The impact area focuses on the planning and management of general and central government finances. The audit themes include fiscal policy and its preparation, as well as the management of central government assets, liabilities, investments, and financial risks. The functioning of the ownership steering of state-owned companies is audited particularly from the perspective of asset management and the organization of operations. In the impact area, we also audit financial sector supervision and regulation, which are strongly linked with the development of the EU banking union and important in view of the indirect risks directed at central government finances. Audits related to this area are limited by the audit rights of the National Audit Office, and one of the tasks of the impact area is to promote appropriate audit rights.
Independent fiscal policy monitoring also ensures the functioning of rules-based fiscal policy and contributes to the appropriateness of the rules. This task will be highlighted in the next few years, as it will be necessary to review the EU framework now that the Covid-19 crisis has raised the debt levels. Our fiscal policy monitoring assesses the fiscal policy pursued and submits related conclusions and recommendations to the Government. The operations and targets of fiscal policy monitoring during the planning period are described on the fiscal policy monitoring page.
Audit and monitoring information helps to ensure that general and central government finances are managed in a sustainable, responsible and transparent manner. The targeting of operations is impacted by the growth in indebtedness as a result of the Covid-19 crisis and the resulting need to stabilize general government finances. Audits are targeted at operations and projects that are the most important for the preparation of fiscal policy and the management of central and general government finances. The perspective of central government finances is thus always an integral part of all audits. Audits are targeted in a risk-based manner at topics that are significant to central government finances, taking into account the timeliness of the information in view of the decision-making in Parliament and public administration.
During the planning period, the audit work will be focused on ensuring the reliability of the fiscal policy knowledge base, assessing the functioning and efficiency of fiscal policy steering instruments, the planning and funding models of major investments of the state, and the organization of risk management in central government and state-owned companies. The functioning of ownership steering will be assessed in the light of the ownership steering principles of state-owned companies. In our audit work, we will take into account the changes resulting from the Covid-19 situation in the operating environment of financial management. The impact area will also conduct an audit of the organization of security of supply in society to promote preparedness for exceptional circumstances and the interoperability of different authorities in crisis situations.
We have an active dialogue on the results of our audit and monitoring with the parliamentary committees, the Ministry of Finance, and other ministries and agencies. By the monitoring activities of the impact area, we identify risks that are significant for general and central government finances as well as potential audit topics, and draw up expert opinions, briefing papers, and other statements to support Parliament and central government in decision-making.
As regards the preparation of fiscal policy and the knowledge base of decision-making, we audit the reliability and comprehensiveness of forecasts, statistics, and impact assessments. In the case of the macroeconomic and fiscal forecasts by the Ministry of Finance, we will focus on assessing the implementation of the recommendations we have given in our previous audit reports. Our audit work will focus on the practices of managing the quality of the macroeconomic and fiscal statistics prepared by Statistics Finland in compliance with National Accounts. At the same time, we will assess the reliability of the related key source statistics (e.g. data on local government finances) in a risk-based manner.
The audit of fiscal policy steering instruments will focus on the functioning of the central government spending limits. The spending limits rule is the most important national fiscal policy steering instrument for limiting the growth of budget expenditure and for long-term expenditure policy that promotes economic stability. We will assess the functioning of the spending limits procedure from the perspective of transparency and appropriateness of public spending, for example. In addition, the features of the spending limits procedure will be examined from the perspective of the management of the exceptional circumstances caused by Covid-19. At the same time, we will participate in a parallel audit with the EU countries to get reference data on the practices applied by other countries to support the development of the Finnish spending limits system.
Based on the results of our previously completed audit of the effectiveness of the steering of local government finances, we will strive to influence the measures taken to enhance the compatibility of macroeconomic and microeconomic steering. They are also noteworthy in view of the funding and steering model of the proposed health and social services reform.
Asset management and investments
During the planning period, the monitoring will focus particularly on the management of the transport infrastructure assets that are significant to central government finances and on investments in transport infrastructure, including the establishment of special purpose companies and multi-channel financing models. Monitoring and auditing will be targeted in a risk-based manner, taking Parliament’s information needs into account in a timely manner.
We will monitor the strategic performance projects of the Finnish Defence Forces (purchase of HX fighters and Squadron 2020) based on the findings of a completed audit. In our monitoring activities, we will strive to influence the transparency of the preparation of the project, and we will pay special attention to the significance of lifecycle costs in the decision-making model and the comparison of alternatives. We will provide information to support the preparation of the strategic capability projects and the decision-making in the Government and Parliament. The Government will make the decision on the purchase of HX fighters at the end of 2021.
As for financial risks, our audit work is targeted particularly at central government’s operational debt management and its strategic steering, and the risk management procedures applied in the financing operations of the state’s special purpose companies. In addition to defining and steering the risk position and the interest rate risk model, the audit of debt management takes into account the procedures applied in the use of derivatives in operational risk management. The operating environment of debt management has changed due to the economic impacts of the Covid-19 situation, and one of the viewpoints is therefore the adjustment of debt management to the new circumstances. In this area, we have active cooperation with the supreme audit institutions of other EU countries.
We monitor the development of the management of the state’s contingent liabilities within the scope of previous findings and recommendations. We will pay special attention to the implementation of risk-based limitations to guarantee liabilities and the related risk management and monitoring practices. One of the issues to be examined during the planning period is the management of the state’s growing pension liabilities.
Ownership steering of state-owned companies and organization of central government operations
The incorporation of central government functions has continued in recent years. We will assess future incorporations based on the conclusions of the audit completed in 2020 and thereby provide Parliament with information to support related decision-making. In this way, we aim to support the selection of appropriate forms of organization for central government operations and duties to ensure cost-effective operations. As regards incorporations, we will also look into the financing and implementation of investments from the perspective of central government finances.
A good governance model consists of ownership steering and good governance by state-owned companies and their bodies. This is necessary in order for the companies to be able to operate efficiently and effectively in the long term. Although the division of tasks between the companies and ownership steering is quite clear, problems may arise in the cooperation between the different actors. We will monitor how the ownership steering works in state-owned companies and, if necessary, target audits with a problem-oriented approach, focusing on issues that are relevant for the management of state assets. On the other hand, we will also examine the functioning of the good governance model, which consists of the companies’ management and ownership steering.
Monitoring and regulation of the financial sector
In 2020, we completed an audit of the operations of the Financial Stability Authority, which serves as the national resolution authority. The audit related to preparedness to resolve crises of ‘less significant institutions’. The audit was part of the EU countries’ parallel audit. We will utilize the reference data obtained in the parallel audit when reporting on the audit results. We will monitor the expansion of the mechanisms of the EU banking union and pay special attention to the liabilities they cause to the state.
We will also promote the prerequisites for external audit of the supervision of the financial sector, taking into account Parliament’s positions on the matter. The National Audit Office does not have the right to audit the operations of the Financial Supervisory Authority or the Bank of Finland. They have a key role in organizing the common banking supervision and resolution of the EU’s banking union.