An audit can examine more than just numbers. (source: Reuters)
AUDITING companies can provide valuable recommendations from an outsider’s vantage point to administrators of public institutions and contribute to making the expenditure of public funds and their administrative procedures more effective. But an audit and its suggestions will not automatically mean improvement – this can only be achieved if the recommendations are implemented.
The Slovak Spectator spoke with Radim Konečný, manager of the Advisory Services Department at Ernst & Young in Slovakia, Jozef Hýbl, senior manager of the Audit Department at Deloitte in Slovakia and Jozef Géci, director at KPMG in Slovakia about auditing and its role in developing more effective public administration, how such audits can make the expenditure of public funds more transparent and efficient, and the degree of interest by public institutions in undertaking audits aimed at improving their services.
The Slovak Spectator (TSS): What role can audit companies play in creating a more effective public administration?
Radim Konečný (RK): Audit and consultancy companies, as independent and objective entities and typically with vast international experience, can provide effective support to the functioning of public administration. When providing such services our company often focuses on the effectiveness of processes and project management in public administration, which means checking whether duties of a specific institution are being fulfilled properly and with the best use of available resources, human, financial and material. This outsider’s viewpoint can contribute to public administration getting a better understanding of its operation and, for example, also making a comparison of processes in comparable institutions. These are useful prerequisites for improving its performance.
Jozef Hýbl (JH): This is a wide-spectrum question, which embraces all aspects of the effective functioning of public administration from setting, as effectively as possible, internal processes for its functions, internal checks, communications and management of the effective use of public funds and funds allocated from the state budget or municipal or self-government budgets. Audit companies, through their consultancy services – which include especially audit, tax, business and financial consultancy – cover all aspects of the effective functioning of public administration and thus can significantly contribute to improvement in effectiveness.
Especially companies from the so-called Big Four, which can use the knowledge and extensive experience of top experts within a global network, could contribute in a significant way to reaching this goal. Using the specialised experience of audit companies as independent institutions might be of key importance in the process of making public administration more effective.
Jozef Géci (JG): By involving auditing-consultancy companies, the benefit can be achieved primarily thanks to their experience with projects aimed at evaluating processes and organisations, inputs and impacts, setting goals, and preparing strategies as well as with transformation of processes and organisations. They can also contribute hugely with an unbiased view of reality, with the use of proven methods and good practices that they have acquired through international experience or which they have created by rendering services or making surveys and analyses.
TSS: How can an audit of public administration help to make the expenditure of public funds more effective? On what areas should such an audit focus and what processes in public institutions should it analyse? What prevents higher effectiveness by public institutions?
RK: A financial audit generally does not examine the effectiveness of spending. It focuses on the accuracy and plausibility of the reported data and accounting methods. Examination of whether public funds are spent effectively is within the consultancy services which our company also provides.
We perceive the areas of public procurement, use of EU funds and internal economic management as problematic in some individual institutions. It is possible to achieve significant savings in operations as well as in the investment area. To achieve this it is necessary to understand the priorities and needs of an organisation, and to handle procurement in a transparent way and secure true competition between potential suppliers. There are well-known cases of ministries or institutions spending for unnecessary services or goods or paying higher prices than necessary. When all these ineffectively spent sums are added together, public institutions can save significant resources which can then be used in other places where they are needed. Therefore initiatives leading to, for example, centralisation of purchasing can bring significant benefits.
JH: The task of a financial audit is not to help make expenditure of public funds more effective. Its aim is to express an independent opinion of the financial statements of a company or institution, and whether it is prepared in all important aspects within the relevant accounting framework. The effective use of public funds should be a matter of a specialised examination or assessment, with results that will be proposals for measures to improve the use of public funds within individual chapters of the state budget or municipal budgets or in individual pivotal segments of the operation of public administration. Without a deeper understanding of the functioning of public administration it is not possible to say which segments are problematic. In general, among the segments seen as problematic are procurement of services, goods and products, improvement of organisational structure and the proper functioning of the responsibilities of public administration, an increase in the performance of public employees and so forth.
JG: Various surveys in public administration imply that there is a low level of setting and monitoring performance targets and thus also of pivotal indicators of performance. This results in things like criticism for lack of effectiveness and failures to respond, ineffective use of resources, a low quality of services, and investments in infrastructure and technologies without any visible return on investment.
Audits and consultancy should be focused on work performance and its management. This means also evaluating what value (benefit and impact) the processes, investments and programmes have, to evaluate the costs involved, and to eliminate places where resources are wasted. Subsequently to prioritise resource expenditure and reduce programmes which are not applicable in the current economic climate. Finally, to make a series of initiatives aimed at re-engineering the way in which public services are performed – by using knowledge from the private sector where the internet, call centres, and service centres have changed the operational methods of many companies in a revolutionary way.
TSS: What measures might be implemented that you think could lead to higher effectiveness and transparency in public procurement?
RK: The necessary start is a well-prepared specification of the requested services or goods to be purchased. Well-structured and transparent publishing of information such as the basic documents for calculating an estimated price in the phase of the announcement of procurement would help. Another issue is the low level of responsibility of people who are preparing the procurement processes. From the viewpoint of the public procurement process we also perceive that the assessment of bids only on the basis of the lowest price is problematic because this does not enable a proper assessment of the value to be received for the money spent. Also, more oversight on the part of media would contribute pressure to make public procurement more transparent. We positively assess the efforts of the Iveta Radičová government to push the public procurement system towards better transparency, which not only has a positive impact on state finances but also sends a positive signal to investors and improves the business environment in general.
JH: Restricting the ability to affect the process of public procurement and select applicants according to subjective criteria should be of key importance for making public procurement more effective and transparent.
JG: There are several measures that can be implemented to help achieve this. One of them is transparent publication of information about tenders, including publishing connected documents (such as depiction of the subject, competition papers) starting from the planning phase on through the individual stages to the conclusion of a contract. Higher use of IT tools and standardisation (such as eAuctions and electronic public procurement) would also significantly help. Elimination of complex conditions for submitting administrative documents which currently are sometimes the reason for excluding bidders would also make the process more effective; for instance, requiring original and notarised documents only from the winner. Among several other measures, I would also mention standardisation of selection criteria and publication of contracts and their appendices.
TSS: What interest, based on your company’s experiences, do public institutions show in audits aimed at improving their effectiveness?
RK: Some projects in the areas of process or organisational audits were conducted in the past. But the problem was with follow-through implementation of recommended changes. Moreover, in the recent past the state administration did not have as large a problem with budget income and thus it was not pushed towards greater savings. Because of the economic crisis the current situation is different and government institutions must cut costs. Currently, our company is carrying out projects in the Czech Republic focused on identifying inefficiencies, recommending savings and improving effectiveness. So far, Slovak institutions have been searching for savings on their own and have not been using auditors or consultants to a large extent for these services.
JH: This interest is to a significant extent affected by politics and thus there is no unambiguous answer to this question. Because Slovakia is part of the European Union and is linked to financing via the structure of EU funds, the interest in improving the effectiveness of functioning of public administration should be enormous, with the aim to maximise the usage of EU funds.
JG: In the past it used to be quite big; these were general procedural and organisational audits. Today, the interest is limited or quite focused on specific spheres.
