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Digital Spending Increases, Greater Focus on Digital Strategy Is a Top Need for State Auditors

MD Staff

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photo: Deloitte

The 2018 Digital Government Transformation Survey released today by Deloitte and the National Association of State Auditors, Comptrollers and Treasurers (NASACT) reveals how its members are investing more in digital transformation, yet only 35 percent of respondents are satisfied with their organizations’ responses to digital trends. This is a drop of 29 points from the 2015 survey. Additionally, less than half of respondents stated they have a clear and coherent digital strategy.

“The survey reveals an eagerness for state financial professionals to use digital technologies on par with the private sector,” said R. Kinney Poynter, executive director, NASACT. “Our members want to take advantage of emerging technologies, but clearly impediments to being more digital remain.”

“One clear takeaway from the survey is that those NASACT member organizations who have a clear and coherent digital strategy consider their digital capabilities to be comparable or ahead of the private sector,” said Christina Dorfhuber, principal, Deloitte Consulting LLP, and a government and public services ERP strategy leader. “We also saw how respondents with a digital strategy were more satisfied with their organization’s reaction to new trends and more confident in their organization’s readiness to respond to new ones, demonstrating that much of an organization’s digital prowess hinges on that strategy.”

“The expectations for digital strategies and opportunities are clearly increasing for all organizations, including governments,” said Clark Partridge, state comptroller of Arizona and president-elect of NASACT. “As we expand our understanding, we can appropriately identify opportunities to leverage technology to re-engineer our processes and enhance the capacity of our workforce. The result is a greater capacity to successfully accomplish the work of government and deliver quality outcomes to citizens.”

The survey reveals three key themes:

A digital strategy is important. Most, but not all, respondents reported having a digital strategy and believe that there is more that needs to be done. Those with a digital strategy were more satisfied with their organization’s reaction to digital trends (54 percent versus 18 percent of respondents) and confident in the understanding of digital trends by their leaders (87 percent versus 30 percent).

Investing in automation and cognitive technologies. With more funding, organizations must determine which technologies to invest in. Currently only 11 percent of organizations reported a broad use of automation and cognitive technologies. Increasing these numbers will be critical as more audits are likely to be augmented by these technologies in the coming year.

Addressing the digital skills gap. While 65 percent of organizations indicated that training staff would be a key focus, 39 percent of organizations also noted they would augment staff with consultants and contractors. Additionally, only 48 percent of respondents believe their employees have sufficient skills to execute a digital strategy while 43 percent believe that employees have the skills for automation and cognitive technologies.

The report examined the need for more training and a skilled workforce in these new emerging technologies to eliminate the skills gap.

“Emerging technologies can have tremendous benefits for state organizations, but preparation is needed,” said William D. Eggers, executive director for Deloitte’s Center for Government Insights. “Public finance leaders looking to capitalize on emerging technologies should devise a roadmap for integrating these technologies into their day-to-day operations.”

The previous survey was conducted in 2015. This year’s survey includes feedback from more than 70 NASACT member offices. A more detailed analysis of the survey can be found here, including data specific to auditors, comptrollers and treasurers.

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Asia Needs a Region-Wide Approach to Harness Fintech’s Full Potential

MD Staff

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The importance of a region-wide approach to harness the potentials of fintech was emphasized at the High-Level Policy Dialogue: Regional Cooperation to Support Innovation, Inclusion and Stability in Asia on 11 October in Bali, Indonesia. Photo: ADB

Asia’s policy makers should strengthen cooperation to harness the potential of new financial technologies for inclusive growth. At the same time, they should work together to ensure they can respond better to the challenges posed by fintech.

New technologies such as mobile banking, big data, and peer-to-peer transfer networks are already extending the reach of financial services to those who were previously unbanked or out of reach, boosting incomes and living standards. Yet, fintech also comes with the risk of cyber fraud, data security, and privacy breaches. Disintermediation of fintech services or concentration of services among a few providers could also pose a risk to financial stability.

These and other issues were discussed at the High-Level Policy Dialogue on Regional Cooperation to Support Innovation, Inclusion, and Stability in Asia, organized by the Asian Development Bank (ADB), Bank Indonesia, and the ASEAN+3 Macroeconomic Research Office (AMRO).

The panel comprised Ms. Neav Chanthana, Deputy Governor of the National Bank of Cambodia; Mr. Diwa Guinigundo, Deputy Governor of Bangko Sentral ng Pilipinas; Ms. Mary Ellen Iskenderian, President and Chief Executive Officer of Women’s World Banking; Mr. Ravi Menon, Managing Director of the Monetary Authority of Singapore; Mr. Takehiko Nakao, President of ADB; Mr. Abdul Rasheed, Deputy Governor, Bank Negara Malaysia, and Mr. Veerathai Santiprabhob, Governor of the Bank of Thailand. Mr. Mirza Adityaswara, Senior Deputy Governor of Bank Indonesia, gave the opening remarks at the conference and Ms. Junhong Chang, Director of AMRO, gave the welcome remarks.

“Rapidly spreading new financial technologies hold huge promise for financial inclusion,” said Mr. Nakao. “We must foster an enabling environment for the technologies to flourish and strengthen regional cooperation to build harmonized regulatory standards and surveillance systems to prevent international money laundering, terrorism financing, and cybercrimes.”

“Technology is an enabler that weaves our economies and financial systems together, transmitting benefits but also risks across borders,” said Ms. Chang. “Given East Asia’s rapid economic growth, understanding and managing the impact of technology in our financial systems is essential for policymakers to maintain financial stability.”

“Asia, including Indonesia, is an ideal place for fintech to flourish,” said Mr. Adityaswara. “In Indonesia’s case, there are more than a quarter of a billion people living on thousand of islands, waiting to be integrated with the new technology; young people eager to enter the future digital world; more than fifty million small and medium-sized enterprises which can’t wait to get on board with e-commerce; a new society driven by a dynamic, democratic middle class which views the digital economy as something as inevitable as evolution.”

Despite Asia’s high economic growth in recent years, the financial sector is still under-developed in some countries. Fewer than 27% of adults in developing Asia have a bank account, well below the global median of 38%. Meanwhile, just 84% of firms have a checking or savings account, on a par with Africa but below Latin America’s 89% and emerging Europe’s 92%.

Financial inclusion could be increased through policies to promote financial innovation, by boosting financial literacy, and by expanding and upgrading digital infrastructure and networks. Regulations to prevent illegal activities, enhance cyber security, and protect consumers’ rights and privacy, would also build confidence in new financial technologies.

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Cutting-edge tech a ‘double-edged sword for developing countries’

MD Staff

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The latest technological advances, from artificial intelligence to electric cars, can be a “double-edged sword”, says the latest UN World Economic and Social Survey (WESS 2018), released on Monday.

The over-riding message of the report is that appropriate, effective policies are essential, if so-called “frontier technologies” are to change the world for the better, helping us to achieve the Sustainable Development Goals (SDGs) and addressing climate change: without good policy, they risk exacerbating existing inequality.

Amongst several positive indicators, WESS 2018 found that the energy sector is becoming more sustainable, with renewable energy technology and efficient energy storage systems giving countries the opportunity to “leapfrog” existing, often fossil fuel-based solutions.

The wellbeing of the most vulnerable is being enhanced through greater access to medicines, and millions in developing countries now have access to low-cost financial services via their mobile phones.

Referring to the report, UN Secretary-General António Guterres said that “good health and longevity, prosperity for all and environmental sustainability are within our reach if we harness the full power of these innovations.”

However, the UN chief warned of the importance of properly managing the use of new technologies, to ensure there is a net benefit to society: the report demonstrates that unmanaged implementation of developments such as artificial intelligence and automation can improve efficiency but also destroy quality jobs.

“Clearly, we need policies that can ensure frontier technologies are not only commercially viable but also equitable and ethical. This will require a rigorous, objective and transparent ongoing assessment, involving all stakeholders,” Mr. Guterres added

The Survey says that proactive and effective policies can help countries to avoid pitfalls and minimize the economic and social costs of technology-related disruption. It calls for regulation and institutions that promote innovation, and the use of new technologies for sustainable development.

With digital technology frequently crossing borders, international cooperation, the Survey shows, is needed to bring about harmonized standards, greater flexibility in the area of intellectual property rights and ensuring that the market does not remain dominated by a tiny number of extremely powerful companies.

Here, the UN has a vital role to play, by providing an objective assessment of the impact that emerging technologies have on sustainable development outcomes – including their effects on employment, wages and income distribution – and bringing together people, business and organizations from across the world to build strong consensus-led agreements.

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Our Trust Deficit with Artifical Intelligence Has Only Just Started

Eleonore Pauwels

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“We suffer from a bad case of trust-deficit disorder,” said UN Secretary-General António Guterres in his recent General Assembly speech. His diagnosis is right, and his focus on new technological developments underscores their crucial role shaping the future global political order. Indeed, artificial intelligence (AI) is poised to deepen the trust-deficit across the world.

The Secretary-General, echoing his recently released Strategy on New Technologies, repeatedly referenced rapidly developing fields of technology in his speech, rightly calling for greater cooperation between countries and among stakeholders, as well as for more diversity in the technology sector. His trust-deficit diagnosis reflects the urgent need to build a new social license and develop incentives to ensure that technological innovation, in particular AI, is deployed safely and aligned with the public interest.

However, AI-driven technologies do not easily fit into today’s models of international cooperation, and will in fact tend to undermine rather than enforce global governance mechanisms. Looking at three trends in AI, the UN faces an enormous set of interrelated challenges.

AI and Reality

First, AI is a potentially dominating technology whose powerful – both positive and negative –implications will be increasingly difficult to isolate and contain. Engineers design learning algorithms with a specific set of predictive and optimizing functions that can be used to both empower or control populations. Without sophisticated fail-safe protocols, the potential for misuse or weaponization of AI is pervasive and can be difficult to anticipate.

Take Deepfake as an example. Sophisticated AI programs can now manipulate sounds, images and videos, creating impersonations that are often impossible to distinguish from the original. Deep-learning algorithms can, with surprising accuracy, read human lips, synthetize speech, and to some extent simulate facial expressions. Once released outside of the lab, such simulations could easily be misused with wide-ranging impacts (indeed, this is already happening at a low level). On the eve of an election, Deepfake videos could falsely portray public officials being involved in money-laundering or human rights abuses; public panic could be sowed by videos warning of non-existent epidemics or cyberattacks; forged incidents could potentially lead to international escalation.

The capacity of a range of actors to influence public opinion with misleading simulations could have powerful long-term implications for the UN’s role in peace and security. By eroding the sense of trust and truth between citizens and the state—and indeed amongst states—truly fake news could be deeply corrosive to our global governance system.

AI Reading Us

Second, AI is already connecting and converging with a range of other technologies—including biotech—with significant implications for global security. AI systems around the world are trained to predict various aspects of our daily lives by making sense of massive data sets, such as cities’ traffic patterns, financial markets, consumer behaviour trend data, health records and even our genomes.

These AI technologies are increasingly able to harness our behavioural and biological data in innovative and often manipulative ways, with implications for all of us. For example, the My Friend Cayla smart doll sends voice and emotion data of the children who play with it to the cloud, which led to a US Federal Trade Commission complaint and its ban in Germany. In the US, emotional analysis is already being used in the courtroom to detect remorse in deposition videos. It could soon be part of job interviews to assess candidates’ responses and their fitness for a job.

The ability of AI to intrude upon—and potentially control—private human behaviour has direct implications for the UN’s human rights agenda. New forms of social and bio-control could in fact require a reimagining of the framework currently in place to monitor and implement the Universal Declaration of Human Rights, and will certainly require the multilateral system to better anticipate and understand this quickly emerging field.

AI as a Conflict Theatre

Finally, the ability of AI-driven technologies to influence large populations is of such immediate and overriding value that it is almost certain to be the theatre for future conflicts. There is a very real prospect of a “cyber race” in which powerful nations and large technology platforms enter into open competition for our collective data as the fuel to generate economic, medical and security supremacy across the globe. Forms of “cyber-colonization” are increasingly likely, as powerful states are able to harness AI and biotech together to understand and potentially control other countries’ populations and ecosystems.

Towards Global Governance of AI

Politically, legally and ethically, our societies are not prepared for the deployment of AI. The UN, established many decades before the emergence of these technologies, is in many ways poorly placed to develop the kind of responsible governance that will channel AI’s potential away from these risks and towards our collective safety and wellbeing. In fact, the resurgence of nationalist agendas across the world may point to a dwindling capacity of the multilateral system to play a meaningful role in the global governance of AI. Major corporations and powerful member states may see little value in bringing multilateral approaches to bear on what they consider lucrative and proprietary technologies.

There are, however, some important ways in which the UN can help build the kind of collaborative, transparent networks that may begin to treat our “trust-deficit disorder.” The Secretary-General’s recently-launched High-Level Panel on Digital Cooperation, is already working to build a collaborative partnership with the private sector and establish a common approach to new technologies. Such an initiative could eventually find ways to reward cooperation over competition, and to put in place common commitments to using AI-driven technologies for the public good.

Perhaps the most important challenge for the UN in this context is one of relevance, of re-establishing a sense of trust in the multilateral system. But if the above trends tell us anything, it is that AI-driven technologies are an issue for every individual and every state, and that without collective, collaborative forms of governance, there is a real risk that it will be a force that undermines global stability.

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