The 200-year history of the National Audit Office of Finland (NAOF) traces back to the General Revision Court, which was established at the end of 1824 and started its operations in spring 1825. Its task was to verify accounts as correct or, if necessary, declare them erroneous. The revision court tradition continued in Finland for over 120 years, until the wars of 1939–1944, when the country’s critical moments influenced the audit of central government finances and its organisation.
In 1941, a separate agency, the Audit of Military Finances, was established to operate alongside the State Revision Office and audit war-related expenditure. After the war, the state of audit activities and the future requirements the new situation set for them were taken into careful consideration. As a result of this consideration, the Act on Audit Activities was amended in 1948. The State Revision Office was then renamed as the National Audit Office of Finland.
The laws governing the National Audit Office have been amended several times, but the tasks assigned to it in 1948 remain the same. The task of the National Audit Office was and still is to audit the legality and appropriateness of the management of central government finances and compliance with the state budget. Its task was not even affected by its transfer in 2001 to operate in affiliation with Parliament, which was an important step for its independence. However, the responsibilities of the National Audit Office have been expanded during the time it has operated in affiliation with Parliament, and various oversight tasks have become an integral part of its activities.
“The National Audit Office performs valuable and long-standing basic tasks. These tasks are related to ensuring sustainable management of public finances and an efficient and transparent central government. The NAOF’s values have the same goal. We do our work responsibly, objectively and courageously,” says Auditor General Sami Yläoutinen.
The Auditor General outlines the starting points for the NAOF’s work in the coming years as follows: “We recognise our valuable basic tasks and strive to perform them with awareness of future challenges. Cost-effectiveness, legality and transparency of the use of public funds as well as open and efficient functioning of the public administration are always important, regardless of the circumstances. Their importance is highlighted particularly in difficult economic times.”
However, focusing on the basic tasks does not mean stagnation. The National Audit Office must keep up with societal change. The Auditor General raises three issues in this connection:
Central government finances will continue to face new, unprecedented challenges and risks. Audits must be targeted at topics that are relevant for central government finances at the time, while taking into account various interdependencies. These challenges rarely follow the boundaries of administrative sectors. This requires constant vigilance and agility from the NAOF.
Audit and oversight methods keep developing. Therefore, the NAOF’s strategy emphasises the importance of being able to utilise new technologies in our work. It is well known that technological progress will never end.
The requirements society sets for institutions operating with public funds are constantly changing. It is not enough to comply with the letter of the law, but we must also keep the efficiency, openness and ethics of our activities clearly in mind.
Position of the National Audit Office
“There shall be an independent National Audit Office in affiliation with Parliament. The task of the National Audit Office shall be to audit the legality and appropriateness of the management of central government finances and compliance with the state budget.” (Act on the National Audit Office, 14 July 2000)
The current National Audit Office of Finland has its origins in 1824, when the General Revision Court was established in the autonomous Grand Duchy of Finland. From the beginning, the NAOF’s activities were centred around the auditing of the accounts of government agencies. Its task was to examine whether the funds granted in the budget had been spent in accordance with the law and decisions and to highlight any errors and irregularities. For a long time, the focus was almost purely on financial auditing, but it gradually moved on to auditing the appropriateness of the state’s financial management.
Until 1973, the National Audit Office was responsible for auditing the annual accounts and financial statements of all accounting offices. In 1973, the legislation on the National Audit Office was amended in such a manner that the NAOF was able to decide itself what it audited and to what extent. As a result of the legislative amendment, the NAOF ceased to audit all accounting offices. The number of government agencies had grown radically: between 1972 and 1975, for example, the number of accounting offices increased from 52 to 100.[1] The reason for this growth was the construction of a welfare state. This led to the growth of public administration and thereby to the growth in the number of accounting offices. The NAOF’s resources did not increase in pace with the growing workload, and therefore it was necessary to reduce its audit responsibilities.
In anticipation of the change, the National Audit Office drew up guidelines for government agencies on how to improve internal control. In this way, the control of the legality of the agencies’ activities could be expected to improve without the NAOF’s annual intervention.
Another way of improving the efficiency of auditing was to centralise resources. In the early 1970s, it was considered that one way to improve the efficiency of auditing was to focus on figures and numbers. Ever since the 1940s, the NAOF’s audit activities had strived to find the right balance between the two elements referred to in the law, i.e. auditing the legality and appropriateness (later referred to as cost-effectiveness). According to the 1947 Act on Auditing Central Government Finances, the task of the National Audit Office was “to audit the legality and appropriateness of the management of central government finances and compliance with the budget as well as to manage the state’s general accounting”.[2]
This referred to overseeing compliance with laws, decrees, regulations and the budget and auditing the accounts of government agencies numerically. As the internal audit of government agencies improved, there was no need to focus on the numerical audit in the same way as before. Therefore, the focus was assumed to shift to auditing the economic efficiency of measures, the implementation of the objectives set and the efficiency of procedures.[3] Since the turn of the 1960s and 1970s, the National Audit Office had been increasingly required to focus its attention on auditing appropriateness.[4] Consequently, the NAOF started to distinguish more consciously between different audit types. However, this was a long journey, and it was only in the early 1990s that the different functions were clarified. In 1992, financial audit and performance audit were finally separated from each other. In practice, the audit activities remained highly flexible, and there was no strict model for conducting audits. The methods could also vary from one audit to another.[5]
Once the decision had been made to abandon the mixed model of financial audit and performance audit, the National Audit Office started to increase the efficiency of financial audit. At the turn of the 1990s, the NAOF set the target to reduce the time spent on the financial audit of an accounting office to 20 days. To achieve this, the NAOF introduced checklists, descriptions of internal control, voucher sampling and automated data processing, for example. After a pilot phase, the NAOF set the target to conduct annual financial audits of all accounting offices by 1992. However, the target was not achieved until in 1995.[6]
At the beginning of the 1990’s, the NAOF’s organisation was also revised. The central government had decided to abandon the collegial structure where an agency’s decisions were made collegially by the Director General with the heads of departments. At the NAOF, the change was made at the beginning of the term of office of Tapio Leskinen, who was appointed as the Auditor General in 1992. The collegial body was replaced by a management group, but ultimately it was the Auditor General who took the decisions (whereas in the collegial model, a vote was taken, if necessary) unless he or she delegated the decision-making power. The power of the Auditor General was later confirmed by the Act on the National Audit Office.[7]
New areas for audit
The recession in the western economies, the collapse of the trade with the Soviet Union and deregulation of the financial markets contributed to the deep recession in Finland in the early 1990s. For the NAOF, the situation meant additional tasks. Its auditing rights were expanded in 1993 to the Government Guarantee Fund and the government subsidies granted to banks. The Government Guarantee Fund had been established to ensure the operation of deposit banks and the savings of depositors.
After the end of the Cold War in 1992, Finland applied for membership of the European Communities (EC). During the accession negotiations in 1993, the EC became the European Union as a result of the Maastricht Treaty. During the negotiations, the National Audit Office started preparing for a new task, and an EU contact group was set up in spring 1995 to promote contacts between the European Court of Auditors (ECA) and the Finnish central government. The EU membership also institutionalised the NAOF’s international connections. It was essential for the audit activities that the NAOF was granted the authority to audit all transfers of funds between Finland and the European Union.[8]
In the same year that Finland joined the European Union, the National Audit Office set up regional offices in Turku, Jyväskylä and Oulu. The Oulu office continues to operate in 2024, whereas the Jyväskylä office was closed already in 2001 and the Turku office in 2020.
Parliament and the Act on the National Audit Office
In 2001, a major change took place in the administrative position of the National Audit Office when it was transferred from under the Ministry of Finance to operate in affiliation with Parliament as an independent audit office. The need for change did not originate from within the NAOF but from Parliament. It was justified above all by improving Parliament’s access to information on central government finances.
Parliament’s opportunities to oversee the state’s financial management through its budgetary power had deteriorated in many ways since the 1960s. Examples of entities falling outside the scope of Parliament’s budgetary power were unincorporated state enterprises, state-owned companies, i.e. limited liability companies where the state is a majority shareholder, and the state’s associated companies where the state has a significant holding as well as the transfer of funds under the government grant and central government transfers scheme. It was later estimated by the National Audit Office that more than 60% of state funds were outside the central government on-budget entities.[9]
When the National Audit Office was transferred to operate in affiliation with Parliament, it was also given a constitutional status and a new Act on the National Audit Office, in which its tasks were specified in greater detail. Under the Act, the NAOF’s tasks followed the same pattern as before. The National Audit Office was to audit the legality and appropriateness of the management of central government finances and compliance with the budget. The right to audit transfers of funds between Finland and the European communities was regulated separately as before. Parliament’s financial management, the funds under the responsibility of Parliament, the Bank of Finland and the Social Insurance Institution of Finland remained outside the scope of the NAOF’s audit right.[10]
The transfer had hardly any effect on the practical audit activities. On the other hand, its indirect significance was greater, which was reflected in practice as a considerably more extensive reporting responsibility. Under the Act on the National Audit Office, the NAOF was to submit an annual report on its activities and, if necessary, separate reports to Parliament. These were all submitted to the Parliamentary Finance Committee, where it was the Administration and Audit Sub-committee that was primarily responsible for handling them.
The annual and separate reports submitted to Parliament forced the NAOF to consider the presentation and contents of the reports in a new way. This, in turn, had an impact on the targeting of audit activities, particularly performance audits, to areas relevant to Parliament.
In the early 2000s, the aim of performance audit was to highlight significant shortcomings and problems in the cost-effectiveness of public administration and the root causes of these. In addition, the NAOF was to provide decision-makers with information necessary for economic governance in a usable form.[11] These objectives were reflected in the definition of the priorities of performance audit. In 2001 and 2002, the focus of performance audit was on public financial governance systems, state funding schemes, investments and procurements as well as government grants and other financial support – these were of particular interest to the Parliamentary Finance Committee.
After that, the focus was particularly on the Government’s budget proposal and the Government’s annual report including the final central government accounts. This was due to the reform of the final central government accounts, which was carried out in 2004. The NAOF’s aim was to ensure that Parliament was provided with true and fair information in the budget proposals and annual reports.
The NAOF’s financial audits remained unchanged when the National Audit Office was transferred to operate in affiliation with Parliament. The NAOF audited all the accounting offices that fell within the scope of its audit rights. The number of accounting offices remained relatively constant for years, and the only more significant change before 2009 concerned off-budget funds. Parliament started to require that their financial audits should be transferred to the NAOF in order to obtain a better picture of the use of state funds. The requirement reflected Parliament’s need to be better able to control the use of public funds, as an increasing number of the central government’s financial transactions had fallen outside the scope of Parliament’s budgetary power.
The transfer of the NAOF to operate in affiliation with Parliament and the 1999 Act on the Openness of Government Activities posed challenges for communications and the management of the publicity of information. In addition, the reports submitted to Parliament brought the results of the NAOF’s audits to the attention of the general public in a completely new way. In response to the challenge, a communications officer’s post was established at the NAOF, and electronic communications were developed. Plans were also made to start publishing a magazine on audit activities, and in 2007, after long preparations, the NAOF started to publish the magazine Reviisori twice a year. The magazine was published until 2016.
Audit Committee and raising the profile
In 2007, the pattern of cooperation between the National Audit Office and Parliament changed when an Audit Committee was set up in Parliament. The Audit Committee became the most important channel for conveying the NAOF’s views to Parliament. The Finance Committee naturally continued to be another committee in which the NAOF’s officials were often heard and to which the NAOF submitted a large number of opinions.
The establishment of the Audit Committee clarified the NAOF’s role in relation to Parliament. In a way, the Audit Committee mirrored the NAOF in Parliament. It examined central government finances through parliamentary oversight and, at the same time, took on the role previously played by the Parliamentary Auditors. Matti Ahde, the first Chair of the Audit Committee, summarised the relationship by stating that the Audit Committee composed music to a libretto written by the National Audit Office.
The change strengthened the status and awareness of the National Audit Office. The NAOF also wanted consciously to distinguish itself from other agencies and disassociate itself from the reputation of a central agency. It strived to be profiled as an independent oversight authority operating in affiliation with Parliament alongside the Parliamentary Ombudsman. The NAOF’s annual reports began to highlight the NAOF’s special position among agencies:
“The National Audit Office is an independent external audit body that operates outside actual state administration or administration under Parliament. It has the status of a control authority prescribed in the Constitution along with the Parliamentary Ombudsman and the Chancellor of Justice.”[12]
During Tuomas Pöysti’s term of office as the Auditor General (2007–2015), the NAOF also started to pay more attention to its public image. The aim was to increase the NAOF’s media coverage and stakeholder cooperation. Reports to Parliament, in turn, were developed to take the macroeconomic perspective, advocated by Pöysti, more consciously into account. A common feature behind these changes was the strong desire to increase the NAOF’s societal impact. The aim was for the NAOF not to be seen as just a grey agency among others.
The basic principles for organising audit activities were recorded for the first time at the meeting of the International Organization of Supreme Audit Institutions (INTOSAI) in Peru in 1977. After this, common audit methods and standards were further developed in international meetings. These guidelines also had an increasing impact on the standards defined by the NAOF for the different audit types. During the terms of office of Tuomas Pöysti and Tytti Yli-Viikari, who succeeded Pöysti as the Auditor General, the NAOF sought to play an active role in international audit cooperation, and it also concluded bilateral agreements with non-European countries. However, the most significant international cooperation focused continuously on the European Union and particularly on the Nordic countries and Estonia.
Cost-effectiveness of the central and general government
The systematic steering of central government finances and the importance of monitoring the implementation of the targets set began to increase by the turn of the 2010s. To sharpen economic governance, the spending limits procedure was reformed in 2003, and a year later a controller function was set up at the Ministry of Finance. The controller function was responsible for ensuring that the Government’s annual report and the final central government accounts provided Parliament with true and fair information on central government finances and operational performance, particularly on the effectiveness.
The same trend was reflected in the NAOF’s activities. Performance audits and reports to Parliament started to take more account of the link between the observations made and the central government finances as a whole, particularly the cost-effectiveness of the public administration activities. Tuomas Pöysti, who had taken office as the Auditor General in 2007, strived to further strengthen this approach, which was not surprising as he had served as the Government Financial Controller before joining the NAOF. Mikko Koiranen, who was the Director of Administrative Services, described the change as follows: “The audit of individual appropriations was replaced by the audit of economically significant entities and the development of methodologically reliable knowledge formation.”[13]
New themes introduced in performance audit plans were “the financial impacts of regulations as anticipated in government proposals and implemented in practice” and “the productivity of public administration”.[14] Performance audits focused increasingly on cost-effectiveness, and the Finnish name of the audit type was changed (from ‘toiminnantarkastus’ to ‘tuloksellisuustarkastus’) in 2009 to reflect this.[15]
Performance audits started to focus on how effective central government measures had been and whether the desired objectives had been realised. Around the turn of the 2010s, performance audits highlighted the perspective of societal impacts.[16] In this way, the NAOF sought more consciously to influence the development of public administration. There were also some successes in this. In 2013, for example, the NAOF’s performance audits had a direct impact on the legislation on shared central government IT services and the establishment of the Government ICT Centre Valtori.[17]
The change of the Finnish name for performance audit was also affected by the fact that compliance and regularity audit was being separated into its own audit type at the same time. Compliance audit referred to audits where the main audit question and audit design were legality or compliance with the normative requirements of good governance.[18]
Compliance audit had fallen within the scope of both financial audit and performance audit, but in 2010, it became a separate audit type. Profiling it as a separate audit type also became topical because compliance audit had recently received its own international ISSAI standards.[19] The NAOF has conducted a few compliance audits every year, and they have proved to be effective tools for developing public administration and financial management.
In the same way as compliance audits, steering system audits combined financial audit and performance audit competence. According to the manual drawn up at the National Audit Office in 2010, a steering system referred to those operating practices and systems of the management of an administrative sector by which the management strived to make the administrative sector cost-effective, but it also included the management’s way of reporting to Parliament on its activities.
Under the NAOF’s strategy for 2007–2010, the steering system audit was a development target. Its results were reported in the NAOF’s separate report to Parliament on the final central government accounts.[20] Steering system audits were carried out until 2017, by which time almost all administrative sectors had been audited. However, the function died down gradually, particularly as the management’s attention was focused on other issues.
In financial audit, the significant changes in the 2010s concerned universities and the Centres for Economic Development, Transport and the Environment (ELY Centres). The Universities Act was enacted in Finland and entered into force at the beginning of 2010. As a result of the Act, universities were separated from the state organisation and granted financial and administrative autonomy. After the reform, universities no longer belonged to the state, but they were independent institutions or foundations.
For the National Audit Office, this meant the end of financial audits of universities, because under the new law, universities were to organise their statutory financial audits through private audit firms.[21] The impact of this was seen in 2011, when the number of audited accounting offices fell from 118 to 90.[22]
The next drop in the number of accounting offices took place in 2013, when the number fell to 69. The reason for this was the reform of the ELY Centres. The financial and HR administration tasks of the ELY Centres and TE Offices were assigned to the ELY Centre for South Savo, which then acted as the accounting office for all ELY Centres.[23] In 2015, it became the Development and Administrative Centre for ELY Centres and TE Offices. The NAOF remained responsible for its financial audit.
The NAOF is assigned oversight tasks
The separation of audits of the fiscal policy knowledge base and effectiveness into a separate audit type in 2010 signified a more comprehensive approach to audits. The development of fiscal policy audit had started in 2007. It quickly gained an international dimension when a network of fiscal policy audit was established on a proposal from the Finnish and Swedish National Audit Offices.
Following the financial crisis of 2008–2010, the provisions on compliance with the European Union’s Stability and Growth Pact and the consequences of breaches of its terms and conditions were specified by legislation in 2011–2013: the European Union’s Stability Pact, the European Union’s Budgetary Frameworks Directive and the Budgetary Plans Monitoring Regulation. Each Member State was to set up a national independent fiscal institution (IFI) to monitor compliance with the legislation, and in Finland, the task was assigned to the NAOF.
Since 2013, the fiscal policy monitoring function has submitted a separate report to Parliament on compliance with fiscal rules. In these reports, the NAOF has repeatedly drawn attention to the chronic budget deficit (the so-called sustainability gap) and made proposals for remedying the situation. In addition, the function has developed its own research methods to examine the state of central government finances.
Another extensive oversight task was related to political activities. In the 2000s, international organisations, such as the Council of Europe’s anti-corruption body GRECO and the OECD, criticised the oversight of election campaign and political party funding in Finland as being inadequate. Driven by the revealed breaches of the obligation to disclose election campaign funding in the 2007 parliamentary elections, legislation began to be tightened. However, the challenge was deciding on which authority would be responsible for overseeing the funding. Finally, the NAOF was assigned the responsibility for the oversight – partly due to its own initiative and partly due to the lack of other alternatives. The constitutional problem of whether such a role could be assigned to the NAOF by law was resolved when the Constitutional Law Committee expressed its opinion that the new task supported the strengthening of democracy and therefore did not conflict with the NAOF’s constitutional status.
As an independent actor, the NAOF was at first, in 2009, assigned the responsibility for the oversight of election campaign funding, followed in 2010 by the oversight of political party funding and in 2016 by the oversight of the use of government grants to political parties. In addition to oversight, the new responsibility included guidance and publishing the election funding and political party funding disclosures received. This also made the National Audit Office to an increasing extent a public service agency. At the beginning of 2024, the NAOF’s tasks related to political activities were expanded again when it was assigned the responsibility for the Finnish Transparency Register.
The growth of the monitoring and oversight responsibilities to become part of the NAOF’s everyday activities inevitably changed its profile. In a sense, it has also become a customer service agency. The change has also affected Parliament directly. The monitoring and oversight function has submitted a large number of reports and separate reports to Parliament. The number of these reports has been higher than that of the other reports the NAOF has submitted to Parliament, such as the annual report on the NAOF’s activities and the separate reports issued particularly on the audit of the final central government accounts and the Government’s annual report.
More consultative auditing
The NAOF’s stakeholders, such as the audited entities, the Advisory Board and the Parliamentary Audit Committee, repeatedly called for the NAOF’s role to be directed towards a more advisory mode in its efforts to develop public administration. This view was already highlighted in the 2019 review of operations: “The stakeholders… wish that the NAOF would adopt a consultative approach…”[24] This was strongly associated with the efforts to influence the development of the state’s financial management.
Tytti Yli-Viikari, who took office as the Auditor General at the beginning of 2016, highlighted impact as one of the NAOF’s key objectives: “Our operations are based on successful auditing, evaluation and monitoring of central government finances and on contributing to sustainable renewal of general government finances and public administration.”[25]
The vision was realised in the 2019 reorganisation, when all of the NAOF’s activities were organised into four so-called impact areas. The aim was for the NAOF’s impact not to be seen as divided into, for example, performance or financial audits but to use different audit types on a case-by-case basis. This led to so-called combined or multi-type audits, the basic idea of which was to combine expertise in different audit types according to the audited entity.
The first multi-type audits were launched in spring 2019. Their purpose was to provide decision-makers with a comprehensive information package that flexibly combined the perspectives of compliance, performance and fiscal policy audits. The reason for launching multi-type audits was the stakeholders’ wish that audits should combine information obtained by the use of different methods and perspectives.
The NAOF has completed two to three multi-type audits every year. For example, in 2022, multi-type audits were targeted at grants awarded from gambling proceeds and the state pension scheme and central government liabilities in other pension schemes.
One of the reasons for the reorganisation was the changes expected to take place in the financial audit methodology. As AI, data analytics and other technological developments were expected to reduce the resources needed for traditional financial audit, the Auditor General considered that it was necessary to redirect labour resources.[26] It was considered that the existing resources could be utilised more efficiently in audits combining different audit types.[27] The new operating model was also considered to require new kind of knowledge management and competence, and for this purpose, competence centres were set up. Audits began to be regarded as projects, to which employees applied through the NAOF’s internal labour market created for this purpose. At the same time, project management was separated from people leadership. The organisation was matrix-based and highly decentralised.
However, the new organisation did not work as well in practice as on paper – on the contrary. When the violations of Auditor General Tytti Yli-Viikari came to light, criticism of the selected organisational model and its complexity also accelerated. As soon as the Auditor General had been dismissed, preparations to abandon the model began, first under the leadership of Matti Okko, who acted as Deputy to the Auditor General, and from the beginning of 2022, under the leadership of Sami Yläoutinen, the new Auditor General.
Return to core activities
At the beginning of 2023, the NAOF adopted a new organisational model, where the organisation was divided into three units: Monitoring and Oversight, Audit and Shared Services. The complicated matrix model was replaced by a line organisation, which had also been in use previously. At the same time, leadership and management were consolidated again into the same hands.
The Monitoring and Oversight Unit includes the independent fiscal policy monitoring function and fiscal audit carried out in connection with it, and the Unit is also responsible for the oversight of political party and election campaign funding and for processing complaints and reports on irregularities. At the beginning of 2024, the Unit was assigned a new task: maintenance of the Finnish Transparency Register, or the so-called lobbyist register, and the oversight of compliance with the disclosure obligation.[28] The role of fiscal policy monitoring at the National Audit Office has also been discussed, as the possibility of merging the fiscal policy monitoring function with the Economic Policy Council is currently being examined.
The Audit Unit is responsible for conducting financial audits, performance audits and compliance audits. The Unit comprises four performance audit groups and five financial audit groups.[29] The financial audit function received a new, big task at the beginning of 2023, when the NAOF was assigned responsibility for auditing the wellbeing services counties, which started operating at that time.
According to the Act on Wellbeing Services Counties, adopted in 2021, the National Audit Office has the right to audit the legality, appropriateness and cost-effectiveness of the activities and financial management of a wellbeing services county and the entities controlled by it or jointly controlled by all the counties as regards the funding provided by the state.[30] The audit of the wellbeing services counties was a significant change in the NAOF’s operating field, as in the past, health and social services had been the responsibility of municipalities and thus outside the NAOF’s financial audits.[31]
In other respects, financial audit remained largely unchanged, and the same applied to performance audit. The previously created compliance audit and multi-type audit continue to be part of the NAOF’s activities. In 2024, the National Audit Office’s audit work focused on seven entities:
Government and ministries
government agencies and institutions
off-budget funds
state enterprises and state-controlled companies
wellbeing services counties
central government transfers and subsidies granted to municipalities, companies and other entities
transfers of funds between Finland and the European Communities.
Parliament’s financial management, the funds under the responsibility of Parliament, the Bank of Finland, the Financial Supervisory Authority and the Social Insurance Institution of Finland fall outside the scope of the NAOF’s audit right.
The Shared Services Unit has a highly multifaceted area of responsibility. The Unit is responsible, for example, for HR, financial and information management services, for tasks related to communications and national and international networks, for premises and case management tasks and for shared assistant services. International activities have been narrowed down to the cooperation that is the most relevant for the NAOF.[32]
Building trust in governance
The main task of the National Audit Office has been to ensure that state funds are used for the purpose decided by Parliament and that the use or allocation of the funds has not violated the legislation in force. “Without external audit, Parliament would not have obtained verified information on compliance with the budget,” said Lassi Perkinen, head of the NAOF’s performance audit function, in autumn 2023.[33] According to Eero Heinäluoma, former Chair of the Parliamentary Audit Committee, the key role of the National Audit Office has been to ensure that “state funds are used appropriately”.[34]
In the light of history, the NAOF’s audits have focused on examining whether public funds have been used for the purpose decided. The NAOF has also examined whether public funds have been used sensibly and cost-effectively – and not only in compliance with the law or budget. This has been facilitated by the fact that the NAOF is an actor “that can delve deep into public administration to audit and assess its activities”, as Lassi Perkinen says.[35] This is made possible by the extensive audit rights granted to the NAOF by law.
It can probably be assumed that using public funds legally and appropriately increases people’s willingness to pay taxes. Maintaining the willingness to pay taxes has also regularly been referred to in the NAOF’s reports.[36] In the annual report for 2011, it was stated as follows:
“According to the relevant standards, it is the task of the supreme external auditors of the public sector to contribute their findings to public debate. The idea is to enable citizens to assess the state’s financial management and financial interests and this way create justifiable confidence. This is ultimately about maintaining willingness to pay taxes.”[37]
According to this, confidence generated by transparency would also lead to citizens’ willingness to support public administration, and a fundamental way of supporting it is to pay one’s taxes appropriately. The lion’s share of central government revenue comes from income and value added taxes. They are largely paid by ordinary citizens. If these common funds are not used well, legally and appropriately, it may, in the citizens’ eyes, reduce the legitimacy of the state and the central government. This, in turn, may have an impact on the voter turnout, for example, and consequently, the credibility of the entire political system. “If taxes are collected, the citizens must be reported in some way on what has happened to the tax money,” says Visa Paajanen.[38]
It has traditionally been thought that Finns have accepted their taxes if the taxes have been a prerequisite for the preservation and development of the welfare society. According to the 2015 client survey of the Finnish Tax Administration, as many as 96% of the respondents considered it important to collect taxes for this reason, and three out of four felt that they had received a fair return on the taxes they had paid.[39] Although such questionnaire surveys are not necessarily particularly reliable, the NAOF believes that its audit activities provide a foundation for taxpayers’ knowledge that the tax money ends up for the purposes decided by elected MPs, such as the maintenance of the welfare state.[40]
It has also been necessary to publish this information. Therefore, since the beginning of the 2000s, the NAOF has systematically strived to make all audit information related to central government finances available to the public. Openness is also related to the NAOF’s role in the fight against corruption. In its 2012 corruption survey, Transparency Finland raised the question of “whether the activities of the National Audit Office are, in practice, sufficiently transparent from the citizens’ perspective”. However, the same study also questioned whether it was possible to improve transparency and communication “without undermining the implementation of the agency’s basic task”.[41]
Nevertheless, according to the survey, the NAOF had effectively fulfilled its role in the anti-corruption system; the only real concern was the limited resources.[42] The NAOF has indeed served as an institution for preventing corruption. This role was strengthened when the responsibility for the oversight of election campaign and political party funding was transferred to the NAOF.
For the shared information to be credible, the information produced by the NAOF must be regarded as reliable. As a rule, the reliability of the information produced by the NAOF has been guaranteed by the NAOF’s status as an independent organisation that decides itself what it audits and how. As Vivi Niemenmaa describes:
“Independence is the key word in this. No one can tell us what to do. From the international perspective, the independent position is something that is not necessarily fully understood. You should understand the global situation and the fact that there are countries where the Auditor General must be afraid of going to prison, looking at wrong things or drawing wrong conclusions.”
In general, surveys commissioned by the NAOF have highlighted the NAOF’s role as a source of neutral information.
It can be interpreted that the NAOF is essential for the functioning of democracy. It is realistic (or cynical) to assess that the democratic system would inevitably deteriorate without independent audits of central government finances. The Parliamentary Constitutional Law Committee also justified its decision to transfer the oversight of election campaign and political party funding from the Ministry of Justice to the National Audit Office by the fact that one of the NAOF’s tasks was to safeguard democracy.
The NAOF’s significance can also be assessed based on its impact on the central government and legislative drafting. As a rule, a financial audit is not a hunt for errors and irregularities, but it consists of requests and instructions for correcting errors and inaccuracies. In its annual reports to Parliament and, of course, in its reports to the audited entities, the NAOF has highlighted the need to develop public administration. Based on the follow-ups of audits, most of the NAOF’s recommendations are implemented either in full or in part.
In 2013, on the basis of the follow-ups to performance audits, the implementation rate of the NAOF’s recommendations was good by international standards: approximately 68% of the recommendations assessed had been implemented, at least to an essential extent. The impact of the National Audit Office has, to a large extent, resulted from the preventive and “accountability impacts” of its audits and monitoring, as stated by the NAOF in its report to Parliament in 2014.[43]
In its reports to Parliament and its opinions to the ministries, the NAOF has presented a large number of perspectives and development ideas. In this way, the NAOF has had a direct impact on legislation. However, all of the NAOF’s concerns about the management of central government finances have not been addressed. A good example is the sustainability gap, which was highlighted on many occasions as early as at the turn of the 2010s.
One of the key roles of the National Audit Office is related to Parliament: supporting parliamentarism. The transfer of the NAOF to operate in affiliation with Parliament was justified by improving Parliament’s right to obtain information on central government finances and their management, as an increasing number of central government functions had fallen outside the scope of Parliament’s budgetary power. The reports, opinions and hearings presented by the National Audit Office to Parliament have addressed this shortfall. The foundation for this expert task has been built by the audits conducted by the NAOF. When the NAOF’s significance is assessed, it must be recognised that its audits are also important for ensuring good governance.
All in all, the significance of the National Audit Office and the reason for its existence can be summarised as follows:
ensuring appropriate use of public funds
serving Parliament by producing information on the use of state funds
ensuring the cost-effectiveness of the central government
promoting the transparency of public administration
providing citizens with information on the use of state funds
ensuring the willingness to pay tax
preventing irregularities
increasing trust in Finland.
These aspects reflect well the NAOF’s self-perception during its history in affiliation with Parliament.[44]
The way other actors have perceived the NAOF’s significance naturally tells a somewhat different story. When the NAOF operated under the Ministry of Finance, the Ministry considered that the NAOF’s value lay in how it supported the Government’s work. This role has continued even after the NAOF was transferred to operate in affiliation with Parliament but, above all, through hearings during the ministries’ legislative drafting.
From Parliament’s perspective, the NAOF’s significance has, in practice, remained the same: to support Parliament’s access to information on central government finances and their management. The information has been channelled through the Parliamentary Audit Committee, and earlier through the Administration and Audit Sub-committee of the Finance Committee. The Audit Committee has acted as the NAOF’s counterpart in Parliament, and in this sense, the traditional dualistic model of the audit of central government finances has remained unchanged. The National Audit Office has also been significant for Parliament in other respects: for example, the Finance Committee has repeatedly utilised the NAOF’s fiscal expertise when preparing its reports.
For the audited entities, the NAOF is primarily a sparring partner and a source of development ideas. As a rule, the NAOF’s recommendations have been implemented. For the media, the NAOF has been a significant producer of news — initially primarily as a revealer of misuse of state funds but later mainly as a source of reliable information. The Advisory Board, in turn, has perceived itself as the NAOF’s discussion partner.
Despite all communication efforts, the average citizen’s awareness of the NAOF probably remains rather limited. The National Audit Office has mainly come up through information produced by the media. The surge in public interest in 2021 has subsided by now. However, by auditing and monitoring the use of public funds, the National Audit Office also carries out its quiet work for the benefit of the ordinary taxpayer.
[1] Etelävuori 2001, p. 76.
[2] Act on Auditing Central Government Finances (967/1947), section 1, subsection 1. In 1992, the wording was changed as follows: “The task of the National Audit Office shall be to audit the legality and appropriateness of the management of central government finances and compliance with the budget.” Act amending the Act on Auditing Central Government Finances (1211/1992), section 1.
[3] This development was promoted by automated auditing of mechanised accounting and the growing importance of postal giros; Report of the National Revision Commission 1971, pp. 7, 10–11.
[4] For example, the report issued on 24 March 1970 by a working group set up by the Ministry of Finance; Halila et al., p. 108.
[5] Etelävuori 2001, pp. 52–53.
[6] Etelävuori 2001, pp. 49–51.
[7] Section 7 of the Act states that “the National Audit Office shall be headed by an Auditor General, who shall decide those issues of the National Audit Office which, under section 15, are not decided by the conditional fine board or on which the rules of procedure of the National Audit Office do not provide otherwise…” and that “the Auditor General may reserve the power of decision in a matter which a public official, under the rules of procedure, would have the right to decide”.
[8] Etelävuori 2001, pp. 571–572, 602–603; Act on the Right of the National Audit Office to Audit Specific Credit Transfers between Finland and the European Communities (353/1995).
[9] Eduskunnan budjetti- ja valvontavalta 1990–2020, p. 119.
[10] It is interesting that the concept of central government finances does not directly include the Bank of Finland and the Social Insurance Institution of Finland, which operate under parliamentary control. Eduskunnan budjetti- ja valvontavalta 1990–2020, p. 120.
[11] The NAOF’s final accounts 2001, p. 5.
[12] The National Audit Office’s Annual Report 2009, p. 5.
[13] Mikko Koiranen’s interview on 26 February 2024.
[14] This was how the focus areas were described in the annual reports of 2006–2008.
[15] The NAOF’s management group meetings of 10 February and 18 March 2009.
[16] Final accounts 2008–2013.
[17] The NAOF’s final accounts 2013, p. 5.
[18] Meeting of the NAOF’s management group on 19 December 2009.
[19] The NAOF’s final accounts 2009, p. 8; Reviisori 1/2012, pp. 16–17. Once the standards had been adopted at the INCOSAI Congress in South Africa in November 2010, the National Audit Office started conducting compliance audits under them.
[20] Ohjausjärjestelmätarkastuksen ohje. Valtiontalouden tarkastusviraston tarkastusohjeita. Edita. Helsinki 2010. (https://www.vtv.fi/app/uploads/2018/06/11144102/Ohjausjarjestelma_netti.pdf); Meeting of the management group of the National Audit Office on 2 May 2007. Government proposal to Parliament for the Act amending the Act on the State Budget (HE 202/2009 vp); Act amending the Act on the State Budget (186/2009 vp).
[21] Reviisori 1/2008, p, 12; Government proposal to Parliament for the Universities Act and acts associated with it (HE 7/2009 vp).
[22] Including two off-budget central government funds.
[23] Government Decree on Centres for Economic Development, Transport and the Environment (1144/2013), section 29.
[24] The NAOF’s final accounts 2019, p. 9.
[25] The NAOF’s final accounts 2015, p. 7.
[26] Tytti Yli-Viikari’s interview on 4 March 2024.
[27] “In the future, we will strive to make more flexible use of the NAOF’s internal resources, as the combination of different audit types and the use of teams makes it more often possible for resources not to be tied to a single project for a long time,” said Lahdelma at the Advisory Board meeting on 18 December 2018.
[28] Finnish Transparency Register Act 430 / 23 March 2023.
[29] The performance audit function includes the groups Education, Environment and Natural Resources; Security and Rule of Law; Assets and Public Administration; and Work, Industries and Wellbeing. The financial audit groups are Budgetary Compliance; Shared Financial Management Processes; Government Grants; State Assets; and State Security.
[30] Act on Wellbeing Services Counties (611/2021), section 128 (Opens in a new tab).
[31] During the preparatory phase, the following questions, for example, were considered: What are the main risks of the reform? In the light of Parliament’s information needs, to what extent should the National Audit Office target audits and oversight at the state authorities responsible for steering the funding and activities of the wellbeing services counties, and to what extent should it target audits directly at the wellbeing services counties? Is there a need / Is it possible to produce information on the activities of the wellbeing services counties also in other forms than audit reports? Memo of the Impact Forum meeting 4/2022, 22 March 2022.
[32] Sami Yläoutinen’s interview on 29 April 2024.
[33] Lassi Perkinen’s interview on 21 August 2023.
[34] Eero Heinäluoma’s interview on 28 June 2024.
[35] Lassi Perkinen’s interview on 21 August 2023.
[36] A number of interviewees for this publication also raised this issue.
[37] The National Audit Office’s Annual Report 2011.
[38] Visa Paajanen’s interview on 14 August 2023.
[39] https://www.ksml.fi/paikalliset/2588614 (Opens in a new tab)
[40] Criticism has also been voiced: How eager in reality are those who pay a lot of progressive taxes, and what is the willingness to pay taxes among recipients of substantial income transfers? An example of the criticism: https://www.libera.fi/2023/11/08/veropaivan-teesteesellty-positiiv- energia / (Opens in a new tab)
[41] Salminen, Ikola-Norrbacka & Mäntysalo 2011, pp. 127, 132.
[42] Salminen, Ikola-Norrbacka & Mäntysalo 2011, p. 132.
[43] National Audit Office’s report to Parliament on its operations in 2014.
[44] The theme was discussed extensively in the NAOF’s different units in 2011. The ideas were put together in the management group. Meeting of the NAOF’s management group on 4 November 2011.