Establishing the Culture of Integrity in the Hungarian Public Sector

Transcription

1 Pillars of Good Governance Focus on State Audit Office of Hungary as a Supreme Audit Institution Study Series Establishing the Culture of Integrity in the Hungarian Public Sector Domokos Pulay Szatmári Gergely Szabó "With its findings, recommendations and advice based on its audit experience, the State Audit Office of Hungary assists the National Assembly, its committees and the work of the audited entities, thus facilitating well-governed state operations." (Act on SAO, 1[4])

2 Individual Studies: Pillars of Good Governance Focus on State Audit Office of Hungary as a Supreme Audit Institution Pillars of Good Governance Focus on State Audit Office of Hungary as a Supreme Audit Institution Pillars of Good Governance Focus on State Audit Office of Hungary as a Supreme Audit Institution Pillars of Good Governance Focus on State Audit Office of Hungary as a Supreme Audit Institution Study Series Study Series Study Series Study Series S Domokos Pulay Pályi Németh Mészáros C S G G T C S, M I S A O H C S A O H Q L Mészáros Nagy Domokos Gergely Posta Fülöp A U A Domokos Renkó Gál Pálmai Domokos Mészáros Szakács 2016 "With its findings, recommendations and advice based on its audit experience, the State Audit Office of Hungary assists the National Assembly, its committees and the work of the audited entities, thus facilitating well-governed state operations." (Act on SAO, 1[4]) 2016 "With its findings, recommendations and advice based on its audit experience, the State Audit Office of Hungary assists the National Assembly, its committees and the work of the audited entities, thus facilitating well-governed state operations." (Act on SAO, 1[4]) 2016 "With its findings, recommendations and advice based on its audit experience, the State Audit Office of Hungary assists the National Assembly, its committees and the work of the audited entities, thus facilitating well-governed state operations." (Act on SAO, 1[4]) 2016 "With its findings, recommendations and advice based on its audit experience, the State Audit Office of Hungary assists the National Assembly, its committees and the work of the audited entities, thus facilitating well-governed state operations." (Act on SAO, 1[4]) Pillars of Good Governance Focus on State Audit Office of Hungary as a Supreme Audit Institution Pillars of Good Governance Focus on State Audit Office of Hungary as a Supreme Audit Institution Pillars of Good Governance Focus on State Audit Office of Hungary as a Supreme Audit Institution Pillars of Good Governance Focus on State Audit Office of Hungary as a Supreme Audit Institution Study Series Study Series Study Series Study Series T P F M S A O H I G T E C I H P S Domokos Pulay Szatmári Gergely Szabó G B S T R S A O H P E B Domokos Pulay Pető Pongrácz S G G A P Jakovác Domokos Németh Horváth Németh Domokos 2016 "With its findings, recommendations and advice based on its audit experience, the State Audit Office of Hungary assists the National Assembly, its committees and the work of the audited entities, thus facilitating well-governed state operations." (Act on SAO, 1[4]) 2016 "With its findings, recommendations and advice based on its audit experience, the State Audit Office of Hungary assists the National Assembly, its committees and the work of the audited entities, thus facilitating well-governed state operations." (Act on SAO, 1[4]) 2016 "With its findings, recommendations and advice based on its audit experience, the State Audit Office of Hungary assists the National Assembly, its committees and the work of the audited entities, thus facilitating well-governed state operations." (Act on SAO, 1[4]) 2016 "With its findings, recommendations and advice based on its audit experience, the State Audit Office of Hungary assists the National Assembly, its committees and the work of the audited entities, thus facilitating well-governed state operations." (Act on SAO, 1[4]) Pillars of Good Governance Focus on State Audit Office of Hungary as a Supreme Audit Institution Pillars of Good Governance Focus on State Audit Office of Hungary as a Supreme Audit Institution Pillars of Good Governance Focus on State Audit Office of Hungary as a Supreme Audit Institution Study Series Study Series Study Series V C C R O O S A O H Domokos Pályi Farkasinszki S E G E SAI' Domokos Németh Jakovác R P M C S A O H C G S - E Domokos Várpalotai Jakovác Németh Makkai Horváth 2016 "With its findings, recommendations and advice based on its audit experience, the State Audit Office of Hungary assists the National Assembly, its committees and the work of the audited entities, thus facilitating well-governed state operations." (Act on SAO, 1[4]) 2016 "With its findings, recommendations and advice based on its audit experience, the State Audit Office of Hungary assists the National Assembly, its committees and the work of the audited entities, thus facilitating well-governed state operations." (Act on SAO, 1[4]) 2016 "With its findings, recommendations and advice based on its audit experience, the State Audit Office of Hungary assists the National Assembly, its committees and the work of the audited entities, thus facilitating well-governed state operations." (Act on SAO, 1[4])

3 Pillars of Good Governance Focus on State Audit Office of Hungary as a Supreme Audit Institution Study Series Establishing the Culture of Integrity in the Hungarian Public Sector Keywords: Project Integrity, integrity, fight against corruption, internal control system

4 Editor: Erzsébet Németh PhD supervisory manager authors: László Domokos president Gyula Pulay PhD supervisory manager János Szatmári project manager Szabolcs Gergely auditor Zoltán Gyula Szabó trainee auditor Published by the State Audit Office of Hungary ISBN Pillars of Good Governance Focus on State Audit Office of Hungary as a Supreme Audit Institution The individual studies are available through the website of SAO At 4

5 Contents 1. Introduction The concept of integrity The definition of integrity Correlation between the concepts of integrity and corruption The concept of integrity in public entities The concept and types of integrity controls Integrity controls - Internal controls Transparency as an integrity control factor The Role of the SAO The SAO s mission, legal status and strategic objectives The Integrity Project of the SAO Paradigm shift in the fight against corruption Integrity survey A map of corruption risks Sample, method, tools Results of the 2015 Integrity Survey Enforcement of the integrity approach in the SAO activity The SAO s integrity audits Self-testing, self-learning organisation Integrity approach in the organisational operation of the SAO Domestic and International Role in Preventing Corruption cooperation in the Building of the Hungarian System of Integrity Control Cooperation in developing the culture of integrity cooperation between public sector organisations in the fight against corruption Supporting the training of ethical managers in public finance Knowledge sharing on the domestic stage Training integrity advisers Sharing of good practices Supporting of international donor programmes The SAO s integrity-related publication and academic activity Other events, lectures Vision enhancement of integrity-based mentality and shaping the mindset of the public sector Providing comprehensive information to citizens, decision-makers and the beneficiaries of public funds Supporting IDI s anti-corruption donor programme and international knowledge transfer new directions of the Integrity Survey Integrity-centred management Developing the integrity management system of the SAO and public bodies

6 SUMMARY The fight against corruption has strategic significance for all nations. Its effectiveness may greatly influence not only the perception of a particular country, but also various economic processes and the development of the national economy. Publicly funded entities must provide information to taxpayers and other stakeholders on the utilisation of the funds they are entrusted with, disclosing how much they spend, what they spend it on and why, and how this impacts the lives of citizens. Therefore, ensuring the transparency of the management of (public) finances and organisational operation is an important and efficient tool and a preventative control mechanism in the fight against corruption. Transparency is pivotal for a smoothly functioning and well-governed state, but ensuring transparency is also crucial for efficient strategies against corruption. In assessing the moderate successes of the anticorruption activity of the previous period, it has become clear that sterner action, and at the same time, a shift in approach is required to establish clean public life. A paradigm shift has occurred in the domestic fight against corruption, which shift is focused on prevention. This, at times highly novel approach is increasingly gaining ground today in the public sector. The generally applied integrity model, which supplements the approach based on prohibitions in legal provisions, was established in Hungary by the State Audit Office. At the SAO s initiative, starting from 2011 a unique anti-corruption collaboration was established in the spirit of supporting good governance, and the range of institutions supporting more efficient action against corruption and committed to strengthening integrity expanded from year to year. Parallel to this, certain novel initiatives have been implemented as part of the SAO s Integrity Project which help raise awareness of the dangers affecting public entities, map risks and strengthen the control systems that ensure protection. The ultimate goal of the State Audit Office is to promote cultural change and to create an integrity-based institutional operation in the Hungarian public sector. We can state that as a result of the SAO s work, the concept of integrity has today been integrated into the audit methodology of the state audit office, is also present in the thinking of public institutions, and at the same time has increasing impact on the organisational culture of the public sector. 6

7 1. Introduction Good governance is based on government bodies promoting public interest. Their operation should be guided by the values that stem from serving the public, such as: professional competence, objectivity and impartiality, moral integrity and the promotion of public interest as opposed to private interests. Therefore, the task of the public bodies that serve the interests of citizens is to create purity and transparency in public life, thus the fight against corruption forms an inseparable part of their mission. Corruption is most frequently detected at the intersection points of the private and the public sectors. The more intersection points the two sectors have, the higher the level of corruption risk is. Following the financial crisis of 2008/2009, the experiences of Central and Eastern European countries, including Hungary, showed that efficient state regulation of the market, a more active role by the state and in many cases close cooperation between the state and the private sector are required. Consequently, the role undertaken by the state has increased substantially in certain areas, parallel to which the corruption risks mentioned earlier have also risen. The fight against corruption in Hungary was for a long time characterised by a battle waged between corrupt individuals and law enforcement bodies. The latter achieved relatively modest results. In the interest making the efforts against corruption more effective and in order to detect corruption risks and manage these risks in short, to prevent corruption, a new approach became necessary. For this reason, the State Audit Office (SAO) mapped out the efforts made by other European state audit offices to prevent corruption. It was the integrity program developed by the Dutch Court of Audit, introduced in the central public administration of the Netherlands, that seemed most suitable to be adapted in Hungary. The change of approach in the fight against corruption meant the establishment of integritybased thinking in Hungary. This new approach, in the interest of curbing corruption, places emphasis on identifying corruption risks and raising awareness of the existence of such risks among employees (managers, subordinates). The other key element of this new approach was the introduction of controls serving to manage risks, and the regular assessment of the functioning of these controls. The integrity approach, therefore, includes the ability to think in terms of risks, thereby preventing the occurrence of non-desirable events and corruption risks. The initiative, which is today widely known as Integrity Project of the SAO, comprises numerous initiatives. As part of the Integrity Project, our institution has developed a unique methodology to strengthen public sector integrity, is providing guidance on the efficient and effective operation of the protection systems by sharing its good practices, is participating in the implementation of anti-corruption government programmes, and since 2012 has been supporting efforts to shape the mentality of public service experts through the training of integrity advisers. In 2015, as part of the Integrity Survey, the SAO began mapping out the corruption risks and established controls of business associations majority-owned by local governments and the state, using methods and tools already tried and tested at budgetary institutions. Thanks to the results achieved, in recent years the State Audit Office has spearheaded the national collaboration against corruption. The term integrity, virtually unknown in Hungary 10 years ago, has today grown to be a widely known concept in the Hungarian public sector. The intense gaining of ground by the integrity approach is well reflected by the fact that more than 2,500 budgetary institutions took part in the SAO s integrity survey in But what exactly does the term integrity mean? 7

8 8 2. The concept of integrity 2.1 The definition of integrity The content of integrity similar to that of corruption is difficult to sum up in a general definition that can be applied in all areas and fields. In order to understand the word and to enforce the perspective that stems from the word in practice, we must position the concept of integrity in relation to the concepts of morals and ethics. The present article does not allow for an in-depth elaboration, but we feel, on account of the above, that the clarification of the relationship of the three terms to one another is essential. In brief, morals generally determine the concepts of good and bad; ethics determine which actions and forms of conduct fall into the categories of good or bad; while integrity means actions performed in accordance with the good behaviour determined by the former two, in other words it means the practice itself (see Figure 1). Figure 1 Good (general criteria) Morals What is good and what is bad? Ethics What is good and what is bad like? Ethics Determination of good forms of action and conduct. Integrity Action and operation in accordance with action and behaviour that are in line with previously defined values. Bad (general criteria) Ethics Determination of bad, undesirable forms of action and conduct. Corruption (in the broader sense) Action and operation in accordance with undesirable action and behaviour based on the previously defined values. The term integrity, from the Latin in-tangere, means untouched, and designates someone or something unblemished, inviolate and beyond reproach. In addition, the term also alludes to virtue, incorruptibility and the condition of purity. The concept of integrity is used to describe people, organisations and even the operation of entire systems. As we have said, a definition of integrity universally applicable to all areas cannot be established. This is well illustrated by the fact that different meanings are attributed to the word integrity in the different branches of social science. 1 This means that the values describing the integrity of the given area and level of activity must be defined for all areas and levels of activity (personal, organisational, system-level), and at the same time the range of desired forms of action, behaviour and operation must be defined to be applied in practice. This is why the State Audit Office was also forced to use its own definition in its Integrity Project related to organisational level integrity. As far as organisational integrity is concerned, the SAO uses the definition contained in the Guidelines on the Internal Control Standards of Hungarian Public Finances published by the Ministry for National Economy of Hungary: Integrity, according to one of its frequently used meanings, refers to the consistency of principles, values, actions, methods and measures; that is, a behaviour which complies with certain established values. 2.2 Correlation between the concepts of integrity and corruption Integrity is a value concept and can also be interpreted as the opposite of corruption. Integrity is the exact opposite of acting and operating 1 The meaning of the word integrity varies from field to field, for instance: a) In system theory, it is occasionally used for systems which are capable of achieving their goals; as a moral value it means impartiality and soberness or, on the basis of the word s origin, uniformity and undividedness. b) In the sense of organisational management, integrity means that an organisation has a positive, sound set of values that are in line with social expectations, and it works in accordance with these values. The latter presupposes that the employees also identify themselves with the organisation s values and act accordingly. In this sense, integrity is a synonym for correct (compliant, ethical) employee behaviour.

9 according to undesired forms of action and conduct, which includes fraud, bribery or the abuse of power. As referred to earlier, integrity and corruption can be interpreted at various levels. At an organisational level, the correlation of integrity and corruption may be interpreted in the manner that the higher level of integrity an organisation has, the more resistant it is to corruption. Consequently, the strengthening of an organisation s integrity is an important means for preventing and mitigating the risks of corruption. To some extent this is true the other way around as well: the more knowledge an organisation has about its corruption risks and the more controls it has put in place to prevent and address them, the sounder its integrity is. This is true only to a certain degree, because integrity means that an organisation is not only free of corruption, but also free of other incorrect behaviours (such as fraud, despotism). However, it is important to note that by the notion of integrity and integrity-based organisational operation we do not directly and exclusively mean the fight against corruption. The effort to think in terms of risks is an integral part of the integrity-based approach. 2.3 The concept of integrity in public entities I ntegrity can also be defined as an organisation's resilience (hereinafter: organisational integrity) which is able to prevent damages arising from the irregular operation of the organisation or the inappropriate conduct of its employees. According to Báger (2011 and 2012), integrity does not imply an organisation s compliance in general; it simply means that the organisation has managed to mitigate, to a very large degree, the risks arising from incorrect employee behaviour. Fraud or corruption hardly occur in such organisations, employees may nevertheless commit inadvertent mistakes or, for instance, other internal management tools may be deficient. In 2013, Government Decree No. 50/2013. (II. 25.) on the integrity management system of organs of public administration and on the procedural rules applicable to dealing with lobbyists was published, which also defines the concept of integrity. The decree defines integrity as follows: the operation of an organ of public administration in adherence to the rules applicable to it and to the objectives, values and principles set out by the head of the official organisation and its managing body. The extension of this definition to all organisations with the exclusion of the features specific to organs of public administration will lead to the following definition: organisational integrity means the operation of an organisation in adherence to the rules applicable to it and to the values and principles defined by or for it. This is, therefore, not operation in accordance with objectives, given that the objectives do not necessarily correspond with public interest in the case of organs outside the realm of public administration. For example, profit maximisation or a higher market share is not an objective that increases an organisation s integrity once achieved. In general, it is not advisable to apply the terms related to integrity defined specifically for 9

10 public administration indiscriminately to the organisations of the public sector and especially to the private sector because public administration is highly regulated and in general, there is less room for voluntary compliance with the rules than in other areas of the public sector. 2.4 The concept and types of integrity controls How can an organisation strengthen its integrity? It can do so by developing its own integrity management system, that is, by defining and consistently communicating the organisation s set of values, and by creating and operating the tools (rules, codes of conduct, ethical principles, mission statements etc.) that promote or even enforce these values in daily practice. These are called integrity controls. If integrity is defined as the operation of an organisation in adherence to the rules applicable to it and to the values and principles defined by or for it, then all controls that promote compliance with regulations and principles should be regarded as integrity controls. Furthermore, the non-mandatory requirements which facilitate compliance with the values defined by or for an organisation are also integrity controls. Chtioui, Thiérry-Dubuisson (2011) distinguish two groups of integrity controls. The first group includes integrity controls that serve compliance, while the second consists of controls that facilitate the enforcement of values and principles. The introduction of controls that promote compliance for example, the elaboration of public procurement rules is generally prescribed by legal regulations with binding force. On the other hand, regulations that encourage compliance with principles and values are usually not required by law, although recently there have been some changes in this regard. For example, several types of institutions are required to develop their ethical guidelines. When the application of a certain control is mandatory by law, it is a so-called hard integrity control; when a regulation (e.g. a code of conduct) is adopted by an organisation on a voluntary basis, it is a soft control. 2.5 Integrity controls - Internal controls T he question arises as to how to differentiate between integrity controls and internal controls if both control systems are meant to promote the compliant operation of the organisation. In order to answer this question, we should reiterate the definition of the internal control system. Pursuant to Section 69 (1) of Act CXCV of 2011 on Public Finances, The internal control system is a system of processes designed to manage risks and obtain objective assurance in order to ensure that the following objectives are accomplished: a) in the course of operation and financial management, activities are carried out in compliance with rules, economically, efficiently and effectively, b) accounting obligations are discharged, c) resources are protected from losses, damage and improper use. Let us compare this definition with the notion of the integrity management system set forth in the government decree. According to the decree, the integrity management system is the functional subsystem of the governance and management system, which is integrated in the internal control system and serves to ensure the integrity of the organisation, comprising the main elements of specifying the values to be complied with, guidance for compliance, monitoring and, as required, enforcement of compliance. Namely, the introduction of the integrity management system in the organisation means the integrity-oriented performance of public functions assigned to the organisation and the consistent enforcement of organisational requirements related to value-based operation (integrity). Accordingly, the internal control system is a broader concept, and the integrity management system is one of its functional subsystems 10

11 integrated into it. What is meant by a functional subsystem? It means that the integrity controls include those controls whose function is to promote and enforce the correct behaviour of employees. For this purpose, correct behaviour does not simply mean ethical conduct, but a behaviour that complies with the declared (positive) values of an organisation. For example, if the declared value of an organisation is that it does not keep its clients waiting, then correct behaviour means that employees answer the phone even if they are busy doing something else. This example, which is also supported by the discussion above, clearly demonstrates that integrity controls cover certain aspects that are essentially related to the declaration of values and guiding principles as well as voluntary compliance with them, yet they are outside of the scope of internal controls. Accordingly, some integrity controls, especially the so-called soft controls, are beyond the scope of the internal control system; that is, they are not part of these controls. The relationship of internal controls and integrity controls shows that there is an overlap between internal controls and integrity controls. This overlap is composed of the mandatory rules that enforce an organisation s compliance with regulations and with the principles and values defined by or for it (including, for example, a public procurement policy). The controls that facilitate voluntary compliance with rules, values and principles (such as a mission statement) are considered to be integrity controls, but are not part of the internal control system. The other objectives of the organisation, such as rules intended to enhance efficiency (for example, the determination of performance requirements) are part of the internal control system, but do not qualify as integrity controls. Of course, nearly all regulations of the organisation influence the organisation s integrity, but oftentimes not as integrity controls, but rather as factors increasing or decreasing corruption risk. For instance, overly lenient or too stringent performance requirements generally increase the risk of improper employee behaviour. Finally, there are regulatory tools which were created by the organisation voluntarily in order to achieve an organisational goal that is not directly related to integrity. These can be the economic objectives of a strategy or plan. 2.6 Transparency as an integrity control factor T ransparency is another example of integrity control. Transparency and accountability are the cornerstones of a democratic state apparatus. Transparency is pivotal for a smoothly functioning and well-governed state. Publicly funded entities must provide information to taxpayers and other stakeholders on the utilisation of the funds they are entrusted with, disclosing how much they spend, what they spend it on and why, and how this impacts the lives of citizens (Németh, Körmendi, Kiss, 2011). Therefore, ensuring the transparency of the management of (public) finances and organisational operation is an important and efficient tool and a preventative control mechanism in the fight against corruption. The level of vulnerability to corruption is typically lower at the institutions which operate in a well-regulated framework besides having a high degree of transparency. Without transparency, therefore, there would be no integrity either. 11

12 3. The Role of the SAO Even at an international level, audit offices (supreme audit institutions) are increasingly expected to stand up against corruption effectively. At the same time, audit offices do not have investigating powers in most countries. Therefore, in their audits they can only unveil presumably corrupt cases and forward them to investigating authorities. Although some of these cases are concluded with a judgement, it is clear that the mandate and tools of audit offices offer a limited opportunity for the detection of corruption. Therefore, it is understandable that audit offices turned their attention to the prevention of corruption. The standards (ISSAI) prepared by the International Organisation of Supreme Audit Institutions (INTOSAI) also place great emphasis on the fact that the principles of state audit office operations and audits include the recommendations ensuring more efficient actions against corruption (UN-INTOSAI Joint Project, 2013). The State Audit Office of Hungary considers these international recommendations as governing and endorses the following international standards that are crucial for the purposes of integrity: The Mexico Declaration on SAI Independence (ISSAI 10), Principles of transparency and accountability (ISSAI 20), Code of Ethics (ISSAI 30), Quality Control for SAIs (ISSAI 40), The Value and Benefits of Supreme Audit Institutions (ISSAI 12). 3.1 The SAO s mission, legal status and strategic objectives The State Audit Office of Hungary is the supreme financial and economic audit organisation of the National Assembly, a key basic institution of the Hungarian democratic state apparatus providing the necessary safeguards. Its mission is to support the regular, appropriate, effective, efficient and transparent management of public funds and public resources through its value-adding sound audits based on solid professional foundations. Upon the approval of the 2007 financial statements of the State Audit Office of Hungary, the National Assembly declared for the first time that due to its activity the institution is required to pay close attention to the typical triggers and areas of corruption and must point out the deficiencies of law enforcement. Having recognised the significance of developing a culture of integrity and the importance of the SAO s activity in this area, the National Assembly confirmed this mandate in its Parliamentary Resolution No. 35/2009. (V.12.). It stipulated that the State Audit Office shall audit the areas representing corruption risks, in line with its own strategic goals. The new law on the State Audit Office of Hungary, passed in 2011, made it clear once and for all that based on its legal status and mission, the task of the SAO is to support actions against corruption, to curb corruption and to promote and introduce the culture and attitude of integrity. As far as its legal status and audit powers are concerned, the State Audit Office of Hungary audits, analyses and evaluates, formulates findings and recommendations, provides guidance and advice. At the same time, although the SAO does make rulings in legal matters, moreover it does not conduct investigations and does not sanction directly, it may initiate proceedings against the audited bodies and the persons in charge at the competent authority within the framework provided by the new Act on the SAO and based on its findings. The rules on the obligations and responsibility of audited entities have become stricter, and in case of any non-compliance the SAO is entitled to act and even initiate criminal proceedings. Due to its legal status, besides ensuring transparency and accountability, the SAO pri- 12

13 marily focuses on prevention in the area of combating corruption. Action against corruption is emphasised in the audit activity of the SAO, and the organisation considers the approach of integrity as dominant in its own operations. The State Audit Office of Hungary defined the fight against corruption and the promotion of an administrative culture that is in line with integrity requirements, as strategic objectives, which are also applicable to itself. The SAO s Official System of Strategic Documents states Strategy that the SAO supports the integrity-based, transparent and accountable use of public funds and... participates in the fight against corruption and fraud, in the identification and application of the efficient and effective means of fight against corruption risks and corruption, and in the dissemination of their use as well as in establishing an integrity-based administrative culture. In its strategy, the SAO sets the following objectives: active role in the fight against corruption and the consolidation of an integritybased administrative culture, thus contribution to good governance and the establishment of integrity management systems, committed and active support for the harmonised action of government bodies, participation in identifying the means that enhance resistance and in the evaluation of their operational efficiency, guidance and the provision of information, supporting a total change of approach in the public sector, and in relation to this, shifting the focus to prevention and risks. As for its own operation, the SAO has defined the following as additional strategic goals: consistent compliance with the highlevel professional and ethical requirements stemming from the legal status of the institution and the applicable legislations, the fullest possible compliance with the standards relevant for the operation of state audit offices, particularly, with the basic principles related to integrity-based operation, leading by example for public bodies. In the public sector as a whole, these goals can be achieved at various levels. Awareness raising and then the assumption of institutional commitment, monitoring of development and, ultimately, the changing of attitudes may be started after gaining a thorough understanding of the integrity-based approach and identifying the levels of vulnerability and resilience. 13

14 3.2 The Integrity Project of the SAO Paradigm shift in the fight against corruption In the interest of accomplishing its strategic anti-corruption objectives, the SAO (taking the aforementioned Dutch model as basis) launched numerous initiatives (Báger et al., 2008). We can safely say that the Dutch approach represents a paradigm shift in the fight against corruption. We can compare this to when a patient is not operated on or treated with medicine that would directly stamp out germs, but rather the patient s immune system is strengthened so that it becomes able to overcome the disease. The whole of the organisation s strong immune system, in other words its resilience against corruption, is what the Dutch call organisational integrity. The factors (integrity controls) that determine the maturity of the immune system are among others, the rules, procedures, methods and forms of behaviour that ensure the organisation s valuebased operation as well as desirable employee conduct. The dimensions of the paradigm shift are summarised in Table 1. The table shows 6 dimensions of the fight against corruption, where the integrity-oriented approach brings new possibilities and tools to the fight against corruption in contrast with the traditional approach. By traditional approach we mean that the competent authorities attempt to investigate and uncover cases of corruption, eliminate such corruption and sanction perpetrators. The key difference is that the integrity-based approach does not deal with uncovering corruption, but rather raises awareness of the risk of corruption and then takes measures to prevent the occurrence of undesirable events (Báger, Korbuly and Pulay, 2008). The anti-corruption initiatives launched by the State Audit Office are set in a unified framework by the Integrity Project. The two major pillars of the Integrity Project, aimed at promoting a clean public life, are the audit of institutional internal control systems and the assessment of the vulnerability to corruption of public bodies and the existence of integrity controls. Since the launch of the Integrity Project, other state audit office activities have been added to the two existing pillars, which increasingly define the thinking, operation and activity of the SAO, the audited entities as well as those of the domestic and international partners liaising with the SAO. Summarised in points, the State Audit Office s integrity-related activity extends to three large areas: Table 1 14 Main features of the traditional and the integrity-oriented approaches to the fight against corruption Features traditional approach Integrity-oriented approach Subject of the fight Corruption itself risk of corruption Purpose of the fight Uncovering of corruption Prevention of corruption Location of the fight The entire country the organisation Main characters of the fight Public authorities leaders of the organisation Tools of the fight Legislation, investigation, retaliation Integrity controls Results of the fight Disclosure of corruption, sanctions Strengthening the organisation s ability to resist corruption Source: Own editing

15 S t u d y S e r i e s I. the enforcement of the integrity approach in the SAO s activity. We distinguish two directions here: the transformation of the SAO s own organisational operation by taking integrity into account; the State Audit Office s audit activity, and the development and application of audit methods related to integrity (internal control audits) II. the mapping out of corruption risks and controls in the public sector (Integrity Survey), III. the SAO s domestic and international role in preventing corruption and disseminating the integrity approach. In the following chapters, we will present the SAO s activity performed in the interest of establishing the culture of integrity, broken down in accordance with the three areas indicated above. i n t e g r i t y F o r - o r i e n t e d c u l t u r e The three dogs symbolising the SAO s Integrity Project represent the anticorruption roles of the institution: the SAO guards, warns and guides. It guards the use of public funds, warns if there are problems and guides the financial management of public entities towards the right direction. 15

16 4. Integrity survey A map of corruption risks The goal of the series of surveys performed annually by the SAO since 2011 has been to identify the risks which may adversely influence the integrity of the given organisations within public sector institutions (Klotz, Pulay, 2011). In addition to identifying the risks, the survey also maps out the coverage levels of controls serving to manage these risks. In addition to the fight against corruption, expanding the circle of institutions that accept and endorse the integrity-based mentality is another high priority of the integrity surveys. The ultimate goal is to promote cultural change and to create integrity-based institutional operation and to spread thinking in terms of risks in the Hungarian public sector. By adopting, enhancing and extending to the entire Hungarian public sector the Dutch method, aimed at strengthening the organisational integrity of institutions, the SAO developed a unique Hungarian model. 4.1 Sample, method, tools More organisations participated voluntarily in the fifth data recording process performed in 2015 than at any other time before. The data recording of the first survey took place in 2011 with the participation of 1,095 institutions. This figure grew each year, until 2015, when the number of respondents exceeded 2,500, which represents a growth of nearly 130% (see Diagram 1). The trend is clear but there is an even more telltale figure. Regarding 16 the staff numbers, organisations participating in the 2015 data recording made up more than half of the total workforce of the Hungarian public sector. It also strengthened commitment that in 2013 we created the Circle of Integrity Supporters. The circle includes public institutions which undertook to participate in the integrity survey each year until During the 2015 survey, this amounted to 2,172 institutions, Diagram 1 Development of the number of respondent institutions ( ) 84.9 per cent of all respondents. The assessment of data helps in comparing the results of institutions that participate each year and any changes become directly measurable. The essence of the preventative method (which focuses on prevention) is that it does not examine the existence of corruption, but rather the vulnerability to corruption and the type of the controls that the organisation has put in place in order to manage and avert corruption risks. During the data recording process we apply the standard electronic questionnaire method. The questionnaire includes 155 questions in total, allocated into 16 question groups. The completion of the questionnaire is voluntary. The responses to the questions are evaluated by creating three indices. The Inherent Vulnerability Index (IVI), which makes the components of the inherent vulnerability depending on the legal status and tasks of organisations measurable. If, for example, an organisation issues official certifi-

17 cates, licences, exercises infringement powers, levies fines, these are identified as corruption risk factors and the value of the index increases accordingly. The Enhanced Factors Index (EFI) captures the components that increase inherent vulnerability that depend on the operation of various institutions. If the respondent institution received, for example, EU grants in the period under review, participated in preparing or conducting a public procurement procedure or utilised any of its real properties, held securities or rights and concessions, then these are identified as enhanced factors. The Existence of Controls Index (EoCI) reflects whether a given organisation has institutionalised controls in place, and whether those controls actually function and effectively meet their goals. Here, we examine controls such as the existence of rules for conflicts of interest and the acceptance of gifts, the controls of the use of external experts for public procurements or the selection of new workforce. The example below illustrates the relationship between the three indices. There is a higher education institution that offers public services. By definition, the provision of public services and the performance of the activity imply an inherent risk for the institution concerned. If the organisation in the example provides a public service for which the level of demand exceeds supply, or the institution charges a fee for its services or determines the amount of the fee itself and decides at its discretion about reducing or even waiving the fee on the basis of fairness, this points to the existence of factors that further exacerbate the risks inherent in the given activity. These factors will increase the organisation s corruption exposure that is associated with the activity of providing public services. Controls, in turn, are on the other side of the scale relative to the factors identified. More accurately, here we seek to determine whether the given organisation has established, in relation to its particular activity, the controls intended to reduce corruption risks. Accordingly, if the higher education institution specifies and officially records the procedure and formula used to determine the service fee, and it also ensures that this information is publicly available to the users of the service, then it has managed the identified risks effectively. If the survey identifies risks that are not managed in the absence of the required controls, then we detected activities or certain characteristics thereof which may give rise to corruption events if left unmanaged. The analysis of the questionnaires and the indices applied in the survey can pinpoint these security gaps. 4.2 Results of the 2015 Integrity Survey During the 2015 Integrity Survey, 2,557 institutions provided assessable data. The 2015 analysis focused on determining the organisational integrity levels of the institutions of the public sector, and comparing these to results of the preceding year. During the comparison of 2014 and 2015 survey results, we paid special attention to the change of risks and controls related to public procurement, to the changes in the anti-corruption systems and procedures applied, and to the change in the coverage of soft controls 2 (Pulay et al, 2015). Some of the questions of the SAO s annual integrity surveys inquire about data related to 3 calendar years preceding the survey year, in this case 2015 (1 January December 2014). Where a question did not include reference to the three-year period, respondents were requested to provide data concerning the situation as at 31 December It should be noted that in the case of certain organisations, the factors defined as soft controls by us in the survey function as hard controls, i.e. their application is set out by law. The reason for this is that institutions examined in the survey were selected from the whole of the public sector, and as such, different legal provisions apply to the various groups of respondent institutions. 17

18 Trends in the organisational integrity of public authorities between 2014 and 2015 As mentioned before, the number of institutions participating in the 2015 survey was higher than ever before, 2,557 in total. This includes all institution types, from nurseries and kindergartens to local governments and ministries. In order to arrive at an overview, we examined the level of average index values calculated for all respondents of the data collections of previous years, weighted with 2015 participation data. Comparing the average index values shown in Diagram 2, we can conclude that both IVI and EFI indicators show a decreasing tendency among respondent institutions, as the level of inherent risks has dropped significantly, by 3.31 percentage points; while the level of enhanced factors dropped by 1.79 percentage points. In contrast, the level of controls indicating the coverage and efficiency of the integrity system has increased significantly 3, by 2.10 percentage points. At the same time, the drop in risks observed at the various organisations does not mean the elimination of risk, rather it refers to a shift and restructuring of risk (e.g.: handover-takeover of tasks and powers among institutions). The continuous decrease of the risk indicator measured in the case of all institutions examined reveals the shrinking of the range of institutions with assessed risks (e.g. drop in the number of independent institutions establishment of the Klebelsberg Institution Maintenance Centre and of school districts, and the primary and secondary schools incorporated). In summary: the drop in corruption risks and the increase in the level of related controls is a favourable change, as the gap between them is continuously narrowing. Among the organisations examined, the rise of the control indicator is mostly the result of the spreading of anti-corruption systems and procedures. We also examined these controls individually among institutions participating in both of the past two surveys. For the 779 returning respondents, in the case of applied anticorruption controls, the ratio of institutions applying the four-eyes principle, which have a system in place to manage external complaints Diagram 2 18 Index values for 2015 vs. indicators for 2013 and 2014 weighted with 2015 participation data 2013 (súlyozva részvételi részvételi adataival) adataival) 2015 részvételi adataival) eredmény ekhez képest T NT KT 2014 (súlyozva 2013 (súlyozva részvételi részvételi 2015 (súlyozva 2015 részvételi Változás a évi eredmény ekhez adataival) adataival) adataival) képest T NT KT 2013* 2014* 3 We consider the change of 2 percentage point as a significant change. On the one hand, this reflects the differences between the size of the scales behind the various indices, and on the other hand it is sufficiently high to indicate the changes in the answers given to one or more questions.

19 Diagram 3 Special anti-corruption systems and procedures applied by institutions participating in both the 2014 and 2015 survey and complaints of public interest and also have a Code of Ethics in place, has increased significantly. At the same time, the ratio of institutions performing corruption risk analysis dropped slightly (see Diagram 3). In relation to the latter respondent group similarly to anti-corruption controls, we also examined the trends in the coverage level of certain soft controls. We concluded that the ratio of institutions that have regulations regarding the conditions of accepting gifts, invitations and trips; that prescribe reporting obligations on employees conflicts of interests with economic or any other relevance; that have publicly disclosed strategies including the fight against corruption, the improvement of organisational culture and the strengthening of integrity; and that regulate conflict of interest in some form has increased (see Diagram 4). Changes in risks and controls related to public procurement based on 2014 and 2015 data Of the respondent institutions participating in both surveys, based on 2014 and 2015 data supply, 500 (64.2%) and 518 (66.5%) institutions, respectively, participated in preparing and conducting public procurement procedures in the past three years. Broken down by institution groups, we can observe that in the case of four groups, such as independent government bodies, government bodies, regional administrative bodies and research and development institutions, the participation rate in public procurements was 100% in both years. We observed the greatest change in the case of judiciary institutions, where the ratio of organisations participating in public procurement procedures increased by 11.5 percentage points (2014: 73.1%, 2015: 84.6%). During data assessment, we examined numerous risk factors. In relation to public procurements, of these factors we will focus on our 19

20 Diagram 4 Regulates the matter of conflict of interest Makes its official assessme nt criteria available to clients At least one form of relationshi p with external players is regulated Trends in"soft" controls in In the majority of cases, performan ce assessme nts influence annual earnings of Any of the following topics are part of its publicly disclosed strategy: improving organisatio Regulates nal culture, the strengtheni conditions ng integrity, fight of accepting gifts, invitations and trips The organisatio n prescribes reporting obligations on employees conflicts of interests with economic or any other relevance against staff corruption % 87.90% 38.64% 28.75% 60.24% 31.71% 60.72% % 87.77% 38.00% 29.78% 57.73% 27.60% 58.41% findings made during the examination of correlations between public procurement procedures conducted with the participation of less than 3 bidders and the frequency of public procurement procedures awarded to the same bidder. Table 1 shows the joint appearance of the two risk factors mentioned above, which indicates a slight increase in the ratio of institutions conducting affected public procurement activities (2014: 8.99%, 2015: 10.14%). Table 2 The change in overlaps of public procurement procedures conducted with less than 3 bidders and the frequency of public procurement procedures awarded to the same bidder in the past 3 years among respondent institutions that took part in both data collection processes ( ) 20

21 The change in overlaps of public procurement procedures conducted with less than 3 bidders and the frequency of public procurement procedures awarded to the same bidder in the past 3 years among respondent institutions that took part in both data collection processes ( ) In respect of controls related to public procurement procedures, it is important to examine how the respondent institutions ensure the special expertise required to conduct regular public procurement procedures. Based on the responses received, we can conclude that similarly to the previous year (there was no significant change), in 2015 again most respondent institutions (87.5%) favoured employing an external public procurement expert or expert organisation when conducting such procedures. Less than one quarter (21.8%) of organisations employ associates with public procurement expert Diagram 5 Local governments Healthcare institutions SAO audits conducted at the organisation in the la No SAO audits conducted at the organisation in he last 3 years SAO audits conducted at the organisation in the la 66.45% 70.29% No SAO audits conducted at the organisation in he last 3 years 60.13% 59.85% Existence of Controls IndexChange of index value in light of completed SAO audits qualifications, and 15.4% operate a separate division responsible for public procurement tasks (see Diagram 29). It is an important factor when examining controls as the majority of organisations favours employing an external expert whether the conditions of employing such experts are appropriately regulated at the given institutions. It indicates a lack of controls and high risk that while the majority of institutions use external experts during public procurements and the utilisation of European Union grants, most of them (85.16%) have not laid down the terms of employing such experts in separate regulations. The impact of external audits on control coverage As the title indicates, in this section we seek to answer whether the audit activity of the external auditing body, namely the State Audit Office, impacts the control indicator (EoCI) reflecting the control levels of audited entities. If it does have an impact, then how does the SAO s current activity influence the control levels of the various organisations? We performed the assessment of the data in this area for two institution groups that have homogenous set of requirements and regulatory backgrounds in respect of their operation and task performance. In respect of the EoCI index, with regard to both local governments and healthcare institutions, the control indicator of institutions where external audits were conducted are higher (see Diagram 5). We cannot prove that there is a cause and effect relation between SAO audits and higher control levels, however, the considerably higher control levels presume that the aspiration also set out in the strategy of the State Audit Office is enforced in practice as well, namely the aspiration that, through its audits, the SAO contributes to increasing the coverage of the public sector s internal controls and to improving the culture of organisational integrity. 21

22 5. Enforcement of the integrity approach in the SAO activity The State Audit Office in a pioneering fashion even by international standards started to develop the tools used to identify and manage integrity and corruption risks, and the incorporation of tools used in its Integrity Surveys into its audit activity, in line with its strategic objectives. In addition, the SAO also enforces the integrity approach during its everyday organisational operation. 5.1 The SAO s integrity audits In the SAO s audit programmes, a separate chapter deals with integrity and its audit. One of the main pillars of our work aimed at reinforcing integrity is the audit of the institutions internal control systems as one of the bases of integrity, as well as the incorporation of the aspects of integrity into the audit programmes. The SAO integrated the tools used for the definition of the vulnerability to corruption and the establishment of controls into 14 audit programmes in We evaluated more than 300 institutions and disclosed our findings in our reports. The first generation of tools serving the auditing of integrity represents the solutions applied in the Integrity Survey. The questionnaire used in the survey is incorporated into the audits in the form of a certificate, which is updated each year in parallel to the development of survey tools. In addition, the SAO s integrity experts have also developed a certificate specifically for audits that measures the coverage of the most fundamental integrity controls. Through the use of the aforementioned certificates, auditors can evaluate the maturity of the control system that serves to prevent the occurrence of corruption risks at the audited organisations. In order to evaluate the certificates related to the integrity audit, the State Audit Office has set up the necessary IT background, and has experts on staff with the required IT and integrity expertise. During the auditing of integrity, the SAO experts of the given topic also provide continuous professional consultation, if needed. In relation to integrity audits, the SAO has also developed a worksheet that serves to support the work of auditors. This worksheet facilitates the process of information gathering and assessment for auditors taking part in the audit. By filling out the worksheet, the auditors gain an overview on the fulfilment of the requirements set out in the Act on Public Finances, Government Decree 370/2011 (XII. 31.) and especially Government Decree 50/2013. As such, in particular, the fulfilment of integrity advisor obligations (preparation of annual institutional corruption risk analyses, compilation of action plans). 5.2 Self-testing, selflearning organisation I n harmony with the integrity-based approach, which is increasingly taking root in the activity of the State Audit Office, the SAO places greater emphasis on providing tools for public sector institutions (in addition to the traditional audit approach) through which the various organisations can develop themselves. It was in the spirit of this that the SAO developed the self-test system, which in the first round focuses on the internal control system-related self development activity of village local governments, religious institutions and minority local governments. With these self-tests, the SAO s primary goal is to strengthen the regularity of using public funds and performing public functions, to improve governance, financial management and audit duties, as well as the related expec- 22

23 tations, and to promote integrity-based, transparent and accountable use of public funds by public sector institutions. Through the use of the measurement tool developed by the State Audit Office, public sector institutions, state institutions, local governments, civil organisations using public funds can assess the regularity, transparency of their own operation along with the scope and functioning of their internal control mechanisms. This could improve the internal control system and self testing ability of organisations using self-tests, and this could strengthen organisational integrity. Self-tests can contribute, for instance, to assessing the status of internal controls and the regularity of newly formed local governments and offices newly taken over by elected mayors. Utilising the result of the self-test, the office structure is able to prepare for potential government auditing, will become able to prevent anomalies arising from irregular operation or insufficient internal auditing as well as the consequences thereof. Self-assessment helps in correcting detected errors and learning the method how to operate in a regular and controlled fashion. In the pilot phase of the self-testing scheme, the State Audit Office contacted 20 local governments and 16 religious institutions. Institutional self-assessment started subsequent to consultations carried out with the representatives of the organisations involved. The effectiveness of the cooperation is demonstrated by the fact that 18 local governments and all 16 religious organisations returned the completed tests which were evaluated by the SAO, which in turn provided consultation opportunities for the participants. We expect that organisations completing the self-tests will acquire useful knowledge and take the necessary measures which will be confirmed by the findings of audits performed by an audit institution, thus showing an example for other organisations to correct potential deficiencies by self-testing. Widespread selftesting thus contributes to the development and endorsement of integrity-based mentality. 5.3 Integrity approach in the organisational operation of the SAO T he State Audit Office endorses integritybased mentality and the establishment of institutional operation based on the prevention of corruption even within its own internal operation. Therefore, the institution s integrity management system is embedded into the SAO s work processes, various systems of rules and its entire resource management, and it provides solid values and supportive guidance for developing the work culture. As a forerunner among domestic public bodies, the State Audit Office shows a good example for the rest through the following: development of its own internal control system, introduction of risk analysis and the methodology of risk-based topic and location selection, enforcement of ethical principles at the organisational level and strengthening of personal integrity, rotational control system that is based on risk analysis, transformation of the handling of announcements of public interest, development of the internal system of risk management, making the internal regulation for public procurement more stringent, compliance with the strict rules for conflicts of interest, ensuring internationally unique transparency, with which it participates in the institutionalised action taken against corruption. 23

24 6. Domestic and International Role in Preventing Corruption 6.1 Cooperation in the Building of the Hungarian System of Integrity Control We believe it to be an important result that Government Decision No. 1104/2012. (IV. 6.) on the government measures against corruption and the approval of the Public Administration Corruption Prevention Programme took into consideration the practice of the State Audit Office of Hungary and focused on the reinforcement of the integrity of the public sector in the programme. Government Decree No. 50/2013. (II. 25.) on the integrity management system of organs of public administration and on the procedural rules applicable to dealing with lobbyists sets tasks for organisations that are under the control and supervision of the Government. The government decree obliges public administration bodies under the control and supervision of the government to assess the integrity and corruption risks related to their operations and to develop corruption prevention action plans based on these assessments to manage the risks identified. In addition, it requires the organisation subject to its scope of authority to appoint an integrity adviser to fulfil the tasks defined in the legislation. An expert working group and the related thematic expert working groups cooperate under the coordination of the Ministry of Justice in order to implement the goals. The next phase of the government s fight against corruption commenced in 2015, when the government adopted Government Decision 1336/2015. (V.27.) 4 on the implementation of measures of the National Anti-Corruption Programme which, among other things, sets out specific tasks for aimed at strengthening public sector integrity. 6.2 Cooperation in developing the culture of integrity Cooperation between public sector organisations in the fight against corruption A harmonised action is needed on behalf of government bodies in order to succeed in the fight against corruption. In this spirit, on 18 November 2011, the president of the State Audit Office of Hungary, the Minister of Public Administration and Justice, the president of the Supreme Court (Curia) and the Prosecutor General signed a joint declaration which received international publicity. In the document, the parties expressed their commitment to the fight against corruption and undertook to strengthen the resilience of the government bodies headed by them against corruption, as well as to develop anti-corruption tools. The signatories declared their intentions to take harmonised steps in order to prevent and curb corruption while respecting the independence of the judiciary and audit organisations, and to this end, consult with each other and strive to create a network of cooperation by involving their partner organisations as well as other government bodies. The participants also agreed that they would meet every year within the framework of so-called integrity meetings, 4 Government Decision 1336/2015. (V.27.) repealed the earlier Government Decision 1104/2012. (IV. 6.). 24

25 review the results of the cooperation and define future goals. The National Office for the Judiciary joined the initiative, ensuring harmonised action within public administration in 2012, followed by the Ministry of the Interior in On 11 December 2014, the founders along with institutions that joined the initiative in the meantime reinforced their undertakings and their commitment to the fight against corruption in the form of an addendum to the Memorandum of Understanding Supporting the training of ethical managers in public finance In its Resolution No. 34/2015. (VII. 7.), the National Assembly supported that in respect of organisations involved in managing public funds and public property, the State Audit Office should widen its consultancy activities regarding management systems and should support the training of ethical managers in public finance. Why is this important for the SAO? Because all change begins with the right mindset, the right way of thinking. Consequently, firstly the current and future leaders of public institutions must be convinced that when utilising public funds, it is a necessary, but by itself, insufficient requirement of ethical management to spend public funds in a regular manner. The spending of such monies must also serve public good and must do so effectively and in a sustainable fashion. A public body can access to public funds by taking these funds out of people s pockets or of the budgets of businesses, promising that the state will be able to better utilise it than the original owners, as it will use these funds to effectively serve the good of the community. If the state, or more specifically a public institution utilising these tax forints, is unable to make good on this promise, then the taking of the money itself may be viewed as unethical. Therefore, in the area of using public funds, ethical management and efficient Signing the Memorandum of Understanding on the cooperation of government bodies in the fight against corruption and its addendum (18 November 2011, 11 December 2014) and effective, but at the same time regular and transparent, financial management cannot be separated from one another. This is the notion that must be the golden thread that weaves through the renewal of state management and the training of public sector managers. Of course, it is not enough if this train of thought is emphasised only by the SAO. Allies are required. One such ally is the National Bank of Hungary, with which we are in a joint effort in developing the curriculum for the renewal of public finance management. We are also looking to make other constitutional institutions as our allies, just as we did in the case of the joint action against corruption. Of course, we also count as our allies the universities that feel and which during their educational activity represent that ethical thinking is an integral part of economics. 25

26 It was for such considerations that the SAO entered into a cooperation agreement with the University of Miskolc. The aim of this professional-academic cooperation is to establish the possibility that the SAO s audit experiences and the educational and research experiences of the University of Miskolc, by exploiting mutual benefits, become better connectable, supporting the innovative, practice-oriented and high standard operation of both institutions. This cooperation in the training of managers of economic organisations using public funds and public assets extends to: the creation of training programmes and the development of training modules suitable for the management training of business associations managing public funds and public assets, with special emphasis on good practices established in the areas of performance assessment, on the measurement of the value of public services, monitoring, controlling as well as on human resource management; the dissemination of the integrity approach, and on a related note, the sharing of methods and tools serving the strengthening of integrity controls with public institutions, institutions using public funds and with executive officers managing such institutions. 6.3 Knowledge sharing on the domestic stage Training integrity advisers The State Audit Office and the National University of Public Service signed a cooperation agreement on 28 June The goal of the professional/academic cooperation is to develop an integrity-based administrative culture and to improve training and extension training, scientific research, expert activities and the quality of the management of public funds and SAO President László Domokos at the diploma ceremony of integrity advisers in public assets, as well as the competitiveness of public administration. The State Audit Office helps realise these goals by delivering lectures at universities and supporting the training of integrity advisers at the Institute of Executive Training and Continuing Education of the National University of Public Service. The goal of integrity expert training is to support the implementation of the integrity management system in public administration. It involves the extension training of administrative professionals who can support the reinforcement of the integrity management system in an administrative organisation through mitigating and averting the risks of corruption and abuse (Domokos, 2013, 2014). The patron of the training is László Domokos, President of the State Audit Office of Hungary Sharing of good practices The State Audit Office shares the methodology, measurement and results of preventing corruption at various professional, scientific and educational forums. Our goal is to offer our research and audit methods, based on stringent international standards, and the results thereof as points of reference for social debates, so that they can contribute to the prevalence of integrity-based mentality. The SAO regularly represents itself at the various domestic conferences and events that discuss integrity and the fight against corrup- 26

27 tion, and issues publications on anti-corruption activities. In addition, our institution supports education programmes and other initiatives related to the prevention of corruption and informs the public of all of its activities and achievements. According to the Strategy of SAO, the international relations and roles of the State Audit Office of Hungary ensure knowledge transfer, and the experience obtained this way becomes integrated in the audit work. For this reason, the State Audit Office continually studies the international practices of the fight against corruption and assumes an active role in presenting its activities, strengthening the integrity of the public sector, at international conferences and events along with the achieved results, and in supporting the partner SAIs fight against corruption by sharing the experiences of the integrity surveys. Through our international involvement, we learn from the experiences of others, establish good practices domestically, and partially share our knowledge with partner institutions. As part of the above activities, the SAO and the Ministry of Public Administration and Justice launched a series of conferences on Internal Controls and Integrity at Local Governments in October Another priority goal of the events was for participants to collectively facilitate a higher level of regularity at local governments and to call the attention of mayors, notaries and financial managers to the significance of operating internal control systems and the strengthening of integrity. It was another important objective of the seminar series to ensure together with the government offices supervising legality that audit experiences become available and usable. In recent years, our institution has organised numerous series of seminars on domestic and international good practices as well as two international conferences. On 3-7 March 2014 and on March 2015, the SAO organised two international good practices seminars, which were attended by 60 experts from the state audit offices of 33 developing countries. The aim of the seminars was to present the methodology of the SAO s integrity surveys, to share the related knowledge and develop the method by utilising international experiences in order to strengthen the integrity of the public sector. The SAO will continue to study and share good practices that enhance the integrity of the public sector through international seminars. The third international Transparency and Integrity in Audits conference will be held in February Supporting of international donor programmes By its Resolution No. 41/2013. (V. 27.), the National Assembly supported the State Audit Office in participating in the INTOSAI Development Initiative (IDI) activities of the International Organisation of Supreme Audit Institutions (INTOSAI), and for the SAO to provide professional support for this initiative as donor, with special regard to Hungarian foreign trade strategy. In addition to the SAO s international seminar series on good practices, the donation of funds saved from the SAO operating budget to the IDI donor programme also serves the accomplishment of this objective. By offering support, Hungary has become a major supporter of the IDI. Thereby, Hungary has joined the ranks of supporters such as: Norway, Sweden, Ireland and the United States. 27

28 6.3.4 The SAO s integrity-related publication and academic activity Public Finance Quarterly, the bilingual scientific journal of the State Audit Office focused on the prevention of corruption and the enhancement of integrity on two occasions in the past period. The two issues featured a total of five studies by the staff of the SAO. In The Notary and Public Administration journal, we published an article on the corruption risks measured among local governments and the scope of the controls meant to manage such risks. (Domokos, 2013). Since 2011, we have prepared and published on our website our study summarising the results of the Integrity Survey on an annual basis. In 2014, for the first time, studies were prepared using the 2013 survey data which present the responses received during the survey broken down by institution groups. Since then, integrity analyses for each institution group have been also prepared every year. The studies point out the corruption risks stemming from and inherent in the tasks of the individual institution groups and also indicate the level of the controls meant to manage these. In line with the international anti-corruption role of the SAO, the English language summary of annual results is also published and the related analyses are made available on the Integrity Portal ( the managers of the SAO delivered lectures at a Győr conference entitled Economy and Morals: Clean Society, Clean Economy, at a conference organised by the Hungarian Non-Profit Organisation of Internal Auditors entitled Cooperation Between the Defence Lines of Organisations and at a Szarvas conference entitled Improving Economic Competitiveness and Curbing Corruption, which found many responses from professionals and the media. In addition, the State Audit Office presented its activity and the related results in the fight against corruption at several international forums. Integrity was one of the major themes in several presidental-level exchanges between SAI leaders, for example, in Moscow, Vietnam, China or at a meeting of the presidents of the Visegrád countries. Additionally, the president and other senior figures of the State Audit Office were asked to deliver lectures at international conferences and seminars. We have also gained useful experiences through internationally held lectures. Such as for example, the International Corruption Hunters Alliance (ICHA) conference and training held in Washington and at an international seminar on the prevention of corruption held in Berlin Other events, lectures We share our research results and audit experience with students and public servants participating in basic and extension trainings, and we contribute to the identification of corruption risks and the definition of possible management methods. In the past years, we presented our results and the related conclusions and recommendations at several domestic conferences. Let us highlight some of the key conclusions and recommendations: The president and 28

29 7. Vision For each citizen, the fight against corruption means a long-term commitment that fits into the ideal about good governance and clean public life. Public entities and social players have special roles and responsibility in this fight, while at the same time, the support of the private sector and mutual compliance with rules that are based on ethical values are indispensable (Domokos, 2015). The key to creating a corruption-free public sector is cooperation that involves the whole of society, along with publicity and extensive provision of information, as well as the shaping of the attitude of future generations. Our mission is to enhance trust in public entities and in the State Audit Office. The SAO supports the work of the National Assembly and the government in order to stabilise integrity-based public life in Hungary. The implementation of this mission presupposes that our work is utilised in a tangible manner and at the social level. In light of these goals, the State Audit Office defined the future priorities of the actions against corruption along with those long-term strategic integrity objectives that can strengthen the integrity of the SAO itself. We can sum up our vision in a simple phrase: from method to system. The SAO has taken the method adopted from the Dutch Court of Accounts and has used it to develop a multi-component system, and this development process is still ongoing. The SAO s objective is to extend integrity surveys to other areas, and to utilise survey methodology in audits and during the setting up of integrity control systems. When expanding the integrity assessment method, we are thinking in terms of both widening and deepening the process. As part of this widening effort, we extended our integrity surveys to state-owned business associations. As of the autumn of 2016, business associations in majority local government ownership will also be included in our survey. Our plans also include the extension of the integrity survey to suppliers to the state. Another possibility for using the method is to decrease corruption risks related to large investments, but the Integrity Survey can also be performed among employees or clients. Naturally, these extensions require considerable modifications to the method while keeping the basic principle unchanged. As far as deepening is concerned, we have already been using Integrity Survey results during SAO risk analyses. In 2014, the SAO incorporated a module suitable for auditing integrity into its compliance audits, and as a result, in 2015 we assessed whether the audited organisations took steps to increase their integrity during all of our compliance audits. Starting from 2016, the assessment of the management of corruption risks and the coverage of protection against corruption as well as the operation of controls will become an integral part of our audits. As part of this deepening, we plan to prepare a methodological guideline for public administration bodies in the interest of creating organisational regulations that serve the prevention and mitigation of corruption risks and in order to facilitate the auditing thereof. The general principle in these extensions is that the approach applied must be common, but each given extension must rely on individual risk analysis. In doing so, the integration of the SAO s audit experiences into the analysis is of primary importance. 7.1 Enhancement of integrity-based mentality and shaping the mindset of the public sector A real change of attitude and a culture of integrity will only be observed in the area of the fight against corruption if public entities and institutions are motivated internally to take 29

30 steps in order to enhance individual and organisational integrity. This is why, in line with the above, the State Audit Office will continue to actively support the training of integrity advisers and thus, contribute to the prevalence of integrity management systems at public entities and business associations through the extension and deepening of the Integrity Survey, the training of integrity advisers and the performance of audits aimed at control systems (Pulay, 2014). Our objective, through cooperation, is to support the comprehensive change in attitude of the public sector, to establish an organisational culture of integrity, and to facilitate the establishment and enhancement of well-founded and operational integrity control systems at all organisations that directly or indirectly (e.g. as suppliers) use public funds or utilise public assets. 7.2 Providing comprehensive information to citizens, decision-makers and the beneficiaries of public funds As mentioned before, the bedrock of integrity-based administrative culture and good governance is transparency and accountability so that citizens know who and in what manner manages public funds. The mission of the State Audit Office of Hungary is to ensure this transparency through its activities. To this end, our institution built up a system, by which citizens can become familiar with the current status of public auditing, the operation of the SAO and the programmes launched within the framework of the institution s social responsibility. Accordingly, the State Audit Office pursues a consciously planned, active and pro-active communication extended, amongst others, to the fight against corruption. We annually report on the implemented anti-corruption activities and the results achieved. We share our experiences through knowledge sharing with both our domestic and international partners. 7.3 Supporting IDI s anti-corruption donor programme and international knowledge transfer We plan to cooperate more closely with other state audit offices in the areas of integrity. According to plans, the first quarter of 2016 will see an agreement concluded between the government and the IDI, through which we will support the IDI s three-year programme, which is set to be launched in 2016 and is an anti-fraud programme also aimed at establishing integrity. In addition, we also wish to actively participate in the improvement of the integrityrelated international standards of state audit offices and auditors (ISSAI). The State Audit Office, thereby, develops and reinvests the knowledge capital acquired on the international scene, by taking part in extension trainings provided by swiftly developing countries such as the Western Balkans region or certain Middle Eastern or Southeast Asian countries. Our goal is to disseminate the best domestic practices internationally, to maintain the provision of credible and objective information, to support the fight against corruption and fraud as a priority government objective and thus, to strengthen the recognition of Hungary and the State Audit Office of Hungary. 7.4 New directions of the Integrity Survey A t the end of 2015, the State Audit Office began the development of a new set of tools, which will be used to assess the corruption risks of state and local government-owned 30

31 The range of institutions covered by the SAO s Integrity Survey is expanding continuously, which means corruption risks can be mapped out and managed. business associations and the coverage of controls serving to mitigate such risks. In order to do this, we will renew, in terms of content, the tools applied in the Integrity Survey developed for budgetary institutions. What this means is that the SAO staff will prepare a questionnaire featuring relevant questions concerning corruption risks and controls arising in relation to the legal status and activity of business associations. In relation to the questionnaire, the SAO has also developed a scoring system. Similarly to the Integrity Survey, the new data collection will also measure three indices: IVI, EFI and EoCI. Data collection and assessment will be performed using the IT system adopted from the Integrity Survey. The very first data collection for state-owned business associations was performed in December 2015, while data recording for business associations owned by local governments is likely to start in autumn Integrity-centred management Developing the integrity management system of the SAO and public bodies In the strengthening of the organisational integrity of public sector institutions, a primary role is given to the management of the affected institution, which is why the SAO places great emphasis on developing ethical management and on the ethical management of public funds. It is the long-term goal of the SAO to create and maintain a culture of integrity at the organisations that use public funds and manage public assets, thereby ensuring that work performed in line with the principles of integrity becomes part of daily routine. The culture of integrity means that the heads and the staff of organisations are aware of the risks of corruption (and other actions that jeop- 31