It will allow local and regional governments to function more effectively, efficiently, and economically.
- After the administrative and territorial reform (ATR), local and regional governments could save resources significantly if the human resources required fulfilling the tasks based on productivity measurements.
- Formal approach when planning and evaluating performance does not facilitate either targeted HR management or providing the deliverables essential for an institution, or purposeful use of remuneration as a tool (varying part of remuneration).
- In terms of career development, few employees are provided with training that affects the quality of functions being fulfilled.
- HR management in local and regional governments has development potential in several directions, including strategic HR management and educating HR specialists. Currently, 38% of HR specialists in municipal institutions lack proper education and training in HR management.
- During the audit, a methodology was elaborated in cooperation with an expert for contrastive data comparison of performance results of local and regional governments and calculate a number of employees required there. After the audit, the State Audit Office of Latvia plans events to spread accumulated experience in applying this methodology among representatives of local and regional governments as much as possible.
The State Audit Office has conducted a performance audit on the challenges in HR policy of local and regional governments after the administrative and territorial reform. Unfortunately, irregularities detected in former and newly established local and regional governments show that understanding about the role of HR policy for successful functioning of local and regional governments should be improved significantly. “Human resources in particular are the most valuable asset of any organisation, and knowledge and skills of employees is an essential precondition for high-quality performance of the functions entrusted and economical management of tangible resources. Merging regions forged a unique opportunity to obtain and compare current performance or productivity results of merged local and regional governments and to plan required human resources accordingly. When using the administrative and territorial reform as a moment to start “new life” in newly established local and regional governments and improve the practice of former local and regional governments in many areas, we assessed specific possibilities to improve HR management and paid attention to the question whether local and regional governments did not continue inappropriate practices of former local and regional governments. We have detected irregularities in HR management both in former and newly established local and regional governments. We call on local and regional governments not to repeat “old” mistakes and rectify detected ones as well as use those opportunities emerged after the administrative and territorial reform to a maximum, including ensuring HR management relevant to actual situation,” proposed Mr Edgars Korčagins, Council Member of the State Audit Office.
E.Korčagins has also indicated that the State Audit Office detected irregularities in the performance of municipal functions (irrespective of area and mainly irrespective of local or regional governments audited) year by year in general. This audit makes us think whether a reason for that should be sought in the understanding of local and regional governments and organisation of HR management to large extent. Irregularities in HR management detected during the audit affect both correct payment of remuneration and performance of municipal functions, for instance, the audit found irregularities in building management. Despite that fact that the State Audit Office of Latvia has published the audit report regarding irregularities in this domain two years ago, comparatively few local and regional governments have forwarded their responsible employees to training for improving knowledge and skills to prevent previously established irregularities and improve building management practice.
Survey that the State Audit Office has carried out in 36 local and regional governments also highlights development problems of HR management in local and regional governments in general. The survey results show that only a small part of local and regional governments has elaborated a HR strategy whereas 38% of employees of municipal institutions lack appropriate education in HR management, although professional capacity of those employees is crucial for shaping relevant HR management process.
During the audit, the following elements of HR management were assessed: (1) HR planning, (2) result management or performance planning and evaluation, (3) remuneration of employees, and (4) training organisation for career development of employees. Newly established Aizkraukle, Augšdaugava, Ķekava, Limbaži, Madona, Mārupe, Ropaži, Saldus, Tukums and Valmiera Regional Governments and also former local and regional governments, which form new Ropaži and Aizkraukle Regions, in specific issues (result management or performance planning and evaluation, training organisation for career development of employees as well as findings on solidity of remuneration paid) were included in the audit sample.
Local and regional governments could save resources significantly if a number of employees required would be defined based on efficiency measurements. During the audit, a methodology was elaborated in cooperation with an expert to compare data mutually on the performance of 10 newly established local and regional governments in their four areas of work and calculate a required number of employees. Using this methodology, the auditors evaluated a required number of employees (workload) in four typical areas of municipal activities including financial accounting, legal support, registration of vital statistics and real estate tax administration in 10 local and regional governments.
Reassessing the decisions made by the newly established local and regional governments regarding the required number of employees (workloads) in accordance with productivity trends, according to the estimates of the State Audit Office, the newly established regional governments included in the audit sample could plan 89 less employee workloads in total than at present, thus saving 1.33 million per year for gross salaries from the state budget.
The State Audit Office worked together with internal auditors of 8 local and regional governments. During the audit, 9 other interested local and regional governments were also given the opportunity to use the methodology of the State Audit Office. After the audit, the State Audit Office plans measures to transfer the accumulated experience in using the methodology to as many local and regional government representatives as possible.
In terms of performance management, it was found that employees were not directed towards achieving results purposefully. Local and regional governments do not set individually achievable goals at all or set immeasurable ones, set equal competences for employees in different positions (e.g., accountant and public relations specialist), as well as lack of performance requirements for specific job duties. “As a result, the planning and evaluation of performance has become a formal and unnecessarily burdensome process without a fundamental goal - to lead employees to achieve better results,” explains E.Korčagins what was concluded in the audit.
The results of the survey conducted by the State Audit Office as part of the audit show that one can observe an equally unsatisfactory situation in practically all (35 out of 36) local and regional governments with regard to results management. Specific and measurable individually achievable goals are set for the employees of only one municipality, City of Liepāja, as well as only one municipality, City of Jelgava, has specific requirements for the performance of duties.
With the existence of a formal approach to planning and evaluating work performance, it is not clear what results the employees are rewarded for. The purpose of the variable part of remuneration as a tool (bonuses, cash prizes, allowances for personal work contribution and work quality) is to motivate employees to achieve goals important to a local or regional government and municipal institutions. However, the audit found that deficiencies in determining goals, job requirements, and competencies prevented local and regional governments from using the variable part of remuneration according to its nature. Former Garkalne and Stopiņi Regional Governments, which form the newly established Ropaži Regional Government now, have used generous funds for bonuses, cash prizes and allowances for personal work investment and work quality. By conducting an in-depth evaluation of remuneration practices of these regional governments, the State Audit Office identified the risk of unreasonably spent financial resources of 154.7 thousand euros and 47.3 thousand euros spent inconsistently with good practice in the first half of 2021 alone. “Unfortunately, the formal work performance planning and evaluation approach is also continued in newly created Ropaži Regional Government, where the same irregularities (in determining goals, job requirements, and competencies) as in the regional governments merged has been found. Despite the existing shortcomings, the regional government has planned to spend 400,000 euros for bonuses and cash prizes in the budget for 2022,” indicated E.Korčagins.
The audit has also detected award of special allowances and other general bonuses and severance benefits incompliant with the Law on Remuneration in the amount of 74,731 euros. The State Audit Office will inform the Corruption Prevention and Combating Bureau about the abovementioned finding. The Council of the State Audit Council will also decide on the initiation of damage recovery process caused as a result of illegal actions, in accordance with the powers provided by the 2019 amendments to the Law on State Audit Office.
Local and regional governments lack a targeted approach to career development in general that might have a negative impact on the quality of performance of municipal functions. In other words, training and development activities are not organized based on certain goals to be achieved and improvements that are needed. In addition, only a small number of employees go to training, mostly those employed in project management, office/recordkeeping, finance/accounting and education. “Such practices of local and regional governments do not contribute to the smooth career development of HR and have already been the reason for low-quality performance of functions. In the future, local and regional governments should invest more and more in the career development of their employees," concluded E.Korčagins.
Recommendations of the State Audit Office #PēcRevīzijas
After the audit, the State Audit Office of Latvia has issued 14 recommendations in HR management to local and regional governments that will facilitate functioning of local and regional governments and achieving their goals. Deadline for the implementation of recommendations is 1 December 2023.
- Audit report, recommendation implementation timeframe, infographics, etc.
About the State Audit Office
The State Audit Office of the Republic of Latvia is an independent, collegial supreme audit institution. The purpose of its activity is to find out whether the actions with the financial means and property of a public entity are legal, correct, useful and in line with public interests, as well as to provide recommendations for the elimination of discovered irregularities. The State Audit Office conducts audits in accordance with International Standards of Supreme Audit Institutions (ISSAI) of the International Organization of Supreme Audit Institutions (INTOSAI), whose recognition in Latvia is determined by the Auditor General.
100 years of AUDIT STRENGTH
On 16 August 2023, the State Audit Law will turn 100 years old. With the adoption of this Law, the State Audit Office from a formal de facto institution founded on 2 December 1918 became a de jure independent, collegial supreme audit institution of the Republic of Latvia. The State Audit Office is one of the independent state institutions enshrined in the Satversme (Constitution) of Latvia. The Constitution was signed by Roberts Ivanovs as the secretary of the Constitutional Assembly, who was then confirmed as the Auditor General. He worked as the first Auditor General for 12 years. His signature confirmed the text of our Constitution alongside that of Jānis Čakste.
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