The Finance Ministry overhauled a decades-old system of government spending control. A new financial oversight law, published in Umm al Qura last week, replaces the ministry’s financial representatives in state institutions.

The new law introduces four standardized control measures for the finance ministry to pick one (or more) from, tailored to each institution’s maturity and financial risk levels:

  • Direct control, where the ministry steps in to manage the institution’s financials;
  • Digital control by integration in FinMin’s central data systems;
  • Report control, with post-spending oversight based on financial performance reports and KPIs;
  • Self control, where the institution takes ownership for the integrity of its own financials.

Digital monitoring is a significant part of the new system, Finance Minister Mohammed Al Jadaan said during the Financial Supervision Forum held yesterday. Data collected from institutions will be analyzed to monitor the allocation of government funds, identify risks early on, and send feedback for the institution to correct the course.

Background: The 60-year-old rep system is not good enough anymore

Financial representative? Every public institution had an on-site representative of the finance ministry under the old system. The reps were responsible for signing off on any and all payment orders, as well as weighing in on who gets awarded government contracts.

The problem? Too much red tape. Pre-approval meant payments to contractors sat in waiting for the rep to manually green light them. Disputes between the rep and the institution over spending also needed to be escalated to the ministry.

Why it matters

The change shifts part (or all) of public finance control from the finance ministry into institutions. Removing the central bureaucratic bottleneck should speed up finalizing spending decisions in more mature ministries and government bodies. The customized approach could also cater to the specific needs of entities needing more help from FinMin, where the one-size-fits-all approach of appointing a financial representative did not serve their needs.

BUT- It’s a big wager on institutional readiness: With a 120-day transition period, institutions will have to race to invest in upgrading internal auditing systems and digital integration to not risk falling behind, including finding the talent that can make sound spending decisions without the ministry’s preapproval.

.. and the net is cast wide: The new law extends to all entities receiving state funding or doing work for the government, or collecting public revenue — a definition which includes a large swath of government and quasi-government institutions.

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