Engaging in foresight: a must for the ECA to be a global leader in public auditing

At the end of 2017 the ECA College decided to establish a ‘Future Foresight Task Force.’ This group of five ECA Members and support staff was asked to develop proposals that would help to make the ECA ‘future proof.’ Juhan Parts is chairing this Task Force, and is keen to explain why it is so important for the ECA to engage in foresight and what it entails for the ECA.

Foresight and vision

When speaking with Juhan Parts about foresight it quickly becomes clear how much he is at home with the topic and determined to make it stick at the ECA. His replies and analysis are laden with facts, but delivered with wit, enthusiasm, and visionary perspectives on how to move this topic forward. And with no fear of being explicit and taking positions: ‘Whatever we do at strategic level, we should first have a broad picture. This is always a challenge: what do you do to create a vision! Foresight provides you with tools to develop such a vision and find answers, answers on how to be at the cutting edge of digitalisation, to be leaders in public auditing.’

Foresight provides you with tools to develop such a vision and find answers […]

Working on foresight and creating foresight capacity is not new for Juhan Parts. He explains that foresight was a core element in his previous functions, which included, respectively, Auditor General, Prime Minister of Estonia and Minister of the Economy and Communications. ‘When I was a minister we developed, in 2010, what we called Growth Vision in a public body called the ‘Estonia Development Fund`. This was meant to be a ´constant foresight` institution focusing on economic development. In addition, we initiated a process in Estonia’s government, asking questions such as ‘What does government mean in a democratic, free society, with many stakeholders in business, academia, civil society, local government, and operating in the EU?’ It means that you cannot govern on your own. The biggest challenge for politics is how to come together and have a common platform for understanding where we are going. The logic here is common goal-setting to create a growth vision for a country, in my case Estonia.’

The biggest challenge for politics is how to come together and have a common platform for understanding where we are going.

Juhan Parts refers to a document entitled ‘Goals and aspirations for the next decade.’ He adds: ‘We started this work with an enormous trend mapping exercise for our country, with the ultimate aim of developing a vision for its future. It was during this effort that for the first time I had the opportunity to work with professional foresight people. When we came together in the Task Force I was glad to share my experience.’

Audit and foresight: natural partners

When elaborating on the relationship between audit and foresight and why it is important for an auditor to have an idea of the future, Juhan Parts presents a number of arguments. ‘First of all, foresight is not forecasting, it is not speculating. If you look at our work in the Task Force, a very important takeaway is that foresight should always be based on the facts. Looking at the future does not mean leaving the facts aside!’

… a very important takeaway is that foresight should always be based on the facts.

The second point he mentions is that the audit standards envisage that Supreme Audit Institutions (SAIs) should link their work to emerging risks. ‘As auditors we have to understand the risks — but this is very similar to assessing the likelihood of events that may or may not happen in the future.’ Thirdly, he underlines that SAIs always need to have a broad picture to understand what is going on, globally, Europe-wide, making connections and causal relationships. ‘Foresight can be a tool to provide answers or at least some of them.’

Foresight at audit level should give us a source to set audit criteria and ask questions…

‘Focusing your attention’ is the fourth point Juhan Parts raises. ‘We are a small institution with limited resources. Therefore we need to focus these limited resources on the most relevant topics now and in the future. We need a systematic approach to structuring our areas of responsibility.` As a fifth element of his response, he underlines: ‘Foresight at audit level should give us a source to set audit criteria and ask questions such as “Are the policies that we examine addressing problems which are likely to remain relevant in the future?”

Core elements to make the ECA future proof

Coming back to the work of the Task Force, Juhan Parts explains the mandate given to the Task Force: what should the ECA do to be future proof? ‘We came up with three elements. First, we need an autonomous capacity and skills to do foresight for audit. Secondly, we should integrate this capacity, this knowledge it provides, into the ECA’s strategy process. And thirdly, this knowledge must be mainstreamed into our core business process, which is auditing.’

Another important element Juhan Parts identifies is how the ECA is going to use technology for its core business. ‘We need to think about new technologies and the impact on our assurance work. Likewise for our performance audits, and here we have to be attentive to the goals the two types of audit work pursue, because they are very different.’

When asked about how to integrate foresight best into the audit process, Juhan Parts points to three aspects he considers essential. ‘The first result of any foresight is trend mapping, and the Task Force did this as a pilot exercise. The outcome is an identification of trends which are most important for the Union, as we are the EU’s external auditor. This pilot exercise should be discussed at management level. This should be, for example, not only identifying that migration is important, but why, what possible scenarios there are with what possible implications. This can serve as input for the next phase in our strategy.’

If you go into depth in foresight you will realise that this is some kind of art

As a second stage Juhan Parts indicates a need for a permanent internal capacity for scanning the ECA’s audit environment, and in particular for identifying how the auditee is tackling the trends which were identified in the previous phase. ‘Subsequently we get to the real strategy — what goals the ECA will set up in the audit work, considering these trends and scanning information. Once we have those goals we want to achieve with our audit work, in each specific area, we can ask which audits we need to achieve these goals. This is where our audit work programming comes in.’ With a smile he adds: ‘This means that when we come to launching the audit, the background dynamics are already there!’

There should be triggers, […] There are goals set for every single audit…

Adopting a foresight culture

One of the challenges an organisation faces is how to engage its staff with new things, with management decisions on which course to sail, whether it is a new strategy or the internalisation of foresight methods. Juhan Parts recognises this as a challenge: ‘If you go into depth in foresight you will realise that this is some kind of art, a way of analysing things, a perspective on how to look ahead. It is not simply another in-house administrative procedure to be dealt with.’ He then explains the cultural change that he sees as necessary to come to applying foresight. ‘There should be triggers, call them drivers, if you want. There are goals set for every single audit, and these goals are not just a kind of output, they have to be impactful.’

Try to be a leader and not a follower. What is critical here is your mind-set…

He clarifies that this goes further than merely communicating about the audit results or doing a conference. ‘It is not simply finalising the audit report, submitting it to parliament, issuing a press release, and done. We need to be clear, beforehand, on what impact we want to achieve, how we achieve it and how to measure whether we have achieved it. What are the triggers that can really create the organisational preconditions to get to such an approach?’ He concludes that the ECA Members and the senior managers have a common challenge to address. ‘Without leadership in this, you cannot change things — just by saying to staff ‘Do it this or that way.’`

For Juhan Parts making optimal use of technology, in particular given the ongoing trend towards digitalisation, is ‘an essential building block for making the ECA future proof.’ He adds: ‘My lesson learned from the past is that you need to be open to using emerging technologies to create opportunities. Try to be a leader and not a follower. What is critical here is your mind-set, because you can always find arguments not to do something. At the ECA we should go for innovation, and not find impediments in international audit standards or elsewhere.’ He concludes that this requires a readiness, starting from the top level.

We are in a unique position to […] become standard setters.

Juhan Parts is convinced that the audit compliance work of the ECA, leading to the ECA’s annual Statement of Assurance, needs to make better use of the new technologies that are already available. ‘Big data, artificial intelligence (AI) and in the future probably block chain; they are developing rapidly and everybody is investing in them. We are in a unique position to make such investments and become standard setters. We are a small institution, but this may be an advantage. I am sure that we can use this technology for our purpose.’

Main takeaways from the 2018 ECA seminar on foresight

As to the outcome of the discussions he held with his colleagues at the ECA seminar on foresight, Juhan Parts identifies four main takeaways. ‘As to the two questions of whether we should introduce foresight into our strategy process and consider an oversight capacity, I think the overall consensus was clearly positive. Another important takeaway was that the digital reality is already here or, if not, coming soon. Our choice is to jump on this train regarding the digital transformation of our assurance work, or not.’

As a third issue he indicates that the ECA mandate is much broader than it sometimes is considered to be in-house. ‘We should not diminish our mandate by not using it to the fullest. Our mandate is what was ratified in the Treaties and agreements by all EU Member States. Our mandate is a duty to protect taxpayers’ interests and the effectiveness of EU policies, no less. There is sometimes confusion about what we are obliged to do, what we are entitled to do, etc. On top of this, not questioning certain political decisions is sometimes used as a pretext. Everything is political, but for us, as the EU’s external auditor, it is crucial that we assess the effects of these policies in an independent, objective and professional way. This is a very big challenge and makes us an important element in the functioning of EU democracy.’ Clearly intrigued by the topic he adds: ’If we diminish our role, for whatever reason, we diminish the functioning of democracy.’

If we diminish our role, for whatever reason, we diminish the functioning of democracy

Then, concluding: ‘Then we have to ask ourselves why the situation in the EU’s neighbourhood is getting worse, or why the convergence of the less developed economies in Europe is not happening anymore. What is our responsibility here?’

As a fourth take away, he refers to other SAIs: ‘Others are using foresight for their work, some have already been doing so for several years.’ He recalls the case of the U.S. Government Accountability Office, that they have been applying foresight for over eight years now. ‘The SAIs in the USA and Finland are probably most advanced, but they are not the only ones.’

Setting our own agenda

For Juhan Parts foresight also provides an opportunity for the ECA to be in a better position to set its own agenda, making well-informed choices based on scenarios linked to facts instead of intuition. ‘Of course, the logic is trend mapping, environmental scanning, goal setting and then the selection of specific topics to be audited. But always keeping in mind: what impact do we want to achieve? Every audit should have such building blocks.’

… always keeping in mind: what impact do we want to achieve?

He underlines that it is not always easy for auditors to have impact and that another challenge will be to analyse all the facts. Again, he comes back to the importance of being an objective, impartial guardian of taxpayers’ money. ‘We need to be bold and critical, but also fair when assessing policy impact. And we need to be aware of preconceptions on certain policy issues.’ In his opinion, the core question should always be what the effectiveness is of using EU taxpayers’ money through European programmes or EU regulation. ‘We should not be echoing the Commission, not for our audits, nor in our opinions on future legislation.’ As for the level of interest in reports produced according to this logic, Juhan Parts is not afraid: ‘If audits are chosen in line with our goal setting there will be interest in what we say.’

We need to be bold and critical, but also fair when assessing policy impact.

Apart from what the ECA audits, Juhan Parts believes that the ECA should set its own agenda on how it audits. He expands on an issue he raised before. ‘Take our assurance work. Many things are going on regarding financial audit topics and everybody is trying to track this, be it in the private audit or public audit arena. The trick is how to change the whole issue.’ Juhan Parts can imagine a big impact here: ‘If we change the current logic it will change the total management and control landscape. If we are able to do this in an innovative way, calling for a new way of thinking and organizing at the level of the auditee, see how robots can help in audit, how we can use analytical tools offered by AI to innovate and identify compliance risks, fraud risks, etc. — then we can trigger a fundamental change. And we need to start here, at the top of the audit pyramid.’

…we need to start here, at the top of the audit pyramid.

Setting the agenda also entails fulfilling some conditions. For Juhan Parts it is clear that much more expertise is required. ‘If we want to be more pertinent we will need more policy expertise. And I mean confirmed experts in the areas we choose to focus on. And this means that we should be able to offer them something interesting.’

If we want to be more pertinent we will need more policy expertise.

He believes the ECA is in a good position to offer an interesting work environment, provided that there is enough flexibility in the ECA’s human resources policy. For him, this even goes as far as being independent of the Commission’s staff regulations, which is currently not the case. ‘For me this is a strange set-up and decreases the flexibility we need.’ A second element he raises is more networking. ‘In the areas where we need this expertise we will need more networking.’

Foresight on the ECA: which future(s)?

When discussing the future(s) of the ECA and where it will be in ten years from now, Juhan Parts expresses a strong hope that foresight will be embedded in ECA activities, as proposed to the ECA Members: ‘I really think we need a strong and permanent foresight capacity that is firmly plugged into the strategic planning and audit processes.’

In addition, he believes that there are at least two decisive factors on how the ECA will look in the future. ‘I think independence is critical to be independent of the sector, as an audit institution, vis-à-vis your auditee. It is not that we just declare, as ECA Members, ‘We are independent.’ We should really look at the mind-set, motivation and conditions of everybody working in our organisation in the sense that they optimise such an independent attitude.’ He links this to performance audits and the choices made there: ‘If we have the right expertise, if we get the right drivers in place for selecting the topics that have an impact, then we can be standard setters in adding value for policy decision-makers.’

…we can be standard setters in adding value for policy decision-makers.’

The second decisive factor he identifies is the digital challenge. ‘If we take up this challenge of digitalisation, and we do an extremely good job during the next ten years … then we will be global leaders in public audit. But it cannot happen overnight. We should test learning by doing. To become the standard setter in auditing we need to start today.’

This article was first published on the October 2018 of the ECA Journal. The contents of the interviews and the articles are the sole responsibility of the interviewees and authors and do not necessarily reflect the opinion of the European Court of Auditors.

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