This presentation was made by Sanita Tiltina, Ministry of Finance, Latvia, at the 14th Annual Meeting of the OECD Senior Budget Officials Performance & Results network held at the OECD Conference Centre, Paris, on 26-27 November 2018

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Paris, France
November 27, 2018
Supreme Audit Office of Latvia
Audit and Methodology department
Sanita Tiltina
Role of the SAI
in promoting the quality of
budget management
in Latvia

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Presentation contents
 in which budget processes and how the SAO of Latvia is
participating and conducting the audit
 to whom and on what issues the SAO of Latvia reports to
 what are the SAO of Latvia main conclusions on budget
management system in Latvia:
o performing the financial audit of the State Consolidated Annual Accounts
o performing the performance audit «Efficiency of Budget Management
System – part one Budget planning»
 what are the identified drawbacks in budget execution and
performance reporting – what is the planned scope of the 2nd
part of the performance audit «Efficiency of Budget
Management System»
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SAO of Latvia participation in budgeting processes
BUDGET DRAFTING BUDGET LAW ADOPTION
EXPENDITURE REVIEW PROCESSANNUAL REPORTS
• SAO expresses its opinion exclusively in
relation to its own annual budget
• SAO expresses its opinion exclusively in
relation to its own annual budget
• introduced as annual process in 2016
• scope set by the Government in spring,
performed in the middle of the budget
year and managed by MoF
• MoF actively uses previous SAO audit
reports
• in 2018 SAO invited in meetings as
independent observer
• 26 financial audits of ministries and state
agencies
• financial audits of municipalities -
annually 30 out of the total 119
municipalities
• financial audit of the Consolidated
Annual Report of Latvia
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+ the SAO of Latvia performs annually on
average18-20 performance and compliance
audits, incl. systematic audits
financial
audits
include
compliance
issues

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Present:
Financial audit report
on Consolidated Annual
Report submitted
to the MoF
annually by September 15.
Our GOAL:
In order to enhance the
impact
of the financial audits’ results
the SAO of Latvia has
planned
as of 2020 to finalise
all the annual financial audit
work
in July.Government
shall submit
annual budget
to the Parliament
by October 15

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SAO of Latvia reports to:
• on essential findings of all financial audits
• on any findings within the competence of MoF in any other type of audit
• on draft laws
MINISTRY OF FINANCE
• on essential findings of all financial audits
• on any conclusions and recommendations within any type of audit that
require the involvement of the Government or the Prime Minister
GOVERNMENT (CABINET OF MINISTERS)
• Public Expenditure and Audit Committee is informed on the results of every
audit
• other Parliament committees (Legal, Budget) are informed on topics of their
competence
• on draft laws
PARLIAMENT (Saeima)
• on essential findings of every audit
SOCIETY AND MASS MEDIA
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Active reporting to the Parliament
 on results of every audit
 on progress of the implementation of our
recommendations
in the Public Expenditure and Audit Committee’s
meeting are present: representatives of the SAO,
the audited entity and the respective ministry
if necessary – in Budget and Finance (Taxation)
Committee, Legal Affairs Committee or other

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Active reporting to the society on the audit results
via TV interviews, press
conferences
via radio broadcast
via press releases, social networks, videoconferences, etc.

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Financial audit of the State Consolidated Annual
Accounts and performance audit aspects
a separate performance audit «Efficiency of Budget Management System»
Thus we decided to go the Parliament and ask their opinion… The SAO survey in
2015 revealed discontent by the MPs with the overall budget management system:
67% : not satisfied with overall satisfaction with
the budget structure, planning process and the
information availability for the achievement of
goals,
83% : the state budget does not provide MPs with
sufficient and understandable information on the
effective allocation and expenditure of the budget funds
for the benefit of the society
we thought – what if everybody else is satisfied and we «just don’t get it»?
the measures taken by the Government towards implementation were merely formal
SAO has repeatedly concluded that the State budget does not serve as means for the
implementation of the State policy, i.e., the goals and funds live their own lives
Since 2009 the SAO has issued several recommendations
regarding budget management system-
still not implemented: on necessity to evaluate the reasoning of budget requests, to assess the
level of detail of the information in the Budget Law, to review budget flexibility tools, etc.
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The scope of the performance audit
on Efficiency of Budget Management System
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Budget
planning and
formulation
Budget
approval
Preparation of
a report on
budget
implementation
Budget
implementation
This audit was
focused on
budget
planning,
formulation
and approval
Scope of the audit:
Auditee – MoF;
Audit period - 2014-2016;
Preparation of the annual
budget and medium term
budget process (ministries and
central government agencies
and municipalities).

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Audit criteria –
OECD Principles on Budgetary Governance
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Achievement of audit criteria –
OECD Principles on Budgetary Governance
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1
Fiscaldiscipline
2
Priority-targeted
budget
3
Development
planning
4
Opennesand
transparency
5
Democratic
discussions
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Assessmentof
results
9
Supervisionofrisks
10
Credibleforecasts,
competenceand
internalcontrol
Not achieved Partially achieved Achieved
Principles No.6 and No.7 apply to budget
implementation; therefore they were not
assessed in this audit

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Main reasons for insufficient progress
PARTIES INVOLVED IN AND RESPONSIBLE
FOR BUDGETING PROCESS ARE UNWILLING
TO WORK AS A TEAM
BUDGET PLANNING IS NOT BASED ON
LONG-TERM THINKING
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+ 57 accompanying draft laws
Parliament has 2 months to examine and approve the draft budget law package
(budget 2017):
DRAFT
MEDIUM
TERM LAW
264 pages
DRAFT
BUDGET
LAW
1,385 pages
31
BUDGET
UNITS
98
AREAS OF
OPERATION
256
BUDGET
PROGRAMMES
1,580
effective
indicators of
budget
programmes
Still the budget package lacks essential information:
 what has and will be done to attain the goals of the State’s National Development Plan;
 what amount of expenditure actually ensures the fulfilment of functions of ministries
and central institutions at an unchanging level;
 what is the total amount of development expenditure;
 detailed information on public investments so that balanced decisions can be taken.

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Significance of Team Work in the Budgeting
Management (1)
Budget
planning
is a team work
with the
common goal
Parliament -
requests high-
quality
information
Cabinet of
Ministers - creates
a clear and
understandable
system
Ministry of
Finance -
develops a draft
budget law
Budget units -
observe the
procedures and
requirements
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Significance of Team Work in the Budgeting
Management – identified shortcomings (2)
The main budgeting
regulating law - On
Budget and Financial
Management, has
crucial shortcomings
Inconsistent
approach to the
harmonisation of
basic expenditure at
similar circumstances
Lack of clear
information about
amount of public
investments
Crucial budget
decisions are in fact
adopted by the working
group of the coalition
parties
The fiscal space is
increased each year,
despite no funds
available
No centralised
management of large
public investment
projects
National development
planning and budget
planning are separate
processes
Ministry of Finance Cabinet of Ministers
15
ParliamentBudget units
Budget
approval
process is
hindered by
large amount of
fragmented and
incomplete
information and
limited time for
its examination
The practice of
granting
“deputy
quotas” in
previous years
High pressure to
maintain or
increase the
current amount
of budget
expenditure
Reluctance to
modify budget
when Ministry of
Finance
indicates to
optimisation
possibilities
during spending
review process

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Lack of Long-Term Thinking
 Fiscal discipline
• the optimal and country-specific national debt level has not been
assessed and economically substantiated
• daily expenses are currently funded by budget deficit and,
respectively, by an increase of the general government debt
• 48% of 42 recommendations given by the Fiscal Discipline
Council have not been implemented or have just started to be
implemented
 Budget planning for the State development in the long term
• it is not assessed at any stage of the budgeting process whether and
to which extent the goals of national development planning
documents are to be achieved
• the current government action plan covers only 55% of
measured indicators of the long-term development strategy of
Latvia and approximately 68% of indicators of the National
Development Plan
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5
6
4
Recommendations to the
Ministry of Finance
in respect to
Base expenditure and development
expenditure of the budget (5)
Fiscal policy and fiscal space (6)
Budget planning administration (4)
Proposals to the
Cabinet of Ministers
in respect to
74
2
Base expenditue and development
expenditure of the budget (7)
Result-oriented budget (4)
Budget planning administration (2)
During the audit MoF actually started to
eliminate several shortages and to
partially implement several
recommendations
We are still waiting for government’s
action on our proposals

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more unimplemented
recommendations on
budget management
more attention in other
audits to medium term
budget planning and
assessment of the set goals

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Performance audit on Efficiency of Budget
Management System – its planned 2nd part - on
budget execution stage
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evaluation of the
preparation stage
for execution –
financial plans, cost
estimates, etc.
evaluation of what
amount of
development expenses
is actually used for its
originally set aim
evaluation of
distribution of
appropriations
between budget
programmes during
the budget year
evaluation of what
amount of funds for
unseen
circumstances has
been actually used for
regular needs
evaluation of the
budget execution
control mechanism
(manual work, technical
issues, etc.)
evaluation of reporting on
budget execution and
performance, incl. whether
the performance reporting
reaches the necessary needs
and how the performance
reporting affects future
budgeting
research on the pros and
cons of cash flow vs
accrual based
budgeting and
reporting
scope of the current
audits and
necessities/possibilities
to enhance SAI input in
budget execution and
performance
evaluation

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Conclusions
The Supreme
Audit Office
of Latvia
is
contributing
to promoting
the quality of
budget
management
system
in Latvia
through annual financial audits in ministries, state
agencies and local governments
- impact will be enhanced when all reports will be
published (in July) before the annual main budget
planning discussions in government (in August)
using an integral approach for how we set themes and
questions of audits:
- approaching the identified problems in a complex manner;
- evaluating problems over periods of several years;
- deciding what to evaluate in financial audit, what – as a
compliance issue in a financial audit, what – as a separate
compliance or performance audit
audit findings are used by the MoF for base expenditure
review
through communication and explaining relevance of audit
findings and issued recommendations to our stakeholders –
society and the Parliament
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THANK YOU FOR YOUR ATTENTION!
SUPREME AUDIT OFFICE OF LATVIA