The long history of auditing public finances
The National Audit Office is the oldest Finnish state institution responsible for auditing the management of state finances and the state economy.
The history of auditing public finances in Finland dates back to the period when Finland was under Swedish rule. In the 16th century, the Chamber Council was established to monitor financial management under the Swedish Crown. The Chamber Council was responsible for the collection of taxes, payment transactions and accounting, as well as for auditing the Crown accounts. Gradually, the system of consolidated accounting started to emerge, along with the idea that financial management should be linked to an annual budget. In 1695, the Chamber Revision (renamed as the Chamber Court in 1799) was established to monitor the management of public finances and to judge offences committed in the management of finances.
Under Russian rule, the administrative bodies and institutions established during the years of Swedish rule remained largely unchanged. At the beginning of the period of autonomy, the supervision of tax collection and auditing of public finances were dealt with by the Revision Office, which was subordinate to the Chamber of Execution of the Senate of Finland. In 1824, the Senate established a new independent body, the General Revision Court, under which the Revision Office was transferred. The new agency was responsible for auditing state accounts, processing identified abuses of public finances, as well as for pressing charges, if necessary.
Independency – Parliament entrusted with the right to monitor the management of public finances
In newly independent Finland, parliamentarism became an important principle: the supreme power is vested in the people, who are represented by Parliament. Parliament was entrusted with the right to audit financial management, as well as the right to hold the Government accountable for the management of state finances.
The Form of Government Act adopted in 1919 created the basis for the present system of external financial supervision and audit of central government finances. Section 71 of the Act provided that the State Revision Office is responsible for administrative controls of state finances and that state auditors selected by Parliament are responsible for parliamentary controls of state finances.
The State Revision Office foreseen in the Form of Government Act started its operation in 1924. The Revision Office primarily carried out numerical checks, i.e. it checked the correctness of calculations, legality and veracity of figures entered in the accounts, and authenticity of accounting documents and their compliance with regulations.
During the Continuation War in 1941, the Audit Office of War Economy was established to reduce the workload of the Revision Office. The Second World War changed the nature of state finances: the spending on defence increased and the State had to focus its resources on taking care of the evacuees from the ceded territories, acquisition and supply of food and other basic necessities, as well as repayment of national debt. The Audit Office of War Economy ceased its operations in 1947.
National Audit Office is established in 1947
During the period between the wars, the public economy continued to expand and develop. In 1931, Parliament had enacted an act which gave the State the right to corporatise state-owned industrial plants. Furthermore, a number of state functions had been entrusted to bodies other than state agencies, and the scope of auditing rights of the Revision Office did not cover these functions.
After the Second World War, it was considered that the Revision Office should pay more attention to factual verification and verifying the appropriate management of state finances. The State Audit Act of 1947 established the National Audit Office of Finland, which began its work at the beginning of the following year.
The activities of the new agency reflected the developments that had taken place in the monitoring of the management of state finances since the beginning of the 20th century. State agencies started to monitor the correctness of their accounts internally, and the National Audit Office could concentrate its resources on the verification of the correctness and appropriateness of their accounts, as well as on budgetary controls. The Bank of Finland, Postisäästöpankki (Postal Savings Bank), Social Insurance Institution of Finland, and Valmet (State Metal Works) remained outside the scope of monitoring by the National Audit Office. Other agencies were responsible for the monitoring of these. The National Audit Office was also not responsible for auditing the finances of Parliament or funds under the responsibility of Parliament.
The right to audit expands in the 1990s
The provisions of the Form of Government Act concerning state finances were revised in 1991. The revised provisions stated that for the purpose of auditing central government finances and compliance with the state budget, there shall be a National Audit Office. This amendment, however, did not affect the status, tasks or powers of the Audit Office.
The State Audit Decree, which detailed the tasks and organisation of the Audit Office, was reformed in 1993. In this context, the Government Guarantee Fund, and consequently also bank subsidies, were transferred within the scope of auditing rights of the State Audit Office.
The auditing rights of the National Audit Office were revised again in 1995, when, due to the Finnish accession to the European Union, an act was passed giving the National Audit Office the right to audit transfers of funds between Finland and the EU.
National Audit Office of Finland transferred under the supervision of Parliament in 2001
The predecessors of the Audit Office all operated under the Ministry of Finance or the corresponding department of the old Senate. This arrangement was considered problematic already since the 1960s, as authorities higher up in the administrative hierarchy have the power to control and intervene with the operations of lower-level bodies. Thus, it was foreseen that the Audit Office should have an independent status.
In 2001, the Audit Office became an independent agency operating in affiliation with Parliament. Section 90(2) of the Constitution, which entered into force in 2000, provides that: ‘For the purpose of auditing State finances and compliance with the State budget, there shall be an independent National Audit Office in connection with the Parliament. More detailed provisions on the status and duties of the National Audit Office are laid down by an Act.’ Furthermore, pursuant to subsection 2, the National Audit Office has the right to receive information needed for the performance of its duties from public authorities and other entities that are subject to its control. The Act on the National Audit Office of Finland entered into force in 2001, laying down detailed provisions on the status, organisation, tasks, and reporting obligations of the Office.