Changing NAOF: We want to support reforms by providing timely information

The new strategy of the National Audit Office will shift our focus on phenomenon-based activities. This means that we will no longer review our operations through the different audit types or monitoring functions but from the perspective of social and economic phenomena. Our work will be harnessed to support different phenomenon-based areas. In this blog series, we discuss the changes occurring in the audit operations of the National Audit Office of Finland and our operating environment from the perspective of our renewed strategy.

The importance of the users of our audit information and our other stakeholder groups will increase in the future: we strive for an open and continuous dialogue with our customers. The new strategy will also require making organisational changes. I personally will take up a new position as the director of the Sustainable Government Finances area. The name reveals the overall objective of this area: to safeguard sustainable management of public finances. The main focus is on fiscal policy, as well as on the state functions responsible for the planning of central government and public finances and management of investments, assets and financial risks.

Fiscal policy rules cannot replace proactive identification of fiscal risks

The drafting of fiscal policy naturally plays a key role in the formulation of sustainable general government finances. Therefore we also evaluate fiscal policy measures, especially from the perspective of the EU and national rules governing fiscal policy. This task, which is assigned to the NAOF by legislation, is the responsibility of our independent Fiscal Policy Evaluation function. Monitoring and evaluation of fiscal policy promotes the responsible management of general government finances and supports the overall functioning of rule-based fiscal policy. However, fiscal policy rules cannot cover all areas relevant for public finances: for example, little attention is given in the rules to the long-term sustainability of public finances.

For this reason, we focus on long-term effects and aim to proactively target our audit and evaluation activities at long-term risks. In addition to sustainability pressures resulting from the ageing of the population, long-term risks may also arise from contingent liabilities or an increase in the interest-rate level. In our audit and evaluation activities, we particularly focus on the assessment of impacts.

Life-long learning is an inherent part of our operations at the NAOF. We actively develop our expertise but also learn a lot from our auditees and partners in connection with our audit, evaluation and expert activities. My hope is that in the future, decision-makers will more frequently invite the NAOF to participate in the development of central government activities, also outside our auditing activities. We want to support the reform preparation stage by providing timely information.

Decision-makers must be aware of the overall situation

The state of Finland is facing increasing investment needs. There is a great deal of repair backlog in the public infrastructure, and the need for new investments is significant. Ensuring the performance of the Finnish Defence Forces especially requires major strategic investments already in the upcoming parliamentary term. When making procurement decisions of this magnitude, it is highly important that decision-makers have a good understanding of the overall situation. For example, often only little or no attention is paid to investment lifecycle costs. We at the NAOF are prepared to offer our audit information to support the information base of decision-makers. In addition to the senior management of ministries and state agencies, Parliament is another important customer of the NAOF.

In addition to individual projects, it is also important to monitor if a comprehensive picture is offered of central government and public finances. The corporatisation of state functions and assets has undermined the significance of the current financial reporting of the state, which mainly focuses on the state budget, and the need for central government level financial information is increasing. On the other hand, not even comprehensive consolidated financial statements can reveal all material information, which is why attention should also be paid to identifying off-balance sheet liabilities and risks and to related reporting.

The stability of the financial markets also affects state finances. The link became particularly clear in the 1990s when the direct costs of the banking crisis and the related bank subsidies amounted to around 8 billion euros. Successful financial regulation and supervision and preparedness for resolution situations must also be ensured by means of external auditing. Although the NAOF carries out audits in this area, our auditing rights are limited: Finland is one of the few EU Member States where operations of the national central bank and related organisations are excluded from the scope of comprehensive external auditing.