DEAR READER, Albert Einstein

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3 Concern for man and his fate must always form the chief interest of all technical endeavours. Never forget this in the midst of your diagrams and equations. Albert Einstein DEAR READER, The State Audit Office of Hungary (SAO) is the supreme financial and economic audit organisation of the National Assembly, a key basic institution of the democratic state organisation. Our primary objective is that with our findings and recommendations we assist the regular, economical, effective and efficient management of public funds and property and that we contribute to the establishment of a well-managed state, to good governance. Between December 2009 and July 2010 the State Audit Office of Hungary operated without elected leaders, which posed serious operational and constitutional risks. The present senior management of SAO was appointed by the National Assembly as of 5 July 2010, which means that the supreme organisation of public auditing can fully implement the tasks imposed on it since that date. The State Audit Office of Hungary prepared its medium-term strategy by January In order to achieve our objectives set, in 2011 the transformation of the organisation started. Changes were introduced in all areas in consideration of the principle of value-preserving renewal, which made it possible to establish a modern SAI in a way that accumulated organisational knowledge could be preserved. Our aim is to make our organisation capable of continuous progress, which relies on the values and achievements of the State Audit Office of Hungary and at the same time meets the challenges of the changing legal and economic environment. It meant a profound change that following the adoption of the Fundamental Law, the new Act on SAO was the first pivotal bill adopted by the National Assembly. The legislation, which entered into force on 1 July 2011, brought an end to the era of audits without consequences: it enforced SAO s mandates, entrenched its independence and by means of making all SAO reports public also meant a significant step forward in terms of transparency. Due to the new Act on SAO, Hungary has become a country that fully complies with international requirements concerning the independence of SAIs and also with the recommendations of the United Nations. According to the stipulations of the Fundamental Law, the Head of SAO is also a member of the Fiscal Council. As of 2012, the Fiscal Council has veto rights in connection with the drafting of the Act on the Budget, as the legislation entitled this body to safeguard the observance of the public debt-rule. It is important to note that within the Council the President of the State Audit Office of Hungary takes decisions individually and not on behalf of SAO. SAO is connected to this process on an organisational and institutional level, as the

4 Fiscal Council does not have a staff of its own performing analyses, thus the experts of the National Bank of Hungary and the State Audit Office of Hungary assist the members of the Council with their analyses and studies. Certainly, this means a new task compared to the previous ones, whose performance is highly facilitated by the fact that because of its audits and its duty to give an opinion on the budget bill SAO continuously has a view of budgetary processes. As the supreme organ of public auditing, it remains the aim of SAO to serve the safe, balanced, efficient operation of public finances and to support the development thereof, to enhance the transparency of processes related to public funds and the accountability of the public financial management. In the period of the economic crisis, when all economic organisations, citizens and the state have to cope with tightening budgets in their managements, we consider the audit of the expediency and efficiency of the financial management of public funds even more necessary. We established a new audit-planning system, in which more emphasis was given to the selection of topics to be included in the audit plan, as well as to the substantiation of on-site audits. Now the assignment of audit tasks is preceded by a multi-step preparation and approval procedure, while the efficiency of audits is ensured by rolling planning. Meanwhile, by means of a complex risk analysis system, auditors always carry out audits where it is most needed. By the establishment and development of our quality assurance system, we strive to achieve that our reports comply with the strictest professional requirements. We aim at the better utilisation of our reports: with our audit findings and recommendations we wish to contribute increasingly to the more efficient operation at the audited organisations and to the substantiation of legislative work. We deem it important to share the forward-looking financial management practices revealed during our audits with as many organisations as possible. The promotion of practices to follow is an important supplementary element of our audits. In light of the above, we launched a series of seminars called Let good example be infectious. Best practices in the utilisation of public funds. The dissemination of good practices is particularly justified among local governments, as the arrangements that already proved to be working at one or the other local government managing their funds more efficiently can be adapted by hundreds or thousands of local governments. Beyond the local governments, we also provide opportunities amongst others to the central budgetary organisations to share their good practices. I believe that in order for our work to be utilised, it is essential that our reports are intelligible to all and our communication is clear and unambiguous. We wish to make our messages understandable also to those interested who are not professionals, as due to SAO s official character our messages reach the decision-makers indirectly, via the public and the media. The renewal of our website and SAO s news portal that was launched in 2011 serve the purposes of this process. Via the news portal we continuously inform those interested, decision-makers, auditees and professionals about our work, thus ensuring the transparency of our organisation and the publicity of our activities at a high level. The professional substantiation of our work is enhanced by the Public Finance Quarterly, the professional journal of public finances published every three months and edited by the State Audit Office of Hungary. The objective of our periodical is to provide a fair and true picture on the financial system, on the main features of public sector and national economy operations, as well as on related professional discussions. In recognition of the professional quality of the journal, in the summer of 2011 the Hungarian Academy of Sciences upgraded the Public Finance Quarterly. In the same year the articles of Public Finance Quarterly became available in the leading economic database of the world, RePEc (Research Papers in Economics). As of 2012 also the impact factor of the periodical is indicated, which means that

5 our articles are cited in journals renowned world-wide, that is, the quarterly published by SAO has become an internationally recognised journal. The State Audit Office of Hungary gives priority to the fight against corruption, which is considered as its mission. This is also in line with SAO s Medium-Term Strategy in which the creation of an integrity-based, transparent and accountable utilisation of public funds is a distinguished task, as well as SAO s contribution to the fight against corruption and fraud. Along these lines, in November 2011 the State Audit Office of Hungary, the Ministry of Public Administration and Justice, the Supreme Court and the Office of the Prosecutor General signed a joint declaration and started a cooperation in fighting corruption. In the past year it was the Integrity Project focusing on corruption risks and immunity from corruption that was in the centre of SAO s anti-corruption activity. Besides, action against corruption is also highlighted in our audit plan and the integrity aspect is considered a guiding principle of our operation. The achievement of our strategic objectives also entails the renewal of our organisation and its staff. During this procedure we strive to take into consideration the principle of valuepreserving renewal even more distinctly. We introduced project-based work, competencybased selection and assignment of auditors, while we also decreased the number of organisational units and high-ranking positions, which considerably improved the efficiency of operation. It is our belief, that the assistance of the colleagues with many years of experience and significant professional know-how is the guarantee for the proper and efficient implementation of our tasks to be completed. At the same time, we also deem it important that in place of the retiring experts, young people starting out on a career join in the activity of the institution. All these can ensure that based on previous experience but also using up-to-date know-how the State Audit Office of Hungary can efficiently intervene in the interest of protecting public funds and public property. I hope that the above have aroused the interest of our Readers and you feel like learning more about the activity, objectives and results of the State Audit Office of Hungary. Our brief introduction wishes to serve this purpose. Further information on our institution is available under the different sections of our website as well as via SAO s news portal. László Domokos President