ETHICS IN PUBLIC ADMINISTRATION AND AUDITING

Author: Aldo Carosi, Vice president of the Costitutional Courts

  

Summer School in Public Auditing and Accountability

Speech delivered at the 2019 Summer School in public auditing and accountability, European Court of Auditors, University of Pisa, Pisa, 8-12 July 2019

 

 

Contents

I.   Introduction

II.  Administrative Action and the Provision of Social Services as the Object of Audits

     A.   Public Management in Italy

     B.   Organization of, and Training on, the Administration of Public Affairs

     C.   The Specific Mission of the Institution as a Conforming Element of the                   Organization

III.  Audits in the Administrative Action and Their Purposes

      A.   The Functional Aspect of Audit Techniques

      B.   The Organizational Aspects of Audits

      C.   The Independence and Courage of the Auditor

IV.  The Audit for Legality

V.    Financial Audits and the Evolution of Italian Constitutional Case Law

VI.   Brief Conclusions

 

I.  Introduction

I open this interesting cultural initiative organized by the University of Pisa with great pleasure. I was asked to focus on a fascinating theme: one that is linked to the profiles of complementarity between the economic and the legal sciences that are so often affirmed as indefectible objectives, but in reality are often betrayed by divergence inpractice.

I wish to thank Giovanna Colombini for inviting me. But –more importantly– I also wish to congratulate her on the completeness and the excellent quality of this event’s topics and speakers, who including outstanding personalities in the field.

It is my sincere hope that this initiative will continue beyond this event, and go on to involve also other fields of knowledge that, in light of the growing complexity of our world, can enrich and improve the quality of the evaluation of public policies and administrative activity.

Moving on to the subject entrusted to me, I believe that it is useful to emphasize how the concept of ethics is closely related to the performance of an appraisal based on a behavioural model.

Ethics is an evergreen term, one that has been used oftenover time –from Aristoteles’ times to our days– and perhaps even “abused” (over used). The first question is whether this excessive use arises from disputes, common today, over the ethical status of individuals. Unusual opinions –on the concepts of what is good, fair, lawful or inconvenient –appear constantly on Twitter, Facebook and blogs, as well as in political debate. These statements result in the implicit creation of behavioural models that are not based on the id quod plerumque accidit, as if discussing ethics in this way fuels and legimitizes the most extreme manifestations of egocentricity.

I was asked to address the ethics of auditing in the public administration. I would like to do so not by attempting to merge complicated and much-discussed issues, but rather by simultaneously discussing auditing and its subject: administrative action and the provision of social services.

 

II.  Administrative Action and the Provision of Social Services as the Object of Auditing

I will address these issues in general terms. However, I will also provide you with some examples from the Italian experience, the one with which I am acquainted directly and in which I have been involved as an actor, an observer and also as a judge.

From this experience, I have learned to avoid the stereotypes that have often characterized the “keywords” of the reforms adopted in Italy.

Efficacy, efficiency, economy, performance evaluation, the idleness of public servants, a management-oriented approach, “getting rid of the legislative burden”: these are all hashtags that reformers have often used to summarize their objectives or label the phenomena they sought to contrast. In Italy, the “cures” prescribed to the administration starting in the 1990s have not been successful at all.

I am addressing this issue on an important occasion – a lecture at the Summer School in Public Auditing and Accountability – and I would like to share with you some honest considerations on the failure of the many Italian reforms of administrative action and of the related auditing activities.

In the 1990s, Italian lawmakers introduced management auditing into administrative activities and external auditing over management; these new practices were mainly entrusted to the Italian Court of Auditors (Corte dei conti). These were new types of audit and related to a new way of conducting administrative action, where by the lawmakers introduced a strict distinction between the political and the administrative level. Strategic and management audits were intended to support the improvement of – respectively – public policies and administrative activities.

The purpose was certainly laudable: to supplement traditional audits for legitimacy and public accounting with techniques to assess the performance of public administrations and customer satisfaction.

Even though the quality of the regulatory drafting was low, the idea was – at least theoretically – correct: on one hand, to endow administrations with a managerial audit capable of immediately understanding management performance and of correcting it to make it more efficient, effective and economical; on the other hand, to ensure the presence of an external audit procedure, conducted simultaneously or ex post by an independent body, such as the Corte dei conti, that could assess not only the results but also the quality of administrations’ internal audits. Such an approach did not require abandoning the old techniques for accounting and reviewing the legitimacy of administrative action, but rather it supplemented them, in order to improve the overall pursuit of public interests.

Detailed knowledge of the different sectors of the public administration was necessary to achieve this syncretic goal, as some of the new audits implied the use of business auditing techniques (for example management audits), while others, such as those applicable to ministries, were not modelled upon the procedures used to assess the management of private companies.

Instead of fostering processes of cultural evolution consistent with this assumption, experts on the subject and judges of the Court of Auditors engaged in several ideological disputes, often without reaching any outcome; the contrast between traditional financial accounting and so-called accrual accounting, in particular, stood out. Against a backdrop of creative and unsystematic practices, the famous “Es” of good administration – efficacy, efficiency, and economy – were so overused that their very meaning became compromised. In the absence of specific contents and methods to accompany them, the terms became generic and non-technical nouns or adjectives. In this respect, I recall long and tedious seminars held by business experts, also because the political and administrative strategies adopted at the timebasically delegated to these experts the task of explaining those very nouns or adjectives. In those seminars, public employees would sometimes even be invited to refrain from applying certain rules, if these could hinder administrative action. Can you imagine the effect of such policies on a country already afflicted by a low degreeof compliance with rules?

Actually, those experts werenot aware that management-oriented administrative action consists of finding the most efficient pathway within the law, not against it. Overregulation has to be fought by the legislative branch and by the government, not by a novice “wizard” who tries to justify his or her limited expertise in administrative law on the excessiveness of the burdens imposed by the law.

On the contrary, as already noted, only certainaspects of public management call for the application of economic and industrial rules; theothers are subject to a very different evaluation criterion. Either way, the evaluation and measurement of administrative action – except for some rare cases –is not a matter of hard science, but involves, rather, the personal opinions of those who conduct the assessment. For this reason, the criteria applied in conducting the evaluation are ambiguous and cannot beconsideredan undisputed benchmark for all sectors entrusted with the care of public interests.

 

A.  Public Management in Italy

Before addressing the topic of managerial audits, I am aware that I cannot avoid dealing with the troublesome issue of public management in Italy, which was supposed to constitute the strong “trait d’union” between political strategies and their implementation, and therefore also between strategic control and management control.

The spoils system introduced in the 1990s – subsequently amended severaltimes –turned out to be a failure. The main critical issues were the following: a) the abnormal multiplication of managerial positions; b) the excessive mobility of managers, i.e. their frequent shifting from one position to another, which impeded the formation of specific professional figures; c) the extremely high wage gap between managers and public servants in intermediate positions; and d) the absence of adequate evaluation procedures.

The extraordinary multiplication of managerial positions caused not only a rise in public expenditure, but also the emergence of “charactersin search of an author” in the many situations marked by an inherent inadequacy to direct, an actual absence of directive functions (as many managers were not givenpowers), and an exhausting search for fresh and more profitable positions, which resulted in the development of curricula that were inversely proportional to the managers’ actual personal experience and skills. The latter element brought about constant mobility in the public management, and managers would often leave the direction of important administrative structures to obtain positions that were more profitable.

In such an unstable and politicized system, public officers tended to take better care of their personal relationships with powerful figures rather than of the public interest and of the checks required to improve it. To remain virtuous in this context requiredremarkable intellectual effort, anability to think positive and to resist to the attraction oftransient trends, all the whileremaining true to one’s own professional and social role.

The widewage gap between managers and middle-ranking public servants does not favour such a “path of virtuous autonomy”: young and competent officers must often deal with positions entrenched in a comfortable “golden immobility” in both cultural and practical terms. Many of these officers end up yielding to the temptation of considering their job as merely time to prepare for better positions.

This is not the place to propose detailed solutions for the organization of Italian public administrations. However, precisely the cultural and ethical aspects of “vocational and honest” social relations could lead the Parliament and the Government to focus on the practical issues pertaining to administrative activities.

The social vision of public employment implies that objectives be identified with “operational roles”, that are capable of promoting natural leadership capacities even before they are formally and economically recognized as such.

Solidarity, information exchange, and opportunities for effective professional training (why should the Italian system of civil service training be dominated by public schools that receive funding regardless of the quality of the education they provide, instead of establishing a system of competition with self-funded private schools?) may reverse the trend and lead lawmakers and governors to act consequently.

The more such a phenomenon rises from the bottomup, the more will it influence how administrations carry out their activities, and thus avoid the uncertain dirigismethat destroyed entire generations of public officers.

It is said that politicians should spend more time with the common people to learn about their actual needs; indeed, they should also spend time in the administrations of the country. For this to occur, a new collective approach to solving problems must be taken, but from the base, because positive innovations always require grounds capable of embracing them and fostering their growth.

 

B.  Organization of,and Training on,the Administration of Public Affairs

These considerations could perhaps be summed up with the following motto: “We should always be ourselves when interpreting the task assigned to us, in the knowledge that it is a task, not a free interpretation of our presence in a public structure”.

Communication skills, heart, poise and passion may be points of reference that help us reconcile the public purposes to pursue in administration with individual aspirations. If there are multiple individual contributions towards achieving a specific purpose, surprising outcomes may take shape. In other words, organizational well-being and the prevention of distress in the workplace may become something akin to doping, in the context of good administration.

To achieve a truly meritocratic ranking without discouraging the members of a given work community, it is necessary to lead, involve and explain to the less skilled workers why top positions are assigned to the best workers.

A keyword that has had terrible effects on the management of public servants “idlers” (fannulloni), which they have all been called at one point or another. One does not need to be the coach of a sports team to realize that self-esteemis essential to success.

To improve the performance of a given structure,that structure must be given resources and trust, rather than indiscriminate criticism based on stereotypes or merely statistical data. Sometimes, managers may be responsible for idle conduct, as they tolerate it without even trying to address it. Probably, this happens because those managers are idle themselves. At any rate, there is no successful team that does not enjoy the esteem of its coach.

Concepts such as “change in the respect shown to a person”, “well-being of an organization in times of spending cuts”, “business health welfare” fall within the scope of some of the highest principles of our Constitution and – more importantly – are guiding standards for managers.

A sympathetic approach towards managing and auditing administrations must be based on reason, consistency and heart. Obviously, the concept of team work is also important, as it implies a non-hierarchical model, one that is not characterized by a manager who protects his or her powers jealously and subordinates that have merely executive tasks. In teamwork, all players must know the objective, their respective roles, how to interact with team mates and with the coach (or with their own superior). The latter must spend a good deal of time on establishing the objectives, explaining the strategies, and assigning respective tasks and spheres of action. Such a task is certainly complicated in the current administrative domain, where it is hard to find a spirit of belonging to asinglecommunity.

However, if one does not wish to fall prey to cynical resignation, it is necessary to think positively, to foster the updating of obsolete practices, to revive almost forgotten offices, andto promote synergies and new forms of specialization.

If the notion of ethics is generally taken to mean the set of rules and values of an individual or a group, in the administrative sector, it consists rather in speculative reflections on the rules and values concerning the activities of public administrations. Therefore, it does not make sense to think of a set of unrelated “individual morals”. Instead, what is necessary is to share (or reconcile, whenever sharing is controversial) rules and values, according to a rational and reasoned explanation of why one belongs to a common organization having a public mission.

In the public administration, the most important aspects of management concern how to perceive one’s own role, the motivation to express one’s personality in the workplace, and the comprehension and systematic arrangement of personal issues related to work conditions and cultural change, which today occurs rapidly. Administrative ethics is not only a judgment on one’s behaviour at work and on workers’ happiness. Its core content, instead, relates to the purposes pursued and to the degree of responsibility of each individual within the organization.

It should always be sought to create a virtuous cycle where by the manager sets forth, divulges and explains the objectives pursued, and the employees – each according to his or her position – acquire all the information required and consequently take on specific responsibilities.

Essentially, any activity aimed at delivering a service to the community should be based on a collective and collegial process of knowledge acquisition flowingfrom the topdownwards, using self-critique to improve results.

In Italy, the first obstacle to such a collective and collegial vision of roles and tasks derives, as already noted, from the methods of selecting public managers oriented towards co-optation, methods that are all too frequently devoid of meritocracy and – above all – to the specific context of a given office.

The abuse of curricula, understood as cursus honorum of multiple and diverse activities, has led to the continuous turnover – at times paroxysmal – of managers at the top positions, who bring little motivation and commitment to the job, as this might be detrimental to political co-optation, which is instead fundamental to obtaining higher positions.

 

C.  The Specific Mission of the Institution as a Conforming Element of the Organization

Public management should probably be characterized by expertise, tenure and independence – at least from a technical perspective – from political organs. In such a context, a manager could actually start – under due supervision, given thatself-referentiality often leads to inaction and parasitism – a process aimed at enhancing the value of human resources, one that can ensure realization of the highest ethical values, protection of equal treatment andanti-discrimination.

Similarly, worker protections encounter the limit of professional ethics: inaction or boycott-like behaviours cannot be defended. Protections cannot be invoked to up hold or cover poor performance and selfish behaviour. More generally, it may be stated that the managerial character of administrative activities is not to be confused with social security, but rather must be conceived of as a means to enhance the value of human resources, which are instrumental in the pursuit of the public good.

Thus, it should be possible to fight the inefficiency and obsolescence that characterizes our administrative system.

“Dry branches” are often caused by negligence on the part of lawmakers, who, constantly and anxiously picturing new scenarios, fail to rearrange structures that were established for now obsolete purposes and were thus abandoned. Such an omission and lack of interest may be welcomed by public officers with poor ethics; however, they remain problems for those who intend to infusemeaning into their everyday activities.

In those obsolete structures, fresh and new practices of self-development should emerge, rather than of “subversion” due to radical regulatory reforms that often lack the necessary resources and detailed organizational projects.

In Italy, a dramatic example of such dysfunction is the partial reform of the provinces – as it was before the entry into force of the constitutional reform that abolished them –, a reform that was, however, later rejected by the electorate. The reform of the provinces resulted in their being dissolved without a significant corresponding reductionin the associated fixed and personnel-related expenses, and without even ensuring the continuous delivery of services and functions previously performed by this level of government, which for a long time remained without public authority, finances and services.

Ultimately, the protection of individual identities within an administrative organization must respect the principle of pluralism of opinions; however, it must also consider the mission assigned to the administration in question and thus the services to deliver to the community.

The common good, the collective interest, the intention to improve oneself, and the overcoming of practices based on futile forms of individual competition may produce unexpected positive outcomes. The fields of knowledge involved in this complicated path may include not only the legal and economic sciences, but also sociology, psychology and neuroscience. Cognizant critiques of the merely assertive character of the reasoning developed and speeches held over the past years may help to improve work ethics, by banning all manner of personalist approaches and self-promotion.

           

III.  Auditsin Administrative Action and Their Purposes

After briefly describing the dysfunctions that characterize the pursuit of public interests in Italy, and formulating the hope for a renewed synergic, collective and collegial dimension to administrative action, an endeavour to be fostered by top managers, I will now address the main issues concerning auditing, which – in organizational and functional respects – bearsimilarities to those pertaining to administrative action, noted above.

For this reason, many reflections on active administration also apply to the audit field.

Audits may be concerned either with aspects of compliance with the law alone, or with management in directional and corrective terms. They may be internal or external. Audits may be assigned to a judge, as is the case with the Italian Corte dei conti, or to an organ within a bureaucratic or even hierarchical structure, as is the case with many institutions worldwide.

Whatever their structure and specific purpose, management audits[1] call for detailedplanningin accordance with the purposes to be achieved.

Today, public administrations and services are so complex that the model of a monocratic organ with auditing functions is outdated, superseded by the diverse and multidisciplinary needs of contemporary society.

For the audit officer, too, ethics consists – first of all – in cultural and professional preparation, intended as a prerequisite of evaluation; an audit task it may not be accepted over an activity governed by rules and functioning with which one is not familiar.

           

A.   The Functional Aspectof Audit Techniques

Then, there is the functional profile. In the deontology of the auditor, the guiding principle must always be the purpose for which the activity is being carried out. It is this objective that delimits the operating perimeter of the auditor, in the boundless universe of contemporary cognitive potential.

For example, consider big data, so extensive in terms of volume, speed of response and variety of analytical methods of extraction. How can an enormous amount of heterogeneous data be analysed, extrapolated and related with one anotherin order to discover the causal links of the specific activities investigated?

The answer can be obtained taking into account the requirements of the “quality controller”, who must at least be familiar with the rudiments of the computer systems that he must use; however, he must also learn to correct any possible rigidity, with regard to the particular needs of the cognitive activity and evaluation being performed.

A paradigmatic case may be the immense database of Italian local authorities: huge numbers pertaining to budgets, costs and standard requirements constitute a boundless galaxy. In relation to this mass of data, the various institutions involved in audits and monitoring, as well as stakeholders and trade associations, draw the most diverse conclusions – often conflicting, sometimes extravagant –, with different methodologies.

In this complex scenario, only those who are familiar with the world of local authorities can orient themselves, because it is necessary to be aware of peculiarities that can filter and correct icto oculicertain superficial interpretations of big data.

It is useful to recall some components of the “toolkit of the appropriate auditor”: a) awareness that audit rules modify the behaviour of the auditee;[2] b) the need for those who collect, give, and enter the data to be under audit themselves;[3] c) the defects in the setup of the database in relation to the cognitive purpose intended.[4]

Ultimately, it can be said that audit techniques – even the most advanced ones – are always shaped by the aims that these techniques are intended to pursue, and precisely this teleological aspect must dominate data extraction and correct any insignificance deriving from a rigid archiving system.

The foregoing considerations exclude, in themselves, one of the myths of the last decade of the 1900s and of the first decade of the 2000s, namely the questfor and improvement of the"single meter" with variable indicators as a tool for measuring administrative activity.[5] However, the functional nature of audit techniques implies, on the one hand, that the measurement is always "relative to its purpose" and, on the other, that it is at risk of suffering extensive manipulation when the audit plan fails to consider the axiomatic prejudices of who sets it.

It is precisely the functional profile that serves to distinguish two completely different types of audit: the macroeconomic audit, based on the aggregate reading of data by searching for trends rather than malfunctions (which can be noted in the abstract but can never be attributed automatically to the components of the aggregate); and the analytical audit, reserved for single institutions and apparatuses in which the statistical element must necessarily be supplemented and corrected with a reading of the epiphenomena that characterize the particular instances.

 

B.  The Organizational Aspects of Audits

As notedabove, the complexity of administrative reality today diminishes the monocratic figure of the auditor, whatever his status and the peculiarity of the ends expected. Today, operational synergy, coordination and leadership make the difference.

Those who direct and coordinate group must be authoritative (but not authoritarian), in order to lead all the members of the auditing team; the latter interact in terms of the reading of budgets and administrative and technical documents,to perceive the importance of one’s own role.

I have noticed that even within prestigious multinational auditing and consulting firms, working methods are not always inspired by these features. Although,when these activities are described, it is said that interns and general employees too may aspire to express their own potential, the support activity provided to the highest degrees of management takes place through the application of repetitive mathematical formulas, regarding which the technical training is explained, but not the ultimate meaning and purpose.

This is a phenomenon that – with the distinctions due – could be metaphorically compared to the dehumanization operated bythe assembly line in the factory: to respect the company’s production standard, the auditor performs only and exclusively the  operations established in advance, and cannot derogate from the standard procedure in any way. The workflow does not afford the auditor the "luxury" of questioning the purpose and appropriateness of the procedure itself. To cultivate the hope of gradually progressing in the workplace hierarchy, it is necessary to adapt to this form of intellectual labour.

Instead, the management and coordination of the basic auditors should be accompanied by ananalysis of the key aspects of the review, including an the examination of the most frequently recurring issues and the related audit responses, bearing in mind the individual peculiarities of the institutions or bodies subject to control.

This approach allows the auditor to be involved in the effective pursuit of the objectives set out in the audit plan.

 

C.   The Independence and Courage of the Auditor

It is probably inappropriate to talk independence of the auditor after an exploration of functional and organizational profiles, especially with regard to a topic such as ethics, with respect to which independence, courage and integrity are placed in a relationship of “specific identity”. Yet, I considerit more useful to include these reflections in this sequence, because in the end, independence is an engine for the conformation of the organizational and teleological aspects of control. An inherent quality of “good auditing” is independence, and thus the ability to sustain pressures from politics or the context in general, and to be sufficiently courageous to take unpopular stances when fit.

One of the most authoritative and touching heroes in the history of our Republic is Giorgio Ambrosoli, the lawyer who was appointed the liquidator of Banca Privata Italiana and of Sicilian banker Michele Sindona’s financial activities. Ambrosoli was killed to ensure his silence.      

During his auditing activity, Ambrosoli suffered pressures and bribery attempts aimed at frustrating the course of justice. Ambrosoli was well aware of the risks he was taking and, in a touching letter to his wife, wrote: “Without any doubt, I will have to pay a very high price for [this] assignment […] I have been given vast and discretionary power and always acted – I am fully aware of that – in the exclusive interest of the country […]. You will have to bring up the kids and raise them in full respect of the values we have believed in […]. They will have to be aware of their duties towards themselves, the family in the transcendent sense I have, the country, whether it is called Italy or Europe”.

Certainly,we cannot expect from auditors a gift of heroism such as that left to us by the Milanese lawyer. Yet – without necessarily risking one’s life – it is necessary to find the energy and motivation required to contrast, with moral integrity and independence, opportunistic attitudes and indolent adaptation “to what everyone does”.

The key is probably to maintain systematic rigor in elaborating one’s own opinions and a firm attachment to the meaning of one’s own role, to maintain “armed” independence in one’s interpretative and argumentative choices. In this way, detachment from the opinions prevailing in the transient contexts of contemporary society –in which,without any authority or rigor, voices are lost in the universe of the debatable, the ephemeral and the useless –can enable a decisive contribution to the social contexts in which the auditor operates.

 

IV.  The Audit for Legality

The indelible memory of Ambrosoli allows me to express my personal preference for the audit for legality/a priori compliance audit, among the various types of audits.

In a representative democracy, the principle of legality is an intrinsic good, which goes beyond the merits of the contents of a law, because it is impossible to disregard a legislative provision when there is a supreme court, such as the Italian Constitutional Court, with the power to review the constitutionality of a law.

The most important type of audit is the neutral one, conducted for the community, performed in pursuit of financial interests, often without “a champion in judicial proceedings”, and to ensure sound financial management.

Sound financial management protects the weakest classes of the population, because if there is nobody to rein in the misuse of public money, the ensuing imbalances will affect the poor more than the privileged.

However, the audit for legality/a priori compliance audit and – more generally – all types of audit must be performed so as to be comprehensible to the average man. Technical terms must be turned into communication-friendly wording, so that those who are governed may be informed of the results achieved by those who govern and thus be able to make cognizant decisions at the next elections.

Auditing – especially when exercised over budgets – is the fuel for actual accountability, that is, the moral “account”that elected parties must present at the end of their political assignment.

Without objective and neutral information, anyone can pass off mediocre work as a masterpiece, by exploiting the potential of mass media and the egocentric approach so widespread today, andbe re-elected, thereby causing irreparable damage that will affect future generations.

 

V.  Financial Audits and the Evolution of Italian Constitutional Case Law

The Italian Constitutional Court does not deal with audit and accountability directly. However, it has recently dealt with questions that are linked to the correct exercise of these activities. From these, it is possible to draw some ideas related to the ethics of controller, as previously briefly specified.

The economic crisis that began in 2009 and the consequent economic hardships– together with importantlegal acts, such as the signing of the so-called Fiscal Compact treaty and the modification of a significant part of the financial provisions of our Constitution– meant that ordinary legislation imposed drastic cuts and spending reductions, bearing great impact on public finance institutions and, in particular, on territorial autonomies, which provide fundamental social benefits to the communities under  their administration.

All this led to the explosion of a formidable dispute, primarily between the central state and the autonomous authorities, on the subject of mutual financial relations[6].

What is important for our purposes is that the phenomena synthesized above led to a profound transformation of public accounting, as the cuts, resource reductions and spending limits were imposed by means of complex technical regulation, which has increasingly been issued in the form of primary legislation.

Since the merit of the disputes often depends on the preparation of financial statements, financial regulations and other related provisions, the Constitutional Court has had to develop techniques for review that could effectively bring unlawful provisions to justice, when the correlation of legislative numbers and statements unequivocally gave rise to contrast with constitutional precepts.

One of the effects of this case law evolution has been to interpret the principle of a balanced budget– in line with the most authoritative scholarship (Luciani) – not as a requirement to reach absolute financial balance, but rather as a precept aimed at achieving a dynamic balance between the resources available and the costs that can be authorized.

Indeed, budgetary equilibrium is an ideal and virtual concept, because – even when embodied in a budgetary law – it is only a possibility, subject to inevitable erosion on the part of the many supervening needs both within and outside financial management.

Budgetary balance, instead, is the aim of financial management, because it operates in a mobile and trend-based way, with a view to correcting all contingencies that may alter the balance of the “scales” inherent in resources and expenses, respectively.

Constitutional interpretation is therefore inspired by the need to transform a completely formal “numerical union” into a financially concrete judgment, aimed at giving effectiveness to constitutional precepts. This gave rise to a functional conception of the law on budgets, which made it possible to draw such legislation under the category of “legal assets”, as “public goods” (Constitutional Court, judgment n. 184/2016), as it is the instrument through which to synthesize and grant certainty to fundamental choices in economic and financial matters in the community in question, choices that inevitably dependon the temporal and continuity perspective of the administration.

The importance of this perspective extends to the problem of the effectiveness of subjective rights and of constitutionally relevant benefits, which can only be guaranteed and satisfied if suitable resources are allocated in the budget. This evident fact, which concerns social rights in particular, makes the budget an important asset not only for the community, but also for the person, or for the individuals that make up the community itself (judgment n. 275/2016). In fact, beyond the complex constitutional situation deriving from the interaction of many simple factual and juridical epiphenomena and cardinal principles of our Constitution, it is necessary to emphasize that in Italy (as in other Western democracies), a significant compression of social benefits has occurred, and that this has meant that –increasingly– questions concerning the alleged infringement of fundamental rights as a result of the cuts have been raised before the Constitutional Court in relation to financial regulatory cases.

The budget is where choices on the allocation of the limited resources available are made: a distinguished scholar, Lorenza Carlassare, has stated that the limited resources and the need for public budgets to always be balanced should lead to a classification of expenses that follows an order of priorities compatible with the Constitution. At the top of the pyramid of priorities, should be the essential levels of social benefits, standards required to ensure the substantial protection of individual rights according to Articles 2 and 3(2) of the Constitution.

Precisely in this vein, the importance of the technical controls and professional skills that are functionally connected to the correct preparation and management of the financial statements is noted.Often, the effectiveness of the decisions of the Constitutional Courtdepends on the exact perception of what the complex technical provisions intend to achieve. From this point of view, the possibility to draw on “quality” documents drawn up by financial and accounting experts in a clear and transparent manner, turningthe most profound (and sometimes unnecessarily obscure) technicalities into propositions suitable for illustrating the economic and financial dimension of rules subjected to judgment of constitutionality, is decisive. This is why the control for legality/a priori compliance audit must always come first in the control activity: it is precisely the comparison between valid cases and regulatory prescription that elucidates the meaning of the latter for the purpose of judging its constitutionality.

A further corollary of these considerations is that the cultural knowledge of the controller must not be limited to merely formal aspects, whether this consists in knowledge of the law or of the accounting techniques. Rather, it must be integrated by other knowledge that is capable of perceiving and making the recipients of the reports understand the reasons for the choices and the practical effects that a given form of resource management entails.

It is evident – when technical-financial reports are used in constitutional proceedings – that their contents interact with issues pertaining to the hierarchy of principles contained in our Constitution. This is precisely because of the interdependence of the constitutional provisions concerning financeand those relating to services and social benefits, as well as those on relations with territorial autonomies. Although the orientation of the Constitutional Court as to the fact that no constitutional principle can “tyrannize”over the others is constant, it has been stated equally clearly that when the protection concerns the essential levels of social benefits, protection of the latter is ensured if they are adequately funded.

For example, this much is embodied precisely in a rule that seems to concern accountants and auditors rather than constitutional judges: Article 20 of Legislative Decree no. 118/2011, which provides for the exact “boundaries” of the resources and the relative expenditures allocated for the provision of essential assistance levels (LEA). This is because only a proper accounting separation can guarantee the uninterrupted provision of essential assistance levels, as opposed to other health services which, although useful, must always be conditional upon the rule of economic sustainability.

It was thus established that «the transversality and the primacy of health protection with respect to the interests underlying the conflicts between the State and the Regions in terms of legislative competences, impose a teleological and synergistic vision of the financial dialectic between these subjects, as they entailthe provision of services attributable to the restriction established underArticle 117(2)(m) of the Constitution. If, in order to ensure the guarantee of the essential levels of the services (LEP), within which, as mentioned, fall the LEA, “it falls to the legislator to put in place suitable instruments to enable it to be realised and implemented in order to ensure that its assertion is not transformed into a mere policy rule, but is vested with concrete and real content” (judgment n. 275/2016), there is no doubt that the regions themselves must collaborate in the identification of parametric methodologies capable of separating the funds allocated to obligatoryexpenses from those relating to other health services that may be subjectto a judgment for financial sustainability» (judgment n. 169/2016).

In this context, the correctness of the control for financial-accounting legality/a priori compliance audit becomes fundamental, both in terms of the merits of the disputes, and with regard to the possibility – in the case of the Court of Auditors, in the control forlegitimacy of the financial statements – of investing the Constitutional Court with questions inherent to the application of suspected legislative norms of unconstitutionality (Constitutional Court,judgments n. 181/2015, n. 89/2017, n. 49/2018, n. 18/2019).

This Court has affirmed that programming and proportionality between assigned resources and exercised functions are intrinsic components of the “principle of good performance [which] – even more so in the light of the changes made with the introduction of the new first paragraph of Article 97 of the Constitution, by the Constitutional Law of 20 April 2012, n. 1 (Introduction of the principle of the balanced budget principle in the Constitution) – is closely related to the coherence of the financial law”, such that “to organize and qualify the management of socially relevant services to perform for the populations concerned [...] in a manner that is functional and proportionate to the achievement of the objectives set by the current legislation, becomes a fundamental canon and a premise of the good performance of the administration, withwhich the legislator itself must comply strictly” (Judgment n. 10/2016)» (Judgment n. 169/2016).

This is a formidable meeting point between constitutional adjudication and accounting: the costs and requirements of the essential levels of benefits must be related to and “developed financially” having regard to the standards set by the state legislator.

The constitutional provision is “legally complete” as for the services to be guaranteed and must be completed – according to the law –having regard to the populations concerned, the costs and the concrete needs.

Another factor of primary importance is loyalty in the financial relations between the state and local authorities. The principle of loyal collaboration requires authentic dialogue, oriented towards achieving the superior public interest, so that each of the parties involved has a specific duty of collaboration and discussion, articulated in the necessary dialogic phases (Judgment n. 19/2015). The dialectic between the state and the regions on the financing of essential levels of assistance should consist of a fair discussion of the needs and costs that affect the constitutionally necessary expenditure, taking into account the law on and dimension of territorial taxation, as well as the interrelations between state and regional competencies in this delicate area. This is to ensure the actual ability to plan and real financial coverage of the services, which – given the nature of the situations to be protected – must concern not only the quantity, but also the quality and timing of the constitutionally necessary services. It further follows that, without prejudice to the political discretion of the legislator in determining – according to the canon of reasonableness – the essential levels, once these have been correctly identified, it is not possible to limit their delivery through indiscriminate cutsin public expenditure. In this case, situations would arise that are unprotected every time essential services are not delivered, as the effectiveness of the right to obtain them “can only derive from the certainty of financial resources to satisfy the same right” (Judgment n. 275/2016).

The prospect is not, therefore, that of a sterile contrast between the Government and territorial autonomies aimed at asserting their respective competences, but rather, that of a dialogue, aimed at ensuring good administration and the protection of the essential levels of services to the communities in question, each providing a collaborative and loyal contribution that subjected to constitutional adjudication when it is exercised incorrectly, so as to nullify the ultimate aims of the protection of personal rights.

Loyalty in financial relations must therefore be functional to the well-being of individuals and must be characterized by transparencyin the choices made and in the use of community resources. Therefore, in applying ethics in the reasons for the choices made and in the exposition of the results achieved (accountability): essentially, the role of these deontological profiles is precisely to ensure transparency in the budgets and in the spending of resources.

In hindsight, many of the deontological characteristics evoked so far end up integrating the concept of the transparency of public accounts, effectively illustrated in Judgment n. 184/2016 of the Constitutional Court; a transparency that must also be supported by the contribution of financial and accounting professionals.

 

VI.  Brief Conclusions

The world of auditing is vast and entails diversified purposes. In the specific world of public auditing, the main objective is certainly not profit but rather verifying the correct and effective spending of public resources.

Business-related studies –which the reforms of the 1990s looked towith perhaps excessive optimism and cultural subordination –are the needs of the market, the law on financing, the cost of labour and raw materials, and the intensity of competition. Instead, the law on the public administration only concerns entrepreneurs indirectly, when, in relation to their activities, they evaluate the functionality of the apparatus and the convenience of the laws concerning the activities themselves.

There is also the increasing importance of entrepreneurs’ lobbies, which have now been legalized. These seek to direct –more or less legally –regulation in a way that advances their own interests. These activities fall heavily on the administered communities, and their impact is often obscured by mathematical techniques that are asserted as being neutral.

It must then be asked whether it is possible to produce a reliablenumerical response to political and social phenomena, as is the public administration, in which qualitative aspects are of vital importance. Fortunately, it is widely believed that the use of mathematical and computer methods must be supplemented –when analysing administrative phenomena –with knowledge inspired by political, juridical and professional knowledge, that is, essentially by knowledge acquired by studying the dynamics prevailing in institutions and in society. Indeed, the democratic system inspired by parliamentary representation entails, with regard to elaborate legal and economic concepts, transposition into comprehensible statements for the averagely diligent citizen, so that the substance of fundamental problems inherent in the administered communities do not remain the prerogative of a limited number of experts.

Furthermore, in order to decipher administrative activity and the correct provision of social benefits in a useful and correct way, we cannot limit ourselves to the interaction between law and economics; rather, we must also keep in mind the evolution of the many scientific branches that today allow us to read human nature (genetics, the environment, physics) in a way that entails a surprising degree of interaction with the phenomena occurring in our society, influencing its well-being and its needs.

Therefore, the problem of ensuring auditsthat are genuinely conducted in the general interest is not to imitatemodels of business development, but rather to contain these models and direct them towards respect for the cardinal principles of our system and – in particular –for those guaranteed by our Constitution.

It is evidently a question of directing audits towards significance, comprehensibility, and disclosure,in order to enable administrators and the administrated communities to understand the meaning and the consistency of the administrative policies that will be set up in practice.

However, to disclose and make technical conclusions understandable is an art that requires skill: a great cultural ability to illustrate complex phenomena in readily understandable language; a moral dimension impervious to the thousands of conditions and interests of society of the business world. Today, this practice is even more difficult due to the coexistence of state systems that are increasingly compressed by globalization.

However, if we wish to give meaning to the term “audit”, we need to find consistency and effectiveness in its results; otherwise,audit will become nothing more than a fig leaf, used to beautify products, without asking if they actually turn out to be the correct epilogue to an expensive and complex administrative machine.

Technical rules need not be a vehicle for bypassing legal rules: all too often, private parties certify processes regarding essential services (such as health, education, social security), but fall under the scrutiny of the criminal and accounting jurisdictions. If anything, it is necessary to improve the quality of the drafting of legal rules, so that their application can reward the knowledge and the conscience of the technician who puts them into practice.

A need for effectiveness and transparency seems to cross the increasingly dis-oriented expectations of administered communities and of judges, who are often tempted –wrongly so – to supplement inadequate andeven misguidedlegal frameworks with their judgments.

In this context, as we have seen, the Italian Constitutional Court is increasingly forced to penetrate and rule on on technicalities, monitoring thatthese do notharm the cardinal principles of our Constitution.

The final reflection of a “white-haired auditor”, born in times when artificial intelligence and big data did not exist even in science fiction – and who has always studied scientific developments with the fascinated“eyes of a child”,while at the same time seeking to frame them critically, within the history of human events – it is to advise audit specialists not to devote all their time to areas of their specific knowledge, but rather to look around, to update the maps of their overall knowledge, which necessarily occupies a marginal space, to ask questions and to identify – to use Irti’s words[7] – the philosophical background of his own working tools.

 

[1] It is useful to recall the distinction between performance audits, which are governed by the principle of planning and of the selection of the assets being valued, and the outcome of which is a report; and audits for legitimacy-regularity, which are governed by the principle of the generality of the review and the outcome of which is a decision in the form of a judgment. This distinction is briefly described by the Constitutional Court in several decisions. Among these: «The controls by the regional divisions of the Court of Auditors – which have been in place following the enactment of Article 1(166) et seq of Law no. 266 of 23 December 2005 (Provisions on the formation of the annual and multi-year budget of the state – Finance Law 2006) and were later enacted within Article 148-bis TUEL – have become increasingly mandatory in nature for the addressees (see Judgment no. 60 of 2013), precisely in order to prevent or combat the improper management of accounts, which is liable to alter the budgetary equilibrium (Article 81 of the Constitution) and to pass on those failures to the consolidated accounts of the public administrations, thus thwarting the function of coordination of the state in order to ensure compliance with Community obligations.(…).In particular, the review of legitimacy and propriety with reference to accounting requirements vested in the Court of Auditors in relation to these particular objectives may result in one of two outcomes (see Judgments no. 179 of 2007 and no. 60 of 2013), in the sense that it must assess whether or not the budgets and closing accounts comply with the stability pact, whether they are balanced or not and whether they violate the rules expressly put in place for those purposes. Although this Court has already ruled on this issue - holding unfounded the jurisdictional dispute raised by the autonomous province of Bolzano itself against the exercise of this type of control over the local authorities by the local division of the Court of Auditors (see Judgment no. 60 of 2013) - the review of the legitimacy and propriety of accounts limits the function of the Court of Auditors to the ex ante and concomitant protection of budgetary equilibria and sound financial management in accordance with the rules on the coordination of the public finances, which apply uniformly throughout the country, and does not interfere with the particular political and administrative autonomy of the administrations to which it applies (see Judgment no. 39 of 2014)» (Judgment n. 40 of 2014); «Two elements, (a) the form of the decision – articulated in the reasons for the judgment, legal and operative part – with which audit resolutions are made regarding the legitimacy of financial statements and financial management at risk of collapse, and (b) the submission of such resolutions to the exclusive jurisdiction of the JointDivisions of the Court of Auditors sitting in special composition; these two elements bring about an integration of the jurisdictional and control functions, genetically attributable to the constitutional dictates regarding public accounting (Articles 100 and 103 of the Constitution), whereby constitutionally relevant interests are protected, both without master (and therefore difficult to subject to justice), and inherent in the specific subjective situations whose protection is entrusted, ratione materiae, to the jurisdiction upon the request of the accounting magistracy (Article 11(6)(a) and (e), and Articles 172 et seq. of Legislative Decree n. 174 of 26 August 2016, Codice di giustizia contabile, adottato ai sensi dell’art. 20 della legge 7 agosto 2015, n. 124”)». (Judgment n. 18 of 2019)

[2] Thus, for example, with the legislative change regarding the management of local authorities’ administrative surplus, the use of which was first precluded and then, later,allowed, the macroeconomic increase in the number and absolute value of surpluses cannot be considered an unmistakeable symptom of greater virtuosity. It is instead necessary to verify the reason for the individual anomalous deviations occurring after the regulatory change. This is the task of an auditor who is able to select the cases to be analysed.

[3]Again on the impressive local authorities database, during the audits carried out by the regional divisions of the Court of Auditors, a remarkable difference is emerging between the actual data of the individual local authorities and those entered into the system. The "appropriate controllers" do not only comment on the aggregation, but they also identify, among the most frequent causes, the subtraction of responsibility and the lack of experience of the person who inserts the data into the system and who processes them. On the other hand, when a certification of analytical data is requested, the heads of the accounting offices and of other offices of the local authority pay much more attention to the internal consistency of the documents they transmit.

[4] This is a much more disturbing phenomenon, because it concerns the design of the systems and their use generally by the auditors. Increasingly, the system is designed on the basis of standardized engineering logics but is incompatible with the purpose for creating the database in the first place. When the auditor notices this, he must submit to the "dictatorship of the machine" and modify his own practice by forgoing the purpose of the audit and its incisiveness. This is the case, for example, for some reward systems arranged by the legislator for public bodies that pay short-term invoices on the basis of data entered by the public bodies concerned or even according to a centralized system prepared by the competent ministry. The absence of any effective connection with order verification systems and their registration means that these reward mechanisms become "boomerangs", because any anomaly in supply management ends up becoming an off-balance sheet debt phenomenon that only experienced auditors are able to connect to the gaps in the data selection system.

[5] To import standardized methods, such as, for example, the use of sectorial audit manuals that try to make general profiles of absolute detail, when compared to the administrative universe, does not help to make a product of quality and to acquire the esteem of those who are controlled as well as the highest administrative levels to which the audit reports are normally routed.

[6] The State, in its role as guardian of the public finance obligations undertaken at the European level, has imposed cuts in the financial flows towards the parties mostly responsible for providing social benefits to citizens. Local authorities have repeatedly sued the central state to protect their financial autonomy. However, there was variable geometry in the opposing procedural positions, because it was often the Government that invoked sound financial management as a prerequisite for good administration. In addition, the financial autonomy of local authorities was claimed in contrast or synergistically with reference to the protection of widespread financial interests. The Constitutional Court has tried to settle these complex financial issues by calling for loyal collaboration between institutions. More recently, when faced with an extremely lively political debate, the Court ended up stating that in any case, the regulation of financial relations between the state and the regions is not a matter of dispute to establish a hierarchy between two contenders, but must rather aim at the well-being of citizens, in terms of the provision of social services and, above all, the essential levels of benefits (in this case, the essential levels of assistance, judgment n. 169/2016).

[7] N. Irti, “Nichilismo giuridico”, Bari, 2004.

 

 

 

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