The state’s financial management can be supported by unifying the budget
In the 2019 financial audits, the National Audit Office issued as many cautions as in the previous year. As a rule, central government finances have been managed in compliance with the regulations, but the operations of the accounting offices can still be improved. It is worrying that the same accounting offices are cautioned each year for procedures violating the budget. Compliance with the budget could be supported by unifying the budgeting.
Every fourth accounting office was cautioned
The National Audit Office audits the final accounts of central government, the ministries, other agencies obliged to prepare final accounts, and three off-budget funds. The National Audit Office issued 65 financial audit reports for 2019. Most of the audited entities – the three funds and 46 accounting offices – received a clean financial audit report, i.e. the National Audit Office found no deficiencies in their final accounts or financial management procedures. However, the National Audit Office found deficiencies in 15 accounting offices and in the final central government accounts. Every fourth accounting office was thus cautioned, which is a significant number.
Eight accounting offices have been cautioned repeatedly during the past four years.
It is worrying that as many as eight accounting offices have been cautioned each year during at least the past four years. Nevertheless, in the latest two financial audits, the number of accounting offices that had to be cautioned was lower than before. In 2016 and 2017, every third accounting office was cautioned.
In the financial audit for 2019, more than one caution was issued to the Finnish Immigration Service, the Government Shared Services Centre for Finance and HR, the Finnish National Agency for Education, the Finnish Transport and Communications Agency, the Finnish Transport Infrastructure Agency, and the Development and Administrative Centre for the ELY Centres and TE Offices.
The National Audit Office obliged two accounting offices to report to it on the measures they had taken to remedy the state of affairs for which they had been cautioned. The Finnish Transport Infrastructure Agency was to report how it would aim to remedy the deficiencies related to the processing of the incomplete assets to be transferred to Traffic Management Finland Group, the budgeting and monitoring of project-specific reallocation, and the information in and arrangement of accounting vouchers. In turn, the Government Shared Services Centre for Finance and HR was to report how it would remedy the deficiencies in the internal control of the centralized financial and HR management duties.
Visualization: Financial audit findings 2017–2019
In the visualization, you can view the financial audit findings of the National Audit Office for 2017–2019. You can examine the findings per category: you can, for example, focus on the column that discloses whether the accounting offices have had effective internal control. You can see which accounting offices have been cautioned in the different years by clicking on “Show cautions”. You can also view the reasons for the cautions by clicking on the name of the accounting office.
The dynamic visualisation provides information on the cautions and disclosure requirements issued by the National Audit Office in its audits in 2017, 2018 and 2019. The same data is available in the Excel file below.
What are the special characteristics of the financial audits conducted by the National Audit Office?
- In its financial audit reports, the National Audit Office expresses its opinion on the following issues: whether the audited entity has provided true and fair information on the final accounts and the operational efficiency; whether its internal control is effective; and whether it has complied with the budget.
- If the budget or the related key statutes have not been complied with in all respects, the National Audit Office issues a qualified opinion on regularity. The qualified opinion can include several specified cautions on regularity.
- Qualified opinions on regularity usually concern individual areas or procedures in financial management. Therefore, it does not mean that the agency’s or central government’s finances have been managed contrary to law as a whole, or that 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 National Audit Office can oblige the management of an audited agency to report to it on the actions taken to remedy the state of affairs for which the agency was cautioned. This is called the obligation to report.
The budget has been adhered to well
The National Audit Office found procedures contrary to the budget and the related key statutes in the audits of seven accounting offices. The number of accounting offices issued with a qualified opinion on regularity in the previous year was also seven. About half these accounting offices were also issued with a caution on regularity this year.
In its qualified opinions on regularity, the National Audit Office issued a total of ten specified cautions on regularity. The Finnish Immigration Service received two cautions, and the Finnish National Agency for Education as many as three.
Cautions are often issued because the accounting office has spent the appropriation during the wrong budget year or for a purpose other than the one for which it was granted under the budget. The National Audit Office can also caution accounting offices for procedures that are contrary to other statutes applying to asset management.
As many as four cautions on regularity concerned authorizations.
As many as four cautions on regularity concerned authorizations. This means that accounting offices need more expertise in monitoring authorizations especially. Authorization refers to a permission granted by Parliament in the budget to commit to expenditure payable in the years following the budget year.
The budget needs uniformity
The budget for 2019 is not uniform as regards the different administrative branches. The incoherence is especially caused by the extensive use of mixed items, salary payment from items other than the operational expenditure items, deviation from the allocation principles laid down in the State Budget Decree, the large number of extensive and varied item decisions, and the differences in class structures. The budget for 2020 is even more incoherent.
The statutes and regulations related to budget drafting leave room for different types of budget solution in different administrative branches. In recent years, however, the number of exceptional budget solutions, which under the budget drafting regulations should be used only for a special reason, has increased significantly. The accounting offices have started to apply the drafting regulations too flexibly, which has undermined the uniformity of the budget.
Accounting offices have started to apply the budget drafting regulations too flexibly.
Clear and coherent budgeting facilitates the monitoring of the budget, supports efficient financial management, and promotes the achievement of the productivity targets set for financial management. It also makes it easier to make budget decisions and promotes compliance with the budget. All this is essentially related to Parliament’s work as well. Clear and coherent budgeting, particularly as regards the item decisions, would make it easier to implement the budget and support the uniform digitalization of administrative processes. Material efficiency gains would require harmonization of not only the budget but also the regulations related to government transfers and grants.
Uniform guidelines would support a successful confiscation process
Government agencies are in possession of confiscated property, which they must manage in compliance with regulations and guidelines. The National Police Board should harmonize its guidelines for the confiscation process and develop the practice supervisors follow when monitoring the process.
Government agencies should strive to unify the key practices related to the confiscation process. The special characteristics of the confiscation process should be taken into account in the development of information systems, for example.
The National Audit Office found no irregularities in confiscation activities. However, the storage facilities of the Finnish Customs contain property whose confiscation process has already been terminated. In future, it will be of the utmost importance to complete the confiscation processes without delay.
Confiscated property has generally been stored appropriately. However, agencies should ensure that their storage facilities are acquired in compliance with the Act on Public Procurement and Concession Contracts, that the facilities are suitable for storage, and that their security and surveillance are appropriately arranged.
Palkeet again obliged to disclose how it has arranged its financial and HR management processes
The internal control of Palkeet (the Government Shared Services Centre for Finance and HR) should be further improved. Palkeet has a large customer base and performs many transactions. It is therefore especially important that it has reliable internal control.
The effectiveness of Palkeet’s internal control is important for the state’s entire financial management.
Palkeet should develop systematic risk management to ensure that risks are identified, their significance is assessed, and the necessary risk management solutions are made whenever decisions are taken, or the operations are organized. Palkeet should give more consideration to internal control particularly in the development of processes and information systems. Internal control is at its most efficient when controls, i.e. control measures, prevent errors and abuse.
Special assignment companies should be established after careful consideration
Holdings in companies are a significant part of central government fixed assets. Special assignment companies have been established to serve the societal objectives of central government and perform duties where the company form benefits central government finances or operations. However, Parliament has limited budgetary and oversight powers in relation to them, because the operations and funding of state-owned companies are steered and overseen by both the Government and the companies’ own bodies.
The establishment of special assignment companies should therefore always be considered from the perspective of both the use of central government funds and the company’s future operations. It should be clarified what social problem or need can be met by company-type operations. The rationale behind the use of company-type operations should not be the opportunity to operate outside the spending limits and capitalize the company quickly by selling shares held by the state or another state-owned company.
When special assignment companies are established, it is important to consider what social problem or need can be met with the company form.
The changeover from agency to company type is often justified by savings. However, the actual operations also change very often in this connection. In such a case, it is difficult to verify in practice that the incorporation will lead to savings or the streamlining of operations. In turn, the economic efficiency and profitability of a company’s operations can usually be monitored carefully through the company’s reporting. However, if the company’s operations are almost fully based on a service agreement concluded with only one government agency, it is questionable whether a genuine customer relationship and genuine business are involved.
If a company is established as part of a more extensive reform, the state owner and the company should ensure that the company’s services are not tied only to this reform. The services will thus remain relevant even if the actual reform is cancelled. In the case of very narrow-scale operations, it should always be considered whether a separate company is required, or if the existing state-owned companies could assume the responsibility, or if it were possible to purchase the required service from existing private companies.
Government agencies and public bodies have complied with the joint procurement obligation
Government agencies and public bodies purchased product and services under Hansel Oy’s framework agreements for more than EUR 900 million in 2019. Framework agreements are an established practice in central government, and government agencies have largely complied with the joint procurement obligation. However, Hansel has amended the terms and conditions of participation in framework agreements because of the recently changed decision-making practice of the Supreme Administrative Court. The amendment of the terms and conditions of participation has weakened the opportunities of central government procurement units to apply framework agreements.
The Ministry of Finance and Hansel do not share an unambiguous idea of the products and services that fall within the scope of the joint procurement obligation. The Ministry of Finance should therefore assess whether it should specify its decision on the joint procurement obligation.
It is difficult to monitor purchases under the joint procurement obligation in central government’s Handi system, and reporting on purchases in Handi should also be developed. Handi does not support automation of financial administration in joint purchases, because government agencies’ joint purchases are processed in the system in the same way as other purchases.
Through joint purchasing, Hansel strives to promote the policy objectives related to responsible operations. In its framework agreements, Hansel has observed the targets for environmental, economic and social responsibility. However, joint purchases are rarely suitable for making innovative purchases, and it is therefore difficult to use them to promote policy objectives related to innovativeness.
The chapter is based on the following audits
- Central government financial audits 2019 (in Finnish, State Department of Åland in Swedish)
- Uniformity of the budget
- Implementation of joint procurements (10/2020)
- Limited company as an organization form of central government functions (13/2020)