From Euphoria to Fuzzy Accountability and back to New Hope: a Bumpy Decade in an Enlarged EU

Mr Alar Karis, Auditor General, National Audit Office of Estonia|Ms Ines Metsalu, Head of Financial Audit Department|Mr Urmet Lee, Advisor to the Auditor General

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by Mr Alar Karis, Auditor General, National Audit Office of Estonia
Ms Ines Metsalu, Head of Financial Audit Department
Mr Urmet Lee, Advisor to the Auditor General


The last decade of enlarged EU has at the same time been an opportunity as well as a challenge for supreme audit institutions (SAI). In retrospective the accession of Estonia to the EU seems very natural and logical. The same applies to joining of the National Audit Office of Estonia (NAOE) to the community of EU SAIs. For the NAOE, now almost a 100yearold institution[1], this has been a rapid period of development in terms of organisation build-up but even more importantly in terms of expertise and capacity growth. The decade has been a journey for us that started with focusing more on domestic issues with finding the best solutions how the work of the NAOE can contribute to the development of Estonia and continued with learning how the EU policy making processes and funding impact national politics as well as policy implementation.

The NAOE primary focus regarding the EU related issues has commonly been on money and on the local context. For us it is important to question: how does EU affect the local taxpayer? Since day one of membership the EU money and so called “own” money was seamlessly integrated in Estonia at least in the context of budgeting. The strategic and operational planning along with budgeting considers all resources regardless of their origin as the means for achieving the fulfillment of government goals. This is so in theory. In reality the source of money along with the rules that apply to the use of those resources as well as the goals set for the use do have effect on outcomes and auditing.

EU is more than funds

In Estonia the EU funds count for about 12% of total government spending in 2015 (figure 1). This is not too much but when 75% of the total government revenue is already fixed with certain spending obligations and of the remaining 25% of revenues for flexible spending the EU funds count for nearly half then  the EU money becomes significant (figure 2). This phenomenon is also known in other smaller post-communist countries. In other words a lot of spending to boost the development of the country relies currently on EU funding. Then again the fixed spending in the budget also is designed to achieve certain policy goals and in this respect one tenth of the total spending is not too much. This consideration has risen and still raises a lot of questions for planning our audits. Administrative burden caused by the use of EU funding with heavily regulated application and usage procedures, with levels of local and external control and auditing starting from institution’s own internal audit and ending with the ECA’s audits  is a very important issue especially for a small country like Estonia. The NAOE itself can also contribute to this burden by simply doing audits and that calls for very cautious approach when launching jet another audit to check the use of EU funds. For that reason the NAOE has positioned itself towards auditing of EU funds as provider of more complex view and usually the EU funding is dealt within the scope of a particular performance or a financial audit of an institution. Anyway, the accession to EU brought the EU funds to the picture and thus complicated the quest of supreme audit institutions to make users of public funds accountable.

Figure 1. Changes of foreign source receipts in national budget (mil EUR (left axis); % (right axis))[2]

Source: Estonian Ministry of Finance

Figure 2. Division of state budget expenditure between fixed and non-fixed funds (% of state budget)[3]

Source: State Budget Strategy for 2015-2018

The developmental impulses to the NAOE given by the accession of Estonia to the EU cannot certainly be underestimated and the effects keep emerging. Ten years ago nobody imagined how interlinked the EU member states’ economies will be, especially during the recession. Nobody provided risk assessments to national parliaments about the fiscal behavior of another member state. It is now clear that often this is as great threat for national well being as a fraud or poor performance of domestic policy programs. Also those local problems of poorly performing policies affect everybody else in the union as well. Today this is a reality. This reality goes further than member states just coordinating economic and employment policy or sharing competences with European Commission in the areas like transportation, agriculture or energy. A number of other policies like taxation, most of social affairs, education, healthcare etc. which are considered solely a national realm even according to new Lisbon treaty are today causing pan-European challenges. And very particular problems to member states like Estonia be it labour migration or financial obligations taken in the framework of ESM or making industry more competitive. These developments should make auditors in EU to ask from ourselves how can we give fair and complete opinions when we only look at the part of the picture?

Who is responsible?

A very simple question, a basic one for establishing accountability but in reality very difficult to answer. It is difficult in a domestic context let alone in the context of today’s EU28 with multilayered structure of governance and parallel lines of accountability. The latest landscape review from the European Court of Auditors (ECA) on accountability stated that „In most policy areas covered by the EU treaties, the competences are shared between the EU and its Member States. For example, various EU policies depend in large part on Member State budget resources (the EU budget represents less than 1 % of GDP compared to 49 % of EU GDP spent by governments in 2017); achieving broad treaty objectives through strategies and targets (for example Europe 2020 targets) depends mainly on Member States’ actions financed by their national budgets; the new EU fiscal and economic coordination arrange­ments cover the totality of public spending in the EU, but all actions in this area are subject to a complex system of cooperation. In such cases, coordinated action by the EU is required in order to achieve common objectives.“[4]

The answer the NAOE has to the EU accountability puzzle is international co-operation with EU and other SAIs. Over the last decade there have been a number of successful undertakings in different forms where the NAOE has had an opportunity to participate.   Among them were secondments of national experts at the ECA and various activities with EU member state SAIs like the Netherlands, United Kingdom, Denmark, Finland, Lithuania and many others or with countries like Canada, Norway, the United States, or Russian Federation. These undertakings have indicated what are the benefits as well as bottlenecks of international cooperation projects. Most importantly, they have demonstrated that this is only the beginning of how the future audits will be done.

Very clearly and undisputedly the problems of natural environment, which have acquired growing attention of the international audit community, have been a priority also to the NAOE.  The nature does not stop at the borders and neither does the NAOE. This has driven our commitments in chairing the INTOSAI Working Group on Environmental Auditing (WGEA) and most recently in taking the lead in the EUROSAI WGEA. It only remains to be seen whether the issues of social security or health care or education or taxation will also gain such a prominence as to call for more coordinated actions from EU SAIs. The level of European integration is most of all the expression of political will and not a technical exercise.  So, SAIs cannot lead the way here but we can be ready when that happens. The NAOE does that in coming years by allocating extra funding for international cooperation and trying to internalize international relations amongst the auditors as a norm in the standard process of auditing.

Do more with less, paperless!

The first part of this slogan is the very nature of performance improvement everywhere. The NAOE has often called Estonian public administration to do just that. But in return the NAOE itself must provide a good example. The big challenge for SAIs is that audit environment is becoming more complex and complicated but at the same time the funding of SAIs in many EU countries is negatively affected by austerity policies. The answer the NAOE has to those developments is technology – IT technology. All the vast amounts of data that are created digitally by the government are a resource for us. We need to understand it and we must be able to process it. In this way we can achieve a saving in audit costs as well as improve the accuracy of our input data.  The NAOE has made very good progress in making financial auditing paperless and increased significantly the use of e-solutions in performance and compliance auditing as well.