Vision o f t he State Audit Office on the current situation and future initiatives

1. Visionof the State Audit Office on the current situation and future initiatives State Audit Office of the Republic of Latvia 13 k-5 Skanstes Str. Riga, Latvia, LV-1013 Phone: +371 67017500 Fax: +371 67017673 lrvk@lrvk.gov.lv http://www.lrvk.gov.lv Senior Auditor Agita Bičevska April 13, 2011

2. Objective of this presentation • Independent assessment of the existing situation – state development planning and policy making environment • Future initiatives – vision and initiative of the State Audit Office for embedding the changes

3. State Audit Office assessment has been based on: The audit findings in financial, regularity and performance audits, for example: • State orders and funds extensive construction projects without seeking for most beneficial solutions and assessing of all possible risks • State does not ensure effective governance of enterprises with state shares lacking clear statements in respect to the outputs to be achieved to ensure return on the state financial investments • By not setting a single policy for the acquisition, management and sales of the real estate properties as well as financial return resulting from undertaking management of the properties, state does not ensure effective management of the real estate properties

4. State Audit Office assessment has been based on: Additional research outside the audit work: • On the state development policy planning and implementation system • On the state budgetary policy for sustainable development of national economy • On the monitoring mechanism to assess achievement of the set objectives and outcomes • On the regulatory basis for ensuring not only legal, but expedient, effective and economical action with state resources

5. State development policy (current status) • There is more than one nation wide policy planning document • Lack of a uniform state development plan determining: • development of economy in accordance with the existing economic situation • coordinated sectoral policy • objectives and outcomes to be achieved • measures to be undertaken • Extensive hierarchy of planning documents on several levels (national, regional, governmental, sectoral, institutions and budget policies) • Complicated traceability of development priorities and planned outcomes as well as assessment of the succession, additionality, impact and feedback on the outcomes achieved

6. Performance measurement and national indicators (current status) • Existing performance management system is a complicated three stage system consisting of a large number of indicators • Current set of indicators does not describe activities of institutions and is mostly of quantitative nature • Indicators do not form an integral part of the policy planning process and are not defined for policies at all levels • Indicators have not been set in compliance with the respective policy documents and government actions • Indicators set on various levels are not measurable, comparable and consistent • Lack of reporting and performance analysis

7. State budgetary policy (current status) • State budget operates only as an expenditure plan for the running year in accordance with the established expenditure classification without a link to the development planning documents • Achievement of the set outputs with the planned/ conducted investments is not assessed as well as the adequacy of investments compared to the outputs is not evaluated • The only criterion for the state budget development – to achieve consolidation in the amount established by international creditors • Revenue policy = increase of taxes • Expenditure policy= mathematical cuts

8. EU Funds policy (current status) • EU Funds resources are not targeted towards implementation of uniform state strategic objectives • Mutual linkage and additionality of measures implemented by various sectoral ministries is not ensured • EU Funds policy objective is based on a single criterion – better acquisition of funds • With regular reallocation of the available EU Funds resources immediate short-term problem issues are addressed investing into the projects with potentially higher speed of funds acquisition

9. State Audit Office initiative (how it should be?) • The legislator (Saeima) shall approve a single supreme state strategic development plan • Other planning documents: • subordinated to the supreme plan • coordinated among sectors • eliminate the non topical ones • Law on the State Budget: • shall be a medium-term document • setting outputs to be achieved and providing outcome indicators for each budgetary programme • provision of funds (including EU Funds) for the implementation of policies determined by the State Strategic Development Plan

10. State Audit Office initiative (what shall be done?) Changes in the Law on Development Planning System, determining: • Content of the State Strategic Development Plan • Development Plan is produced by the Cabinet of Ministers and approved by the Saeima • Cabinet of Ministers ensures mutual coordination of subordinate planning documents • Cabinet of Ministers reports to the Saeima on the implementation of the Development Plan simultaneously with making amendments to the state budget • Cabinet of Ministers together with medium-term Draft Law on the State Budget submits proposals for changes in the Development Plan

11. State Audit Office initiative (what shall be done?) Changes in the Law on Budget and Financial Management, determining: • The annual Law on the State Budget provides for each budgetary programme: • objective of the programme and amount of resources; • outputs and outcome indicators; • measures to be implemented and resources to cover the costs • Minister of the particular sector is responsible for achieving the outputs and outcome indicators set for the budgetary programmes • Only the Saeima can make changes to the state budget appropriations • During reporting on the implementation of the state budget ministries provide assessment on the substance of achieving the outputs

12. State Audit Office initiative (benefits?) • State possesses a single medium-term development document, all other development documents as well as the Law on the State Budget are subordinated to it • In the Law on the State Budget all resources are planned for achievement of particular outputs and each member of the public can understand for achievement of what objectives resources will be spent • When cutting back on funding the Government has a clear vision on which measures will therefore not be implemented and what outcomes will not be achieved • Setting performance indicators in line with the policy documents and government actions. Indicators for achievement of the set objectives are measurable and comparable

13. State Audit Office initiative (progress?) • In February 2010 State Audit Office approached the President of Latvia, the Chairman of the 9th Saeima and the Prime Minister with its proposals for making a link between state policy and budgetary policy • In March 2010 under the leadership of the Chairman of the 9th Saeima a working group was established within the framework of which State Audit Office developed specific proposals for changes in legislation • In January 2011 this issue was activated in the Commission for State Governance and Local Governments of the 10th Saeima

14. Thank you for your attention! The State Audit Officeof the Republic of LatviaPhone: +371 7017500Fax: +371 7017673E-mail: lrvk@lrvk.gov.lv