From foresight to audit selection: examples at the ECA
Reflecting on foresight is one thing, but making it a component for guiding the selection of audit tasks which add value is easier said than done. How is foresight information tapped by auditors and used in current audit programming at the ECA? As assistant to the director of one of the ECA’s audit directorates, Matteo Tartaggia is closely involved in the design of audit tasks and gives some concrete examples relating to climate change and agriculture.
By Matteo Tartaggia, Sustainable Use of Natural Resources Directorate
Foresight and auditing standards
When developing ideas for potential audit topics, foresight is essential to make sure that the proposed task is going to be relevant to citizens, the parliament and other stakeholders, not only now but also when the audit report is published. Foresight is also recognised by international audit standards: ISSAI 12 — part of the standards used by Supreme Audit Institutions (SAIs) — calls on SAIs to be responsive to changing environments and emerging risks. One could therefore argue that foresight is built into the various stages leading to the choice of audit tasks, from policy scans to the adoption of the annual work programme at the ECA.
From policy scans to the selection of audit tasks
Policy scans are the first step in identifying the latest developments and trends in a policy area. For instance, our policy scan on the environment and climate change starts with an overview of the main climate and environment trends expected in the next five to ten years, and a longer-term outlook, as assessed by the European Environment Agency in its latest ‘state and outlook` report on the European environment (see Figure 1).
In the area of agriculture, our policy scans list new technologies — such as the use of satellite imagery and precision farming — as a key development over the next few years, and a subject highly relevant to our future work.
On the basis of these policy scans we develop our audit ideas. In the Sustainable Use of Natural Resources Directorate around a hundred auditors are involved every year in the development of audit ideas. The sum of their experience, specialist knowledge and particular interests means that we have extensive coverage of topics — including ongoing and future developments across audit areas. They meet, brainstorm, and present their ideas to our management, who, when it comes to selecting which ideas should become audit tasks, are attentive to emerging risks and their impact on the lives of EU citizens.
Last year we included in our 2018 work programme a task on desertification in the EU as a high priority. Our policy scan had identified an unfavourable trend in soil degradation in recent decades, and the audit proposal had highlighted that, according to the European Environment Agency, over 40 million hectares of land in the EU were sensitive to desertification — an area bigger than Italy and Portugal taken together. With no specific legislation or budget allocations on desertification or land degradation, but several legal and policy documents — and EU funds — potentially addressing these phenomena, we decided to examine whether the risk of desertification in the EU was being addressed effectively and efficiently. As the ECA had earmarked this as a high-priority task, the special report is expected as early as the end of this year.
In fact, the role of foresight is obvious in all our audit reports and other products concerning climate change. In 2016 we looked at the arrangements put in place to ensure achievement of the EU target of spending at least 20% of its budget for 2014–2020 — one euro in every five — on climate-related action. We concluded that progress had been made towards reaching the target, but there was a serious risk that it would not be met without more effort to tackle climate change. Building on this and other reports, in 2017 we published a landscape review on EU action on energy and climate change, identifying a number of challenges, in order to inform both the legislative debate and future audit work.
But foresight is not confined to the environment and climate change. Another very different but obvious candidate for applying foresight is the area of new technologies. A recent example in our directorate concerns the use of new technologies in agriculture. As I mentioned earlier, our policy scans on agriculture had identified new technologies as a potential game-changer in future years. Upon further investigation, we found that monitoring agricultural activities by using new technologies was likely to develop rapidly, and had the potential to simplify and reduce the costs of checks, for public administrations and farmers, and allow better targeting of EU funds.
In fact, we have experienced ourselves the potential of new technologies in the course of our audits. For years we had been visiting on the spot all the farmers sampled for our compliance audit work for the ECA’s Statement of Assurance. In 2017, we decided to make increased use of satellite imagery and the digital measurement systems available, which allowed us to audit remotely one third of direct aid transactions. We expect this ratio to increase in 2018, and reduce even further our trips to the fields.
In light of these developments, we decided that undertaking a task on new technologies in agricultural monitoring would maximise our capacity to comment effectively on the developments expected over the next two to three years, and keep abreast of ongoing developments. This task will also represent an excellent learning opportunity to increase the efficiency of our own audits. In a way, it reminds me of the speech given by Kersti Kaljulaid — a former ECA Member and now President of Estonia — during the celebrations of the ECA’s 40th anniversary. A year ago, she was challenging us to ’use technology to make financial audit almost unnoticeable,’ so that we would be able to ‘deal with more interesting audit questions, while algorithms sneak through the digital trail of the bills relating to the EU budget’. I doubt that we are completely there yet, but using techniques such as I have described above proves that we are accepting the challenge.
Foresight never ends
The challenge that doesn’t end once we have selected an audit task. We have seen how foresight precedes and accompanies the choice of audit tasks — from policy scans to the adoption of the annual work programme — and I have listed several examples where the ECA has taken up the challenge of being a catalyst for change. But foresight hardly stops there. Throughout the audit — and virtually in any audit task, even the more traditional ones — our auditors are required to be aware of ongoing developments in the policy area, and need to be bold and forward-looking if they are to make relevant recommendations for the future.
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.