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Innovative approaches and techniques in local government auditing: experience of the State Audit Office of Latvia

13/04/2018 Drukāt šo rakstu

Introduction

Supreme audit institutions (SAIs) are constantly looking for ways to strengthen their audit capacity and effectively disseminate audit results to stakeholders. What steps can SAIs take to increase the added value of audits and decrease the risks of bad governance? Besides new technological challenges, the solutions comprise also improving and adapting well-known techniques and tools as well as fostering open access to information and its visualisation. Capacity building and further-sharing of audit results is especially important in the area of local government, where a large number of municipalities and municipal institutions often pose challenges to the limited resources of SAIs. Being the level of government closest to the people, local governments provide various essential services to their residents. At the same time, local governments often face challenges in terms of funding constraints, shifting demographics, economic and community development, service delivery, et al.

The mandate of the State Audit Office (SAO) of Latvia includes, inter alia, financial, compliance and performance audits in local governments, so our work requires to consider the specifics of local governments and adapt accordingly to maximize the audit impact. Since the audits often highlight similar problems and shortcomings in management of municipal resources and property, it has been crucial to look for new ways to share and promote the audit findings. In this article, the SAO of Latvia will share its experience in introducing innovations in local government auditing.

Benchmarking

Benchmarking, of course, is an important element of audit work. In the field of local government, the SAO of Latvia typically conducts systemic audits in up to 12 municipalities at the same time, which allow comparing local governments not only against a best practice model but also among themselves. To visualise benchmarking results in a reader-friendly way, the SAO has started to use “traffic light” approach, wherein comparison is presented by using easily understandable colour codes. The detailed evaluation against compliance/performance criteria is included in the audit report, while the visualisation is presented in the summary and media materials.

Figure 1. Example of benchmarking in audit reports

Open access to information

The benefits of improving access to public sector information have been well-debated in recent years. Improved transparency and efficiency within government (both state and local) are just a few advantages of open access to information. During audits, SAIs often accumulate and process information that could be useful for various stakeholders, but is not readily accessible to them. To enhance information accessibility, these initial information files could be made public if they do not contain classified information (including personal data). The SAO of Latvia has adopted this notion in its Strategy 2018-2021 by deciding to ensure public access to information files that have been compiled/created during the audits and could be useful to residents and other stakeholders.

During compliance and performance audits in local governments, the SAO of Latvia frequently analyses information not only from the audited entities (usually up to 11-12 municipalities in one audit) but also gathers information about other local governments to understand the whole picture. As a result, information gathered during the local government audits can be quite extensive and cover the whole country. However, until now these sets of information were not available to the public.

In line with the new Strategy, the first set of information was published in February 2018 and pertained to the delicate matter of cemetery management. While auditing the compliance and effectiveness of cemetery management in local governments, the SAO found out that this matter in Latvia is governed only by municipal by-laws. To grasp the nationwide situation, we surveyed all Latvia’s municipalities, and the results showed a very fragmented and disparate situation. Firstly, the rules and payments for acquiring and maintaining a cemetery plot vary greatly among local governments. Moreover, although by-laws and price-lists pertaining to the use of cemeteries are public documents, it is often very hard (and sometimes impossible) to find them on the official municipality websites and information stands. Therefore, the SAO of Latvia decided to publish the information file compiled by auditors containing the relevant by-laws and price-lists of all 119 Latvia’s local governments. The file not only opens this information for public scrutiny but also allows municipalities to compare, analyse and adopt the best practice of other local governments.

Self-assessment tools

In the area of local government auditing, it is mostly impossible to audit every municipal institution and municipally owned enterprise. However, it is important to spread audit findings and best practice as widely as possible. While press conferences, seminars and webinars present traditional channels for disseminating information about the latest audits, it is also possible to actively engage local governments in assessing their own situation. Drawing inspiration from the SAIs that have already developed self-assessment tools for state and local government institutions, the SAO of Latvia has decided to offer self-assessment questionnaires after each local government audit. The questionnaires will be anonymous and freely available for download on the SAO’s website. The very first self-assessment form was developed for the aforementioned audit on cemetery management. Its questions are based on the audit criteria and for each question a course of action is suggested in case of non-compliance/partial compliance. Before publishing the questionnaire, we tested it in select municipalities who volunteered to fill in the questionnaire and provided us with feedback on its clarity and usefulness.

Figure 2. Structure of the self-assessment questionnaire.

Process analysis – incorporating quality management into audit approach

In 2016, the SAO of Latvia evaluated whether local governments provide services to their residents for reasonable cost. During the compliance & performance audit, the SAO assessed whether municipal services are client-oriented and whether municipal resources and organisational structure are adjusted to this task.

After appraising the best audit approach, the SAO decided to use process analysis for assessing municipal services – experts analysed each step in service provision, identified the unnecessary steps and calculated their costs. The process analysis allows to obtain comparable information about organization of similar tasks in various local governments which can later be effectively used for benchmarking.

For example, by comparing the organisation of accounting processes in local governments of similar size, the experts concluded that centralisation of accounting and elimination of excess steps at a particular local government could save it at least 43 200 euro per year. After implementing this recommendation, the local government in question calculated that centralisation and improvement of accounting process will save it at least 131 000 euro per year.

Discussion papers

Since SAIs carry out numerous audits every year, they are in an excellent position to discover systemic problems and stimulate discussions in society about the necessary improvements. For example, discussion papers constitute a good tool for consolidating conclusions of various audits in a concise format that can be used to highlight problem areas and facilitate debate.

In early 2016, the SAO of Latvia initiated a new practice – preparation of discussion papers. These documents are based on audit findings in areas where shortcomings are lasting, systemic and cannot be resolved by the audited entities alone. The SAO’s discussion papers aim to introduce suggestions for improvements on state level and to facilitate discussion among the audited entities and stakeholders – the legislator, executive power, NGOs, academics, business and citizens.

Among other topics, discussion papers draw upon the SAO’s experience in local government auditing. In December 2017, the SAO of Latvia published a discussion paper on rational operation and development of local governments. This document summarizes examples, conclusions and possible solutions from various audits of local governments carried out over the last five years.  Publishing of the discussion paper was in time with discussions about a new administrative reform; consequently the paper has greatly contributed to an ongoing debate.

In conclusion, introduction of new approaches and techniques in local government auditing has been a challenging yet immensely rewarding process. By improving the impact of audits, we are steadily moving closer to our main goal – better public governance.

Do local governments provide services to residents for reasonable cost?

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