National Audit Office’s Annual Report to Parliament 2024

Auditor General’s review: Sustainable management of public finances requires vigilance from auditors and overseers

General government finances continue to face challenges, and the outlook for central government finances remains uncertain. The objective of Prime Minister Orpo’s Government Programme has been to improve the general government fiscal position and stop the growth of government debt. In addition to the measures outlined in the Government Programme, the Government decided on further adjustment measures in the spring of 2024. These include significant additional savings that will be implemented as early as next year, affecting even the central government, i.e. the ministries and agencies.

The persistent general government deficit in Finland is due to expenditure growing faster than revenue over a long period and remaining permanently at a higher level than revenue. Social and health expenditure, in particular, has increased following the ageing of the population. The imbalance between revenue and expenditure is not a cyclical but a structural challenge.

Against this background, the magnitude of the adjustment measures decided by the Government can be considered justified. However, despite the savings, the central government must ensure that its statutory tasks are performed. At best, this can be done by prioritising tasks and genuinely improving productivity. We will take these aspects into account when planning our audits, while also ensuring that the budget approved by Parliament is complied with.

Despite the measures decided by the Government, no rapid turn for the better is expected in the outlook for public finances. This means that we must be able to cope with scarcity even in future. The purpose of our audit and oversight activities is to ensure the cost-effectiveness and lawfulness of the use of public funds as well as the responsibility of fiscal policy and to promote in general the productivity, economic efficiency and cost-effectiveness of the central government. One of our key tasks is to strengthen good and open government. Our new task of maintaining and overseeing the Finnish Transparency Register is connected with this.

We have been operating with the current organisation and management model for almost two years, and we have been implementing our new strategy from the beginning of this year. The basic premise behind our new organisation and management model as well as our new strategy was enabling efficient and effective performance of our core activities.

Our strategic purpose is to ensure sustainable management of public finances and an efficient and transparent central government. We strive to achieve this by strengthening government’s accountability to Parliament and the public through our audit and oversight work, by producing reliable and relevant audit and oversight information about topics significant to central government finances and financial management, and by supporting efficient and lawful government through our activities.

In order to implement the priorities of our activities, we must take care of our professional skills and the well-being of our work community, utilise digitalisation and new methods, and act efficiently and transparently.

Our strategy outlines how we target our audits, what the objectives of our audit and oversight activities are, and how we develop our activities. The completion of the new strategy does not guarantee anything as such, but its adoption and practical application require sustained efforts from us. Our strategy has been translated into concrete plans in our operational and financial plan, in our audit and oversight plan as well as in our annually set performance targets. We have already made strong progress in planning our activities for 2024–2027 with emphasis on our strategic priorities.

Our agency has very important tasks to perform. Each period of time has its own challenges, and we must be able to target our actions accordingly. Our objective must be to perform our core activities now and in the future effectively and in such a way that our employees’ well-being and motivation to do their work remain high. In this sense, we will never be ready but we can always improve and develop.

The annual report provides an in-depth overview of the risks associated with the state’s financial management and the activities supported by the state

Chapters 1 to 6 of the annual report present the main findings and conclusions of the audits published between September 2023 and August 2024 as well as the NAOF’s recommendations to the audited entities. The chapters provide an in-depth overview of the risks associated with the state’s financial management and the activities supported by the state.

Chapter 1 deals with central government debt management and financial steering measures. The substantial rise in interest rates in recent years has caused significant costs to the central government and hampered the management of interest rate risks on central government debt. However, the debt management strategy of the on-budget entities has mainly proved to function well despite the difficult circumstances. The state supports the financial management of the local government and safeguarding the basic services through the obligation to cover deficits, laid down in the Local Government Act, and the assessment procedure of municipalities in a particularly difficult financial situation. Similar but stricter regulations have also been set for the financial steering of the wellbeing services counties. The state is therefore better placed to steer the finances of the wellbeing services counties than those of the local government. Successful financial steering of the wellbeing services counties and municipalities requires determined development of the knowledge base on their finances and activities.

Chapter 2 presents the key findings of the financial audits of the accounting offices for the financial year 2023 and the conclusions of the audits targeted at the management of certain subsidies. We find it concerning that the number of cautions issued particularly on procedures contrary to the budget has continued to increase. The most common reason for a caution was that budget expenditure had been allocated to the wrong budget year and that appropriations had been carried over in violation of the budget and regulations. The financial audit reports for 2023 included an exceptionally large number of cautions in which we required that an appropriation carried over be cancelled. In connection with the financial audits, we also assessed the implementation of economic sanctions against Russia. No material shortcomings were observed in compliance with the sanctions imposed by the EU, but more attention should be paid to steering and internal control to support compliance with the sanctions. The chapter also deals with the management of the EU Recovery and Resilience Facility and tax subsidies. Both of these are complex structures and schemes that hamper transparent allocation of subsidies, automated management and the monitoring and assessment of the intended impacts.

Chapter 3 deals with the preconditions for the implementation of reforms and policy objectives, which have also been addressed by several of our previous audits. It is impossible to overemphasise the importance of legislative drafting based on a comprehensive knowledge base and careful impact assessments to successful implementation of reforms and policy objective, especially in the case of reforms extending beyond parliamentary terms. Even high-quality preparations cannot fully prevent challenges and shortcomings, which may emerge only during the implementation. For this reason, it is important to ensure that the implementation is steered and monitored efficiently. In audits targeted at various policy areas, we have found that responsibilities, tasks and procedures divided between different administrative sectors may slow down and hamper the achievement of objectives and the steering and monitoring of activities.

Chapter 4 addresses government support for agriculture, forestry and the battery sector, which are of great importance to Finland’s self-sufficiency, security of supply and industrial competitiveness. Our audits reveal the complex and partly conflicting targets of the state subsidy policy. Subsidy policy is a balancing act between strengthening the profitability and competitiveness of activities and supporting the sustainable development goals. Here, too, a coherent and reliable knowledge base on the status of activities and the subsidies granted promotes the management of the subsidy policy. The battery industry is an example of a globally significant and competitive sector. However, Finland’s competitive position as an investment target is challenged by the government subsidy measures taken by the USA and the EU and other incentives. Being a small economy, Finland must seek low-cost and risk-controlled operating models to attract investments.

Chapter 5 focuses on the organisation of central government activities and the state’s role in supporting and steering activities. In recent years, limited liability company has been a popular form of organisation of central government activities. However, the capitalisation, ownership steering and activities of limited liability companies may involve risks and have unexpected financial impacts. We are of the opinion that new companies should be founded only after careful consideration and that the public authority responsible for the ownership steering of a state-owned company must have a clear understanding of the company’s objectives and activities. According to our audits, the arrangements used in the central government are mainly well-functioning. However, financial risks may be realised in long-term government procurements, especially in information system projects. Lack of competition is the most important risk to the economic efficiency of procurement. The chapter also discusses the state’s role in activities for which the state alone is not responsible. The experiences gained during the Covid-19 pandemic accelerated the preparedness of the central government and its stakeholders for crisis situations. On the other hand, the measures taken by the previous governments to centralise the hospital and 24-hour service network have not progressed in accordance with the objectives, and it is not possible to assess the achievement of the savings targets set for them on the basis of existing information.

Chapter 6 deals with operating models promoting employment and the risks associated with them. As from next year, the employment areas formed by municipalities will be responsible for organising the public employment services. The Nordic labour market service model and the reformed cross-sectoral joint service promoting employment will then also be incorporated into the new service system. In our audit, we found a number of risks and shortcomings in the operating models that should be remedied before the models are put to use in the new system. The difficult resource situation in the wellbeing services counties presents its own challenge to helping those who are difficult to employ. We also audited the reform of continuous learning, which supports the development of the competence of the working-age population and the availability of skilled labour. The implementation of the reform has proceeded well. However, the financing has focused on grants and a small group of actors. This has not adequately supported the consolidation of new operating models and the development of competence services for people in a weak labour market position.

Chapter 7 examines the coverage of our audit activities and the implementation of our audit recommendations. Although our audits focus on the administrative sectors that use most of the central government funding, we also take the risks affecting smaller administrative sectors into consideration in our audits. The audited entities implement most of the recommendations presented in our audits: 81 per cent of the recommendations made in our special audits have been implemented either fully or partially. The rate of implementation of the recommendations made in our financial audits is even higher (93 per cent).

Sami Yläoutinen
Auditor General

The National Audit Office’s Annual Report to Parliament 2024 is only available in Finnish and Swedish.