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President of the Republic at the Young EUROSAI (YES) Conference

President of the Republic at the Young EUROSAI (YES) Conference © Riigikontroll

12.09.2017

Dear young, agile and responsible auditors, welcome to Tallinn!

I was once one of you. In 2004, I stood in front of the EU Parliament's Budget Control Committee and answered their questions in order to qualify for the first Estonian member of the European Court of Auditors. The only question I had to face even twice related to my age. I was 5 years younger than the man who now leads France or the previous Italian Prime Minister. Of course, I was also only 4 years younger than another applicant going through hearings at the same day, but he did not face the same question – he was male, of course. Men where not exempt from ageism directed towards young though – when arriving at ECA, I learned that the previous youngest member of the honourable institution was particularly happy for our youthful appearance – at least it stopped other colleagues calling him baby Vitor.

He was 40 at arrival at the Court. Only 4 years after leaving his babyhood though,

he became the President of the Court for next 9 years, indicating that also ECA was changing with the times. My own youthful energy was happily harnessed by the colleagues to make me responsible for the audit of Cohesion funds, the most error-prone part of the EU budget at the time, and later for the whole Statement of Assurance, putting me into the role of the toughest member of the Court, as defined by Commission president Barroso.

I have lived an eventful life as EU auditor and when presenting last week my thoughts to the EU Parliaments' conference on European Foreign and Security policy, I easily fell back into the role seeking MEP-supported leverage for my statements. I may be the only president in the world who can get passionate about statistical sampling measures and the effect that the used methodology may have on the auditor's ability to draw conclusions and report on the findings.

I am happy that you are nowadays facing a world much more open towards young leadership. I think the world has since realised that quickly changing technological landscape, which is also changing the societies rapidly, demands that younger generations take their responsibilities for designing our future decades earlier than was habitual in the beginning of this century.

I am pleased that today's Young EUROSAI conference program focuses specifically on the challenges that advances in IT and changes in society bring to your profession. At this conference, you are discussing the problems that the digital era brings to auditors and how auditors can make out the most from these new opportunities.

I have to say, as an Estonian, I cannot see any real technology-related problems, only opportunities. Of course, administratively we are great in Europe and I guess elsewhere to make technology a problem rather than opportunity.

An example, maybe, of what I mean by the last statement, is in order. Here it is. While we have not yet solved the digital freedom for Europe, we have many artificial restrictions on free movement of data, which makes also your profession harder to exercise than absolutely necessary. There is, for example, a rather big country in the centre of Europe, which demands that all information underlying any tax declaration, corporate or private, in that country, has to be kept available for certain number of years. By available they mean inside the borders of that country. The data must not leave the country, not even in digitalised format, not as a copy. Of course, probably nothing happens if someone takes their tax declarations with them as pdf. But as soon as you, for example, wanted to audit a company from that country while working, temporarily or permanently, in another country, you would have to handle this data illegally. Automatically, you have a non-functional services market, where technology has not created the problem, but legal handling of technology has.

We absolutely have to solve these problems, to take the opportunities which technology creates. It has created for auditors opportunities we could not even dream of 20 years ago. But too few companies and governments still use them, even those ones which actually have been around for 20 years and more. Estonia, Latvia, some other EU Member States, for example, have a fully automated, accruals based accounting system and consolidated accounts in place for at least 15 years. These countries know their incomes and expenditures every evening with remarkable accuracy. Yet there are still countries where big parts of government accounting operate on cash base, hence resulting in actual consolidated accounts several years after the active period has ended. This is a mess both from accountant's and an auditor's view.

It also creates unfair position possibly mistreating those with super accounting standards in a process like European Semester, where Commission analyses the deficits of the Member States and may potentially suggest fines of considerable amount if Member States fail to respect the deficit criteria. How on earth do we compare someone with quickly consolidated accounts, who provides real data to Semester with someone who remains on "estimates" for next 2-3 years?

Even without such sophisticated questions about fairness it is also clear that auditing a State's finances which are computerised on accounting side, operate only with electronically presented bills (not pdf-s, mind you) and automatic cash-free payments is much more efficient, hence cheaper. It does, of course sound like the death of the financial auditor's profession, but luckily there is much more interesting staff to do in the audit world than checking payroll.

I remember my enthusiasm when our computer audit unit at the Court managed to check some customs data by scanning through it with an algorithm, allowing to discover fraud-suspicious payments. I thought we will see a revolution in costs of auditing the own resources, for example. Of course not – even today, so much customs data in so many Member States remains paper-based that it is hard to even convince IT-specialist in keeping developing such algorithms. Bureaucracies have their ways to withstand both technology and effective auditing, of course. Perversely, they can even use technology to make things more cumbersome. Take the disease of pdf-ing. It is not the fault of pdf, of course, but legal base. If a bill has to have a signature and it cannot be delivered electronically and of course therefore has to be printed, signed and pdf-ed, to be sent to some national agency or EU agency. So, nominally electronic databases are non-searchable and the bills and payments do not generate a data flow easy to audit. Instead you shift through files in slow and overcrowded databases full of underlying documents, spending more time and effort than leafing through a paper file.

You are young and enthusiastic, it is for you to achieve that in next 10 years you can return to your office and say that underlying data was not available, unless it is presented on an analytical, sortable database. That is not too much to ask, the necessary technology exists for 20 years, the only lacking element is the will of administrators. And, of course, politicians, too.

Yet even in the current, obviously far from perfect world you may still make some use of the world wide web and what it offers. I just heard of an interesting case where auditors made their own life much easier by checking the photos provided as the proof of the project. Against freely available audit tool called google street view. Street view has a function when you upload a photo to check whether it has the same place already in its database. It appears that the photos presented as taken at locations necessary to complete the audited project, where taken much closer to the home of the project developers, obviously not therefore fulfilling the objectives of the project. A 100% error, obvious fraud, which may have previously only been discovered by long distance travel, if at all.

I think you all have similar occasions where you have used web to discover an error, only to then face the question whether your web-based finding even counts as proof. Of course, additional proof is easy to find if you know where to look for, so technology helps anyway. You may hold a competition of most anecdotal web-based audit cases on this conference, I am sure they will provide a lot of inspiration to your colleagues without even mentioning the sophisticated world of data mining.

Less and less often you will therefore have to take drastic measures in order to prove your findings. Once upon a time, you sometimes had to resort to mountain climbing for evidence. I remember one case when a Member State audit authority and Commission based on their data assured us that the Court's position that ineligible land has been declared as grassland is wrong. They claimed that on the hilltop there are many hectars of perfect grazing land, where, judging by the hillsides, the goats and pigs had to fly every morning or at least every spring. Auditors took a sporty view, climbed up by the ropes and through the bushes to make their point. I checked yesterday – that hill is now on google, as shrubby as ever. Yet I am not sure it would even count as evidence, maybe climbing would still be required – yet again, because of administrative reasons. Technology is doing its part already.

It is not only in audit where more agile reaction on legal aspects would bring huge efficiency gains. The same applies to all aspects where we fail to recognise that our people and businesses are far more adept at using technology than are our governments. Governments are quickly becoming the last ones to force people to take a piece of paper and go waste a workday to do some business with them, say, apply for social security or register your car. They are also quickly becoming the last ones who are only open to business from 9 to 5. Online services have the tendency to be available 24/7. Aren't these failings a reputational risk to governments?

Worse, are they not overlooking something important – their people and businesses are in internet and transact online and borderless anyway. And while in analogue world governments guarantee people the legal security of their transactions by issuing passports, allowing people to identify other people, for some reason most fail to issue the same state-provided security for online transactions. People have to rely on the often politically scapegoated internet behemoths like Google for digital time-stamped identity verification. Is this fair to people? I think it is not.

Estonian people save 2% of our GDP by simply signing digitally. This 2% is heavily skewed towards small businesses and simple people, as big and rich have their comfy ways of handling big bureaucracy. I want other people to reap the same benefits.

I want freedom for auditors from tasks which could be easily done by algorithms.

I trust you and your generation to make all this happen to all people, not only select few like my countrymen. Audit is about pointing out opportunities, as we know with you. The rest of the world thinks it is about discovering errors and punishing people for them. We know better, so I trust you with the future and wish you all success.

By the way, you are also in much better starting position than my generation was when starting out in public sector audit – then, more often parliaments worried about the ability to spend, about how to get money to those it was intended to. I remember when I was told that never mind occasional error, the spending levels where falling behind the allocated resources that was the real worry. That objective – to spend – came before the objective of doing it correctly and avoiding erroneous transactions. Since 2009 this paradigm has certainly shifted in favour of auditors – transparent spending, correct accounting and even performance of the programs now matter in every corner of Europe.