1.1 The State of Kuwait spends large sums of money on construction projects every year with the objective of raising the standard of living of its citizens. Public expenditure on construction is a result of comprehensive planning and prioritisation of projects to ensure social, economic and cultural progress.
1.2. As a result, the concept of control over expenditure on construction projects is no longer limited to merely verifying the correctness of the accounting procedures. It is also necessary to evaluate the project from the planning stage and ascertain that the project is executed as planned and is achieving its stated goals. This approach is best suited to securing effective control over public funds and ensuring correctness of public expenditure.
1.3. The present examination is divided into two parts. The first part deals with construction projects, their definition, classification, types, the bodies responsible for the execution, the stages they pass through, the oversight of the State Audit Bureau and the reports prepared on these projects. The second chapter deals with public projects, their definition, goals, types and the oversight exercised by the State Audit Bureau of Kuwait.
Construction projects are the projects undertaken by the state and scheduled at the fourth chapter of the public budget. They are classified according to the ministries responsible for their implementation. Construction projects are of two types:
The construction projects pass through the following three stages:
This is performed by the Ministry of Planning. It involves studying the construction projects, evaluating them and preparing the plan for economic and social development, working with the Ministry of Finance to prepare the budget for construction projects under the fourth chapter of the state public budget and following up on execution of construction projects from the technical aspect and to approve transfers among their allocations.
The bodies responsible for carrying out the construction projects are the Ministry of Public Works, Ministry of Electricity and Water, Ministry of Communications, Ministry of Information, Civil Aviation Directorate, Public Authority for Housing and Kuwait Municipality.
This involves examining and testing the internal control systems, financial records, accounting data recorded in the books and records and financial lists to verify the correctness of execution of the construction projects according to the plan, the extent to which the allocations made in budget were adhered to and whether the execution of these projects has resulted in the achievement of the goals for which these allocations were made.
The ministries and government directorates are not authorised to ask contractors to undertake any of the construction projects without a public tender via the Central Tenders Committee. This committee issues the tender announcement in the government gazette at the request of the government body concerned. It receives the offers presented, examines them and awards the tender to the best offer from the standpoint of adherence to the prescribed specifications and the correct price. The committee conveys its decision to the government body and after informing the successful tenderer, releases the warranties of the other contractors who did not win the tender. It is permissible for the public tender to be limited to certain eligible contractors as per a list prepared by the government body concerned and certified by the Central Tenders Committee. The committee may also allow the government body to undertake practice works if found necessary.
In addition to post-audit of the construction projects, the State Audit Bureau undertakes a pre-audit of contracts and commitments, if the contract value is one hundred thousand Kuwaiti Dinars or more. The subsequent paragraphs describe the role of the State Audit Bureau at various stages of the construction projects.
The State Audit Bureau through its Engineering Department undertakes its prior control over the construction projects by its consulting engineers from the technical point of view and its compliance with technical specifications and standards required by the projects.
As noted above, Article No. (13) of the State Audit Bureau establishing Act No. (30/64) empowers the State Audit Bureau to exercise prior control over construction projects if the contract value is one hundred thousand Kuwaiti Dinars or more. This is aimed at obtaining compliance with contractual procedures and preventing expenditure which may be more than what is due and cannot be recovered subsequently. The contract value is defined as the total value of the construction project, calculated according to the lowest prices offered. However, the splitting of contracts to avoid prior scrutiny by the State Audit Bureau is not permitted. The State Audit Bureau also has to verify compliance with other applicable acts and rules before allowing the body to finalise the contract. These include :
At this stage, the State Audit Bureau auditor concerns himself with verifying that the ministries responsible for the execution of the construction projects comply with the relevant financial laws and regulations and that they adhere to the technical terms and conditions of the contract. In general, the auditor must ensure the following:
According to the third paragraph of Article No (9) of Act No. (30/64), the State Audit Bureau Auditor must ensure that amounts from the stated allocations of the construction projects were spent for the purposes for which they were allocated and that no works are executed without corresponding allocations in the budget. The State Audit Bureau auditor also verifies that the expenditure incurred on the construction projects was in accordance with the terms and conditions of the contract concluded with the contractors, that the expenditure orders were issued correctly by the competent authority and are accompanied by supporting documents and extracts and that the expenditure records were maintained as prescribed by financial and accounting regulations and public budget laws. Further, the auditor makes sure that the public bodies involved followed the Ministry of Finance Circular No. 15/78 while performing transfers of allocations and that:
The role of the State Audit Bureau at this stage involves reviewing the final accounts prepared by the body responsible for execution when the project is handed over by the contractor. On the financial side, the auditor reviews the total amounts spent and compares them to the prepared extracts concerning the completed works. On the technical side, the State Audit Bureau engineer examines the technical reports attached to the final account prepared by the technicians who had supervised the project execution to see that the works were completed according to the required specifications. Also, the State Audit Bureau auditor makes sure that the expended amounts were paid against completed works and were deducted from the stated financial allocations of the project and that they do not exceed these allocations. He also checks that the works were completed during the stated period and carried out according to the technical specifications, measurements of materials, wages and prices mentioned in the contract. The State Audit Bureau auditor while undertaking this review depends on the internal control exercised by the technicians of the implementing bodies and the technical supervision offices and the technical reports prepared by them and attached to the extracts and final account of the project.
Article No. (31) of the Act No. (30/64) prescribes that the State Audit Bureau is to report the comments resulting from the inspection, checking and review to the bodies subject to its financial control. These bodies are required to send their reply to these comments to the State Audit Bureau within one month. The reports concerning the audit of construction projects are of two types, the first relating to the prior control results and the second relating to the control exercised during project execution and after its completion.
This report includes all comments resulting from the State Audit Bureau's examination of the financial, accounting and technical works of the construction projects where the replies of the project executing bodies are not found to be satisfactory.
Article No. (22) of the Act No. (30/64) allows the President of the State Audit Bureau to present other reports during the year concerning matters he finds important and worthy of immediate discussion.
Public projects arise when the government undertakes commercial projects of public utility, which the private sector does not wish to execute because of the major capital investment required or low returns or where the government wishes to supervise these projects in the public interest. A public project is a commercial project with a distinct legal identity, either owned wholly by the state or with state participation in its ownership. It is controlled differently from government bodies, with control being exercised either by an existing government organisation or an independent organisation established specifically for the purpose.
7.1. Projects Fully Owned by the State
7.2. Projects with State Participation in Capital, Including Kuwaiti Hostels Company and Kuwait Middle East Bank.
7.3. Projects with No State Participation in Capital but Subject to Its Control
9.1. The State Audit Bureau exercises its power of control over public projects in terms of Article No. (23) of its establishing act which gives it the authority to examine and revise the accounts of each company or establishment in which the state or any public law persons has a share in its capital of not less than 50% or in which the state guarantees a minimum level of profit, as also companies licensed to use or direct a public utility or which are given the privilege of using any of the natural resources of the state.
9.2. The State Audit Bureau Act also mentions the role of the Bureau in exercising control over these public projects. This role includes detection of fraud and breach of financial rules and regulations, the study of their causes and suggested methods to avoid their recurrence. Further, Article No. (81) of the Act No. (30/64) empowers the State Audit Bureau to examine the trading and profit and loss accounts and general budget of public organisations and establishments and all other public projects and their subsidiaries involved in commercial activities. These examinational are performed according to generally accepted commercial accounting principles. The legislation does not place restrictions on the State Audit Bureau in the examination of commercial public projects. Instead, the broad approach involves following generally accepted principles of commercial accounting.
9.3. The State Audit Bureau includes comments from the examination of trading and profit and loss accounts, general budget, audit reports and Board of Directors' reports in the Bureau's report on public projects. The President of the Bureau must report these comments to the bodies concerned at least thirty days before the General Assembly Meeting and the Board of Directors must present these comments to the General Assembly Meeting.
In Kuwait, accounting principles and systems will keep changing in line with improvements in technology in project implementation and development. Auditors of the State Audit Bureau cannot afford to remain content with the existing level of knowledge and skills. They must remain receptive to new ideas and continue to upgrade the knowledge base of audit skills and techniques. The State Audit Bureau of Kuwait aims to achieve these objectives by providing training courses and seminars and exchanging experience and knowledge in the vocational field of auditing.