with budgetary criteria since the adoption of programme budgeting in place of line-item budgeting in 1982. Public enterprises, in common with all governmental agencies in Thailand, are now required to specify their budgetary spending by programmes, and corresponding projects and activities. Programme-oriented performance auditing gives a broader picture of the overall operations of the public enterprise being audited.
The general objectives of the SAI in conducting various types of audits are two-fold:
In order to achieve these objectives, the scope of the audits accordingly extends to all relevant aspects of the revenue, expenditure, assets and liabilities of each public enterprise. A particular audit may include other matters considered appropriate by the SAI in the conduct of that audit.
For the last ten years it has been mandatory for public enterprises in Thailand to initiate and implement an internal audit function. There is a general awareness - particularly by the managements of large public enterprises - that viable and independent internal auditing is necessary for the evaluation of the adequacy and effectiveness of the wider internal control function. Additionally, where a development project is administered through a public enterprise and financed externally by foreign loan, the relevant loan agreement usually specifies the establishment of an internal auditing unit as a condition of the loan.
Internal audits of the public enterprises are no longer confined to financial and compliance matters. In common with external auditing, there has been a recent extension of performance measures to include the internal audit function.
The effectiveness of the internal audit function of public enterprises "is evaluated by the SAI during the course of the audit. In those cases where there are significant deficiencies in this function, these weaknesses are specifically included by the SAI in his annual report to the Parliament.
With reference to adifferent but related development in modern auditing, the establishment of audit committees in public enterprises to advise on and monitor auditing procedures and practices, and generally oversee the auditing function, is not common. However, as mentioned previously, the SAI may give advice through management letters on various matters - including internal auditing procedures - arising from the audit.
The SAI does not have the power to engage commercial auditors on contract to audit public enterprises or, for that matter, any other entity. Similarly the management of individual enterprises is not empowered to appoint a commercial auditor rather than be subject to audit by the SAI.
Although the SAI does not have specific power to engage commercial auditors on contract, there is no law or regulation prohibiting such engagements.
Accordingly there have been some instances of commercial auditors being engaged to carry out the external audit of particular public enterprises. A few years ago, in the special case of government-owned finance companies, the SAI considered adopting a supervisory auditing role whereby selected commercial auditing firms would carry out the required audits on contract, subject to performance review by the SAI. Eventually, by agreement with the Ministry of Finance, it was agreed that these government-owned finance companies be exempted from SAI audit on the grounds that the government's intention in holding shares in such companies was only temporary and corrective in nature, and not a permanent investment of public funds. Apart from the special case of government-owned finance companies, commercial auditors are not involved in the audit of public enterprises which, by law, are required to have the SAI appointed as auditor. However there have been occasions when commercial auditing firms have been engaged to set up or review the internal audit function within a particular public enterprise.
The principal audit methodology employed for public enterprises in Thailand by the SAI is systems-based. During the audit of individual public enterprises, the SAI uses tests of the accounting records based on the degree of reliance placed on the system of internal control and the effectiveness of the internal auditing function. Concurrently, the SAI uses compliance testing by sample to fulfil the legal obligation to report all cases of noncompliance with applicable laws and regulations.
The specific techniques used in the audit of public enterprises include:
The audit of public enterprises by the SAI is conducted through a special staffing group, viz. the Government Enterprises and Funds Audit Division, which is the largest operating unit of the SAI. Permanent audit staff in this division are assisted by temporary staff recruited specifically for the audit of public enterprises.
The quality of staff engaged in the audit of public enterprises is a problem. Although an effort is made to ensure that the best available staff are employed in this area, only 70% of the staff are university graduates in an appropriate discipline. The remainder have only vocational or commercial school backgrounds. However in-house training is provided for new staff and periodically to others by more senior staff members and guest speakers. Further, some staff attend local computer and other relevant courses each year, while others travel overseas for training with various audit offices. In addition to the auditing skills acquired through formal education and training, staff engaged in the audit of public enterprises are guided by the Auditing Manual issued by the SAI.
The statutory requirement to audit and report on the financial statements of public enterprises is an annual event. Normally audits begin when draft financial statements are received by the SAI. In the case of large public enterprises, however, audits are conducted throughout the year in order that all audits are completed with the statutory period of 45 days after the draft financial statements are received.
In addition to the annual audit, performance audits are conducted of selected public enterprises at the discretion of the SAI or - in a few instances -at the request of Cabinet. Audit reports on performance audits are issued separately from those on the financial statements and are submitted to management or Cabinet, as the case may be, for corrective action where necessary.
The annual report on the financial statements of each public enterprise by the SAI is addressed to the Board of Directors of the public enterprise concerned. Highlights of individual reports are included in the annual report of the SAI to the Parliament.
Although there is no time limit placed on the submission of annual reports of public enterprises by the government or legislature, all audits of public enterprises - as mentioned above - must be completed within 45 days of the draft financial statements being received. These statements must be given to the SAI for audit not later than 120 days after the public enterprise has closed its accounts or within the period specified by its establishment legislation.
The SAI follows up audit findings to ensure that the managements of public enterprises take corrective action where necessary. Individual public enterprises are required to inform the SAI of such action within 60 days after receiving the audit report.
Audit findings and reports of public enterprises are also subject to parliamentary scrutiny and examination. Questions on any aspect of these findings and any matter mentioned in reports may be asked in the legislature.