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Chapter - 26
United Arab Emirates

1.    Introduction

1.1.    With Government Financial Activities continuously expanding, the importance of public Revenues has increased not only as means for financing government activities but also for building General Reserves for government to meet any unforeseen expenses as well as means for checking inflation etc.

1.2.    In U.A.E. government revenues are derived mainly from non-tax receipts because there are no taxes levied on income or on profits, the only taxes levied being those levied on some of the imports and some fees on Public Services as health, Communications etc. The proceeds from these taxes i.e. excise duties represents only 5% of government revenues while the fees represent about 19%. The main item of government revenue is derived from contributions from the member Emirates of the Union.

2.    Scope And Extent Of Government Revenues Audit

2.1.    As stated earlier government revenues in U.A.E. are mainly derived from contributions of the member Emirates of the Union, and as these contributions are subject to fluctuations in Oil Prices, the government has decided to have other secure sources of revenues. Since 1987 these sources of revenue are becoming more and more important and particularly in the last few years when the government issued a number of decisions regarding the said sources of revenue. Government Revenues in U.A.E are classified as follows:

1. Contributions made by member Emirates of the Union in the Annual budget of the Union in accordance with article 127 of U.A.E Constitution.
2. Non-Tax receipts which is the second important source of income and can be classified as follows.

• Receipts involving fees against rendering of services i.e. health services, Police & Justice, immigration etc.
• Receipts from Government property i.e. earnings from investments locally and abroad, and real estate.
• Royalties.
• Profits from corporations wholly or partially owned by government, (iii) Excise duties on imports and Tobacco Tax.

3.    Basic Laws Of Public Revenues

3.1.    The 1971 Constitution of U.A.E. assigned a separate chapter dealing with the financial affairs of the Union. The provisions of article 126 of chapter 8 states:

3.1.1.    "The general revenues of the Union shall consist of the income from the following resources:

• Taxes, fees and duties imposed under a Union law etc.
• Fees and rates received by the Union in return for services provided.
• Contributions made by member Emirates of the Union in the annual budget of the Union in accordance with the article 127 of U.A.E. Constitution.
• Union income from its own properties."

3.2.    Article No. 127 of the Constitution states:

3.2.1.    "The member Emirates of the Union shall contribute Specified proportion of their annual revenues to cover the annual general budget expenditure of the Union, in the manner and on the scale prescribed in the budget law".

3.3.    According to U.A.E. Constitution Union taxes are levied by law while duties and fees cannot be levied except within the limits of the law and in accordance with its provision.

3.4.    Articles No. 3 of Federal Law No 4, 1973 which regulates federal budget states that the budget should show revenue types, revenue estimations as well as basis of estimations. The Act also shows the procedures of collecting revenue, basis of recording them in accounting ledgers and the preparation of schedules for each government unit.

3.5.    According to federal law No. 1 for 1972 revenue administration and its policy formulation rests mainly with the ministry of finance. Accordingly the minister of finance has issued a number of decisions that contained the detailed collecting and recording procedures, and controls over public revenues. The minister of finance's decision No. 71, 1992 has classified public revenues to administration classification and sub- classified them according to type i.e. according to source and nature.

4.    Public Revenues During The Years (1993 -1995)

4.1.    Contributions Of The Member Emirates Of The Union

4.1.1.    As stated earlier, this item represents the main source of revenue. The following table shows the amount of this source of revenue:

*    Exchange rate for different currencies vis-a-vis the US $ as on 31st March, 1997 are indicated in Appendix 1 (Pg.475)

4.1.2.    It is obvious from the above table that though contributions remained almost the same in amount during the years (1993 - 1995), their percentage to total government revenue ranged between 81% in 1993, 77.5% in 1994 and 75% in 1995. This decrease in percentage is due to increase in the other two main sources of revenue.

5.    Non - Tax Receipts

5.1.    These receipts come second in importance after Emirates contributions in financing the Federal budget expenditures. They include, in addition to types of revenue stated earlier, items like pension contributions, proceeds from electricity and water, proceeds from sale of old and obsolete capital assets etc. The following table shows the development of these receipts.

NON - TAX RECEIPTS

5.2.    As can be seen from the above table there is a steady increase in Non-Tax receipts.

6.    Excise Duties

6.1.    So far Excise duties are the only type of taxes imposed in U. A.E. The following table shows the development of this source of revenue.

EXCISE DUTIES DURING 1993 - 1995

7.    Finally The Actual Revenues During The Fiscal Year 1995 Can Be Presented As Follows:

8.    S.A.I's Mandate On Government Revenues

8.1.    According to article No. 136 of U.A.E Constitution, F.ederal law No. 7 for 1976 was issued, establishing the state audit institution (S.A.I) as one of the federal authorities attached to the Federal National Council in its capacity as the legislature in the U.A.E.

8.2.    Law No. 7 gives our S.A.I the right to exercise the different types of audit as shown below:

(A)    In regard to time:
Pre audit, concomitant audit and post audit.

(B) In regard to nature:
Regularity audit, and Performance audit

(C) In regard to scope of audit:
Selective audit & Overall
audit Article No. 10 of S.A.I's law states:

8.3.    "In the field of post audit, the S.A.I shall exercise the following powers.

• To ensure that the administrative authorities have collected the revenues accrued to the State and added them to the related accounts. For this purpose the S.A.I shall scrutinize the documents, sheets and accounts to ensure the sound calculations of such dues, that the collected amounts are the legally accrued and that the financial operations relating to the collection of these accrued amounts and to their entry, have been accomplished regularly and according to the financial and accounting laws, regulations, and rules.

8.4.    Exercise of Powers and Audit Sanctions

8.4.1.    Article 13 of S.A.I's law states:

8.4.1.1.    The S.A.I shall practise its powers as provided in this law by both methods of auditing and inspection. S.A.I can perform inspection on the bodies subject to its audit spontaneously or at the request of the authority concerned.

8.4.1.2.    The audit practised by the S.A.I shall be complete or selective and according to the rules determined by the work plan drawn up by the S.A.I and which shall not be available to the bodies subject to audit.

8.4.1.3.    Also article 14 of S.A.I law states: "the S.A.I is entitled to scrutinize any document, record or papers which the S.A.I deems necessary for its proper performance of audit".

8.5.    Interpretation of Laws & Scrutiny of Decisions

8.5.1.    The S.A.I law gives the S.A.I the right to study and scrutinize various financial and accounting laws, rules and regulations as well as the methods of processing financial operations in order to ensure their soundness, determine the aspects of deficiency and imperfections therein and propose the means it deems necessary to reform and improve them.

8.5.2.    The S.A.I had accomplished this mission successfully. It studied almost all important laws, rules and regulations regarding financial, administrative and accounting aspects in the government (specially in revenues) as well as in public sector enterprises. In this respect we quote here a number of Cabinet resolutions recently approved and a number of recommendations issued by S.A.I in their regard:

8.5.3.    Cabinet resolution No. (457/3) 1994 in regard to increase of labour fees, No. (129/4), (158/4), 1994 in regard of increase of electricity rates in industrial sector and No. (283/7), 1994 in regard of fees of some of the services provided by the Ministry of Interior.

9.    Audit Procedures & Methodologies (Audit Guide)

9.1.    In accordance with S.A.I law No. 7 for 1976, the president of the S.A.I issued decision No. 1 for 1978 as a regulation for organising the process of audit works and lately he issued decision No. 192 for 1988 as standards for S.A.I audit. Moreover our S.A.I is on his way to finalize the Audit Guide.

9.2.    The Guide on revenue audit includes the following:

• Scrutiny of the laws, rules and regulation organizing the revenue process.
• Scrutiny of the financial & accounting systems in the revenue administrations and this includes the study of internal financial controls and internal check systems.
• Checking the three phases of the revenue process i.e. assessment phase, collecting phase and deposit of revenues phase.

10.    Information Technology (It) Audit Techniques

10.1.    Our SATs experience in IT Audit is still limited and in order to enchance it, the SAI has recently in May 1996 established the Central Computer Unit to support the SATs staff to use audit techniques in auditing work. Also by training staff both within and outside the country, with the support of outside expertise such as ASOSAI, and member SAIs of ASOSAI we hope we would be able to accomplish our goal.

11.    Performance Audit Methodoldgies

11.1.    The SAI in U.A.E is aware of the importance of performance audit as means of improving public sector management of resources, and as means of enhancing accountability of the executive branch of the government by providing adequate information to the legislature. Also the SAI's law entitles the SAI to conduct performance auditing and accordingly instructions and directives were issued to be followed by SAI's staff for effective conduct of performance audit, but we have faced various limitations, in particular lack of internal and external requirements for exercising performance auditing. Also we face lack of standards, criteria etc. The SAI is doing its best to overcome these limitations.

12.    Audit Planning

12.1.    The conduct of an effective Revenue Audit requires the objectives, standards and criteria to be set out clearly. This can be attained through applying planning techniques in managing the audit work, specially audit of revenues. Our SAI, since the audit year 1985/1986, has started to apply comprehensive plan system for its audit work. The annual work plan is divided into many subsidiary plans and programs. The plan has general objectives consistent with the objectives of the SAI audit, as well as special objectives relating to the strategies and policies which the SAI intends to adopt in the year of the plan. The annual plan embodies all the stages of the audit work i.e. from the preliminary stage to the reporting stage.

12.2.    The preliminary stage, according to the present revenue audit work plan, includes the examination of the auditee's general policies, internal control system and the critical points etc. Then all the information gathered is analysed and evaluated. The conclusions reached are taken into consideration in the next audit stage i.e. the Revenue Process Audit stage which includes the audit of assessment, collection and accounting phases. The results reached are sometimes discussed with the auditee before preparing the final audit report.

12.3.    Also to improve its methodologies and practices, the SAI reviews, evaluates and refines its methodologies and accordingly issues internal circulars for the use of SATs staff. Also the SAI takes into consideration the approaches taken by other SAIs about new methodologies and adopts them to suit the SATs needs, apart from training provided to its staff.

12.4.    Training of Revenue auditors aims mainly to ensure that they acquire adequate knowledge of fiscal laws and regulations as well as adequate accounting knowledge so that they are able to analyse information rationally. Such capability could be built through constant professional development.

13.    Objectives And Scope Of Revenue Audit

13.1.    According to SAI's law and present Audit Standards, the objectives of Revneue audit can be summarised as follows:

• To examine and evaluate compliance of revenue laws, efficiency of internal control and accounting systems.
• To ensure timely realization of revenue according to existing legislation and that all earned revenues have been duly recorded.
• To ensure that rules relating to assessment, realization and methods of booking are adequate and to suggest improvements.

13.2.    Scope of Audit

13.2.1.    According to SAI's Audit standards, the major issues to be covered by Revenue Audit may be broadly classified as follows:

A.    Assessment Audit

The assessment phase is the most important phase in the Revenue process as it initiates the accruing of revenue. Thus the auditor has to take due care when auditing assessments. The main points to be checked in this connection are:

• Check the related assessment files/documents to ensure that the information presented by revenue payers is complete, accurate and relevant.
• Check the accuracy of the calculations to ensure that the assessed amounts are legally accrued.

B.    Collection's Audit

Ensure that the assessed revenues have been realized in time as delay in realization of revenue encourages indiscipline, probably defalcation and financial contraventions and also increases the of cost administration.

C.    Accounting (revenue entries - records) Audit

Ensure that the administration keeps up-to-date and accurate accounting entries-records i.e. ensure that these records provide complete information about assessed amounts, position of realization etc., as this reflects largely the efficiency of Revenue administration and its internal control system.

14.    Audit Findings & Reporting

14.1.    Audit Findings

14.1.1.    The majority of audit findings are:

• Under and over-collections which are mainly due to insufficient legislative provisions and lack of executive sanctions.
• Violation of laws and regulations.
• Lack of proper attention towards records management and system improvement.
• Errors in calculations and in recording accurate accounts.

14.1.2.    Below are some statistics about audit findings in the year 1995:

• Under-collections: (68) cases (20.2) million Dhs, in (11) ministries.
• Over-collections: (48) cases (8.8) million Dhs, in (7) ministries.
• Violation of law/regulations (168) cases in (21) ministries and federal departments.

14.2.    Audit Reporting

14.2.1.    Reporting is the last stage in the audit process. The results of this process cannot be effective nor have useful impact, unless the finding are presented in a clear and accurate manner in the audit reports and according to the SATs audit standards. The SAI should make sure that reports contain relevant, accurate and reliable information and fair assessment on the execution of the State's General Budget in respect of the Revenue process (assessment, collection and accounting) indicating any weaknesses in the process.

14.2.2.    According to SAIs mandate, the SAI has to submit the initial reports to the executive and the General Report to the legislature and notified to the supreme authorities of the state. The SAI is very keen to make sure that its reports reflect its activities, realize their required objectives and be of maximum benefit and effectiveness.