Successes and challenges of the Latvian State Audit Office, Marita Salgrave, Council Member, State...

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REGIONAL CONFERENCE FOR

SUPREME AUDIT INSTITUTIONS OF EUROPEAN NEIGHBOURHOOD SOUTH COUNTRIES

Making a difference to the lives of citizens: a succesful transformation

process – the Latvian experience

Marita Salgrave, Council Member, State Audit Office, Republic of Latvia

Algiers 16-17 December 2014

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Contents

1) Supreme Audit Institution (SAI), Republic of Latvia – short introduction

2) Continuous change of a SAI to “make difference” and stay relevant: Phase 1: Transition from “inspection” to “audit” type of institution Phase 2: Further improvement and innovative implementation of ISSAI 12

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Who we are and where we are?

Republic of Latvia

Northern Europe, Eastern coast of the Baltic Sea

One of the three Baltic states

Member state of the European Union

Capital: Riga

Population: 2,013 million

Territory: 64 000 m2

Language: Latvian

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Supreme Audit Institution (State Audit Office, Republic of Latvia)

State Audit Office (SAO) is an independent, collegial,

supreme audit institution in the Republic of Latvia Auditor General and Members of Council are elected

by the Parliament for a definite period, they can be removed from the post only in case of court verdict

SAO mandate and proceedings: Law on the State Audit Office

Extract from the Constitution of the Republic of Latvia

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SAO audit scope Revenues, expenditure and property of State or local

government institutions (except Parliament)

Revenues, expenditure and property of public and private companies, where State and local governments own shares

Funds of European Union and other international organisations, which are included in State or local government budgets

Extract from the Law on the State Audit Office

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SAO mandate

SAO performs (1) financial audits, (2) compliance

audits and (3) performance audits

Annual financial audits – mandatory, while compliance and performance audits – based on risk assessment and depending on the resources available

Audits are performed in compliance with International Auditing Standards ISSAI and INTOSAI GOV

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Financial audits Annual opinions on accuracy of annual statements of

ministries and other central state institutions (by April 30)

Annual opinion on accuracy of the Consolidated Annual Statement on implementation of the State and municipal budgets, revenues, asset and debt management (by September 15)

28 financial audits were performed in 2013

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Compliance and performance audits SAO is independent in defining

• audit topic • audit scope • audit type and • audit period

Consequently - no influence from the side of

Parliament and Government 29 compliance / performance audit reports were issued

in 2013

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Supreme Audit Institutions – continuous change to “make a difference” and stay relevant

Phase 1: SAO - transition from “inspection” to “audit” type institution

Phase 2: SAO – further improvement and

innovative implementation of ISSAI 12

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Phase 1 Transition from “inspection” to “audit” type

institution 1992 – 2002: SAO as an “inspection” – type

institution, following just some international auditing concepts

2002 – 2004: (European Union pre-accession period): SAO starts to transform into IAS compliant institution

2005 - ~2010: transition process from “inspection” to “audit” institution fully finalized

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institution

Audit Control

Planning to get comprehensive

understanding of business and

identify risky areas

No planning to understand

business and risky areas

Audit work directed to cover areas

of high and medium risks

Audit work could be performed

within non-risky areas and is of an

incidental approach

Tends to create good

communication with all

management levels and staff

within audited body

Limited communication with

audited body

Comprehensive results of audit

(often - system audits)

Limited results of audit (often a

stand-alone transaction)

Time and resource consuming,

especially during first years

Less resource and time consuming

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institution

How to start?

Scrupulous planning & organization of the work

Continuous involvement and supervision by senior management

Creating favourable control environment (tone on the top)

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institution - approach

Planning: • SAO Strategic Development Plan • Annual plan • Individual objectives for staff members

Organization:

• Processes • Regulations • Following deadlines

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institution – choosing strategy

Strategic development plan determines: long-term strategic development objectives

and

results to achieve

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institution – specifying strategy The Latvian SAO defined three strategic development areas: Improvement of the audit work

Development of the SAO resources (competent

personnel, infrastructure, supporting tools, etc.)

Strengthening communication and cooperation activities

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institution – defining directions & results Example for defining results for one of strategic areas – “Improvement of the audit work” Audit methodology for financial, compliance,

performance audits complies with the IAS Switch to electronic working documents is

implemented Quality management system is developed and ensures

regular reassessment of processes Teammate software is used in audit work

(documentation of audit work, supervision of recommendations, resource planning, time recording)

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institution – defining directions & results Example for defining results for one of strategic areas – “Improvement of the audit work” (follow-up)

Data analysis software IDEA is used in audit work

(enabling 100% checks instead of sampling, where appropriate)

Audit topics are identified based on strategic risk assessment

Modifications to legal framework are initiated as a result of audits

Audited entities have implemented at least 75% of recommendations

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institution – defining Annual Action Plan SAO’s Strategic Development Plan as the basis for SAO’s

Annual Plan (AP)

AP includes annual audit plan and plan of support and development activities

For each activity AP determines: • responsible official • timeline • inputs in man-hours • budget

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institution – Audit Plan SAO’s Audit Plan as an integral part of the Annual Plan

Tax payers’ interests + strategic risk assessment -

Audit priorities -

Audit topics -

Annual Audit Plan

Annual Plan as the basis for individual objectives of

staff members

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institution – setting individual objectives for staff members

Annual Plan as the basis for individual objectives of

staff members

Annual objectives of the staff members include individual objectives and outputs for staff members, based on objectives of the particular structural unit

Individual objectives for staff members are: • well defined and achievable • measurable and imposing deadlines • substantial and result-oriented

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institution – scrutinizing the system

Quality Management system (QMS) as a core to ensure quality and added value

Why did we decide to “go for” QMS? QMS builds quality into the audit process QMS ensures continuous control of audit process from

senior management level to junior auditor, to avoid or minimize negative impact on quality and price of the final product

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institution – QMS The Latvian SAO decided to apply both: Audit process quality control

• audit process quality control during the audit process performed by audit unit internally (hot review 1)

• audit process quality control after the audit is completed performed by “external” reviewers (cold review)

Quality improvement measures • audit process quality control during the audit

process performed by “external” reviewers (hot review 2)

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institution – challenges with QMS Advantages and disadvantages of the reviews performed

by “externals” Advantages: adds value and quality straightforward and unlimited exchange of experience learning process for both – auditors from Audit Teams

& auditors - reviewers Disadvantages: very sensitive activity in a small office like ours time consuming – takes time from those who perform

checks as well as from those who are checked

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Phase 2: Supreme Audit Institution – further improvement and innovative implementation of

ISSAI 12

or how the ISSAI 12 principles: (1) strengthening accountability, transparency and

integrity

(2) demonstrating on-going relevance to citizens and

(3) SAI being a model organization

are to be applied by the Latvian SAO in 2014-2017

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ISSAI 12 SAO’s new strategy for 2014-2017 is based on: assessment of implementation of the SAO’s 2010-2013

strategy

results of strategic risk assessment of sectors of national economy

developments within EUROSAI and INTOSAI

the need to address weaknesses identified during PMF «self-assessment» exercise

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ISSAI 12: Strategy for 2014-2017 “Making difference in the lives of citizens” is translated into 2 strategic development directions of the SAO – support to the Parliament and the Government in

enhancement of good governance and

ensuring sustainable development, on-going relevance and increased added value of the SAO

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ISSAI 12: Strategy for 2014-2017

I Support to the Parliament and the Government in

enhancement of good governance – new initiatives

at least 30% of SAO’s resources allocated to performance

audits

financial audits result in 2 opinions – on (1) accuracy of financial statements and on (2) compliance of operations

at least 4 «ad-hoc» audits annually

each of 119 municipalities audited once per 3 years (compliance and/or performance audits)

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added value to good governance and financial impact as

audit priorities

Increased involvement of the Parliament in reviewing audit results and recommendations (informative report once a week)

Ministers are regularly met and «motivated»

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Cooperation with the Prosecutor’s General Office is

enhanced (public debate regarding the SAO as a Court)

Level of involvement of public in audit planning and execution is increased

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II Ensuring sustainable development, on-going

relevance and increased added value of the SAO

new initiatives

Financial impact from SAO’s recommendation

considerably exceeds investments into the SAO (1:5 euro)

Peer–review performed and recommendations implemented (peer-review team: Slovakia, Netherlands, Denmark, Poland, USA SAIs)

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new initiatives

Audit methodology updated, based on newly adopted

ISSAIs 100, 200, 300 and 400

SAO – the institution leading adoption and application of INTOSAI public sector standards in Latvia

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new initiatives

Involvement of all staff members in discussing strategic

issues

Renumeration policy ensures strict correlation between the salary and the „product“ provided by an individual staff member

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new initiatives

Simple, clear and regular SAO «messages» to the public;

more than 50% of society trusts the SAO (“stories”, videos, info graphics, etc.)

Regular visits to regions – meetings with citizens

Pro-active co-operation with media; journalist «round tables»

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new initiatives

Proactive use of Facebook, twitter, YouTube

Professional support to SAIs from «acceding» countries or

former SU countries

Providing expertise in capacity building projects financed by the EU

Hosting Contact Committee meeting in 2015

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Is this „a lot“ or

„almost nothing“ in 20 years?

Thank you for attention!

State Audit Office of the Republic of Latvia 50 Skanstes Street, Riga LV-1013

Telephone: +371 7017500 Fax: +371 7017673

E-mail: [email protected] Home page: http://www.lrvk.gov.lv

Successes and challenges of the Latvian State Audit Office, Marita Salgrave, Council Member, State...

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