The comparison of state audit capacity of ten SAIs in Europe

Mandate

The first dimension discussed here is the strength of the mandate of SAIs: to what extent do the SAIs have formal powers to audit? Apart from the British SAI, the assessed audit institutions have a robust mandate, particularly in terms of their legal authority. Across the board, the formally defined powers of SAIs generally cover many, if not most, (semi-) governmental institutions and have a strong legal basis. At a minimum, the auditing institution’s responsibilities are codified in statutory law. For example, the Portuguese Tribunal has constitutional status; its remit covers government-funded organisations; it can perform ex-ante audits; and a broad range of outputs are specified legally. Likewise, SAIs have equally strong formal powers, although not specified in the Constitution. In addition, all observed SAIs have powers to obtain the information required for their audits.

There is a variation between audit institutions when it comes to the power to impose sanctions. While the French and Portuguese SAIs can refer decisions to a

Table 5.2 Audit capacity score of ten EU SAIs (2017)

prosecutor and require follow-up on their recommendations, the German auditors have to rely purely on their authority and legitimacy to make sine they see their advice put into effect. Other audit institutions have powers that are positioned between these two extremes.

Independence

Independence is assessed by the discretion the institution enjoys in its auditing activities, the independence of the leadership and the organisation’s autonomy. The selected SAIs scored rather low. At the same time, no auditor lacks essential levels of independence. For example, the Danish SAI -together with the UK NAO (the audit institution with the overall lowest independence score) - does not have full discretion over its audits, but it can still decide upon two thirds of its own agenda. On accompanying aspects of audit discretion the SAIs score high; all SAIs have exclusive competence as the auditor of national government institutions (apart from the French Court of Auditors) and can determine to cooperate with other actors - rather than being required to do so.

Regarding the independence of the SAI head, audit institutions display generally low scores. Recurrently the leadership has more parliamentary than professional experience (as in France, the Netherlands and Germany) and - apart from Italy and the ECA - legislatures have the first and last say in the appointment procedure. Dismissal, on the other hand, is usually not a political decision: in most cases, the leader cannot be dismissed by parliament, other than in instances of fraud or misbehaviour and where both legislative chambers approve.

SAIs have limited organisational autonomy where it concerns the size of their budget and high autonomy when it comes to asserting their independent status; they display large variation in the freedom to use their budget. Audit institutions often need their legislature’s approval of their new budget and are strongly reliant on this budget. As for using these resources, the Austrian and Portuguese SAIs are free to decide how to spend their funds, while the Italian and Dutch auditors bear full responsibility but have less autonomy. Other SAIs are subject to closer parliamentary scrutiny. Also, most SAIs are eager to emphasise their independence in their communication with the media, strategy and mission.

Professional capacity

The measure of professional capacity of SAIs is based on the professional backgrounds and appointment criteria against which auditors are hired, and the extent to which professional norms are integrated as SAI institutional controls. The SAIs generally performed better on institutional controls than professional background and appointment system. The latter indicators showed larger variability, suggesting that the auditor backgrounds and hiring practices of the different institutions are associated with the national context.

In terms of professional background and appointment, the SAIs generally scored high, stipulating at least higher tertiary education and either professional accreditation or auditing experience for incoming auditors, though Austria, Ireland and the United Kingdom only required lower tertiary education or accreditation. All SAIs had extensive HR recruitment processes in place. Both Austria and Portugal scored well, requiring SAI board member approval of hiring decisions. In terms of institutional controls, most SAIs had in place a code of conduct, regular staff training or review, and protocols in place for audit quality review. Germany, Italy, Ireland and the Netherlands scored highest on institutional control, with ethics control incorporated into strategic steering, well-developed training and performance review protocols, and audit quality review and professional auditing standards that are highly institutionalised. Portugal scored well below the other SAIs, with no discernible protocols in place for ethics control or audit quality review, suggestive of a trade-off between high autonomy and SAI measures to cultivate professional capacity.

Performance capacity

SAI performance was assessed based on the quality and quantity of discretionary audits initiated per year, and the frequency, follow-up and transparency of reporting on their audit work. Our findings reveal some degree of variability in both measures with the ECA scoring highest and Italy scoring lowest, owing to its poor follow-up record. The SAIs generally scored well on discretionary performance since over half of the audits conducted by the SAIs in our sample can be considered discretionary. However, Portugal and France scored poorly on this measure, conducting less than 10 per cent discretionary auditing. In the case of Portugal, the Tribunal De Contas is strictly limited to rule on the legality of public expenditure. It is thus limited to financial audits in its discretionary capacity. Interestingly, what the Portuguese and French SAIs lack in discretionary scope, they make up for in the quality of reporting on audit work. Both SAIs, together with the ECA, score high on the frequency of reporting and degree of transparency in the publication of their findings.

External relations capacity

The SAI’s relationship with external actors is assessed in terms of interaction with the legislature, peer institutions of SAI international networks, and the media and civil sphere. Our findings reveal a high degree of interaction at the international level but varying degrees of legislative and civil engagement across the sample. Overall, Ireland scored highest on external relations while Demnark and Italy fared the worst owing to low media interaction scores.

All of the SAIs scored high on legislative interaction, with frequent consultation between the SAI and parliament. However, in both Demnark and the United

Kingdom, there is reduced SAI authority in relations with the legislature. In both cases, the legislature can reject SAI annual strategy outright whereas annual strategy is set independent of parliament for the other SAIs without compromising the quality of parliamentary consultation. Curiously, the Oireachtas, the Irish parliament, is not similarly empowered to reject SAI annual strategy, reaffirming that governance tradition does not inform audit capacity. All the SAIs actively engage in international standards setting and incorporate international auditing standards into their national framework.

In contrast, there is much less uniformity and interaction in terms of media and civil outreach. The Irish SAI scored highest on media interaction, as it regularly actively reaches out to the media and NGOs and actively solicits feedback from the public. Demnark and Italy performed poorly on media interaction. For example, although the Danish SAI publicises audit results on the SAI official website, it does not initiate further outreach with media or civil society. This pattern of scores indicates that the way SAIs engage with international peer networks is largely uniform while media and civil engagement is grounded in different national contexts.

Comparing audit capacity

We computed on a base of the five discrete dimensions (see Table 5.3) an overall audit capacity index for the 10 EU SAIs, as displayed in Figure 5.2. A high score reflects a high audit capacity, while a low score reflects low capacity. The resulting ranking is presented in Figure 5.2. The highest scoring SAI is the ECA with a score of 0.78 followed by the Dutch SAI with a score of 0.77. The lowest scoring SAIs are the UK with a score of 0.57 and Denmark with a score of 0.64.

Table 5.3 Five dimensions of audit capacity and tire index (2017)

Figure 5.2 Audit capacity index of ten European SAIs.