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National Audit Office’s Annual Report to Parliament 2021

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There was a slight decrease in the legality of the management of central government finances

Based on the financial audits of 2020, the National Audit Office issued more cautions than before on the financial management of the accounting offices. As a rule, central government finances have been managed in compliance with the regulations, but there has been an increase particularly in the number of procedures contrary to the state budget.


Under section 90 of the Constitution of Finland, the task of the National Audit Office is to audit the management of central government finances and compliance with the state budget. The National Audit Office annually audits the final accounts of the state, the ministries, other agencies obliged to prepare final accounts, and three off-budget funds.

The number of cautioned accounting offices has increased

The National Audit Office issued a total of 62 financial audit reports for 2020 to central government accounting offices. Of the audited accounting offices, 18 (29%) were cautioned because the National Audit Office found deficiencies in their final accounts or financial management procedures. The number of cautioned accounting offices has slightly increased from the past two years.

In its financial audit reports, the National Audit Office expresses its opinion on the following issues: whether the audited entity has provided true and fair information on its final accounts and operational efficiency; whether its internal control is effective; and whether it has complied with the budget. Most cautions concerned compliance with the budget and key budget provisions; this was the reason for the cautions issued to 11 accounting offices. The cautions issued to nine accounting offices concerned true and fair information in the final accounts, while the cautions issued to six accounting offices concerned the organization of internal control. Eight accounting offices were cautioned in more than one opinion area.

The National Audit Office obliged three accounting offices to report to it on the measures they have taken to remedy the state of affairs for which they were cautioned. The Finnish Courts are to report on how they will remedy the deficiencies in the allocation of certain compensations to the correct budget year. Business Finland, the Finnish Funding Agency for Technology and Innovation, is to report on how it will remedy the deficiencies in a procedure that was related to the use of authorization and that was in violation of the state budget. The Finnish Government Shared Services Centre for Finance and HR (Palkeet) was again obliged to report on the organization of the internal control of financial and HR service processes.

Visualization: Financial audit findings 2018–2020

In the visualization, you can view the financial audit findings of the National Audit Office for 2018–2020. You can examine the findings per category: you can, for example, focus on the column that discloses whether the accounting offices have had effective internal control. You can see which accounting offices have been cautioned in the different years by clicking on “Show cautions”. You can also view the reasons for the cautions by clicking on the name of the accounting office.

Get background information about the visualization here.

Visualisointi – Tilintarkastuskertomus visualisoituna: huomautukset

The dynamic visualisation provides information on the cautions and disclosure requirements issued by the National Audit Office in its audits in 2018, 2019 and 2020. The same data is available in the Excel file below.

Cautions and disclosure requirements issued by the National Audit Office in its audits in 2018, 2019 and 2020 (Excel)

The internal control of centralized financial management tasks should be improved

Both Palkeet and its customer accounting offices are part of the central government, which should also be taken into account in the organization of internal control. The National Audit Office is of the opinion that the Ministry of Finance and the State Treasury play a key role in ensuring that the control environment is developed to be positive and efficient. The development should aim to strengthen the basis for internal control and to sharpen the way in which internal control is reflected in the tasks of financial and human resources management and in the organization of processes. According to the National Audit Office, the achievement of this objective requires active steering. It also requires that there is adequate expertise in the Ministry of Finance, the State Treasury, and Palkeet for the preparation of statutes, regulations and guidelines, and particularly for the development of processes and information systems. It is recommended that the authorization to issue provisions concerning centralized financial management tasks under section 12b of the State Budget Act be amended to also apply to the accounting offices that are customers of Palkeet. The change would strengthen the ownership of the State Treasury in steering the whole process.

An amendment of the State Budget Act would enable the State Treasury to assume clearer overall responsibility for the division and supervision of centralized financial management tasks.

Palkeet is responsible for the shared information systems used in centralized financial management tasks, their automated controls, and the development of processes. Based on the audits conducted, it can be stated that the internal control solutions have been steered by the productivity objectives of the central government, and the solutions have been made with a focus on them. This has led to the acceptance of significant risks in the supervision or the introduction of ineffective substitute control measures. Palkeet should give more consideration to internal control particularly in the development of processes and information systems. According to the National Audit Office, well-planned and implemented internal control also supports operational efficiency. Internal control is at its most efficient when controls prevent errors and irregularities.

Cautions related to compliance with the budget have increased

Of the 62 financial audit reports issued to the accounting offices, 11 included a qualified opinion on regularity, i.e. one or more specified caution on regularity. Procedures that violate the budget and key budget provisions have increased: in 2018 and 2019, a qualified opinion on regularity was issued to seven accounting offices.

The National Audit Office issues a qualified opinion on regularity if the accounting office has not complied in all respects with the budget or the key budget provisions. A qualified opinion on regularity usually concerns an individual area or procedure in financial management. Therefore, it does not mean that the agency’s or the central government’s finances have been managed contrary to law as a whole, or that central government assets have been misappropriated. However, a qualified opinion on regularity should always be considered a serious issue for the financial management of the agency in question.

The number of accounting offices issued with a caution on regularity has increased by 57% compared with the last two years.

Table presents the number of the accounting offices issued with a qualified opinion on regularity between 2018 and 2020. The total number of cautions on regularity presented in the lowest row may exceed the number of accounting offices, as a single accounting office may be issued with more than one caution on regularity.

2018: A qualified opinion on regularity was issued to 7 accounting offices, and the National Audit Office issued a total of 10 cautions on regularity. 2019: A qualified opinion on regularity was issued to 7 accounting offices, and the National Audit Office issued a total of 10 cautions on regularity. 2020: A qualified opinion on regularity was issued to 11 accounting offices, and the National Audit Office issued a total of 14 cautions on regularity.
Table: Qualified opinions on regularity 2018–2020

The total number of cautions on regularity for 2020 was 14, as the Ministry for Foreign Affairs, the National Police Board, and Business Finland were each issued with two specified cautions on regularity. The most common reason for a caution in 2020 was the payment of permanent public officials’ salaries from other appropriations than operating expense appropriations, which is in violation of the budget. Five accounting offices were cautioned for this. The cautions related to salary payment concern errors in the purpose for which budget appropriations are used; appropriations have been used for a different purpose than the one decided by Parliament in the budget. More than half of the cautions on regularity issued in 2020 were related to a procedure contrary to the purpose.

Most of the cautions issued in 2020 related to a procedure for which the said accounting office had not been cautioned before. Procedures that are in violation with the budget are usually individual cases, and it is unlikely that they would be repeated in the same form the following year. Thus, the underlying reason is usually not such a lack of control that would increase their risk.

When examined by administrative branch, the biggest change in the number of cautions on regularity took place in the administrative branch of the Ministry of Economic Affairs and Employment, where the number of cautioned accounting offices was tripled from one to three. Three administrative branches were issued no cautions on regularity between 2018 and 2020. These were the administrative branches of the Ministry of Agriculture and Forestry, the Ministry of Social Affairs and Health, and the Ministry of the Environment.

There is no clear individual reason for the increase in the number of cautions on regularity. However, from the perspective of budgeting, 2020 was an exceptional year because the number of supplementary budgets issued was as high as seven. The number of cautions on regularity may also have been affected by various challenges related to budgeting and the volume of appropriations during the year of Covid-19.

Several accounting units were issued with cautions concerning information presented on competitive activities

As from 1 January 2020, the general government shall keep separate accounts for the economic activities they carry out in a competitive market environment and present the result of these activities in their final accounts. According to the findings of the compliance audit function, a total of 26 accounting units carried out competitive activities in 2020. Other accounting did not carry out any or carried out only small-scale competitive activities. Competitive activities in the central government are diverse, and their annual revenues vary to a great extent by accounting office: from a few thousand to several million euros.

Four accounting offices were issued with a caution for 2020 because they had not presented true and fair information on their competitive activities. The key factor proved to be whether the accounting units had identified competitive activities correctly: three out of four cautions concerned the fact that a profit and loss account had not been presented for competitive activities or that there were deficiencies in its coverage. Although several cautions were issued, the accounting offices have a good capacity to keep separate accounts for their competitive activities.

The profit and loss account for competitive activities gives a true picture of operational performance if the competitive activities have been correctly identified.

The accounting offices must assess themselves whether they have competitive activities on the market. They have assessed the nature of their activities comprehensively but not managed to identify actual competitive activities unambiguously. One of the reasons for this is that the concept of competitive activities is unclear, and it is difficult to interpret the legislation on them. The interpretation and application of the legislation are likely to be specified as a result of the case practice to be adopted by the Finnish Competition and Consumer Authority.

The budget does not provide sufficiently transparent information on the co-financing of agencies

At present, the state budget does not disclose transparently that appropriations are used to pay for co-financing. Internal central government co-financing means that an agency finances another agency’s operations. In 2019, internal central government co-financing totalled approximately EUR 130 million.

Section 85 of the Constitution of Finland lays down a prohibition on transfer of appropriations. If an appropriation has been approved by Parliament for a specific purpose, it shall not be used for any other purpose. For example, appropriations may not be transferred from one item to another, unless this is specifically permitted in the item decision of the budget or by law. According to the National Audit Office, the fact that items have a similar purpose cannot be considered a sufficient permission for the transfer of an appropriation.

As regards the procedures for budgeting co-financed activities, it is essential that, when deciding on the budget, Parliament understands to which budget item agencies can transfer an appropriation and what the maximum that can be transferred is. This safeguards Parliament’s budgetary power and ensures that agencies use appropriations for the purposes adopted by Parliament even in their mutual activities.

Transparent decision-making and adequate supervision should be ensured in state-funded projects

The costs of the renovation of the Olympic Stadium increased considerably from the original estimates. In the renovation need report of 2012, the cost estimate was EUR 197 million, while in the project plan of 2014, it was EUR 209 million. At the end of 2016, the cost estimate increased to EUR 261 million. When the audit was completed, the estimate had already grown to EUR 337 million, and the final costs had not yet been ascertained. It was found in the audit that information on the development of the cost estimates and on the uncertainties related to the costs had not been fully provided in a timely manner and to a sufficient extent to serve as a basis for funding decisions.

The payment basis of the contract model selected for the project is contrary to the state’s funding principles The state has defined the maximum amount it will contribute to the project costs. On the other hand, no fixed price ceiling has been defined for the key contract in the project, but the price ceiling changes when additional works and modifications are approved. This contradiction was not disclosed in a sufficiently transparent manner in the processing of the project funding after the contract model had been approved.

The supervision carried out by the state aid authority in the renovation of the Olympic Stadium did not meet the requirements of the complex and long-term project. The steering group appointed for the project did not have any real opportunities to ensure that the project was implemented cost-effectively and within the target timeframe.

In the future, the state aid authority should ensure that funding decisions are based on sufficiently transparent information on costs and any uncertainties.

In order for the use of public funds to be transparent and cost-effective, the state should supervise large, complex, and long-term projects appropriately and adequately. If the state appoints a steering group for state-funded projects, it should ensure that the group has sufficient power of decision and expertise to steer the project, and an effective connection with the decision-making in the project. In future projects, it should be ensured that the funding decision and the contract model are consistent.

The chapter is based on the following audits

Further information

Sami Kummila
Director for Financial Audit