About SAO of Latvia
What is the State Audit Office?
Almost every country in the world has one supreme audit institution. In Latvia, it is the State Audit Office - an independent, collegial supreme audit institution and one of the state authorities specified in the Satversme (Constitution) of the Republic of Latvia. Nowadays, in most countries, their supreme audit institution is a constitutional body, whose foundations are established by in a constitution of their country.
The activities of the State Audit Office aim at establishing whether public resources are being spent legally, correctly, efficiently, and in compliance with the public interest. The State Audit Office provides recommendations for the elimination of the identified deficiencies.
What does the State Audit Office do?
The State Audit Office performs audits in accordance with the international auditing standards for the public sector, that is, the standards (ISSAI) of the International Organization of Supreme Audit Institutions (INTOSAI), which are recognized in the Republic of Latvia.
Any legal or physical person managing and/or administering public resources, executing public procurement, state-owned enterprises, municipality-owned enterprises and private enterprises, where the state or a municipality hold shares are subject to an audit by the State Audit Office. Only the Saeima (Latvian Parliament) is not subject to audit by the State Audit Office.
According to the mandate specified in the State Audit Office Law, the State Audit Office shall:
- provide an opinion on the annual financial report on the execution of the state budget and the budgets of local and regional governments, as well as opinions on the accuracy of annual financial reports of ministries and other central state institutions;
- submit a report to the Saeima (Latvian Parliament) and the Cabinet of Ministers on financial audits in those audited entities to which qualified opinions, adverse opinions or disclaimer of opinion have been issued, as well as on particularly relevant and significant audit findings arising from any audit;
- notify the Public Expenditure and Audit Committee of the Saeima and other Saeima Committees regarding the results of completed audits, as well as the progress of implementation of the audit recommendations;
- report to law enforcement authorities on the violations of laws and regulations identified during the audit, and follow up the progress of investigation;
- propose to the Cabinet of Ministers to take measures in assessing the audit results;
- co-operate with the institutions of the European Union and other international organisations, as well as with the supreme audit institutions of other countries;
- certify SAO’s state auditors heads of auditing sectors authorizing them to lead public sector audits on behalf of the State Audit Office.
What types of audits the State Audit Office performs?
International auditing standards distinguish between financial audits, compliance audits, and performance audits. The State Audit Office performs all three types of audits, as well as combined audits that cover financial and/or compliance and/or ‘EEE’ (economy, efficiency, effectiveness) aspects.
The State Audit Office performs financial audits in ministries and other central government agencies regularly every year. The State Audit Office provides opinions on accuracy of annual financial reports of ministries and institutions. Those audits assess both - the accuracy of accounts and examine sampled high risk compliance issues to gain assurance over achievement of intended goals and compliance with laws and regulations.
Every year, the State Audit Office performs a financial audit of the consolidated annual financial report of the state, where annual reports of all ministries, central governmental agencies, and local and regional governments are consolidated. In this audit, the State Audit Office provides an opinion on whether the financial statements give a true and fair view in accordance with the financial reporting framework.
In compliance audits, the State Audit Office assesses whether systems, programmes, activities, transactions and/or information comply in all material respects with the laws and regulations, planning documents, and nationally (or internationally) recognised best practice.
While performance audits examine the compliance with the principle of ‘EEE’, namely, the economy, efficiency, and effectiveness. The regularity of compliance and performance audits are not specified in the law. The State Audit Office performs them based on risk assessment, which means that high-risk areas and the relevant state or municipal institutions and/or their enterprises are audited.
To ensure independence of the State Audit Office, the legislator has granted the State Audit the rights to determine an audited entity, the time, type, and objective of the audit.
How does the State Audit Office organise the auditing process?
Responsibility over financial, compliance and performance audits are split among audit departments in the State Audit Office on sectoral basis. This means that the organizational structure of the State Audit Office generally mirrors the structure of the government. Each audit department performs audits of individual sectors of the national economy, for example – health, education, transport, internal affairs, justice, etc. And the particular audit department performs all three types of audit in the particular sector. There are audit teams established to perform auditing, which takes place in three stages including planning, obtaining evidence, and reporting:
- auditors develop an audit approach during the audit planning that ensures that appropriate, sufficient, and reliable audit evidence to achieve the objective will be obtained. In the audit-planning phase, an auditor obtains an understanding of the audited entity, its internal control systems, as well as determines materiality and identifies significant risks. At this stage, auditors draft an audit plan and detailed audit programs, distribute tasks among the members of audit team and time resources;
- audit team performs audit procedures to obtain audit evidence and collect appropriate, sufficient, and reliable audit evidence. Audit team obtains audit evidence by using a variety of methods and audit procedures (testing of controls, substantive procedures, analytical procedures, reliance on the work of other auditors, etc.);
- during the reporting phase audit team assesses the obtained results, summarises findings, formulates conclusions and recommendations for elimination of the identified deficiencies, and drafts an audit report, supported by audit opinion in cases of financial and compliance audits, if appropriate.
Why does the State Audit Office cooperate internationally?
The State Audit Office applies international best practices, while developing innovative and ISSAI-compliant solutions to ensure efficient performance and lead by example.
The State Audit Office strives to become an internationally recognized centre of excellence for public sector auditing. International co-operation enables the State Audit Office to demonstrate its knowledge and skills, and contribute to development of public sector auditing profession and community.
Read more about the international co-operation implemented by the State Audit Office here.
Who does audit the State Audit Office?
A certified auditor (an enterprise of certified auditors) audits the annual financial report of the State Audit Office, who is selected by the Saeima (Latvian Parliament) through a tender procedure. The State Audit Office submits its annual financial report together with the opinion of the certified auditor (an enterprise of certified auditors) to the Saeima, as well as to the Treasury of Latvia for the preparation of the annual financial report of the Republic of Latvia.
The State Audit Office (SAO) acknowledges that professional and independent evaluation of its work is important. The internationally accepted way to carry out such an assessment is the peer review — assessment carried out by representatives of supreme audit institutions (SAI’s) from other countries in accordance with international auditing standards.
Such an assessment was conducted on SAO Latvia in 2022. The performance of the SAO was assessed by an expert group led by the Supreme Audit Institution of Lithuania. The peer review team also consisted of experts from Danish and Slovenian supreme audit institutions.
The assessment of compliance and performance audits covered all phases of the audits – strategic and operational planning, audit methodologies and their application, implementation of audit recommendations, as well as quality control and quality assurance system. The main reference tool used in the peer review was the Performance Measurement Framework (PMF). The Peer Review report was presented to the Council of the SAO on 14 December 2022.
As a result of this Peer Review, the SAO obtained an independent assessment of its performance and compliance with international standards and good practices. This assessment also provided recommendations for further developments needed.
In order to provide an objective and qualitative assessment, peers organised meetings and interviews with representatives from the Public Expenditure and Audit Committee of the Parliament, as well as with representatives of institutions and organisations where SAO audits have taken place, and which were included in the Peer Review sample.
The Peer Review experts generally welcomed the initiatives launched by the SAO for the development of the institution, as well as the support provided to the experts for a qualitative assessment. The SAO is a modern development-oriented institution, the operation of which fully complies with international standards of supreme audit institutions (ISSAIs).
Key recommendations:
- Performance audit status: the peers encourage further internal strengthening of the principle by giving strategic priority to performance audits — with regard to the resources to be allocated to them, defining audit topics and plans, as well as providing training (including certification and specialisation). This coincides with the objectives of the SAO strategy for 2022-2025.
- Materiality: experts call for increased attention to be paid to “materiality” when planning and conducting audits in order to focus resources on study on key issues that have a greater impact on public sector performance and quality of work.
- Balance between trust and control: experts call for a balance to be found for a highly regulated and control-oriented environment, taking into account the maturity of the institution.