Speech of the Member of the European Court of Auditors, Mr Jan Kinšt

Seminar - 20th Anniversary of the SAO, Senate of the Parliament of the CR, 25.7.2013

(Mr President of the Czech Republic),
(Mr President of the Senate of the Parliament),
Mr President of the SAO,
Ladies and gentlemen,

on behalf of the European Court of Auditors and on my own behalf, I would like to thank you for this invitation and the opportunity to speak on the occasion of this important anniversary of the Supreme Audit Office. I am also very glad for the chance to meet a number of my former colleagues from the SAO here.

I firmly believe that after twenty years of the existence of the Supreme Audit Office there are now very few people who would argue about its purpose and fixed place in the constitutional system of the Czech Republic. The important role of supreme audit institutions as guardians of the interests of taxpayers is indisputable and has been borne out by the decades and sometimes even centuries of work by these institutions in democratic political systems, where they operate in the interest of legal, economical and sensible use of public resources and to the benefit of sound financial management by the state.

The key principles of financial management are transparency and the accountability of those who are entrusted with public assets. This principle known as "public accountability" is constant and timeless and is the starting point for the existence and purpose of external audit and thus also the institutions that carry it out on the pillars of independence, impartiality and professionalism.

Inasmuch as I said that the principle of transparency and public accountability is timeless, and therefore applicable to both the present-day and future role of supreme audit institutions, this is all the more accented in the context of the current economic developments, when European Union countries are going through a protracted recession and are simultaneously compelled to take drastic measures to stabilise their public budgets and long-term sustainability. This difficult period is also characterised by a certain crisis of confidence: a crisis of confidence in the Union and its institutions and in national governments. This crisis has shown up weaknesses in public administration at both European Union level and national level and in some areas even the flimsy foundations of social policies or regulations, such as the Stability and Growth Pact, for example.

European leaders have already taken a number of steps to strengthen financial, fiscal and economic stability, almost all of which lead to further and deeper integration and to greater coordination of action between Union and national authorities. Nevertheless, more Union, more integration and more regulation cannot mean less public accountability. If we accept this principle of accountability as a step towards overcoming the aforesaid crisis of confidence, an integral part of this is the corresponding coverage by external independent audit - herein lies the irreplaceable role of supreme audit institutions and the European Court of Auditors.

Regrettably, this has not always been the case in the recent past, and key decisions taken to tackle the economic and financial crisis did not contain the necessary accent on public accountability and the appropriate role of independent external audit. Consequently, at an extraordinary meeting of the Contact Committee in Luxembourg a few weeks ago the European Court of Auditors and national supreme audit institutions adopted a joint statement which they sent to the President of the European Council. In connection with the strengthening of coordination of member states´ national economic policies and the building of currency and banking union the statement demands:

• an appropriate legislative framework for the performance of external independent audit;
• a strengthening of the role of audit in the creation of the banking union;
• consideration of the role of external audit in the field of compliance with fiscal discipline;
• increased transparency and audit coverage of financial stabilisation instruments.

I think that this joint initiative is a good example of cooperation between supreme audit institutions in the Contact Committee. Although this Committee should not function as another body of the European Union, in times and situations like this when consensus is reached between sovereign and independent audit institutions the joint voice of twenty-eight is more powerful than individual voices.

Besides the role of audit in the process of tackling the European Union´s current problems and the corresponding institutional development, the future role and activity of supreme audit institutions is partly determined by the evolution of their own audit portfolio. That applies to both the scope and possible widening of audit institutions´ powers and the legislative developments concerning the regulations governing public budgets and financial management in the public sector, including, for example, the types of financial instruments used in the public sector.

I need not remind you that the authority of a supreme audit institution tends to be defined by supreme legislation, meaning the constitutions of the countries in question and related laws; this authority is not uniform in all European Union member states, of course. But I repeat: if we accept the principle of transparency and public accountability as universal and applying to all use of public funds, it would be strange if there were areas of the public sector or types of organisations using state resources that were not subject to public independent audit. If such gaps do exist, they should be filled and the necessary legislative steps taken.

In this context I would therefore like to express support for the Supreme Audit Office in the context of the proposal for a sensible widening of its powers to cover audit of local and territorial governments in the Czech Republic and enterprises in which the state or local government has a stake. I also do not think that it is practical and rational to make an exhaustive list, enshrined in law, limiting which audit actions and what audit criteria the Supreme Audit Office may or may not use in the case of these entities. In this regard the legislator should have the necessary degree of trust in the audit authority, its professionalism, impartiality and integrity, that it will conduct its audit work in compliance with ethical and professional standards and focus it, in line with its mission, on the greatest risks, where bad governance and bad control put the state, regions and municipalities in danger of losing considerable amounts. And I think that the SAO has proved that it deserves this trust from legislators.

For the European Court of Audit, the key challenge for audit work in the coming period is its powers in relation to the newly established supervisory and regulatory bodies and new policies that are a response to the current financial and economic crisis. In 2013 the Court commenced certain audits in this area and it has others in its portfolio of potential audits for 2014 and beyond. We also have a member of the Board in the audit committee of the European Stabilisation Mechanism. These new powers are naturally reflected in a certain internal reallocation of resources and the need to secure the necessary expert personnel.

The European Court of Auditors thus incorporated its vision of its working in the context of this current development into its Strategy for 2013-2017, whereby it wants:

• to make a positive contribution to the further development of the financial governance of Union policies, their transparency and public accountability in respect of the citizens of the European Union;
• to be an example of this transparency and accountability, partly by publishing an assessment of its own performance in its Annual Reports;
• to help other entities identify risks in financial governance and support these entities in their use of the results of our audit work;
• to strengthen its own professionalism, partly by active participation in the work to create or update audit standards and in exchange of experiences with the use of tried-and-tested audit procedures and their application;
• to make its work on creating audit reports and opinions more effective even at time of expected budgetary restrictions and reductions in employee numbers in the next medium-term financial framework.

In the coming years the work of the European Court of Auditors will be substantially affected by the outcome of the current legislative process in the Union´s bodies, i.e. in the European Parliament and Council, where the Community´s multiannual financial framework is being finalised, and by legislation concerning sector-specific policies. This will cover the ways they are financed and the rules of governance and control by the European Commission and member states.

The European Court of Auditors exercised its authority to help European Union legislators draw up this legislation, submitting its opinions and recommendations. I think that there is generally still room for improvement in cooperation between supreme audit institutions and the creators and approvers of new regulations. The latter should make more use of the information and assessments stemming from the audit institutions´ work. But the audit institutions themselves should be active in offering support when new regulations are drawn up; for example, based on their own initiative and by agreement with the lawmaker they could send their opinions on regulations that have a significant impact on financial governance and control in the public sector, even if they are not required to do so by law. I think that cross-cutting meta-reports, for example, which give the authors of legislation useful material on the shortcomings of the existing management model of a given programme or policy and also recommendations for the necessary improvements, including legislative changes, can be a useful way of summarising and assessing relevant findings and conclusions from previous audits.

I am convinced that there is room for this kind of communication in the area of common interest for the Supreme Audit Office and the European Court of Auditors, i.e. audit of the drawdown of European Union finances in the Czech Republic, primarily in this period, when national authorities too are preparing for the new programming period and drawing up the relevant regulations, rules etc. The SAO´s audit conclusions and reports of the European Court of Auditors on the drawdown of European funds in the Czech Republic should be one of the starting points when drawing up these new regulations. It is not only the aspect of this drawdown complying with European and national legislation; another important aspect is the rules governing the selection and implementation of effective and practical and sensible monitoring of whether these projects and programmes achieved the goals and effects they were funded for.

Supreme audit institutions are not, despite what laymen sometimes think, primarily investigative bodies searching out individual cases of deliberate breaches of the law, fraudulent conduct or corruption; there are other institutions for that. Nevertheless, the role of audit authorities in safeguarding the financial interests of the state and its citizens or the European Union and its citizens, including combating illegal activities, is clear. Badly run, non-transparent areas or organisations of public administration lacking internal control mechanisms are logically the ones with the highest risk of fraud and corruption. While the authorities of repression are tasked with punishing ex-post individual acts of unlawful conduct, the role of external auditors is to detect risks in financial governance and control, to recommend steps to redress the situation and thus to prevent potential criminal conduct. Of course, if such conduct has already occurred and has been detected by auditors, they should report it and use the powers vested in them to prove it. I am confident that of the Supreme Audit Office of the Czech Republic´s professionalism and good cooperation with the institutions of justice will contribute to progress in the fight against the misuse of public funds and corruption and in combating this negative phenomenon.

Mr President of the SAO,

the institution you run is celebrating its twentieth birthday and, to conclude my address, I would like to relay my congratulations.

In the twenty years of its existence - which is not a particularly long time in the context of the history of similar institutions in other European Union countries - the SAO has demonstrated its potential to contribute to better management of public funds in the Czech Republic.

In this context I would like to express my appreciation of the SAO´s excellent cooperation with the institution I am representing here. I did not directly witness the very first years after the founding of the SAO, but I remember one of the first steps in this cooperation when a peer review of the Supreme Audit Office was being drawn up with the participation of the European Court of Auditors. As an employee at that time, I was also very appreciative of the SAO´s active approach to participation in seminars organised by the European Court of Auditors or even joint organisation of similar events in the run-up to the Czech Republic´s accession to the European Union.

In this context it is my duty to underline the personal contribution made by the first president of the SAO, Dr Lubomír Voleník, to this cooperation and to the good name the SAO came to enjoy in the family of European audit institutions. It is now ten years since we lost Dr Voleník, but I can confirm that many of my colleagues - members and employees of the European Court of Auditors - and I personally, of course, remember him with the greatest respect to this day.

It goes without saying that this cooperation has taken on a different dimension since May 2004, with the two institutions functioning as equal partners within the European Union. In this context I am very supportive of the space and importance that your Office devotes to audit of finances provided by the European Union as a risk area from the point of view of both legality and efficiency and economy, and of course the relevant audit conclusions that are the result of your work. Our institution also benefits from the excellent support provided by the SAO when we conduct audits in the Czech Republic. I regard the annually issued EU Report as highly useful and effective: in a sensibly set out and easy-to-digest form it provides information about the funding of common European policies, the budgetary consequences for the Czech Republic and, above all, the principal audit findings of our two institutions relating to the drawdown of finances from the European funds. Based on my own experiences, I would merely recommend increasing the Report´s publicity here, in the Czech Republic.

The SAO of the Czech Republic is regarded internationally as an active and respected partner inclined to practical cooperation within the structures of INTOSAI, EUROSAI and the Contact Committee of the Supreme Audit Institutions of the European Union.

So allow me, Mr President, to wish you, on behalf of the European Court of Auditors, continued success and also, on behalf of the president of our institution Mr Vitor Caldeira, to present to you a medal commemorating the Supreme Audit Office´s significant anniversary.

Thank you all for your attention.

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