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SAI strategy for response to COVID-19, compliance audit, Marita Salgrave, Latvia, SIGMA event 17 February 2021

Presentation by Marita Salgrave, Latvia, on the SAI's strategy for response to COVID-19 – compliance auditing as one of the tools, at the SIGMA webinar on the audit of COVID-related expenditures, held on 17 February 2021.

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SAI strategy for response to COVID-19, compliance audit, Marita Salgrave, Latvia, SIGMA event 17 February 2021

  1. 1. © OECD Audit of COVID-19 related expenditure SAI’s strategy for response to COVID-19 – compliance auditing as one of the tools Marita Salgrave former Head of Strategy and Development, SAI Latvia Virtual workshop – 17 February 2021 Network of SAIs of EU Candidate and Potential Candidate Countries and ECA
  2. 2. 1 Emergencies – whether SAIs should react immediately? If yes, how? Situation during the first 2-4 weeks after the first patients were identified -  Confused governments and parliaments (balancing between the need for urgent measures and limitations of legal framework / administrative procedures)  Desperate need for advice – internal or external  A SAI seen by decision makers and general public as a ‘leader by example’ and one of respected advisers
  3. 3. 2 Should a SAI respond to the situation? We are auditors – our ‘business’ usually hold the ex-post character We lack information and experience to give a professional advice Limited timeframe (days!) for management decisions by SAI ‘Holding back’ and monitoring seem much more easier and could be justified, however – How about remaining relevant (ISSAI 12 and not only)?
  4. 4. 3 How should a SAI respond to the situation in order to ‘remain relevant’?  Accepting ‘trade-offs’ between the role of watchdog and more active adviser to the government (Publish reports from just completed audits and/or suspend on-going audits to let the government to focus on pandemic? Proceed with audits, just modify working methods? Urgently modify annual audit plan to focus on emergency expenditure? Etc., etc., etc.  Offering the ‘product’ we, as a SAI, know how to produce – audit reports, just differently  Look for off-line partnership with other SAIs
  5. 5. 4 Screen shot from SAIs webpage (information published in April 2020) https://www.lrvk.gov.lv/en/news/the-state-audit-office-calls-for-responsibility-and- mutual-support
  6. 6. 5 What was the modified Annual Audit Plan focused on?  Area of intervention 1*: Auditing at least 90% of ‘emergency’ spending allocated to address COVID-19 (Contingency funds and COVID-19 related budget reallocations) – achievement of objectives in a compliant manner  Area of intervention 2: Auditing expenditure of so called priority measures (new initiatives by the government included in 2020 year’s budget before pandemic) – achievement of objectives in a compliant manner  Area of intervention 3: efficiency of savings in ‘regular’ expenditure of public institutions  Area of intervention 4: Audits originally included in the Annual Audit Plan 2020 of the SAI Latvia. * Covid-19 related expenditure for 2020 ~ 2 billion euro.
  7. 7. 6 Audited entities All the institutions having received the major part of emergency expenditure. For example, ‘emergency’ funds allocated for:  employment support schemes (idle time schemes for employees affected by COVID-19).  procurement of PPE  ensuring the remote learning process in schools  financing studies related to the mitigation of the COVID-19 effects  all kinds of social allowances administered by welfare sector  ensuring public awareness-raising COVID-19 related topics  construction of roads  increase of equity of the SoEs in area of transport  increase of equity of major hospitals  compensation of additional workload for medical practitioners and other employees, etc.
  8. 8. 7 Audit types used by SAI Latvia for auditing COVID-19 related expenditure 1) Financial auditing of 2020 financial statements of public institutions COVID-19 expenditure considered as a compliance verification within a financial audit with a distinct audit approach; audit results summarized in an interim report, issued separately and not waiting for finalization of financial audits); in fact, - financial audits turned into combined financial/compliance audits – since compliance verifications ‘go beyond’ ISSAI 2250 ‘Consideration of laws and regulations’ 2) Compliance auditing on specific subject matters
  9. 9. 8 COVID-19 expenditure audit - progress https://www.lrvk.gov.lv/en/covid-19/auditing-covid-19-emergency- spending/completed-audits  17 COVID-19 related audit reports issued; 13 still pending  Slightly behind the schedule, while currently catching-up (‘1 report in 2 weeks regime’)
  10. 10. 9 Examples of COVID-19 related expenditure topics already covered  Delivery process of personal protective equipment in health sector (20.07.2020.)  Procurement system established by the Ministry of Defense and the procurements made during the emergency to limit the spread of COVID-19 (17.08.2020.)  Use of contingency funding allocated to the Ministry of the Interior for the purchase of personal protective equipment and disinfectants (02.09.2020.)  Providing a distance learning process during an emergency (30.09.2020.)  Use of contingency funding for bonuses for home affairs officials directly involved in curbing the spread of COVID-19 (13.10.2020.)  Use of contingency funding allocated to the Ministry of Welfare for payment of continued parent benefit, extraordinary bonus to national family benefit for disabled child, and increased childcare benefit (26.11.2020.)  Use of contingency funding allocated to the Ministry of Justice for bonuses for the Prison Administration staff who have been directly involved in curbing the spread of COVID-19 (14.12.2020.)  Use of contingency funding allocated to the Social Integration Fund and the National Electronic Mass Media Council for media support to ensure that the public has access to information on overcoming the COVID-19 crisis, as well as to provide the security of the national information space in commercial electronic mass media (22.12.2020).  Assessment of investment of MEUR 190 into the equity of joint-stock company “Development Financial Institution Altum” to support economic operators in difficulty due to the outbreak of COVID-19 (15.01.2021.)  Use of contingency funding allocated to the Ministry of Health to provide bonuses to medical practitioners in the healthcare sector for working in high-risk and hyper dynamic environment (10.02.2021.)  …
  11. 11. 10 Examples of compliance auditing of Covid-19 related expenditure to be further demonstrated  «Delivery process of personal protective equipment in health sector - may insufficient regulation justify hasty decisions?» (20.07.2020.)  «Procurement system established by the Ministry of Defense and the procurements made during the emergency to limit the spread of COVID-19» (17.08.2020.)
  12. 12. 11 Audit example 1: “Delivery process of personal protective equipment in health sector - may insufficient regulation justify hasty decisions?” Background:  Process of purchasing PPE was performed by National Health Service (NHS) and Emergency Medical Service (EMS)  Time period – beginning of March until April 2, 2020 when the procurement obligation was taken over by the sector of defense  5.7 million euros were spent and five suppliers contracted
  13. 13. 12 Audit example 1: “Delivery process of personal protective equipment in health sector - may insufficient regulation justify hasty decisions?”–cont 1 Answers to the following questions were sought for by auditors:  Was the Civil Defense System overall prepared to ensure the required amount of PPEs in emergency situations?  Was the Ministry of Health prepared to act immediately and compliantly to ensure PPEs?  How was the procurement process organized in the Ministry of Health?  How was the PPE ‘needs assessment’ performed by all sectors?  How was the compliance of delivered PPEs tested? N.B. ‘Propriety’ rather than ‘regularity’ audit
  14. 14. 13 Audit example 1: “Delivery process of personal protective equipment in health sector - may insufficient regulation justify hasty decisions?”–cont 2 Main findings – 1) Provisions of the Public Procurement Law ‘frozen’, while guidelines on procurement during the emergency made available by the MoF and Public Procurement Bureau almost two months later (April 29) – resulting in the officials’ acting based on their understanding of their rights/duties and lack of transparency 2) A number of decisions on PPE technical specifications, delivery processes and selection of suppliers were taken unilaterally – ‘another ‘two eyes’ were missing, thus causing a high risk of corruption 3) Actions and decisions of decision-makers were not documented even in the slightest amount during the entire process 4) The list of tenderers was not made public thus limiting opportunities of the market players to ‘red flag’ potential cases of abuse in terms of exaggerated prices and delivery opportunities
  15. 15. 14 Audit example 1: “Delivery process of personal protective equipment in health sector - may insufficient regulation justify hasty decisions?”–cont 3 SAI’s challenge No.1 – compliance audit criteria  Relevant legal framework – ‘frozen’ or suspended  Lack of other guidelines for both audited entities and auditors  No access to good practices in similar situations SAI’s challenge No. 2 – processes not documented (audit methods?) Another challenge – parallel investigation by ‘analytical media’
  16. 16. 15 Audit example 1: “Delivery process of personal protective equipment in health sector - may insufficient regulation justify hasty decisions?”–cont 4 The approach taken –  Criteria – (1) based on professional judgement of auditor, how the audited entity had to act in the given circumstances; (2) partly derived from the guidelines issued ex-post by the MoF and Public Procurement Bureau  Auditing methods – interviews, verification of e-mails and even – WhatsApp messages; to the extent possible reconstructing processes based on outcome from interventions
  17. 17. 16 Audit example 2: Procurement system established by the Ministry of Defense and the procurements made during the emergency to limit the spread of COVID-19 (17.08.2020.) Background:  As of April 2, 2020 the procurement of PPEs was taken over by the Centre subordinated to the Ministry of Defense  The Centre was entrusted with the task to procure PPEs centrally based on the list of priority needs of the institutions, as well as ensure the storage of PPEs after their delivery  On April 21, 2020 the government allocated MEUR 45 for the said procurement  By the date of completion of the audit, the Centre had signed 29 supply contracts for MEUR 38.9 in total
  18. 18. 17 Audit example 2: Procurement system established by the Ministry of Defense and the procurements made during the emergency to limit the spread of COVID-19 (17.08.2020.) – cont 1 Answers to the following questions were sought for by auditors: 1) Whether the centralized procurement procedure established in the Ministry of Defense complies with the legal framework and guidelines issued by MoF and Procurement Monitoring Bureau and 2) Whether the PPEs were procured in compliance with the established procurement procedure N.B. ‘Regularity’ rather than ‘propriety’ audit
  19. 19. 18 Audit example 2: Procurement system established by the Ministry of Defense and the procurements made during the emergency to limit the spread of COVID-19 (17.08.2020.) – cont 2 Main findings – 1) the centralized procurement procedure established in the Ministry of Defense complies with the legal framework and guidelines issued by MoF and Procurement Monitoring Bureau, however 2) the established procurement procedure comprised provisions similar to the ‘frozen’ Public Procurement Law, resulting in lengthy, heavy and bureaucratic process (contracts signed 15-30 days after selection of suppliers) 3) Ministry of Defense failed to proactively modify the originally established procedure when the situation in terms of epidemiological safety stabilized and market was already able to satisfy the demand (focus on ‘EEE’ was neglected) 4) Due to backlogs imposed by the complicated procedure, auditors did not obtain assurance that PPEs were procured based on economically most advantageous offer
  20. 20. 19 Audit example 2: Procurement system established by the Ministry of Defense and the procurements made during the emergency to limit the spread of COVID-19 (17.08.2020.) – cont 3 SAI’s challenges:  Audit criteria easy to define (compliance of procedure with the law; compliance of actions with procedure), however, the volumes of documents – overwhelming  Performance audit (‘EEE’) aspects ‘came into the game’ during the auditing process
  21. 21. 20 Audit example 2: Procurement system established by the Ministry of Defense and the procurements made during the emergency to limit the spread of COVID-19 (17.08.2020.) – cont 4 Recommendations:  Immediate development of the National Civil Protection Plan (not existing for the last 3 years) and updating of the National Disaster Medicine Plan  Update of the centralized procurement procedure applied by the Centre to ensure ability of the system to respond to constantly changing epidemiological environment and being able to ensure adherence to ‘EEE’ principles
  22. 22. 21 Additional steps taken by the SAI after completion of 3 PPE audits in different sectors (health, defense and interior) In addition to sending individual audit reports to audited entities and Prime Minister, SAI had offered to help to see all the ‘playground’, conceptualized findings to serve as the road map for the next emergencies https://www.lrvk.gov.lv/en/news/state-audit-office-submits-proposals-to- the-prime-minister-after-audits-of-covid-19-related-procurements
  23. 23. 22 Thank you for your kind attention! Photos from the site: depositphotos

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