The development of public enterprises in Jordan reflects the influence of national planning in an economy which combines both private and public sector activity. Most of the essential services are operated by the government through public corporations.
Public corporations are established by Acts of Parliament subject to the assent of the Crown in each case. Such corporations are governed by their own legislation, with the Boards of Directors functioning as autonomous bodies. Although financially independent, the liabilities of corporations are normally guaranteed by the government.
Apart from public corporations established for particular purposes, the government may hold shares in private sector companies, thus extending its participation in the economy. The government exercises control over these companies by:
In Jordan, a departmental undertaking is organisationally similar to a government department. As an integral part of the government administration, it is subject to all public service rules and regulations. However, a departmental undertaking of this nature is a commercial entity with its own budget, having greater operating autonomy and flexibility than is the case with mainstream government departments. However, since the budget of such an undertaking is dependent on funding from its parent ministry, the undertaking is also subject to the budget law. The organisational form of the departmental undertaking is particularly suitable for enterprises which are largely concerned with providing public services and where the profit motive is not of paramount importance, as
in the case of the 24 departmental enterprises including the Natural Resources Authority, Jordan Valley Authority, Jordan Geographic Center, Special Communication Commission, Civil Consumptive Corporation, Telecommunication Corporation, ALIA (the Royal Jordanian Airlines), and the Jordan Co-operative Organisation.
Statutory authorities, such as the Central Bank of Jordan and Cities and Villages Development Bank, Retirement Fund, Amman Financial Market, are established by specific laws which define the structure and the role of individual authorities.
Some public enterprises are incorporated as limited companies where the government owns part or all of the stock. Such enterprises operate in the same way as any other company and in the process, enjoy far greater autonomy and flexibility than other forms of public enterprise. Judging from their range of activities and economic roles, government-owned or controlled companies are nationally significant public enterprises. Their activities include the exploitation of natural resources, agricultural and industrial development, tourism, public services, mining, such as those carried out by the Jordan Cement Factories, Jordan Phosphate Mines Co., Arab Potash Co., and the Public Mining Company.
The management and administration of a public corporation or government company is vested in a Board of Directors. The Boards generally consist of a full-time chairman cum-managing director, or only a full-time managing or functional director, part-time government representatives and part-time members representing outside interests. These Boards are headed by the Prime Minister, or a Minister or any high ranking official.
The appointment of Chairman of the Board is made by:
All appointments to the Board of government-owned or controlled companies or public corporations, are made by the government on the basis of qualifications and experience, taking into account any special requirements of the office. Where there is an element of outside participation in the share capital, some appointments are made by these interests.
While the functions and responsibilities of the Board are extensive, policy-making is guided by considerations of the public interest. However, policy-making has two aspects which must be clearly distinguished. One aspect of policy is 'what is to be done' and the other is 'how it is to be done'. The policy in regard to 'what' is determined by the government. Once the objective is given to the corporation or the enterprise, then 'how' it is to be achieved is a matter primarily for the policy-making function of the Board of Directors.
The personnel of departmental undertakings and public corporations in Jordan are recruited in accordance with the civil service by-laws and under specific by-laws and regulations. In contrast, government-owned companies recruit staff from the open market in keeping with company policy and procedures.
Several institutions and agencies make a contribution to administrative development in Jordan either directly or indirectly. The Institute of Public Administration has a substantial role in training personnel for the government and other public institutions in addition to conducting studies and consulting services for public agencies.
In Jordan, there is a wide variety of financial resources and revenues available for public corporations and government companies. These resources vary in their type, size and stability according to enterprise nature, importance, affiliation and political and economic power. The following are among the principal sources of revenue and financing of a typical public enterprise:
Investment and participation in economic and commercial projects are other major areas of public enterprise activity.
Public enterprises in Jordan adhere to the generally accepted principle of the responsible Minister intervening as little as possible in the daily operations of the enterprise, but having the power to direct compliance with government policies affecting the national interest as appropriate. This power of the Minister •is exercised subject to the executive authority of the King, Crown Prince, Prime Minister and Council of Ministers.
The responsible Minister also has the power to appoint and remove members of the Board of Directors of a public corporations and government companies. Additionally, the Minister may issue general policy directives and exercise over-riding power over the financial affairs of the enterprise.
Government control is exercised through its participation in enterprise ownership and management. The Board of Directors is, subject to ministerial control as outlined in 2.1 above, the highest authority in the enterprise. Some Board members are government officials from the particular ministry concerned. The Board of Directors of the enterprise is the authority responsible for crucial financial and managerial decisions. Therefore, because of the way in which the Board of Directors is constituted, a degree of government control over the enterprise is maintained. In practice, the degree of control depends on the nature and importance of the enterprise, the percentage of government ownership and extent of its participation in the general management and financing of the enterprise
With the exception of departmental undertakings, public enterprises in Jordan have their own finances separate from the national budget, with almost complete autonomy in the management of these funds. They also enjoy substantial administrative autonomy, but the government lays down general policy. The day-to-day administration is the exclusive responsibility of Boards of Directors and the General Director of each corporation or government company.
The Board of Directors meet at least once each month to discuss issues of importance. As the Board has the ultimate responsibility for management, the powers or functions of the Board, in general, are:
As already mentioned, public enterprises in Jordan enjoy a reasonable degree of financial independence. They operate their individual accounting systems, records, internal auditing and other financial procedures. Generally, public enterprises follow commonly accepted financial procedures. Care is taken to appoint qualified and experienced accounting personnel.
The financial year usually begins by 1 January and ends by 31 December of every year. Final accounts and financial statements are prepared by the end of every financial year so as to be reported to the Board of Directors.
Departmental undertakings operating within the broad framework of government departments follow the accounting systems used by the parent department. The accounts for each such enterprise are maintained on a modified cash basis, where revenues are recorded when actually received and expenditures recorded when incurred or accrued.
Full accrual accounting practices are used in public corporations and government companies. The form of the financial statements of such public enterprises follow commercial practice and is not formally approved by the Supreme Audit Institution of Jordan (SAI) or by any other external authority, although the SAI may be consulted in this regard.
The budget of departmental undertakings is subject to the budget law.
For other forms of public enterprise, a unified budget proposal for the whole enterprise must be prepared and submitted to the Board of Directors for approval. Preparation of the annual budget and final accounts is carried out by financial management staff. All departments of the enterprise sections and units prepare their proposals for expected expenditures and revenues within a specific timetable and consistent with defined procedures. Government approval for enterprise budgets is sometimes required. Once the annual budget is approve'd, it becomes a law which must be precisely implemented.
The parliamentary control over public corporations is co-terminous with the ministerial control. The Minister is answerable to the parliament for all those matters in which he exercises control or in which he gives directions to the corporation.
Parliamentary control can also be exercised through legislation (Corporation Act), amd through the Parliamentary Committee on Public Enterprises. Additionally, control is exercised through parliamentary discussion of annual reports of corporations and in the debates on the budget.
As the Supreme Audit Institution, the President of the Jordan Audit Bureau is responsible for the external audit of most public corporations. The remaining public
enterprises, with the exception of departmental undertakings, are free to choose their external auditor. Accordingly, some enterprises appoint an auditor from the private sector, while others use the services of the Audit Bureau.
In general, service-oriented corporations (owned and predominantly managed by the government) are subject to the rigorous auditing by the SAI. In contrast, the Board of Directors of profit-oriented manufacturing enterprises (such as those in the cement, potash and phosphate industries) may select their own private auditor who reports to the Board.
Subject to the exceptions already noted, the SAI is required to audit all public enterprises. This audit also extends to all institutions subsidised by the government or for which the government guarantees a minimum level of profit.
In addition to the above auditing activities, the SAI has a consultative role. He gives opinions on the drafting of financial legislation and in the process comments on issues submitted by the various executive bodies. He also reviews special problems as occur in particular cases.
The SAI carries out a post-audit as a general basis and a pre-audit in particular situations. The SAI undertakes a pre-audit of tenders, contracts and financial obligations exceeding specific monetary amounts. Additionally, post-audits ensure legislative compliance and the detection of errors and inaccuracies.
The kind of audits undertaken by the SAI are mainly in the nature of financial compliance. At present, audits to evaluate performance, effectiveness and efficiency are not carried out.
By law, the SAI may investigate all financial violations such as misappropriation, fraud and theft. This ensures that appropriate disciplinary measures are taken against the persons responsible for such violations.
The general objectives of the audit of all public enterprises by the SAI are to safeguard public property and to ensure that proper financial and managerial standards are observed. In order to achieve these objectives, the scope of the financial audits conducted by the SAI is relatively wide.
The scope and extent of audits of public enterprises conducted by the SAI cover the following:
There is no statutory requirement for public enterprises in Jordan to have an internal audit function. Some enterprises have, however, established such a function with variable results. Generally, the internal audit function of public enterprises has proved ineffective, as evidenced by adverse reports of the SAI. In some cases, commercial auditors are engaged to perform the internal audit function.
The SAI does not have the power to engage commercial auditors on contract. However, those bodies which are authorised to appoint commercial auditors are not required to consult the SAI concerning that appointment.
The basic audit methodology employed is transaction-based involving certain sampling procedures. In carrying out attest or financial audits auditing standards set by the SAI are followed.
Audits of public enterprises are carried out by branches of the SAI in major cities under centralised control and direction. Specific audit guidelines accompanied by comprehensive audit programs are issued by the SAI for the audit of public enterprises.
Specially trained and qualified staff are engaged in the audit of public enterprises. As audit staff are recruited from various disciplines and are not necessarily qualified accountants, the SAI provides internal training programs in accounting and auditing as appropriate.
The SAI is required to audit and report on the annual financial statements annually. In the case of the departmental undertakings, audit is conducted progressively throughout the year and after the preparation of the financial statements. The timing and frequency of audits of public enterprises is as determined by the SAI.
The annual report of the SAI presents a general evaluation of the accounts audited for the preceding fiscal year. Usually, these reports contain remarks and comments which the SAI considers important. Other special reports may be submitted throughout the year at any time or on any subject on the SAI's own initiative or at the request of legislatural authorities. The SAI's reports are submitted to each of legislatural authorities, Boards of Directors, to the Head of State, and to the Minister of Finance as appropriate.
The audit findings and reports of the SAI on public enterprises are used by the ministries concerned. Each enterprise is required to scrutinise the detailed report and to furnish a response to the SAI indicating the action taken on each of the matters raised. All parties subject to the Bureau's supervision are required to reply to any query addressed to them within specified periods.
The audit reports of the SAI are examined by the financial committee of the parliament at its discretion and may conduct a hearing into the reports tabled. At such hearings, witnesses are called from the management of the particular enterprise, and the Ministry concerned. Where necessary the parliamentary committee makes appropriate recommendations.
Facing mounting difficulties and obstacles in performing its duties in the proper manner, the Audit Bureau, in a report to the Prime Minister, has stressed the difficulties it has experienced and has suggested remedies in the following problem areas:
In response to these difficulties and recommendations, the Prime Minister issued the following instructions: