Audit services to protect taxpayers’ money
Auditing in its widest sense includes a variety of assurance and related services. A number of cases directly involving taxpayers’ money – relating to government-subsidised transport companies and the misuse of emergency government loans, for example – have come to light and repeatedly revealed weaknesses in the overall governance system, as well as distorted perceptions of cause and effect. The audit and management consulting industry needs to critically examine its role here and work towards legally appropriate interaction between the different players.
In Switzerland, the state has traditionally played a restrained, narrowly defined role. The system of Swiss government is federalistic and operates on a subsidiary basis, meaning that as many duties as possible are handled at the municipal and cantonal levels. Lean government at the federal level is one of the keys to the success of Switzerland’s liberal economic system. The public is therefore particularly sensitive when it comes to the use and distribution of taxpayers’ money at federal level.
For example, the misuse of tax funds in the financing of government-owned or partly government-owned companies is subject to particularly close scrutinisation and is regarded very critically. Audit firms thus rapidly become the focus of attention.
What has the misappropriation affair at “Postbus” taught us?
Essentially it is the responsibility of the board of directors and management to ensure that a company acts ethically. If a company receives taxpayers’ money in the form of government subsidies, it is thus also the job of the board of directors and management to ensure compliance with the terms and conditions of the subsidies. In the case of subsidised transport companies, the Swiss Federal Office of Transport (FOT) must also perform its own controls to ensure that subsidies have been duly awarded and used for the intended purpose. Consequently, the statutory auditor appointed (as an executive body of the company) by the company owners is not responsible for verifying the legitimacy of the subsidies received.
Following resolution of the events at Postbus, the legal requirements have been amended and the FOT’s personnel resources have been increased. Every year, the managements of all transport companies must now expressly confirm adherence to the requirements relating to the subsidies received. As part of its extended controls, the FOT will in future conduct risk-based audits of the companies’ accounts. In addition, transport companies that receive subsidies totalling more than CHF 1 million a year must in future (from 2021) undergo a special audit of the subsidies received. They must engage an audit firm to conduct this audit. Usually, the audit firm engaged for this purpose will be the same one that acts as the statutory auditor of the company, although this is not mandatory.
Who will audit the use of Covid-19 emergency loans?
The emergency loans granted to cover companies’ liquidity shortfalls during the Covid-19 pandemic in 2020 are another example. The Swiss Federal Council responded appropriately to the repercussions of the Covid-19 crisis, implementing measures such as short-time working and a new emergency lending programme to assist companies with liquidity problems, which are the biggest threat to companies’ existence in the near term. However, there is still a lot of uncertainty and questions surrounding this new vehicle, including how the use of the funds will be audited.
It is estimated that only around 10% of the current CHF 40 billion in emergency loans made available by the Federal Council will end in default, but this could prove overly optimistic. Questions regarding the expansion of the aid package at federal level and supplementation at cantonal level could be raised. The more money made available for emergency loans, the greater the concern is likely to be about whether this tax money is being used for its intended purpose and how misuse can be prevented.
The rapid, unbureaucratic distribution of emergency loans to Swiss companies was an important decision made by the Federal Council and was the right response. Auditing the legitimate use of these funds for their intended purpose is now just as important. EXPERTsuisse therefore recommends implementation of a Covid-19 audit. This should be financed as part of the government’s aid package.
Once companies’ basic survival has been ensured with the help of assistance measures and rigorous cost management, the next priority will be guaranteeing their long-term viability. This will require measures to improve efficiency and revenue, as well as related business model developments. Boards of directors will therefore need to work with internal and external experts to initiate corresponding projects and set companies back on the path to success. Auditors and management consultants can make a decisive contribution here.