The functioning of the ownership steering of state-owned companies is audited particularly from the perspective of asset management and the organization of operations. 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 NAOF’s audit rights. Accordingly, one of the tasks of the NAOF 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. 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. 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 to topics that are significant to central government finances, taking into account the timeliness of the information for the decision-making in Parliament and public administration. The audits are implemented mainly as fiscal policy audits and performance audits but, if necessary, all audit types can be utilized in them.
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 management of central government tangible assets – with particular focus on the planning of lifecycle costs – and risk management in the management of central government debt. The functioning of ownership steering will be assessed in the light of the ownership steering principles of state-owned companies.
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 in the next few years on assessing the implementation of the recommendations 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.
We will promote the impact of the audit targeted at the sustainability assessments of general government finances (16/2019) by highlighting its key observations as part of our regular reporting on fiscal policy monitoring and by having an active dialogue on its results with the parliamentary committees, the Ministry of Finance, and other ministries.
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 how medium-term budget planning is implemented in the spending limits procedure and how the spending limits rule is linked with the other fiscal policy objectives and the targets set for it. In addition, we will assess the functioning of the spending limits procedure from the perspective of transparency and appropriate use of expenditure, for example. At the same time, we will participate in a parallel audit with EU countries to get reference data on the practices applied by other countries for the development of the spending limits system.
Based on our previous audit assessing the effectiveness of the steering of local government finances, we will strive to influence the measures for improving the compatibility of macroeconomic and microeconomic steering, while also monitoring the effectiveness of municipalities’ assessment procedure, which is increasingly significant when local government finances are becoming tighter.
Asset management and investments
We will audit the management of central government assets within the scope of the ongoing theme of lifecycle costs. The three audits in this area will be directed at different types of tangible assets: transport infrastructure, building assets, and machinery and equipment. These audits will focus on assessing the management and use of the assets in relation to the operational targets and whether the assets have been managed in an economically sustainable manner. 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. The monitoring will take into account the perspectives of the different audit types, and the audits will be targeted in a risk-based manner, observing Parliament’s information needs in a timely manner.
The strategic performance projects of the Defence Forces (purchase of HX fighters and Squadron 2020) will be audited with particular focus on the significance of their lifecycle costs in the decision-making model and in the comparison of different options. In addition, we will assess the financing from the perspectives of risk management and fiscal policy rules. The audit will provide information to support the preparation of strategic capability projects, as well as the decision-making in the Government and Parliament. The timing of the audit will be linked with the HX purchase decision, which will be made in 2021.
Audits related to financial risks will focus on the state’s operational debt management and its steering. We will assess, for example, whether the central government debt management has prepared appropriately for increasing interest rates. In addition to the criteria for determining the risk position and other steering of debt management, we will take into account the practices of using derivative contracts in operational risk management.
We will monitor the development of the management of contingent liabilities based on the findings and recommendations of previous audits. We will pay special attention to the implementation of risk-based limitations to guarantee liabilities and the related risk management and monitoring practices.
Ownership steering of state-owned companies and organization of operations
The incorporation of central government functions has continued in recent years. With audit evidence, we aim to support the selection of appropriate forms of organization for central government operations and duties to ensure cost-effective operations. We will audit whether the incorporations have been planned and implemented appropriately and effectively. We will monitor future incorporations on the basis of the conclusions and recommendations of the audit and thus provide information for the related decision-making in Parliament.
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. We will then assess which factors in the operations of the companies and the actors steering them have led to problems. On the other hand, we will also monitor the functioning of the good governance model, which consists of the companies’ management and ownership steering.
Monitoring and regulation of the financial sector
We will report on the results of the audit of the Financial Stability Authority, which serves as the national resolution authority. The audit will relate to preparedness to resolve crises of ‘less significant institutions’. It will be conducted within the scope of a parallel audit with other EU countries to examine the operations of national responsible authorities as part of the single resolution mechanism. We will utilize the reference data obtained in the parallel audit when reporting on the audit results. The audit will focus on the status of the preparation of resolution plans and the procedures related to the implementation of crisis preparedness and resolution, as well as decision-making.
The National Audit Office does not have the right to audit the operations of the Bank of Finland or the Financial Supervisory Authority, which have a key role in organizing the common banking supervision and resolution of the EU’s banking union. We will strive to promote the expansion of our audit right.