Efficiency and good financial management cannot be achieved without cooperation between the administrative branches. Systematic planning as well as concrete and measurable objectives are also needed. This web page presents the National Audit Office’s key conclusions regarding the state of central government finances and public administration, and a review of the NAOF's activities during between 1 September 2021 and 31 August 2022.
Auditor General Sami Yläoutinen: We will target audits at administrative reforms and balancing central government finances
Finland’s public finances are facing significant challenges. Therefore, our upcoming audits will focus not only on the significance of the topic for central government finances but also on reforms of public administration. We will also pay particular attention to measures required to balance central government finances.
Photo: Lari Järnefelt, Felt Fotografi
As its name suggests, it is the task of the National Audit Office to audit the state’s financial and asset management. We also monitor fiscal policy and oversee political party and election campaign funding. We aim to ensure, for our part, that state funds are spent for the purposes designated by Parliament prudently, efficiently and in compliance with the law.
We want to work in close cooperation with the central government and our other stakeholders, because it is important that our activities enjoy broad confidence in society. We earn this confidence by performing our statutory tasks with the highest quality and maximum impact.
The National Audit Office will get the new organisation model it needs
When I took up the post of Auditor General at the beginning of 2022, the most important part of my induction was one-to-one discussions with the employees. These 150 discussions gave me an opportunity to hear every employee’s opinion on what is good and worth preserving at the agency and what should be changed.
The employees’ most important wish was to clarify the current, complicated organisation model. This work is underway, and a new model will be introduced at the beginning of 2023. In the future, the National Audit Office will be divided into three units: a monitoring unit, an audit unit and a shared services unit. The organisation is simple and enables a clear allocation of responsibilities. The model also links immediate supervisory work more closely with the activities.
We have continued to develop our guidelines and practices related to financial and other administration. The work is based on the observations made by the Parliamentary Audit Committee in its report last year.
The National Audit Office has maintained high quality in its activities. Thanks for this are due to the professional staff of the National Audit Office. We will continue to develop our activities so that we can further improve our societal impact. The new organisation model will support the achievement of this objective. In the new model, we will also be better able to direct labour inputs to the agency’s basic tasks: audit and monitoring.
However, it is not enough to merely carry out the reorganisation. The National Audit Office’s management and various processes and practices must be aligned and enable uniform ways of operating as well as flexibility in operations.
We direct labour inputs to the agency’s basic tasks: audit and monitoring.
During the annual report period, we have also been preparing for our new tasks. The National Audit Office will be the controller responsible for maintaining the transparency register, or lobbyist register, which is to be established. We will also supervise compliance with the related reporting obligations. The National Audit Office has also been assigned with the new task of auditing the wellbeing services counties, which will start operating in 2023. In addition, as the end of the current strategy period is approaching, we will have to review the National Audit Office’s strategy in 2023. Thus, we have a lot to do, but the direction is correct and clear.
Our audit recommendations are well addressed in public administration
Our audit reports provide recommendations for remedying or developing activities in the audited administrative entity. Through follow-ups, we monitor whether public administration has taken measures as a result of our recommendations.
Our follow-ups have shown that our recommendations are well addressed in public administration: 85 per cent of the recommendations we had made in financial audits were implemented in 2021. According to the follow-ups carried out in 2021, 82 per cent of the recommendations we had made in performance, compliance and fiscal policy audits had been implemented either in full or in part.
The main deliverables of our basic tasks, audit and monitoring, are reports. The total number of audit reports has remained relatively stable in the 2011–2021 reference period.
Financial statements provide a reliable picture of the central government’s financial position and cash flows
In this annual report, we present our main audit findings for the report period, i.e. from autumn 2021 to autumn 2022. The key theme of the conclusions drawn in the performance audits is that the central government needs long-term and comprehensive planning and financing, as well as concrete and measurable objectives. On the basis of the financial audits conducted, there were very few shortcomings in the financial statements of the central government accounting offices. However, there were still many procedures contrary to the budget.
The central government needs long-term and comprehensive planning and financing, as well as concrete and measurable objectives.
Chapter 1 compiles the observations made in the audits targeted at the social security reform and the reform of the student financial aid scheme, as well as at the central government measures aimed at supporting economic activities and growth. A significant observation is that the costs and overall impacts of the modification and development of benefit and support schemes cannot always be sufficiently foreseen or verified.
Chapter 2 presents the key results of the compliance audits conducted and the 61 financial audit reports for 2021 issued by the National Audit Office to the central government accounting offices. The government agencies’ final accounts of 2021 provide mostly true and fair information, but there were still many procedures that were contrary to the budget and that led to cautions. During the annual report period, we targeted compliance audits at the state pension scheme and the management of grants awarded from the proceeds of gambling activities. We concluded that the government liabilities arising from other pension schemes should be reported more comprehensively. The supervision, transparency and effectiveness of grants awarded from the proceeds of gambling activities should be improved.
In chapter 3, it is stated, based on the audits of organisational mergers, competence development, recruitment and climate finance, that the activities of public administration have not been planned sufficiently systematically in all respects. Good management of central government finances requires public administration to operate according to plan. Sufficiently concrete long-term objectives lay the foundation for systematic planning and for steering and monitoring the activities, cost-effectiveness and financial impacts of public administration.
Chapter 4 reports on the impacts of our own activities, the societal significance of our work and our preparations for our new tasks.
The social security reform and supporting trade and industry call for holistic management
Long-term objectives are set for the amendments of benefit systems and for central government measures aimed at supporting economic activities and growth. However, preparations have not always succeeded in sufficiently foreseeing the costs the reform will cause to the central government or in focusing on the support, steering and monitoring required for the implementation. The cooperation between administrative sectors has improved in recent years, but it is still important to pay attention to long-term funding and the coordination of cross-sectoral steering.
Over time, the central government systems and policy measures have developed overlaps and features that should be removed because of the changes taken place and the foreseeable developments in the operating environment. The decentralised steering, short-term funding and insufficient follow-up of these systems and policy measures make it difficult to assess the cost-effectiveness and societal impacts of the activities. They also undermine the utilisation of this information in the planning of future activities.
Social security reforms require a good knowledge base and an ability to manage the overall system
Since the recession in the 1990s, efforts have been made to increase incentives to work by reforming taxation and removing incentive traps in the social security system. The removal of various incentive traps aims to increase tax revenue and reduce social security expenditure. The student financial aid scheme was also reformed in the 2010s. The reforms have aimed to ensure adequate livelihood for full-time students and to promote full-time studying. The aim with this has been to speed up studies and students’ transition to working life.
When benefit system reforms are prepared, it should be ensured that it is possible to conduct reliable impact assessments of them.
Based on the audits conducted by the National Audit Office, benefit reforms should pay attention to the benefit schemes as a whole. The reforms should be based on a reliable knowledge base and enable impact assessments during the preparatory phase. When reforms are prepared, it would be important to utilise the expertise of the implementers and to assess and monitor the impacts of the reforms on the behaviour of the target groups.1, 2 At present, this is not taken sufficiently into consideration.
In the preparation of the social security reform, special attention should be paid to incentive traps as a whole
Different incentive traps form a whole. When reforms are prepared to remove them, it would be important to examine whether other traps remain in legislation or its implementation that hamper the achievement of the objectives set for the reform. The reforms should also be adequately communicated to the main target groups.1
The National Audit Office audited tax, enforcement and social security reforms aimed at removing unemployment, revenue, bureaucracy and information traps1. Unemployment and income traps refer to situations where it is not financially motivating to accept work or earn additional income from work. Bureaucracy traps can emerge from the uncertainty, paperwork or dealings related to access to benefits, for example when accepting short-term work. Information traps are situations where the person has inadequate or incorrect knowledge of, for example, the possibilities of reconciling social security and earned income.
Based on an audit conducted, it became easier to reconcile earned income and unemployment security when the adjustment of unemployment benefits was reformed in 2019. The reform shortened and reduced the delays in the payment of unemployment benefits receivable in addition to earned income, because it is no longer necessary to wait for earnings data when the amount of the benefit is calculated. However, unemployed jobseekers are not necessarily aware of the new practices, which may reduce the willingness of some people to accept short-term or part-time work.1
The reform made at the beginning of 2018 aimed at increasing incentives for unemployed jobseekers to start a business. For this purpose, the assessment of whether the business activities are of full- or part-time nature was postponed to a later stage. The assessment is currently made only four months after the start of a business. This means that the right to unemployment benefit remains in force for the first four months. Nevertheless, the problem with the reconciliation of entrepreneurship and receiving unemployment benefit has remained unchanged, as there are still no clear criteria for assessing the full- or part-time nature of entrepreneurship. It may be difficult for unemployed jobseekers to anticipate how entrepreneurship will affect their right to receive the unemployment benefit. The uncertainty may reduce the willingness of unemployed persons to try out entrepreneurship.1
Unemployed persons may also be encouraged to start a business if they participate in the entrepreneur education provided as vocational labour-market training. The National Audit Office audited the cost-effectiveness and impacts of this training in 2018. In the follow-up of the audit, it was found that it has been somewhat better ensured in experiments and reforms that the good practices of labour-market training are maintained, that the activities continue uninterrupted, and that the services are consistent. On the other hand, the impact assessment of labour-market training and, in particular, the setting of monitoring indicators describing the activities have not yet reached a satisfactory level.3
The enforcement system reform, which entered into force in 2018, sought to increase incentives to work by providing the long-term unemployed with the right to a deferral of garnishment of wages or salary for a maximum period of six months from the start of employment. The right was limited to those who were employed within the scope of the income limit garnishment. On the basis of the audit, the implementation of the right of deferral has proven to be difficult, and a significant number of applications for deferral are rejected. The reform does not seem to increase incentives to work even temporarily. The incentive effect is reduced by the fact that debt bears interest during the deferral. Instead of deferral of garnishment, it would, therefore, be important to develop the enforcement system by creating solutions that speed up escape from debt.1
Incentives to work have also been promoted by easing the taxation on earned income, but this is expensive. According to the audit findings, the beneficiaries of unemployment security and those outside the labour force are not very familiar with the differences between the taxation of unemployment security and earned income. Nor do they feel that lighter taxation on earned income has any significant impact on the decisions they make regarding employment1. More detailed information is needed on the actual behavioural effects of the difference between the taxation on earned income and unemployment security.
Student financial aid reforms led to significant unforeseen expenditure
When student financial aid is reformed, it would be important to strive to overall management of the multifaceted effects of the reform. The impacts of an individual reform are reflected in central government expenditure, degree completion times as well as students’ livelihoods, employment and housing choices. In the 2010s, the central government’s annual student financial aid expenditure varied between EUR 473 million and EUR 806 million. In addition to impacting direct benefit expenditure, the student financial aid scheme can have an impact on employment. The student financial aid consists of the study grant, the housing supplement and the state guarantee for student loans. After the student housing allowance reform, student households have become the largest group of general housing allowance recipients.2
In the student financial aid reform of 2017, the study grant level of higher education students was decreased while the state guarantee for student loans was raised. At the same time, students were transferred from the housing supplement of student financial aid to the general housing allowance. The reform aimed at a savings of around EUR 112 million in central government finances. Based on the audit, savings were only achieved in study grants. However, the transfer of students to the scope of the general housing allowance led to significant unforeseen expenditure. The housing allowance reform of 2018 had already increased the expenditure by at least EUR 130 million, while in the preparatory phase, the increase had been estimated to be EUR 54 million (see Figure 1). The knowledge base of the housing allowance reform was unreliable, as outdated information on accommodation costs was used in the assessment calculation. The unforeseen expenditure may also be partly explained by the fact that more students than expected had moved to more expensive accommodation after the reform. Students’ average accommodation costs continued to increase in 2019 and 2020, faster than those of other groups receiving general housing allowance.2
The student financial aid reform of 2014 introduced student loan compensation for new higher education students. This means that the Social Insurance Institution of Finland (Kela) pays 40 per cent of the student loan exceeding EUR 2,500 if the student completes the degree within the target time. On the basis of the audit, the expenditure estimated in the preparatory phase of the student loan compensation had been exceeded by EUR 48 million by 2021 (see Figure 1). However, the cost overrun cannot be interpreted as a failure, as the objective of the reforms was to increase the use of student loans. The degree completion times shortened in both universities and universities of applied sciences during the 2010s, which may have a positive impact on employment. The proportion of those who had completed a degree in a university or a university of applied sciences within the target time was approximately 4─5 percentage points higher among the students who had begun their studies in the autumn of 2014 than among those who had begun their studies the year before and were not entitled to the student loan compensation. However, the proportion of those who completed their degrees in universities of applied sciences within the target time had already increased before the student loan compensation was introduced.2
The use of student loans has increased and the completion times of higher education degrees have shortened as a result of student financial aid reforms.
When the adequacy of student financial aid is assessed, it is important to take into account both the amount of loan used by the recipients of the aid as well as their earned income. The adequacy should be monitored based on personal-level data. Based on the income data registered by Kela, the average real income of those receiving student financial aid increased at all levels of education during the 2010s. Earned income continues to be the most significant source of income for the recipients of student financial aid, but working may also slow down the completion of higher education studies. However, based on current information, it is unclear whether working during studies makes it easier to find employment after graduation.2
Figure: The key impacts of the 2014 and 2017 student financial aid reforms on benefit expenditure.2
The objectives and impacts of activities of a permanent nature can be achieved through long-term financial planning, monitoring and cooperation
The objectives and implementation of strategies, roadmaps or other Government decisions are strongly tied to government terms, even though the activities described in them are of a permanent nature, and their impacts are expected to extend beyond government terms. Examples of such activities include state support and funding for regional development and for research, development and innovation (RDI). These activities were also audited4, 5. The state supported regional development by approximately EUR 369 million in 2018 and by approximately EUR 474 million in 2022. The state’s R&D funding amounted to EUR 1.95 billion in 2018 and EUR 2.49 billion in 2022.
The planning and use of funding for permanent or long-term purposes should be enhanced, and the activities should be monitored adequately.4, 5 Furthermore, data management should be developed, and attention should be paid to its ex-ante and ex-post assessment, so that the data produced can be used in the future development of activities.4
The central government activities should be seen by the responsible parties and service users as uniform and consistent. This can be achieved by focusing on coordination between different administrative sectors and on cooperation between different administrative levels.4, 5, 6, 7 Cooperation within the central government promotes operational efficiency, productivity and effectiveness but requires that intangible capital is managed as a whole. At present, intellectual capital is too fragmented across different administrative sectors and levels, and its elements are managed separately. Therefore, financial steering is also fragmented. Figure 2 illustrates the various elements of intellectual capital and their interdependence as a system of cogwheels.
Figure: Intellectual capital management as a whole. (Information: Rastas & Einola-Pekkinen 2001 and Otala 2008)4
Short-term financial steering has made it difficult to support the commercialisation of research data
The aim of the growth strategy for health-sector research and innovation activities is to make Finland an internationally renowned forerunner in health-sector RDI and business. Based on the audit conducted, the efficient implementation of the growth strategy and its roadmap 2016–2018 as well as the assessment of the effectiveness of the strategy have been hampered by the general nature of the objectives, the poor coordination between the steering instruments, the short-term nature of the funding and the unclarity of the responsibilities and duties of different actors. Cross-sectoral RDI activities in the health sector and the funding allocated to them have been steered primarily by the administrative sector. However, the strategy set objectives for the entire data value chain, and the new financial instruments have made it possible to allocate funding to different parts of the value chain. Financial support for research data utilisation should cover the entire value chain from data production to data commercialisation so that funding organisations can plan the overall funding in the long term. Short-term financial steering has made it difficult to support the commercialisation of research data.4
Based on the audit, the health sector lacked data policy and management principles in 2016–2018. Such principles would have defined the responsibilities, needs, opportunities and solutions related to data management in the sector. The health sector growth strategy did not include an assessment of the impacts of its implementation on the formation of intellectual capital for the state or RDI actors, nor did it include a requirement to foresee or assess the financial impacts of its implementation. Therefore, the cost-effectiveness of development measures has also been assessed only in a limited manner.4
The strategic, operational and financial steering of RDI activities and research data should be better coordinated.
In the implementation of the growth strategy, data management has consisted of the identification, compilation and transmission of data and data needs. However, only part of the data produced has been used for the development and monitoring of the implementation. The development work carried out by the ministries and funding organisations, on the basis of their own needs, has undermined the overall management of the growth strategy and its implementation. No clear objectives or resources have been allocated for assessing the produced data or utilising it in future activities.4
Fluctuating funding complicates long-term regional development
Regional development calls for longer-term resource planning in order to achieve the sustainable growth, competitiveness and other regional development objectives. The purpose of regional development is to promote the sustainable development, growth and competitiveness of the regions and enhance the well-being of the residents and the quality of the living environment. Regional development activities are steered by the regional development decision issued by the Government and the regional programmes. The regional development decision sets objectives for 2030 and underlines the importance of having an operating environment that encourages innovation and entrepreneurship across Finland. National objectives are supported with funding from both the central government and EU programmes. As a result of the Covid-19 pandemic, the appropriations for regional support doubled in 2020–2021 compared with the previous years.5
On the basis of the audit, the regional development decision 2020–2023 was prepared and implemented as planned. Variations in regional development funding and inadequate effectiveness indicators in the implementation plan of the decision undermine the achievement of the operational objectives and their monitoring. This causes the activities to fluctuate as well as hampers the implementation of contractual activities and the dialogue with the regions.5
Future regional development decisions should set comprehensive effectiveness indicators to make it possible to assess the achievement of the objectives.
Due to the Covid-19 crisis, the regions were granted recovery funding in autumn 2020. To receive the recovery funding, the regions had to draw up their own survival plans for the renewal of their economic structure. The survival plans were to focus on measures based on innovation, competence and international activities that accelerate digitalisation and the building of a sustainable and carbon-neutral society. According to the audit, the survival plans had been drawn up on a very general level, and their content had no significance in the regional distribution of the funding. However, regional stimulus measures have indirectly supported the objectives and implementation of the regional development decision.
The National Audit Office observed regional and sectoral variation in the business development aid granted by Business Finland and the Centres for Economic Development, Transport and the Environment (ELY Centres) to tourism sector companies affected by the Covid-19 crisis in spring 2020. In individual cases, the grounds for the aid decisions were not fully consistent, and applicants in different regions were not treated in a completely equal manner. Generally speaking, the grounds for rejection were in line with the criteria, i.e. the aid applications did not meet the conditions set. The business development aid granted to tourism companies totalled approximately EUR 120 million.5
The central government has promoted companies’ investments by improving their operating conditions but should make further efforts to digitise services
Based on the follow-ups of audits, the central government has taken a number of development measures in recent years to improve the operating environment of companies and promote investment.6, 7 In audits published in 2017, the National Audit Office found that the Government can influence companies’ investments, for example, by clarifying legislation, developing decision making, strengthening the infrastructure and streamlining the permit processes. The National Audit Office also recommended increasing the dialogue between government agencies and companies and strengthening the infrastructure as well as the marketing and public procurement competence in public administration.6 In 2019, the National Audit Office recommended that the digitisation of services should place even more emphasis on customer-orientation and a closer connection between the support, steering and funding models of digital development.7
In the administrative sector of the Ministry of Finance, development activities have focused on digital services in order to make transactions between companies and government agencies smoother. In the administrative sector of the Ministry of Economic Affairs and Employment, the key measures to promote the investment environment, exports, internationalisation and the familiarity of Finnish expertise were the establishment of Business Finland in 2018 and the revamp of the strategy for the Team Finland network in 2019. The administrative sector of the Ministry of Social Affairs and Health has promoted investments in pharmaceutical development and the pharmaceutical industry. It has also harmonised bio-banking, which can support RDI activities in the health sector as well as the development of products and services. However, the objectives of promoting the digitisation of public administration have not been fully achieved, and various operating models and services continue to require attention.7
The Covid-19 pandemic significantly altered the efforts to promote investment worldwide. Instead of new customer acquisition, investment promotion organisations in many countries have focused on the aftercare model, which seeks to encourage companies already operating on the market to grow their business. The resources to be allocated to aftercare work should be taken into account in Finland as well.
In spite of the Covid-19 pandemic, the number of new foreign investments (acquisitions and new investments) has been relatively stable during the past five years, on average around 283 per year. However, there have been major fluctuations in the net payment flow. In some years, investments withdrawn from Finland have exceeded those made in Finland.
This chapter is based on the following audits and follow-ups
Preparation and implementation of the removal of incentive traps (14/2021)
Effectiveness of the reforms of student financial aid in the 2010s (2/2022)
Management and governance of the utilisation of research data in the health sector business (3/2022)
Promoting the growth and competitiveness of regional trade and industry (7/2022)
The final accounts of central government agencies provide mostly true and fair information
The 2021 final accounts of the central government’s accounting offices provide mostly true and fair information on compliance with the budget as well as on revenue, expenditure and the financial position. Shortcomings in the financial statements were reported in the financial audit report of only three accounting offices. However, as many as 28 per cent of the audited accounting offices were issued a caution, as there were still many procedures contrary to the budget, and cautions related to internal control increased from the previous year.
Under section 90 of the Constitution of Finland, the task of the National Audit Office is to audit the management of central government finances and compliance with the state budget. The National Audit Office annually audits the final accounts of the state, the ministries, other agencies obliged to prepare final accounts and three off-budget funds.
The number of cautioned accounting offices remained unchanged
The National Audit Office issued a total of 61 financial audit reports for 2021 to central government accounting offices. Of the audited accounting offices, 17 (28%) were cautioned because the National Audit Office found deficiencies in their final accounts or financial management procedures. The number of accounting offices cautioned for the previous year had been 18.1
In its financial audit reports, the National Audit Office expresses its opinion on whether the audited entity has provided true and fair information on its final accounts and operational efficiency, whether its internal control is effective and whether it has complied with the budget (Figure). Only five accounting offices were issued with cautions related to financial statements and operational efficiency data. Their number has, therefore, clearly decreased from the previous year. Two of the cautions concerned operational efficiency data, while three were related to financial statements.1
Figure: Cautions issued by the National Audit Office in its audits in 2021.1
Some accounting offices have received a financial audit report containing a caution, i.e. a modified opinion, repeatedly in recent years. As many as five accounting offices have been cautioned in six consecutive years. These accounting units are the KEHA Centre (Development and Administrative Centre for the ELY Centres and TE Offices), the Finnish Transport Infrastructure Agency, the Ministry of Education and Culture, the Ministry of Economic Affairs and Employment and the Finnish Government Shared Services Centre for Finance and HR (Palkeet).1
As many as five accounting offices have been cautioned in six consecutive years.
The most powerful means of financial audit is to oblige the management of the audited entity to report on the measures the audited entity has taken to remedy the state of affairs for which it has been cautioned. The National Audit Office imposed a reporting obligation for 2021 on three accounting offices. The State Department of Åland was obliged to report on shortcomings in balance sheet specifications, while the Ministry of Economic Affairs and Employment was obliged to report on shortcomings in authorisation accounting. In addition, Palkeet was once again obliged to report on the organisation of the internal control of centralised financial management tasks.1
The internal control of centralised financial management tasks and its steering should be sharpened
The valid provisions set requirements for the control environment and thus restrict the means that can be used to pursue operational efficiency. Palkeet should take this into account in the organisation of its financial and HR administration and particularly in the development of its processes and information systems.1
The Ministry of Finance and the State Treasury should ensure, through regulatory steering and performance management, that the control environment of centralised financial management tasks is developed in a balanced manner in terms of both quality and efficiency. In connection with target setting, the risk appetite of internal control is also assessed. From the perspective of financial audit, the target setting of Palkeet should take effective internal control better into account. Evaluating provisions should be an integral part of the development of activities. For example, provisions should not limit the development of automation when automation enables the same or higher level of assurance to be achieved in the performance of functions or in the efficiency of internal control.1
The National Audit Office considers that sharper steering and appropriate organisation of internal control require increased cooperation and understanding between central government actors. In addition, the Ministry of Finance, the State Treasury and Palkeet should ensure that there is sufficient competence for the preparation of legislation, regulations and guidelines as well as for the development of processes and information systems. Effective internal control also supports the objectives set for operational efficiency.1
More cautions issued on internal control
Nine accounting units were cautioned for 2021 on the organisation of internal control. The number of accounting offices cautioned has increased from 2020, when six units were cautioned on internal control.1
The most common reason for cautions on internal control in 2021 was a shortcoming in authorisation accounting. Such a caution was issued to three accounting offices: the Ministry of the Environment, the Ministry of Economic Affairs and Employment as well as Business Finland – the Finnish Funding Agency for Technology and Innovation.1
Authorisation refers to a permission granted by Parliament in the budget to commit to expenditure payable in the years following the budget year. The National Audit Office has, each year, found shortcomings in authorisations in terms of true and fair information in the financial statements, compliance with the budget or internal control.
The large number of cautions on authorisation accounting partly reflects the difficulty of organising authorisation accounting in public administration. Therefore, the accounting offices need more expertise for authorisation accounting.1
Several practices related to VAT expenses were contrary to the budget
The financial audit reports of nine accounting offices contained a qualified opinion on regularity, i.e. one or more specified cautions on regularity, because the accounting office had not fully complied with the budget or the key budget provisions.1 Procedures contrary to the budget and key budget provisions have decreased slightly from 2020, when a qualified opinion on regularity was issued to 11 accounting offices. For 2018 and 2019, however, a qualified opinion on regularity was issued to only 7 accounting offices.
A qualified opinion on regularity was issued in the 2021 financial audit reports to nine accounting offices.
For 2021, in turn, the number of qualified opinions on regularity issued was 13 because the Finnish National Agency for Education, the Finnish Transport Infrastructure Agency, the KEHA Centre and the Finnish Institute for Health and Welfare were issued two qualified opinions on regularity each. Most of the cautions concerned a procedure for which the accounting office in question had not been cautioned previously. However, the Finnish National Agency for Education, the Finnish Transport Infrastructure Agency and the KEHA Centre were issued a qualified opinion on regularity for 2021 for a reason for which they had already been cautioned in 2020.1
A qualified opinion on regularity usually concerns an individual area or procedure in financial management. Therefore, it does not mean that the agency’s or the central government’s finances have been managed contrary to law overall or that the central government assets have been misappropriated. However, a qualified opinion on regularity should always be considered a serious issue for the financial management of the agency in question.
The most common reason for a qualified opinion on regularity in 2021 was that the accounting office had used the general VAT item of the administrative sector where this was not permitted under the budget. Five accounting offices were issued with cautions for this reason, and four of these cautions were related to items budgeted including VAT. In these situations, the VAT expenses should have been recorded in the same item as the actual expenditure. The fifth of these cautions was issued because the VAT item of the administrative sector had been used in connection with a VAT-exempt invoice.1
Several accounting offices were obliged to cancel part of the appropriations carried over to the following year due to a procedure contrary to the budget.
In practice, VAT procedures contrary to the budget have meant that the agency has saved part of the appropriations at its disposal by recording expenses not belonging to the VAT item of the administrative sector to this item. If a deferrable appropriation of more than one year has been concerned, the National Audit Office has required the accounting office to cancel the appropriation unduly carried over to the following year, i.e., the part of the erroneously recorded VAT expenses from the appropriation carried over to the following year. Four accounting offices were required in the financial audit to cancel appropriations, which is clearly a much larger number than usual. Three of these cases were related to VAT procedures, and one was related to recording income in a gross-budgeted item in violation of the budget.1
Government liabilities arising from other pension schemes should be reported more comprehensively
The state pension scheme covers central government employees’ pension security, which is financed entirely by the central government. In addition, the central government finances the pensions paid by the Social Insurance Institution of Finland (Kela), such as the national pension and the guarantee pension, in full and contributes to financing the pension for the self-employed, the pension for agricultural entrepreneurs and the seafarers’ pension.
The state’s commitment to different pension schemes causes considerable expenses to the central government and thus constitutes a significant financial liability. In 2021, the pensions totalled around EUR 10.2 billion, accounting thus for around 15% of the total appropriations in the state budget. The correctness of the information reported on pensions is important from the perspective of the knowledge base of decision making, as the final central government accounts should provide true and fair information on the liabilities arising from different pension schemes.2
The administration and supervision of the pensions for whose financing the state is either fully or partially responsible have been appropriately organised. The liabilities arising from the state pension scheme have been reported appropriately. However, the liabilities resulting from other pension schemes – such as the pension for the self-employed and the pension for agricultural entrepreneurs – have not been identified or reported as part of the final central government accounts. According to the National Audit Office, these liabilities should be identified and reported as part of the final central government accounts. The final central government accounts are being revamped. The new form will be applied for the first time in the final central government accounts for 2024. It would be natural to take any changes into account in the overall revamp of the final central government accounts.2
The monitoring, transparency and effectiveness of grants awarded from the proceeds of gambling activities should be improved
The proceeds from gambling activities that are recorded as the state’s revenue have accounted for a significant part of the funding of many social activities. Grants have been awarded by the Ministry of Education and Culture, the Ministry of Social Affairs and Health and the Ministry of Agriculture and Forestry, as they are the ministries responsible for distributing the proceeds. The grants awarded to social and health-sector organisations have been managed by an independent government grant authority, the Funding Centre for Social Welfare and Health Organisations (STEA), which operates in connection with the Ministry of Social Affairs and Health.3
Grants from gambling proceeds have been awarded to a highly well-established group. This reduces the actual impact of the award criteria.
The grant management processes have been carried out essentially in accordance with legislation, but there are shortcomings in the monitoring of the grants, and the grant award process is not sufficiently transparent in all respects. Grants from gambling proceeds have been awarded to a highly well-established group of beneficiaries, which has reduced the actual impact of the award criteria. Well-established beneficiaries together with award criteria of a general nature may weaken the transparency of the grant award process. It is difficult to demonstrate that the applicants have been treated equally unless the considerations related to the award of grants are sufficiently transparent.3
The procedures the government grant authorities apply in the management of the grants also differ from each other in several respects. Differences were found in the processing of applications, the documentation, the preparation of decision making and the general procedures for monitoring the use of grants. There were also differences in the details of the terms and conditions of the grants. On the basis of the audit, there is a clear need to harmonise the procedures for the management of the grants and to promote the availability and use of the information available on government grant activities. The transparency and openness of the grant activities should also be improved.3
The activities of the government grant authorities were also found to differ in how they take into account the effectiveness of the supported activities at different stages of the grant process. The perspective of effectiveness is not linked to the grant process so closely that it would significantly steer the allocation of grants awarded from gambling proceeds. The policy lines concerning the effectiveness of grants should be clarified.3
The proceeds from gambling activities have decreased, and a new funding model has been prepared to respond to the permanent decline in the proceeds. The aim is to implement the new model starting from 2024. According to the new model, the expenditure financed by gambling proceeds would be allocated and decided in the budget process in the same way as other expenditure within the central government spending limits.3
This chapter is based on the following audits and follow-ups
Central government financial audits for 2021 (in Finnish, State Department of Åland in Swedish)
The state pension scheme and central government liabilities in other pension schemes (1/2022)
Effective public administration requires systematic planning and concrete objectives
Good management of central government finances requires public administration to operate according to plan. Sufficiently concrete long-term objectives lay the foundation for steering and monitoring the activities, cost-effectiveness and financial impacts of public administration.
In the audits conducted by the National Audit Office of organisational mergers, competence development, recruitment and climate finance, it was found that planning has not been sufficiently detailed and long-term. When government agencies have been merged, many objectives and their intended impacts have remained vague from the perspective of monitoring. The planning of the number of central government staff has been short-term in the case of duties for which the central government itself trains the workforce. Furthermore, agencies do not sufficiently anticipate the competence they will need. Between 2017 and 2021, Finland has granted more than EUR 600 million in total in international climate finance as part of development assistance. However, the Ministry for Foreign Affairs has lacked a clear plan on how to implement the Government’s policy lines for increasing climate finance.
The need for organisational mergers should be justified, and their objectives should be defined in detail
Mergers of central government agencies should be better prepared and have concrete objectives, and their economic impacts should be assessed and monitored. Mergers aim to develop and increase the efficiency of government agencies’ activities. However, based on the audit conducted, they do not necessarily lead to any major changes in the merged organisations.1
In the audit conducted, the National Audit Office assessed how organisational mergers in the central government are prepared, implemented and monitored. It was also assessed as to whether the objectives set for reorganisations are met. Two recent agency mergers were used as examples: the establishment of the Finnish Competition and Consumer Authority and the establishment of the Finnish Food Authority. In 2013, the Finnish Competition Authority and the Finnish Consumer Agency merged to form the Finnish Competition and Consumer Authority, operating in the administrative sector of the Ministry of Economic Affairs and Employment. The Finnish Food Authority, in turn, was established in 2019 in the administrative sector of the Ministry of Agriculture and Forestry through a merger of the Agency for Rural Affairs and the Finnish Food Safety Authority. The functions transferred to the Finnish Food Authority also included some of the information management services of the IT service centre of the National Land Survey of Finland and the supervision of the use of plant protection products, which had been the responsibility of the Finnish Safety and Chemicals Agency.
It was found in the audit that the economic, digital and other impacts of the mergers resulting in the establishment of the Finnish Competition and Consumer Authority and the Finnish Food Authority were assessed during the preparatory phase in a very general or even poor manner. In the assessment of financial impacts, it is possible to present alternative measures, detailed data on preparedness for funding, information on the development of impacts over different time periods and comparative data on benefits and costs. No financial or other impact assessments were carried out of the mergers resulting in the establishment of the Finnish Competition and Consumer Authority and the Finnish Food Authority. It would be good if the need for and objectives of agency mergers were defined in the future in an accurate and concrete manner, also specifying their impacts in euros.1
In the planning phase of a merger, it would be important to take into account the monitoring needs and to define concrete objectives, criteria for success and evaluation processes.
The mergers were not preceded by a comprehensive survey of the available alternatives or an analysis of the alternative methods or solutions to achieve the desired objectives. In the government proposals, alternatives were discussed only briefly or not at all. No sufficiently concrete objectives and indicators were set to enable assessing the success of the mergers. From the perspective of monitoring, many of the objectives and their intended impacts have remained vague. Mergers can be effectively monitored only if the objectives set for them are sufficiently concrete and if there are processes and success criteria or indicators in place to enable assessing their achievement and impacts. In fact, the monitoring needs should already be considered in the planning phase of a merger.1
The central government does not have such common principles or guidelines for agency reforms that would encourage examining the reforms from the perspective of all agencies and the overall organisational structure. Nor have there been any guidelines concerning assessing the necessity of agency mergers. However, it should be noted that the Ministry of Finance issued a recommendation in December 2021 on the principles to be observed in the organisation of activities in central government agencies.1
Organisations remain almost unchanged after mergers
Based on the audit, agency mergers had little impact on the management systems and the organisation of the core tasks of the Finnish Food Authority and the Finnish Competition and Consumer Authority. The old organisational structures are still clearly visible in both agencies. In the Finnish Food Authority, the most important change concerned information management, which was brought together to form a new operating entity.
Leadership and the management system have a major impact on how and to what extent the objectives set for the merger are achieved. In organising and carrying out their core tasks, the audited agencies still rely on the management positions and systems used in the old agencies. In the Finnish Food Authority, new organisational structures were also created to meet the needs for strategic management.1
After the mergers, the performance management of the Finnish Competition and Consumer Authority and the Finnish Food Authority have developed from detailed steering to broader upper-level steering of a more strategic nature. Instead of setting concrete performance targets, the ministry steering the agency provides a strategic direction that the agency is expected to follow.1
According to the audit, agency mergers have had little impact on performance management. Both performance targets and the organisation of performance management have remained more or less unchanged even though performance targets have become more strategic in nature. As performance management has become more strategic in nature, the ministries have monitored the achievement of the objectives set for the mergers only randomly or to a limited extent. Improving the monitoring of mergers would be necessary in order to measure the cost-effectiveness and societal impacts of the activities of the new organisations.1
The number of central government staff is planned only task or agency-specifically
The National Audit Office conducted two audits to assess competence development, recruitment and related staff planning in the central government. The audits focused on central government steering2 and the activities of government agencies in competence development and recruitment.3
The number of staff in on-budget entities has decreased significantly in the 2000s: in 2000, it was about 124,000, but in 2021, it was only about 78,000. The most important reason for the decrease has been reorganisations. For example, the university institution and its staff became off-budget resources in 2010. In recent years, however, the number of staff has increased again: between 2016 and 2021, the increase was more than 5,000 persons, i.e., about seven per cent.2
The central government does not plan the number of staff strategically and in the long term.
The increase in the number of staff had not been planned. The central government does not have such strategic staff planning that would define the desired number of staff in the longer term. The appropriate number of staff depends on the tasks included in the central government’s on-budget activities and on how much the central government uses appropriations for staff salaries and other personnel expenses.2
Figure: The number of staff in on-budget entities in 2000–2021. (Source: Tutkihallintoa.fi)
The planning of the number of staff is the responsibility of ministries, which steer the activities and finances of their administrative sectors, as well as the agencies and institutions themselves. On the other hand, the Government also steers the number of staff in various ways. Government programmes and reports set targets for the number of staff at government agencies, and the task or agency-specific numbers of staff have been steered even in great detail in the financial planning.2
Targets for the number of staff have been set, for example, for the Police, the Emergency Response Centre Administration and the Defence Forces. The targets have been mostly consistent and reasonably clear, although the targets set for the Police, in particular, have often been changed. The targets set for the Police have applied only to the number of police officers, although about a quarter of the Police staff are other than police officers. Setting a target only for the number of police officers may encourage pursuing the target by replacing other Police staff inappropriately by police officers.2
The steering of the number of staff has been consistent in the sense that in budget proposals, the targets set for the number of staff have been presented as a factor affecting the amount of appropriations. On the other hand, the amount of appropriations has been affected by several factors with opposite impacts: an appropriation may have been raised in order to increase the number of staff but, at the same time, it may have been decreased on other grounds.2
The central government itself organises the training required in the duties for up to a quarter of its staff.
The central government itself organises the training required in the duties for up to a quarter of its staff. The staff groups trained in this manner include, for example, officers of the Defence Forces, border and coast guards, police officers, emergency response centre officers and the guards of the Criminal Sanctions Agency. In these staff groups, successful recruitment requires that a sufficient number of persons complete the required qualification each year. Over the past decade, there have been great differences in the number of available student places for emergency response centre officers, police officers and guards and the number of students who have completed their education. Long-term planning of student places is needed in order to achieve the targets set for the number of staff. The Ministry of Finance should, together with the other ministries, strengthen the central government’s long-term staff planning, especially in the case of the duties for which the central government itself trains the workforce.
The competence needed in government agencies is not yet planned in the long term
The central government has long been aware that it needs competent personnel in order to function effectively. For example, the latest HR policy guidelines, issued by the Government in 2001, state that the different units of central government must be able to acquire and retain competent, motivated and continuously developing employees capable of working. Based on the education level, the competence level of the central government staff has increased: in 2021, about 57 per cent had a university degree, which is 17 percentage points more than in 2002.2, 3
The central government’s HR steering group has emphasised competence development, and this target can now be found in most performance agreements. However, the targets that the agencies’ performance agreements set for competence development are still general in nature. Therefore, they have a weak steering effect, and it is difficult to assess whether they have been achieved. Based on job satisfaction surveys, the central government staff are fairly satisfied with how their work enables learning and renewal and how the central government, as an employer, strives to maintain and improve competence. The central government’s inputs into competence development can mainly be examined for the part of training expenses. However, a significant part of competence development takes place through on-the-job learning.2, 3
The competence development targets recorded in performance agreements have a weak steering effect, and it is difficult to assess how they have been achieved.
The number of staff, retirement and other loss of personnel as well as replacement recruitment have played a key role in government agencies’ staff planning and foresight. Agencies do not systematically anticipate the competence needed in the future or take loss of competence into account in their personnel planning. This poses a risk to the activities of the agencies and the achievement of their operational objectives. The agencies have no documented overall view of the human resources and competence needed in the future.3
Government agencies have tried to develop the competence of their staff by promoting mobility. Increasing the mobility of staff, competence and knowledge has been one of the central government’s shared HR policy objectives. However, no target level has been set for mobility, and the mobility of knowledge and competence have not been defined or examined in greater detail. The agencies have, therefore, understood mobility to refer mainly to staff mobility. In order to promote mobility, the concept should be defined in greater detail. In particular, it should be clarified what the mobility of knowledge and competence could mean in practice.2, 3
Finland’s international climate finance lacks clear objectives and implementation plans
In the Paris Agreement, Finland has undertaken, together with other industrialised countries, to finance climate measures in developing countries. However, in the audit conducted, it was found that Finland does not have a published plan regarding the amount, allocation and effectiveness of the increasing climate finance.4
International climate finance is part of Finland’s public development assistance, which is managed by the Ministry for Foreign Affairs. In 2017–2020, the climate finance reported by Finland amounted to EUR 47–147 million and accounted for around 6–15 per cent of the total spent on development cooperation. According to preliminary data, climate finance in 2021 amounted to EUR 183 million, which is approximately 15 per cent of the total development cooperation payments. Prime Minister Marin’s Government has outlined that Finland’s climate finance will be increased and targeted equally at climate change mitigation and adaptation.4 In March 2022, the Ministry for Foreign Affairs announced that Finland’s international climate finance will almost double during this government term.
The planning of climate finance has not been particularly transparent.
The Ministry for Foreign Affairs has lacked a clear plan for how the Government’s policy lines will be implemented overall and what kinds of choices will be made in the allocation of the finance and on what grounds. The theories of change and aggregate indicators in the Ministry’s development policy have also lacked quantitative objectives for climate change mitigation and adaptation. As the monetary level or other strategic objectives have not been defined publicly, the planning of the finance has not been particularly transparent. Therefore, it is also difficult to establish its effectiveness.4
Figure: Finland’s public international climate finance 2010–2020. (Source: Suomen julkisen kansainvälisen ilmastorahoituksen toimeenpanon suunnitelma (Implementation plan for Finland’s public international climate finance). Publications of the Ministry for Foreign Affairs 2022:2.)
The objectives of climate finance have been specified to some extent in the Ministry for Foreign Affairs’ steering documents that concern individual financial instruments and the organisations channelling the finance. However, the Ministry’s practices and possibilities of influencing the effectiveness of the various climate-related financial instruments vary to a great extent, and the Ministry does not systematically monitor the climate results of all financial instruments.4
To be able to monitor and report on the effectiveness of climate finance appropriately, the Ministry for Foreign Affairs should have available as systematic and consistent information as possible on the results of climate actions implemented through different financial instruments and organisations. This is a major challenge for both Finland and other donor countries.4
The National Audit Office recommended that the Ministry for Foreign Affairs should draw up a public plan for how it will increase and allocate Finland’s international climate finance, justifying the choices, priorities and influencing objectives included in it. At the same time, the Ministry should develop the operational planning and decision making related to climate finance. It would also be important to justify decisions on climate finance from the perspective of climate results and to ensure that the results of the finance are monitored, entered in statistics and reported as systematically and consistently as possible.4 In March 2022, for the first time, the Ministry of Foreign Affairs published Finland’s long-term plan for international climate finance, extending until 2026.
The chapter is based on the following audits
The National Audit Office focuses on its statutory tasks and prepares for new ones
Audit recommendations are well addressed in public administration: in the last two years, over 80 per cent of them have been implemented either in full or in part. In addition to audit activities, the National Audit Office also has other statutory tasks that contribute to supporting democracy, the sustainability of public finances and citizens’ trust in the functioning of public administration. Our field of operations will be further expanded by the new task of maintaining a transparency register and the authorisation to audit the wellbeing services counties.
The National Audit Office of Finland is an independent audit and monitoring authority, the role and duties of which are laid down in the Constitution of Finland. We audit the management of central government finances and compliance with the budget, monitor fiscal policy rules, oversee political party and election campaign funding and process complaints and reports on irregularities concerning the management of central government finances and assets. Our activities focus on ensuring the cost-effectiveness of the state’s financial management and on promoting trust in the knowledge base, transparency and sustainability of decision making. The audit task includes performance audits, financial audits, compliance audits, fiscal policy audits and multi-type audits, combining several audit types. We collect information on the external impacts of audits, for example by monitoring the implementation of audit recommendations.
The external impacts of audit activities are built on the implementation of audit recommendations
We target our audits, as timely as possible, at issues that are relevant for central government finances and significant for decision making. The aim is to ensure improvement of the cost-effectiveness of the state’s financial management and enhancement of trust in the knowledge base of decision making and in open, cost effective and sustainable operations of the Finnish central government. Our audits are based on the National Audit Office’s approved audit plan. We completed a total of 84 audit reports in 2021 and plan to complete a total of 83 audit reports in 2022.
Figure: Audit and monitoring publications in 2011–2021.
Audit reports and reports to Parliament are the main deliverables of audit activities. The total number of audit reports has remained relatively stable in the 2011–2021 reference period, although a small decrease can be observed if the trend is examined over a longer time period. The number of financial audit reports reflects changes in the number of accounting offices. The number of performance audits decreased in 2020–2021. However, starting from 2020, we have completed multi-type audits, combining performance audits with elements of compliance audits or financial audits. The largest number of performance audit reports were completed in 2011 and 2015–2017.
Audit reports provide recommendations for remedying or developing activities in the audited administrative entity. The implementation of recommendations is monitored through follow-ups and constitutes one of the basic indicators for the effectiveness of our activities. In a follow-up, we examine whether the entity has taken appropriate measures on the basis of the audit findings to remedy the state of affairs or to develop its activities. Based on the monitoring, the rate of implementation of audit recommendations remained at roughly the same level in 2020–2021. In the follow-ups carried out in 2021, the total number of recommendations examined was 84, of which 82 per cent had been implemented either in full or in part. In 2020, 84 per cent of the recommendations had been implemented either in full or in part; in 2019, the corresponding figure was 78 per cent.
Follow-ups are carried out on a regular basis on fiscal policy, compliance, performance and multi-type audits after 2–3 years from the audit, when the audited entity has had enough time to develop its activities in line with the recommendations. Based on the follow-up observations, each year some of the recommendations are, nevertheless, left unimplemented either in full or for the most part. There are many reasons for this: for example, development measures may be underway or have not been considered necessary. Sometimes the National Audit Office may also find the measures taken insufficient. In 2020–2021, a total of 26 recommendations remained unimplemented or their implementation had been postponed.
Follow-ups provide valuable information on the implementation of audit recommendations.
In financial audits, the implementation of audit recommendations is monitored as part of the audit process, and no separate follow-ups are carried out. In 2021, 85 per cent of the recommendations made in financial audits had been implemented. The total number of recommendations examined was 194, which includes the recommendations made in the audit of common central government processes. The level of monitoring financial audit recommendations was changed in 2021; therefore, the data are not fully comparable with those of previous years.
Monitoring and oversight play an important role in society
In addition to auditing, our statutory tasks include various types of monitoring and oversight tasks, such as the oversight of political party and election campaign funding, fiscal policy monitoring and the receipt and processing of complaints and reports on irregularities. Starting from 2023, we will also maintain a transparency register and oversee lobbying activities.
Anyone can file a complaint with the National Audit Office about any action that is in violation of the state budget or otherwise unlawful from the perspective of the management of central government finances. It is also possible to file a complaint about defects in political party or election campaign funding disclosures. A central government authority, agency, unincorporated state enterprise or state fund must, without delay, report to the National Audit Office any irregularities in its activities that are related to the funds or assets managed by it. The number of complaints and citizen letters has doubled annually during the past two years, and we have also received more reports on irregularities. In 2021, we received almost 150 complaints, reports on irregularities or citizen letters. We also advised citizens in 120 cases after being contacted regarding complaints or irregularities. The complaints and reports on irregularities concerned, for example, the fighter and ICT procurements, enforcement issues, legal aid, the representation expenses of ministries, the funding of research and development cooperation and government grants.
Transparency of election campaign funding strengthens trust in democracy.
Transparency of election funding strengthens citizens’ trust in the functioning of the democratic system. In Finland, citizens have been guaranteed access to information on candidates’ election campaign funding. Candidates have a statutory obligation to disclose the election campaign funding they receive, and these disclosures are public documents. The parliamentary election working group set up by the Government assessed the needs to develop the Election Act, the Act on Political Parties and the Act on a Candidate’s Election Funding and submitted its final report in February 2022. The working group proposed reforms that would improve the conditions for oversight and the transparency of political party and election campaign funding.
The team of the National Audit Office that is responsible for overseeing election campaign funding receives election funding disclosures from those subject to the disclosure obligation and publishes them on its website. We also oversee that all those subject to the disclosure obligation submit a disclosure and that the disclosures provide true and fair information. All candidates may submit an advance disclosure before the elections. Once the results of the elections have been confirmed, it is known who are obliged to disclose their election funding.
The first county elections in history were held in January 2022. They were preceded by extensive preparations at the National Audit Office. In the county elections, an advance disclosure was submitted by the deadline by 3,067 candidates, i.e. 29 per cent of all candidates. The obligation to file an election funding disclosure applied to a total of 2,785 candidates in the 2022 county elections. In February 2022, we reported to Parliament on the oversight of election campaign funding in the 2021 municipal elections.
Each year we also audit political party funding and government grants awarded to political parties, i.e. party subsidies. In 2021, we conducted 52 audits, on which we reported to Parliament in February 2022. As a rule, the overseen entities have kept their accounts appropriately, and the audit reports of certified auditors have improved in recent years. However, there is still room for improvement in the accounting of the overseen entities and in the work of certified auditors.
We also monitor compliance with the Fiscal Policy Act and the provisions issued under it as well as the setting and implementation of the rules steering fiscal policy. Since 2017, we have also regularly prepared an ex-post assessment of economic forecasts under the Decree on the General Government Fiscal Plan. The aim of the monitoring is to promote transparent and easy-to-understand fiscal rules as well as stable and sustainable general government finances. Fiscal policy monitoring is an activity of a continuous nature, and we report on its results twice a year. The Government must either comply with the public conclusions issued by the National Audit Office or publicly disclose the reason for non-compliance.
In the autumn 2021 report, we assessed that Finland’s fiscal policy had supported the economy appropriately during the Covid-19 pandemic and that Finland’s public finances were recovering from the Covid-19 crisis slightly faster than anticipated. In the spring 2022 assessment of the General Government Fiscal Plan, we stated that the war in Ukraine had weakened the economic outlook of the coming years. We drew attention to the deviations from the spending limits that the Government has made during this parliamentary term. We assessed that some of these deviations were contrary to the spending limits principles. In both reports, we highlighted the need to ensure the achievement of the objective of bending the growth curve of the debt-to-GDP ratio, which is included in the Government’s sustainability roadmap. This is important in order to prepare, for example, for the risks of higher interest rates. The sustainability roadmap should be updated rapidly.
The National Audit Office is preparing for its new tasks
During this year, we have prepared for our new tasks as the auditor of the wellbeing services counties, the keeper of the transparency register and the authority overseeing lobbying activities.
In their report of 2 December 2021, the parliamentary steering group and expert group set up by the Government in spring 2020 proposed enacting a transparency register act and establishing a transparency register. In June 2022, the Government submitted a proposal for the Transparency Register Act. According to the proposal, the Act would enter into force on 1 January 2024. According to the Government proposal, legal persons or private entrepreneurs should register with the transparency register when they start professional long-term lobbying activities directed at Parliament and the ministries. Providers of professional lobbying-related consulting, such as influencer communications offices, should also register. Those entered in the register should submit disclosures on their lobbying or consulting activities to the transparency register twice a year. The information will be published online.
The transparency register will increase the transparency of lobbying activities.
The purpose of the transparency register is to improve the transparency of decision making, combat inappropriate influencing and strengthen citizens’ trust. Lobbying is regarded as an acceptable part of the democratic system, and the transparency register will make it transparent. According to the Government proposal, the National Audit Office will be the controller responsible for maintaining the transparency register. We will also oversee compliance with the disclosure obligations related to the register. In addition, the National Audit Office will set up an advisory board, which will define good lobbying practice and monitor the effectiveness of legislation and a transparency register in other respects as well.
We are also preparing to start auditing the wellbeing services counties in 2023. When preparing for this task, we will compile a picture of the structures, financial management and activities of the wellbeing services counties and plan how to conduct the audits. We will also identify the key sources and channels of information on the finances and activities of the wellbeing services counties. In addition, we will build a knowledge base and establish monitoring practices for the National Audit Office to enable the financial management of all wellbeing services counties to be audited on a regular basis, either annually or periodically. At the same time, our audit activities will expand to cover the organisation of health and social services.
We will audit the activities and financial management of the wellbeing services counties for the part of state funding.
The National Audit Office will be responsible for auditing the legality, cost-effectiveness and appropriateness of the activities and financial management of the wellbeing services counties for the part of the funding they receive from the state. The state funding for the counties is divided into three parts: general funding (central government transfers), investment funding and other funding (government grants). The audit right covers the wellbeing services counties, the entities, foundations and institutions belonging to the group of wellbeing services counties and the entities jointly controlled by the counties.
As far as the state funding is concerned, the audit right also extends to the health and social services and rescue services of the City of Helsinki and to the entities that have been set up to perform these tasks and are controlled by the City of Helsinki. (Act on Wellbeing Services Counties 611/2021, Act Amending Section 2 of the Act on the National Audit Office 660/2021, Act on Organising Healthcare and Social Welfare Services and Rescue Services in Uusimaa 615/2021.)
As an auditor of the wellbeing services counties, it is our task to provide Parliament, the ministries and their subordinate organisations with objective and independent information on the finances and activities of the counties. Thus, we can also assess and monitor the achievement of the overall objectives set for the reform and any subsequent changes in relation to the state of general government finances and the sustainability gap.
Figure: The audit tasks of the National Audit Office in a wellbeing services county.
Reorganisation and digitalisation improve the efficiency of the National Audit Office
In the annual report period, from September 2021 to August 2022, we have started to clarify the organisation and management model of the National Audit Office and to pursue the objectives of the audit and monitoring activities of the National Audit Office more efficiently. In autumn 2021, we carried out a self-assessment of the management and organisation model, on the basis of which we started to revamp the model in spring 2022. In this work, we focus on increasing the efficiency of decision making and the flow of information, clarifying the responsibilities and target setting, developing the supervisory work and evaluating the use of the project model. The new organisation and management model is planned to be effective as from the beginning of 2023. In addition, we continue to develop our sustainability reporting. The first sustainability report of the National Audit Office was published in summer 2021.
We have also developed the digital foundation of the National Audit Office and increased the use of data and analytics in audit and monitoring. The objective of the digital development is to promote the external impacts of the activities of the National Audit Office. The development work has focused on efficient information management, technical architecture as well as the structures and tools needed in the digital development. The new data repository solution of our financial audit enables uniform processing, extensive utilisation and more efficient and secure analysis of audit data. We have also piloted robotics in auditing, and our aim is to put it into production use during 2022.
In 2022, the National Audit Office launched two important system investments in order to enhance the efficiency in performing its statutory tasks related to financial audit and the transparency register. The new data system of financial audit improves audit planning and implementation and makes it easier to steer the auditing and control its quality. The system improves the documentation of audits and the common flow of information. The new task of maintaining the transparency register requires the building of a register system and related online service.
Audit publications during the annual reporting period
The link below opens a PDF file which includes information on the audit publications of the National Audit Office from September 2021 to August 2022.
Audit publications from September 2021 to August 2022
The financial audit reports are available in Finnish only, with the exception of the State Department of Åland. The follow-up reports, reviews and memorandums are also available in Finnish only.
Further information
