From strategy to audit — making our work as future proof as possible
How can a public audit institution ensure that its audit work, when published, matters and has a high impact? In his previous professional life, ECA Member Juhan Parts, was Prime Minister, Member of Parliament and Auditor General. His experience is that having an impact starts with adopting a strategy in which vision and foresight play an essential role in making the right choices. As a former chair of the ECA’s ‘Future Foresight Task Force,’ (see the ECA Journal on Foresight) and more recently as a member of the ECA’s Strategy and Foresight Advisory Panel, he has actively contributed to preparing the new ECA 2021–2025 Strategy. In this article he explains why the strategic orientation of an SAI like the ECA matters so much in terms of having an impact on society.
Juhan Parts, ECA Member
Strategy: a matter of choices
Strategic planning primarily concerns two issues — resources and accountability. If an organisation had unlimited amounts of resources, it could do whatever it wanted. As this is not the case in real life, every diligent organisation needs a strategy. It needs to figure out where to put its resources to maximize its added value. Accountability is the other need that makes proper strategic planning inevitable. Without strategic goals there is no meaningful reporting and no accountability.
The European Union has no lack of different funds, policies and actions. The ECA, with slightly over 900 staff members, has never been, and will never be able to cover all of them in terms of performance auditing. This means that we have always made choices and will continue to do so. Hence, the question is not whether we need to make strategic choices, but how we make them.
From ‘picking mushrooms’ to systematic goal setting
Our 2018–2020 Strategy was short and rather general and provided relatively little input to our work programming. This means that until now many strategic choices have been made on a year-by-year basis rather than being based on a consistent set of strategic priorities. To a large degree, our work programme is developed through a bottom-up procedure, which starts with our auditors providing ideas and ends with a selection exercise at the level of the College. This may result in an interesting portfolio of audits, each of which taken separately seems useful, but taken together lacks some core requirements to be called a forward-looking programme. We are used to asking what a good audit is, but we hardly ever ask how several good audits together can lead to greater impact.
In other words, we must make a difference between the impact of a single audit and the impact of our performance audit work as a whole. One without the other is not enough to make the performance of a supreme audit institution effective and efficient.
At our 2017 ECA annual seminar, we were already discussing shortcomings in the planning procedure. We then concluded that the ECA needed to reflect on establishing a strategic thinking structure and procedure to make the ECA more future proof. This led to setting up the Foresight Task Force in 2018 as an ad hoc working group. A year later, its successor, of a more permanent nature, was created: the Strategy and Foresight Advisory Panel (SFAP), which was supported by a dedicated team in the ECA’s Directorate of the Presidency. Leaving aside the details of the work done by the SFAP, let me outline their conclusions on strategic planning for performance auditing. The following four keywords form the basis for good strategic planning:
- Future foresight;
- Agreement on resources.
Instead of seeking to cover everything, a public audit institution should focus on a limited number of policy domains. The scope should be proportional to the resources available for performance auditing. For an institution like the ECA, four to five priority domains would be appropriate. Balancing objectives and resources is a prerequisite for effective capacity building, which is of utmost importance for performance auditing. Without expert level knowledge in a policy area, an audit institution will never be able to study actual problems emerging in real life and make substantial and relevant recommendations.
Focusing is not a goal in itself, but it is a way to increase impact. An audit institution can be considered effective and efficient only when it is capable of finding out the most important problems in the field and succeeds in focusing its (limited) resources on them. In order to achieve this, one should not only look into the past, but also figure out what could happen in the foreseeable future. This leads us to the next key term, which is future foresight.
The policy domains which should be prioritised should be based on the future foresight work. These domains should then be covered by a multi-annual approach. This means that strategic planning should not be a one-time exercise, but an ongoing process, which starts with trend analysis, goes through several phases of narrowing down and ends with the audit programme, where every angle of each priority domain is covered by an audit (see Figure 1). Insights gathered from audit work done and new trend analyses will feed into subsequent strategic planning.
Figure 1 — From trend-watch to annual work programme selection
Let me emphasize that future foresight is not a ‘nice to have,’ but an important tool and proven method of strategic risk analysis. Having our own foresight practice is not coping with or duplicating the work done by other players in the field, but going further and deeper with the trends which are relevant to the EU, identifying the elements most relevant to auditors. Foresight work is the initial step in the strategic planning process, to be followed by in-depth analyses of EU policies aimed at identifying the performance and financial risks.
Moreover, systematic work on future foresight not only leads to relevant topics, but it also brings change in organisational culture, making it open-minded and forward-looking. It also presents an opportunity to build up a global expert network, which the ECA needs to improve the quality of both its audits and its standing as a knowledge-based organisation.
A sceptical reader may now ask if this approach is free of problems. One may argue, for example, that by focusing on a limited number of policy domains we risk losing competence in others and will therefore not be prepared enough to react when something happens. As the Covid-19 pandemic has demonstrated, in a rapidly changing world we may easily underestimate some important trends. This is true and remains a risk. But an organisation without any priorities and no foresight system is even more vulnerable in this regard. Firstly, without focusing, an audit institution will remain an ‘amateur’ in all fields, and secondly, an organisation practising future foresight is capable of discovering problems at an earlier stage and reacting more rapidly to unexpected changes.
For each priority domain, the strategy needs to set specific strategic goals. It is not simply declaring that something is the priority, but describing what the audit institution wants to achieve in a certain period of time. Goals should be worded, at least, as outputs, but even better as outcomes or impact. Through such goals, the strategy becomes a living — and operational — document at all levels. In every subsequent procedure — elaboration of annual (or multi-annual) work programmes, determination of the scope of an audit task, making quality reviews, etc. — we have to ask how our choices correspond to the strategic goals. Clear and measurable goals also make our performance audit work measureable and ensure our accountability.
Agreement on resources
Performance auditing should not be treated as a secondary task, which can only be done to the extent that time is left over from assurance work. Instead, the strategy should fix the distribution of resources between assurance work and performance audit, and also, between the different priority domains.
Back to fundamentals
Performance audit was born from the need to balance the executive power. This need is even more visible in the EU, because in the EU, not all democratic mechanisms can work as effectively as at the smaller-scale national level. In the European Parliament, there is no clear government majority or opposition, or at least it does not function in the way it traditionally functions in most of our Member States. Another issue is that a European public sphere hardly exists outside the ‘Brussels bubble,’ meaning that the external pressure which forces public sector institutions to come out of their comfort zone and adjust to a changing environment is a lot weaker than in nation states.
The ECA’s core mission could be to strengthen the principles of ‘checks and balances’ and contribute to reducing the deficit of democratic control mechanisms in the EU — enhancing public scrutiny, based on objective data and independent analysis. This can only be done when the ECA is capable of addressing the right issues in an impactful way. In order to find both the issues and the way, we need a proper strategy.
This article was first published on the 1/2021 issue 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.