Tuesday, May 31, 2011

Emerging Signs of Change to Oman’s Audit Law?

Recently, Royal Decree No. 27/2011 amended the name of the ‘State Audit Institution’ to be titled henceforth the ‘State Financial and Administrative Audit Institution’ (“SFAAI”). While the true significance of this amendment is still emerging – will this merely be a name change, or is it a sign of more fundamental changes to come? – now is an opportune time to reflect on the existing state audit law, which reinforced the independence and widened the audit mandate of what is now called the SFAAI.

The State Audit Law issued by Royal Decree No. 55/2000 (the “Law”) decreed the financial and administrative autonomy of the SFAAI, bifurcating it from the Diwan of the Royal Court. The stated objectives of the institution, which was established to audit state public funds and monitor the performance of entities under its control, are as follows:

• to secure public funds and provide a framework for the efficient management of the funds;
• to make internal financial controls conform with applicable financial regulations;
• to expose any financial irregularities in state organizations that fall under the SFAAI’s purview;
• to highlight intrinsic weaknesses in the financial system and to propose remedies to guard against these weaknesses; and
• to audit entities subject to the Law and to ensure that public funds are economically and efficiently employed.

The Chairman and the Vice Chairman of SFAAI are appointed by a Royal Decree. The Chairman, in turn, appoints other members of the institution. In discharging its functions, the SFAAI is authorized to seek external professional assistance where required, as its state audit functions have to be conducted in accordance with internationally accepted standards. The SFAAI must convey audit reports identifying any breaches of financial regulations to the relevant entities along with recommendations for remedial measures. The Chairman of the SFAAI also must submit a summarized audit report to HM Sultan Qaboos, highlighting any failures of the relevant entities to implement the SFAAI’s recommendations.

The SFAAI also conducts special audits at the specific request of the government – for example, special audits of government-controlled companies in the oil and gas sector or of pivotal financial institutions or government socio-economic programmes. The government and other entities that are subject to state audit by the SFAAI are as follows:
• all Ministries and government agencies that constitute the Administrative Apparatus of the State;
• all companies in which the government controls 51% or more of the shares;
• government pension funds;
• public authorities and other bodies which receive financial grants from the government or in which the government owns shares; and
• publicly or privately owned companies which have been granted concessions by the government for a public utility or for exploiting the country’s natural resources.

As the government’s financial watchdog, the SFAAI is empowered to identify systemic weaknesses and to take remedial steps to address them, rather than narrowly restricting its focus to irregularities in individual transactions. The Royal Decree changing its name could presage a further expansion of the SFAAI’s administrative mandate beyond its present financial functions. We shall watch with interest for further developments in this field.